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:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Section 240.14a-12

 

CELGENE CORPORATION

(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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CELGENE CORPORATION
86 Morris Avenue
Summit, New Jersey 07901

 

May 2, 2011

 

Dear Stockholder:

 

On behalf of the Board of Directors, you are cordially invited to attend the 2011 Annual Meeting of Stockholders, or the Annual Meeting, of Celgene Corporation. The Annual Meeting will be held on Wednesday, June 15, 2011, at 1:00 p.m. Eastern Time at the offices of Celgene Corporation, 86 Morris Avenue, Summit, New Jersey 07901. The formal Notice of Annual Meeting is set forth in the enclosed material.

 

The matters expected to be acted upon at the Annual Meeting are described in the attached Proxy Statement. During the Annual Meeting, stockholders will have the opportunity to ask questions and comment on our business operations.

 

We are pleased to once again this year offer our proxy materials over the Internet. We are mailing to our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of the notice of annual meeting, proxy statement and proxy card. The Notice of Internet Availability contains instructions on how to access those documents over the Internet and how each of our stockholders can receive a paper copy of our proxy materials. By furnishing proxy materials over the Internet, we believe we are lowering the costs and reducing the environmental impact of the Annual Meeting.

 

It is important that your views be represented. If you request a proxy card, please mark, sign and date the proxy card when received and return it promptly in the self-addressed, stamped envelope we will provide. No postage is required if this envelope is mailed in the United States. You also have the option of voting your proxy via the Internet at www.proxyvote.com or by calling toll free via a touch-tone phone at 1-800-690-6903. Proxies submitted by telephone or over the Internet must be received by 11:59 p.m. Eastern Time on June 14, 2011. Although we encourage you to complete and return a proxy prior to the Annual Meeting to ensure that your vote is counted, you can attend the Annual Meeting and cast your vote in person. If you vote by proxy and also attend the Annual Meeting, there is no need to vote again at the Annual Meeting unless you wish to change your vote.

 

We appreciate your investment in Celgene and urge you to cast your vote as soon as possible.

 

Sincerely,

 

Robert J. Hugin
Chief Executive Officer

TABLE OF CONTENTS

 

CELGENE CORPORATION
86 Morris Avenue
Summit, New Jersey 07901

 

 

 

 

The 2011 Annual Meeting of Stockholders of Celgene Corporation will be held at the offices of Celgene Corporation, 86 Morris Avenue, Summit, New Jersey 07901 on June 15, 2011, beginning at 1:00 p.m. Eastern Time for the following purposes:

 

 

1. to elect eight directors;

 

 

2. to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011;

 

 

3. to approve an amendment to our 2008 Stock Incentive Plan;

 

 

4. to hold an advisory vote on executive compensation;

 

 

5. to hold an advisory vote on the frequency of the advisory vote on executive compensation; and

 

 

6. to transact such other business as may properly come before the Annual Meeting and at any adjournment or postponement thereof.

 

The Board of Directors has fixed the close of business on April 19, 2011 as the record date for determining stockholders entitled to notice of and to vote at the Annual Meeting.

 

By order of the Board of Directors,

 

Robert J. Hugin
Chief Executive Officer

 

May 2, 2011

 

YOUR VOTE IS IMPORTANT

Please vote via the Internet or telephone.
Internet: www.proxyvote.com
Phone: 1-800-690-6903

 

 

 

If you request a proxy card, please mark, sign and date the proxy card when received and
return it promptly in the self-addressed, stamped envelope we will provide.

 

CELGENE CORPORATION
86 Morris Avenue
Summit, New Jersey 07901

 

 

 

 

 

 

 

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors for the annual meeting of stockholders (which we refer to as the Annual Meeting) of Celgene Corporation, a Delaware corporation (“Celgene,” the “Company,” “we,” “our” or “us”), to be held on June 15, 2011 at 1:00 p.m. Eastern Time at our main offices at 86 Morris Avenue, Summit, New Jersey 07901, and at any adjournment or postponement thereof. The proxy materials include this proxy statement, proxy card, notice of the Annual Meeting, and our Annual Report on Form 10-K for fiscal 2010. When we refer to our fiscal year, we mean the 12-month period ended December 31 of the stated year. The proxy materials were first sent or provided to stockholders on or about May 2, 2011. World Wide Web addresses contained in this proxy statement are for explanatory purposes only and they (and the content contained therein) do not form a part of and are not incorporated by reference into this proxy statement.

 

Electronic Notice and Mailing

 

Pursuant to the rules promulgated by the Securities and Exchange Commission, or the SEC, we are making our proxy materials available to you over the Internet. Accordingly, we will mail a notice of Internet availability of proxy materials (which we refer to as the Notice of Internet Availability) to all beneficial owners of our common stock, par value $0.01 per share, or Common Stock, on or about May 2, 2011. From the date of the mailing of the Notice of Internet Availability until the conclusion of the Annual Meeting, all beneficial owners will have the ability to access the proxy materials at www.proxyvote.com. All stockholders will have an opportunity to request paper or e-mail delivery of the proxy materials.

 

The Notice of Internet Availability will contain:

 

 

You may also request paper or e-mail delivery of the proxy materials on or before the date provided in the Notice of Internet Availability by calling 1-800-579-1639. We will fill your request within three business days. You will also have the option to establish delivery preferences that will be applicable for all future mailings. We encourage stockholders to take advantage of the availability of the proxy materials on the Internet to help reduce the environmental impact and costs of our annual meetings. If you choose to receive future proxy materials by e-mail, you will receive an e-mail message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.

 

Record Date and Voting Securities

 

Only stockholders of record at the close of business on April 19, 2011, the record date for the Annual Meeting, or the Record Date, will be entitled to notice of and to vote at the Annual Meeting. On the Record Date we had outstanding 462,786,729 shares of Common Stock, which are our only securities entitled to vote at the Annual Meeting, each share being entitled to one vote.

How to Vote

 

Stockholders of record (that is, stockholders who hold their shares in their own name) can vote any one of four ways:

 

(1) By Internet:  Go to the website www.proxyvote.com to vote via the Internet. You will need to follow the instructions on your proxy card and the website. If you vote via the Internet, you may incur telephone and Internet access charges.

 

(2) By Telephone:  Call the toll-free number 1-800-690-6903 to vote by telephone. You will need to follow the instructions on your proxy card and the recorded telephone instructions.

 

(3) By Mail:  If you prefer, you can contact us to obtain copies of the proxy materials, including a proxy card, by calling 1-800-579-1639, or by mail to: Celgene Corporation, 86 Morris Avenue, Summit, New Jersey 07901, Attention: Corporate Secretary. If you contact us to request a proxy card, please mark, sign and date the proxy card and return it promptly in the self-addressed, stamped envelope we will provide. If you sign and return your proxy card but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors.

 

(4) In Person:  You can attend the Annual Meeting, or send a personal representative with an appropriate proxy, to vote by ballot. Only record or beneficial owners of Common Stock or their proxies may attend the Annual Meeting in person. When you arrive at the Annual Meeting, you must present photo identification, such as a driver’s license. Beneficial owners also must provide evidence of stock ownership as of the Record Date, such as a brokerage account or custodial bank statement.

 

If you vote via the Internet or by telephone, your electronic vote authorizes the named proxies in the same manner as if you signed, dated and returned your proxy card. If you vote via the Internet or by telephone, do not mail a proxy card.

 

If your shares are held in the name of a bank, broker or other holder of record (that is, “street name”), you will receive instructions from the holder of record that you must follow in order for your shares to be voted. Internet and telephone voting also will be offered to stockholders owning shares through most banks and brokers.

 

Revocability of Proxies

 

Stockholders who mailed manually executed proxies may revoke them by giving written notice to our Corporate Secretary at any time before such proxies are voted. Attendance at the Annual Meeting shall not have the effect of revoking a proxy unless the stockholder so attending notifies in writing our Corporate Secretary at any time prior to the voting of the proxy at the Annual Meeting. Stockholders who voted via the Internet or by telephone may revoke an earlier vote via the Internet or by telephone by voting again on a later date via the Internet or by telephone, as applicable, and only the latest Internet or telephone vote submitted prior to the Annual Meeting will be counted.

 

Other Matters

 

The Board of Directors does not know of any matter that is expected to be presented for consideration at the Annual Meeting, other than the matters set forth on the proxy card. If other matters properly come before the Annual Meeting, the persons named in the accompanying proxy, to the extent they have discretionary authority, intend to vote thereon in accordance with their judgment.

 

Solicitation Expenses

 

We will bear the cost of the Annual Meeting and the cost of soliciting proxies on behalf of the Company, including the cost of mailing the proxy materials. In addition to solicitation by mail, our directors, officers and regular employees (who will not be specifically compensated for such services) may solicit proxies by telephone or otherwise. Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries to forward proxies and proxy materials to their principals, and we will reimburse them for their expenses. In addition, we have retained Broadridge Financial Solutions, or Broadridge, to assist in the mailing, collection and administration of proxies. Broadridge’s fee is estimated to be $20,000 plus reasonable out-of-pocket expenses.

Vote Required; Effect of Abstentions and Uninstructed Shares (Broker Non-Votes)

 

A majority of the outstanding shares of Common Stock entitled to vote on the Record Date, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting and any adjournment or postponement thereof. Abstentions and uninstructed shares will be counted as present or represented for purposes of establishing a quorum for the transaction of business.

 

If you are the beneficial owner of shares held of record by a broker or other custodian, you may instruct your broker or other custodian how you would like your shares voted through the voting instruction form included with this proxy statement. If you wish to vote the shares you own beneficially at the meeting, you must first request and obtain a “legal proxy” from your broker or other custodian. If you choose not to provide instructions or a legal proxy, your shares are referred to as “uninstructed shares.” Whether your broker or other custodian has the discretion to vote these shares on your behalf depends on the ballot item. Generally, brokers and other custodians are prohibited from voting without instruction from you on matters that are considered non-routine. The following table summarizes the vote threshold required for passage of each proposal and the effect of abstentions and uninstructed shares held of record by brokers and other custodians.

 

 

For purposes of the vote for the election of directors (Proposal 1) and the approval of the amendment to the 2008 Stock Incentive Plan (Proposal 3), the following will not count as votes cast: (a) ballots marked as withheld, (b) abstentions, and (c) shares as to which a stockholder gives no authority or direction.

 

Proposals 4 and 5 are advisory votes as to which we will take into account the views expressed by the votes cast. Abstentions and uninstructed shares will not count as votes cast on these proposals.

 

At the Annual Meeting, the persons named in the proxy card or, if applicable, their substitutes will vote your shares as you instruct. If you sign your proxy card and return it without indicating how you would like to vote your shares, your proxy will be voted as the Board of Directors recommends, which will be as follows:

 

MATTERS TO COME BEFORE THE ANNUAL MEETING

 

PROPOSAL ONE:

Election of Directors

 

Nominees

 

At the Annual Meeting, eight directors, who have been nominated by the Nominating and Governance Committee of the Board of Directors (referred to as the Nominating Committee), are to be elected, each to hold office (subject to our By-Laws) until the next annual meeting and until his or her successor has been elected and qualified. All of the nominees for director currently serve as directors and were elected by the stockholders at the 2010 Annual Meeting, except for Michael A. Friedman, M.D., who was elected as a director effective February 16, 2011. Sol J. Barer, Ph.D., who is serving as our non-executive Chairman of the Board, and Walter L. Robb, Ph.D., whose terms expire at the conclusion of the Annual Meeting, are not standing for re-election.

 

Each nominee has consented to being named as a nominee in this proxy statement and to serve if elected. If any nominee listed in the table below should become unavailable for any reason, which the Board of Directors does not anticipate, the proxy will be voted for any substitute nominee or nominees who may be selected by the Board of Directors prior to or at the Annual Meeting, or, if no substitute is selected by the Board of Directors prior to or at the Annual Meeting, for a motion to reduce the membership of the Board of Directors to the number of nominees available. Directors will be elected by an affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy. There are no family relationships between any of our directors and executive officers. The information concerning the nominees and their security holdings has been furnished by them to us.

 

Our directors are nominated by the Nominating Committee. As discussed elsewhere in this proxy statement, in evaluating director nominees, the Nominating Committee considers characteristics that include, among others, integrity, business experience, financial acumen, leadership abilities, familiarity with our businesses and businesses similar or analogous to ours, and the extent to which a candidate’s knowledge, skills, background and experience are already represented by other members of our Board of Directors. Listed below are our director nominees with their biographies. In addition, we have summarized for each director why such director has been chosen to serve on our Board of Directors.

 

 

 

 

Robert J. Hugin has served as our Chief Executive Officer since June 16, 2010 and President since May 1, 2006. He also served as our Chief Operating Officer from May 1, 2006 until June 16, 2010 and Senior Vice President and Chief Financial Officer from June 1999 until May 1, 2006. Mr. Hugin has served as one of our directors since December 2001. Previously, Mr. Hugin had been a Managing Director at J.P. Morgan & Co. Inc., which he joined in 1985. Mr. Hugin received an A.B. degree from Princeton University and an M.B.A. from the University of Virginia. Mr. Hugin is also a director of The Medicines Company, Atlantic Health System, Inc., a non-profit health care system, and Family Promise, a national non-profit network assisting homeless families.

 

Mr. Hugin brings to his role as a director his extensive executive and leadership experience at Celgene and in his former position as a Managing Director at J.P. Morgan & Co. Inc., as well as his leadership roles on the boards of a public company and a non-profit health care company. In particular, his experience as our Chief Operating Officer

and Chief Financial Officer and his current roles as our Chief Executive Officer and President enable him to provide leadership and unique insight on complex business and financial matters and guidance with respect to the strategic goals and operating framework of a high growth company such as ours. Additionally, Mr. Hugin is a past Chairman of the HealthCare Institute of New Jersey and serves as Treasurer and Board member of the Pharmaceutical Research and Manufacturers of America (PhRMA). In these roles, he has gained valuable knowledge of regulatory, legal and legislative issues affecting our industry.

 

Michael D. Casey has served as one of our directors since August 2002, is Chairman of the Nominating Committee and a member of the Executive Committee since December 2006 and the Management Compensation and Development Committee (referred to as the Compensation Committee) since April 2006 of our Board of Directors. He became our independent Lead Director in June 2007. Mr. Casey was a member of the Audit Committee from August 2002 through December 2006. From September 1997 to February 2002, Mr. Casey served as the Chairman, President, Chief Executive Officer and a director of Matrix Pharmaceutical, Inc. From November 1995 to September 1997, Mr. Casey was Executive Vice President at Schein Pharmaceutical, Inc. (or Schein Pharmaceutical). In December 1996, he was appointed President of the retail and specialty products division of Schein Pharmaceutical. From June 1993 to November 1995, he served as President and Chief Operating Officer of Genetic Therapy, Inc. Mr. Casey was President of McNeil Pharmaceutical (a unit of Johnson & Johnson) from 1989 to June 1993 and Vice President, Sales and Marketing for Ortho Pharmaceutical Corp. (a subsidiary of Johnson & Johnson) from 1985 to 1989. Mr. Casey is also a director of Durect Corp. and Abaxis, and served as director of Allos Therapeutics, Inc. through January 2010 and AVI BioPharma through June 2010.

 

Mr. Casey brings to his service as a director his significant experience and leadership as President, Chief Executive Officer and senior officer of several national pharmaceutical companies. In addition to those listed above, he has previously served as a director of several other pharmaceutical/biotech companies.

 

Carrie S. Cox has served as one of our directors since December 2009 and a member of the Audit Committee since March 2010. Ms. Cox currently serves as the Chief Executive Officer and a member of the board of directors of Humacyte, Inc. Ms. Cox served as Executive Vice President and President of Schering-Plough’s Global Pharmaceutical Business until November 3, 2009 when Schering-Plough merged with Merck & Co., Inc. Prior to joining Schering-Plough, Ms. Cox served as President of Pharmacia Corporation’s pharmaceutical business until its merger with Pfizer Inc. in 2003. Ms. Cox is a member of the Board of Directors of Texas Instruments and has served on their audit and compensation committees, and has recently been appointed to the Board of Directors of Cardinal Health, Inc. Ms. Cox is also a member of the Harvard School of Public Health’s Health Policy and Management Executive Council and a member of the Board of Overseers of the University of Pennsylvania Museum of Archaeology and Anthropology. Ms. Cox is a graduate of the Massachusetts College of Pharmacy.

 

Ms. Cox brings to her service as a director her distinguished career in global healthcare and her significant experience and leadership serving in executive positions of some of the largest and most successful multi-national healthcare companies in the world, including with responsibility for those companies’ financial performance and significant capital and research and development investments.

 

Rodman L. Drake has served as one of our directors since April 2006, is Chairman of the Compensation Committee since June 2007 and a member of the Nominating Committee since April 2006 — of our Board of Directors. Since January 2002, Mr. Drake has been Managing Director of Baringo Capital LLC, a private equity group he co-founded. From November 1997 to January 2002, Mr. Drake was president of Continuation Investments Group Inc., a private equity firm. Prior to that, Mr. Drake was co-chairman of the KMR Power Company and Chief Executive Officer and Managing Director of Cresap McCormick and Paget, a leading management consulting firm, and served as President of the Mandrake Group, a consulting firm specializing in strategy and organizational design. He is a member of the boards of directors of Jackson Hewitt Tax Service, Inc. and The Animal Medical Center of New York. He is the Chairman of the Helios Funds and the Columbia Atlantic Funds. From 2007 to 2009, Mr. Drake served as a member of the board of directors of Apex Silver Mines Limited and from 2006 to 2010 served as a member of the board of directors of Crystal River Capital, where he also served as Chairman, President and CEO from 2009 through 2010 (Crystal River Capital was a NYSE listed company which was sold in 2010).

Mr. Drake brings to his service as a director his breadth of experience in corporate governance, finance, strategy and organizational design as a senior executive of investment and management consulting firms, as well as his extensive experience as a member of various boards of directors.

 

Michael A. Friedman, M.D. has served as one of our directors since February 2011 and a member of the Nominating Committee since April 2011 of our Board of Directors. Dr. Friedman currently serves as President and Chief Executive Officer of City of Hope, a leading cancer research, treatment and education institution, as well as director of the organization’s Comprehensive Cancer Center and holder of the Irell & Manella Cancer Center Director’s Distinguished Chair. Before leading City of Hope, Dr. Friedman was senior vice president of research and development, medical and public policy for Pharmacia Corporation and Chief Medical Officer for biomedical preparedness at PhRMA. Additionally, Dr. Friedman previously served as deputy commissioner for the U.S. Food and Drug Administration (FDA), later serving as acting commissioner, and as Associate Director of the National Cancer Institute, National Institutes of Health. Since 2004, Dr. Friedman has served on the Independent Citizens’ Oversight Committee which governs the California Institute for Regenerative Medicine and oversees the implementation of California’s stem cell research effort. Dr. Friedman is a member of the board of directors of MannKind Corporation.

 

Dr. Friedman brings to his service as a director valuable scientific and operational expertise and leadership skills from his extensive background in cancer research and public health as a senior officer of a leading research institution, deputy and acting commissioner of the FDA, and as an executive officer of a major pharmaceutical company.

 

Gilla Kaplan, Ph.D. has served as one of our directors since April 1998 and a member of the Audit Committee of our Board of Directors. Dr. Kaplan is head of the Laboratory of Mycobacterial Immunity and Pathogenesis at The Public Health Research Institute Center at the University of Medicine and Dentistry of New Jersey in Newark, New Jersey, where she was appointed full Member in 2002 and Assistant Director in 2006. Dr. Kaplan also was appointed, in 2005, Professor of Medicine at the University of Medicine and Dentistry of New Jersey. Previously, Dr. Kaplan was an immunologist in the Laboratory at Cellular Physiology and Immunology at The Rockefeller University in New York where she was an Associate Professor.

 

Dr. Kaplan brings to her service as a director valuable scientific expertise and leadership skills from her distinguished career in medical research, including her current role as head of the Laboratory of Mycobacterial Immunity and Pathogenesis at The Public Health Research Institute Center and her past roles and experiences in the field of immunology.

 

James J. Loughlin has served as one of our directors since January 2007, is Chairman of the Audit Committee since June 2008 and a member of the Compensation Committee since June 2008 of our Board of Directors. Mr. Loughlin served as the National Director of the Pharmaceuticals Practice at KPMG LLP (or KPMG), including a five-year term as member of the Board of Directors of KPMG. Additionally, Mr. Loughlin served as Chairman of the Pension and Investment Committee of the KPMG Board from 1995 through 2001. He also served as Partner in charge of Human Resources, Chairman of the Personnel and Professional Development Committee, Secretary and Trustee of the Peat Marwick Foundation and a member of the Pension, Operating and Strategic Planning Committees. In addition, Mr. Loughlin served as a member of the Boards of Directors of Alfacell Corporation (until 2008) and Datascope Corp. (until January 2009).

 

Mr. Loughlin brings to his service as a director his valuable experiences as National Director of the Pharmaceuticals Practice at KPMG, his service as Chairman of the Pension and Investment Committee of the KPMG Board and his service on various other committees and foundations. In particular, through his professional association with KPMG, including a five-year term as member of the Board of Directors of KPMG, Mr. Loughlin brings to our Board of Directors an extensive background in accounting and financial reporting, qualifying him as an audit committee financial expert (as that term is defined pursuant to SEC regulations).

 

Ernest Mario, Ph.D. has served as one of our directors since August 2007 and is a member of the Nominating Committee since August 2007 and the Executive Committee since June 2008 of our Board of Directors. Dr. Mario is a former Deputy Chairman and Chief Executive of Glaxo Holdings plc and a former Chairman and Chief Executive Officer of ALZA Corporation. Dr. Mario has been a Director of Boston Scientific since October 2001 and currently

is the Lead Director of Pharmaceutical Product Development, Inc. From 2003 to 2007, he was Chairman and Chief Executive of Reliant Pharmaceuticals, Inc. Dr. Mario currently is the Chief Executive Officer and Chairman of Capnia, Inc., a privately held specialty pharmaceutical company in Palo Alto, CA. He is Chairman of the American Foundation for Pharmaceutical Education and serves as an advisor to the pharmacy schools at the University of Rhode Island and The Ernest Mario School of Pharmacy at Rutgers University. Dr. Mario is the recipient of the 2007 Remington Honor Medal, which is the highest recognition given by the American Pharmacists Association.

 

Dr. Mario brings to his service as a director his significant executive leadership experience, including his experience leading several pharmaceutical companies, as well as his membership on public company boards and foundations. He also has extensive experience in financial and operations management, risk oversight, and quality and business strategy.

 

RECOMMENDATION OF THE BOARD OF DIRECTORS

 

THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE UNDER PROPOSAL ONE

 

The table below sets forth the beneficial ownership of Common Stock as of April 19, 2011 by (i) each director, (ii) each Named Executive Officer (as defined below), (iii) all of our directors and Named Executive Officers as a group and (iv) all persons known by the Board of Directors to be beneficial owners of more than five percent of the outstanding shares of Common Stock. Shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of April 19, 2011 and RSUs that will vest within 60 days of April 19, 2011, are deemed outstanding for computing the ownership percentage of the stockholder holding such securities, but are not deemed outstanding for computing the ownership percentage of any other stockholder. Upon vesting, RSUs are included as Common Stock. As of April 19, 2011, there were 462,786,729 shares of Common Stock outstanding. Unless otherwise noted, the address of each stockholder listed in the table is Celgene Corporation, 86 Morris Avenue, Summit, New Jersey 07901.

 

 

 

 

 

No director will be deemed to be independent unless the Board of Directors affirmatively determines that the director has no material relationship with us, directly or as an officer, stockholder or partner of an organization that has such a relationship. The Board of Directors observes all criteria for independence established by the Nasdaq Stock Market, or Nasdaq, under its applicable Listing Rules. In its annual review of director independence, the Board of Directors has determined that all of our non-employee directors, constituting a majority of all of our directors, may be classified as “independent” within the meaning of Rule 5605(a)(2) of the Nasdaq Listing Rules. Executive sessions of our independent directors are convened in conjunction with each regularly scheduled Board of Directors meeting.

 

General

 

The Board of Directors held nine meetings during fiscal 2010. During fiscal 2010, each of the directors then in office attended more than 75% of the aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings of all committees of the Board on which such director served. Our policy is to encourage our Board members to attend all annual meetings and any special meeting of stockholders. All of our directors attended the 2010 Annual Meeting of stockholders.

 

We maintain the following committees of the Board of Directors: the Executive Committee, the Compensation Committee, the Nominating Committee and the Audit Committee. Except for the Executive Committee, each committee is comprised entirely of directors who may be classified as “independent” within the meaning of Rule 5605(a)(2) of the Nasdaq Listing Rules. Other than the Executive Committee, each committee acts pursuant to a separate written charter, and each such charter has been adopted and approved by the Board of Directors. A copy of the Amended and Restated Audit Committee Charter, the Compensation Committee Charter and the Nominating

Committee Charter, as well as our Corporate Governance Guidelines, are available on our website at www.celgene.com by choosing the “Investor Relations” link and clicking on the “Corporate Governance” section.

 

The Executive Committee

 

The Executive Committee’s current members are Sol J. Barer, Ph.D. (Chairman), Michael D. Casey and Ernest Mario, Ph.D. The Executive Committee held one meeting during fiscal 2010. The Executive Committee has and may exercise all of the powers and authority of our full Board of Directors, subject to certain exceptions.

 

The Compensation Committee

 

The Compensation Committee’s current members are Rodman L. Drake (Chairman), Michael D. Casey and James J. Loughlin. The Compensation Committee held eight formal meetings and a number of informal meetings during fiscal 2010. The Compensation Committee annually reviews the total compensation packages for all executive officers, including the Chief Executive Officer, considers modification of existing compensation and benefit programs and the adoption of new compensation and benefit plans, administers the plans and reviews the compensation of non-employee members of the Board of Directors. The Compensation Committee has (i) the full power and authority to interpret the provisions and supervise the administration of the Anthrogenesis Corporation Qualified Employee Incentive Stock Option Plan, the Signal Pharmaceuticals, Inc. 2000 Equity Incentive Plan, our 1992 Long-Term Incentive Plan, our 2008 Stock Incentive Plan and the Pharmion Corporation 2000 Stock Incentive Plan, (ii) the full power and authority to administer and interpret the Celgene Corporation 2005 Deferred Compensation Plan (the “Nonqualified Plan”) and (iii) the authority to review all matters relating to our personnel.

 

Compensation Committee Consultant

 

The Compensation Committee has retained Radford, an Aon Hewitt Company, which we refer to as “Radford,” as its outside compensation consultant since 2004. Radford was retained by the Compensation Committee as a result of a competitive bidding process conducted by the Compensation Committee. Management did not specifically recommend Radford. Radford regularly meets with the Compensation Committee and provides advice regarding the design and implementation of our executive compensation programs, as well as our director compensation programs. In particular, Radford:

 

 

In providing its services to the Compensation Committee, with the Compensation Committee’s knowledge, Radford may contact the Company’s management from time to time to obtain data and other information from the Company and to work together in the development of proposals and alternatives for the Compensation Committee to review and consider. In fiscal 2010, the cost of Radford’s executive compensation and director compensation consulting services was $235,598.

 

In addition, in fiscal 2010, (i) Aon Consulting, an affiliate of Radford, was retained by us to provide global employee benefits consulting services and (ii) Aon Risk Services, an affiliate of Radford, was retained by us for various insurance-related consulting services. In fiscal 2010, the aggregate cost of such other consulting services was $106,637. Our management recommended to the Compensation Committee that the Company continue to engage Radford for compensation survey data and ad hoc compensation consulting services beyond executive and board compensation work because management believes that Radford remains the leader in providing those services in the biotechnology and pharmaceutical industries.

 

The Compensation Committee regularly evaluates the nature and scope of the services provided by Radford. The Compensation Committee approved the fiscal 2010 executive and director compensation consulting services described above. Although the Compensation Committee was aware of the other services performed by Aon

Consulting and Aon Risk Services, the Compensation Committee did not review such other services as those services were reviewed and approved by management in the ordinary course of business.

 

In order to ensure that Radford is independent, Radford is only engaged by, takes direction from, and reports to, the Compensation Committee and, accordingly, only the Compensation Committee has the right to terminate or replace Radford at any time. Further, Radford maintains certain internal controls within Aon which include, among other things:

 

 

The Nominating Committee

 

The Nominating Committee’s current members are Michael D. Casey (Chairman), Rodman L. Drake, Ernest Mario, Ph.D. and Michael A. Friedman, M.D. The Nominating Committee held seven meetings in fiscal 2010. The Nominating Committee determines the criteria for nominating new directors, recommends to the Board of Directors candidates for nomination to the Board of Directors, oversees the evaluation of the Board of Directors, and develops and recommends to the Board of Directors appropriate corporate governance guidelines. The Nominating Committee’s process to identify and evaluate candidates for nomination to the Board of Directors includes consideration of candidates for nomination to the Board of Directors recommended by stockholders. Such stockholder recommendations must be delivered to our Corporate Secretary, together with the information required to be filed in a proxy statement with the SEC regarding director nominees, and each such nominee must consent to serve as a director if elected, no later than the deadline for submission of stockholder proposals as set forth in our By-Laws and under the section of this proxy statement entitled “Stockholder Nominations.” In considering and evaluating such stockholder proposals that have been properly submitted, the Nominating Committee will apply substantially the same criteria that the Nominating Committee believes must be met by a Nominating Committee-recommended nominee as described below. To date, we have not received any recommendation from stockholders requesting that the Nominating Committee consider a candidate for inclusion among the Nominating Committee’s slate of nominees in our proxy statement.

 

In evaluating director nominees, the Nominating Committee currently considers the following factors:

 

 

The Nominating Committee identifies nominees first by evaluating the current members of the Board of Directors willing to continue in service. If any member of the Board does not wish to continue in service or if the Nominating Committee or the Board of Directors decides not to re-nominate a member for re-election, the Nominating Committee will identify the required skills, background and experience of a new nominee, in tandem with prevailing business conditions, and will source relevant candidates and present to the Board of Directors suggestions as to individuals who meet the required criteria. The Nominating Committee utilizes the services of an outside search firm to assist it in finding appropriate nominees for the Board of Directors.

The Audit Committee

 

The Audit Committee’s current members are James J. Loughlin (Chairman), Walter L. Robb, Ph.D. (not standing for re-election at the Annual Meeting), Gilla Kaplan, Ph.D. and Carrie S. Cox. The Audit Committee held nine meetings in fiscal 2010. Each of Dr. Robb and Mr. Loughlin is an “audit committee financial expert” within the meaning of the rules of the SEC and, as such, Dr. Robb and Mr. Loughlin satisfy the requirements of Rule 5605(c)(2) of the Nasdaq Listing Rules. The Audit Committee oversees our financial reporting process on behalf of the Board of Directors. In fulfilling its responsibility, the Audit Committee appoints, subject to stockholder ratification, our independent registered public accounting firm. The Audit Committee also reviews our consolidated financial statements and the adequacy of our internal controls. The Audit Committee meets at least quarterly with our management and our independent registered public accounting firm to review and discuss the results of audits or reviews of our consolidated financial statements, the evaluation of the effectiveness of our internal controls over financial reporting and disclosure controls and procedures, the overall quality of our financial reporting and appropriate application of our critical accounting policies and to approve any related-person transactions (as defined herein). The Audit Committee’s responsibility is to monitor and oversee these processes, including the activities of the Internal Audit function. The Audit Committee meets separately, at least quarterly, with the independent registered public accounting firm. In addition, the Audit Committee oversees our existing procedures for the receipt, retention and handling of complaints related to auditing, accounting and internal control issues, including the confidential, anonymous submission by employees, vendors, customers or others of concerns on questionable accounting and auditing matters.

 

Review and Approval of Transactions with Related Persons

 

Except for a Services Agreement with Dr. Barer which is described under “Additional Information Regarding Executive Compensation — Agreements with our Named Executive Officers — Services Agreement with Dr. Barer,” since the beginning of fiscal 2010, we did not engage in any related person transaction, or series of similar transactions, which are required to be disclosed pursuant to Item 404 of Regulation S-K.

 

Related Person Transaction Policies and Procedures

 

At the beginning of each calendar year, each member of our Board of Directors and each executive officer is required to complete an extensive questionnaire that we utilize when preparing our annual proxy statement, as well as our Annual Report on Form 10-K. The purpose of the questionnaire is to obtain information from directors and executive officers to verify disclosures required to be made in these documents. Regarding related person transactions, it serves two purposes: first, to remind each executive officer and director of their obligation to disclose any related person transaction entered into between themselves (or family members or entities in which they hold an interest) and Celgene that in the aggregate exceeds $120,000 (“related person transaction”) that might arise in the upcoming year; and second, to ensure disclosure of any related person transaction that is currently proposed or that occurred since the beginning of the preceding year. When completing the questionnaire, each director and executive officer is required to report any such transaction.

 

Compensation Committee Interlocks and Insider Participation

 

Each member of the Compensation Committee is an independent director within the meaning of the Nasdaq Listing Rules. There was no interlock among any of the members of the Compensation Committee and any of our executive officers.

 

Code of Ethics

 

We have adopted a Financial Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer and other financial professionals. This Financial Code of Ethics is posted on our website at www.celgene.com by choosing the “Investor Relations” link and clicking on the “Corporate Governance” section. We intend to satisfy the disclosure requirements regarding any amendment to, or a waiver of, a provision of the Financial Code of Ethics by posting such information on our website. We undertake to provide to any person a copy of this Financial Code of Ethics upon request to our Corporate Secretary at our principal executive offices.

Stockholder Nominations

 

Our By-Laws provide that nominations for the election of directors may be made at an annual meeting: (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder who (i) is a stockholder of record on the date of the giving of the notice and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) complies with the notice procedures set forth below.

 

In addition to any other applicable requirement for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to our Corporate Secretary. To be timely, a stockholder’s notice to the Corporate Secretary must be delivered to or mailed and received at our principal executive offices not less than 60 days nor more than 90 days prior to the date of the annual meeting; provided that in the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder (in order to be timely) must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

 

To be in proper written form, a stockholder’s notice to the Corporate Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director: (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of our capital stock which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice: (i) the name and record address of such stockholder, (ii) the class or series and number of shares of our capital stock which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the persons named in his or her notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and serving as a director if elected.

 

Stockholder Communications

 

Our Board of Directors has determined that, to facilitate communications with the Board of Directors, or any individual member or any Committee of the Board of Directors, stockholders should direct all communication in writing to our Corporate Secretary at our principal executive offices. Our Corporate Secretary will forward all such correspondence to the Board of Directors, individual members of the Board of Directors or applicable chairpersons of any Committee of the Board of Directors, as appropriate.

 

Board Leadership Structure

 

In light of our recent change in executive leadership, the Board of Directors concluded that it is consistent with past practice and in the best interests of the Company and its stockholders to combine the positions of Chairman and Chief Executive Officer.

 

Accordingly, assuming that the director nominees are elected to the Board at the Annual Meeting, Mr. Hugin will hold the positions of both Chairman and Chief Executive Officer.

 

The independent directors believe that the Company’s current model of the combined Chairman/CEO role in conjunction with the independent Lead Director position is the appropriate leadership structure for the Company at this time. The independent directors believe that each of the possible leadership structures for a board has its particular pros and cons, which must be considered in the context of the specific circumstances, culture and challenges facing a company.

The independent directors believe that the combined Chairman/CEO model is a leadership model that has served our stockholders well in the past and will continue to do so in the future. Additionally, given the exceptional abilities and strengths of each of our Board members, the concentration of functions will continue to promote a culture of transparency and accountability that has guided, and will continue to guide, our successful performance.

 

Our leadership structure is periodically reviewed to ensure that it is appropriate for our Company given the facts and circumstances at the time of review. The independent directors believe that the combined Chairman/CEO position, together with the independent Lead Director, has certain advantages over other board leadership structures that continue to best meet the Company’s current needs, including:

 

 

As discussed elsewhere this proxy statement, the independent directors come from a variety of organizational backgrounds with significant experience with a wide range of leadership and management structures. The makeup of the Company’s Board puts it in a very strong position to evaluate the pros and cons of the various types of board leadership structures and to ultimately decide which one will work in the best interests of the Company’s stakeholders.

 

As Chief Executive Officer and President, Mr. Hugin is accountable directly to the full Board of Directors and has day-to-day responsibility for our business operations and for general oversight of our business and the various management teams that are responsible for our day-to-day operations.

 

We believe that the combined Chairman/CEO leadership structure is appropriate for our Company as it enhances our Company oversight by utilizing the corporate responsibilities of our Chief Executive Officer who has also served, in the past, as our Chief Financial Officer and Chief Operating Officer.

 

Independent Lead Director

 

In June 2007, Michael D. Casey was designated independent Lead Director. In accordance with the Company’s corporate governance guidelines, as adopted by the Board of Directors on December 16, 2010, the independent Lead Director provides guidance concerning the agenda for each Board meeting, presides over executive sessions of the independent directors that are held on a regular basis, communicates with the Chairman and Chief Executive Officer after each executive session of the independent directors to provide feedback and to effectuate the decisions and recommendations of the independent directors, and acts as an intermediary between the independent directors and management on a regular basis and when communication out of the ordinary course is appropriate.

 

Board of Directors Role in Risk Oversight

 

In connection with its oversight responsibilities, the Board of Directors, including the Audit Committee and Compensation Committee, periodically assesses the significant risks that we face. These risks include financial, technological, competitive, operational and compensation-related risks. The Board administers its risk oversight responsibilities through its Chief Executive Officer and its Chief Financial Officer, who, together with management representatives of the relevant functional areas (e.g. internal audit, legal, regulatory and compliance groups, operational management, human resources, etc.) and the relevant management representatives of each of our

operating subsidiaries, review and assess the operations of the businesses as well as operating management’s identification, assessment and mitigation of the material risks affecting our operations.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Pursuant to Section 16(a) of the Exchange Act, each of our directors, executive officers and any person beneficially owning more than 10 percent of Common Stock is required to report his, her or its ownership of Common Stock and any change in that ownership, on a timely basis, to the SEC. We believe that all applicable acquisitions and dispositions of Common Stock, including grants of options under our Directors’ Incentive Plan and the 2008 Stock Incentive Plan were filed on a timely basis for fiscal 2010, except the following Form 4 report which was inadvertently filed untimely: Form 4 report of Dr. Barer filed on January 7, 2011 with respect to accelerated vesting of restricted stock units as of December 31, 2010.

 

Our Compensation Discussion and Analysis provides an overview and analysis of our compensation programs, the compensation decisions we have made under those programs and the factors we considered in making those decisions. Elsewhere in this section, under the heading “Additional Information Regarding Executive Compensation,” we include a series of tables containing specific information about the compensation earned by the following individuals in fiscal 2010, whom we refer to as our Named Executive Officers:

 

 

This discussion is intended to help you understand the detailed information provided in the tables and to put that information into the context of our overall compensation program.

 

Executive Summary

 

General

 

Our overall compensation goal is to reward our executive officers in a manner that supports our strong pay-for-performance philosophy while maintaining an overall level of compensation that we believe is reasonable, responsible and competitive. We believe this is accomplished through the following principles and processes that we follow in establishing executive compensation:

 

1. Benchmarking.  Our benchmarking philosophy involves both internal and external benchmarking. We benchmark compensation internally to ensure that target compensation is established equitably and based on anticipated future contributions to the Company. In addition, we benchmark executive officer compensation annually against a set of peer group companies that the Compensation Committee reviews each year in order to ensure that our compensation programs are within the competitive range of comparative norms. Our peer group is selected on the basis of industry, stage of development, revenue, employee headcount, market capitalization, and complexity.

 

2. Target Compensation.  We strive to establish our target total direct compensation (i.e., base salary, annual short-term incentive bonus, long-term incentive bonus and equity awards) both according to potential value creation to the Company and at the 60th percentile of our peer group with the potential to achieve at or above the 75th percentile based upon delivery of corporate and individual performance objectives.

 

3. Performance-Based Compensation.   A significant portion of total direct compensation is in the form of variable performance-based cash and stock-based compensation linked directly to company performance and increasing stockholder value. Specifically, our long-term incentive plan, known as the LTIP, and equity incentive program focus on our long-term performance, and our short-term incentive program, known as our

MIP, focuses on our short-term performance. This structure ensures that there is an appropriate balance between our long- and short-term performance, as well as a balance between annual operating objectives and long-term delivery of stockholder return. Maintaining this pay mix results in a pay-for-performance orientation for our Named Executive Officers, which is aligned to our stated compensation philosophy of providing compensation commensurate with overall delivery of corporate performance. Our compensation programs are designed to deliver compensation that is commensurate with the level of performance achieved and is intended to ensure that the interests of our stockholders are reflected in our overall compensation philosophy. This philosophy is supported by delivering an average of 72% of total compensation through long-term incentives and 28% through base salary, short-term incentives and retirement benefits.

 

4. Risk Mitigation.  We have reviewed and considered whether our compensation programs and policies create risks that are reasonably likely to have a material adverse effect on the Company. In that regard, we design our programs in a balanced and diversified manner while also creating significant, yet appropriate, incentives to drive strong performance. As applied to our Named Executive Officers, each component of variable performance-based compensation, both short- and long-term, is subject to a cap. Our Named Executive Officers’ compensation is performance-based and designed to also focus on long-term growth. In addition, for Mr. Hugin, 50% of his fiscal 2011 annual earned incentive bonus will be credited and deferred to the Non-Qualified Plan. This ensures that the Named Executive Officers focus on the health of our business, the development of a sustainable product pipeline, and the delivery of key performance metrics that will deliver stockholder value over time. We also have stock ownership guidelines that encourage our Named Executive Officers to maintain a substantial ownership interest in the Company, further aligning their interests to those of our stockholders while mitigating the chance of excessive risk-taking. The Compensation Committee has concluded that the current compensation programs present no risk that is reasonably likely to have a material adverse effect on the Company.

 

5. Employee Benefits. We do not offer guaranteed retirement, pension benefits or other significant perquisite benefits. Instead, we provide our Named Executive Officers with the opportunity to accumulate retirement income through equity awards, the deferral of current compensation into our Nonqualified Plan and participation in our 401(k) Plan (other than with respect to Mr. Brouwer who participates in a pension plan maintained pursuant to the mandatory requirements of Swiss law).

 

2010 Highlights

 

Our fiscal 2010 corporate performance remained strong despite a very challenging external environment and challenges within the healthcare industry.

 

Specifically, we achieved the following results for fiscal 2010:

 

1. Total Revenue.  Non-GAAP total revenue increased approximately 34% to $3.601 billion; GAAP total revenue increased 35% to $3.626 billion.

 

2. Revenue by Product.   REVLIMID^® net product sales increased approximately 45% to $2.469 billion; THALOMID^® (inclusive of Thalidomide Celgene^tm and Thalidomide Pharmion^tm) net product sales decreased approximately 11% to approximately $390 million; and VIDAZA^® net product sales increased by 38% to approximately $534 million.

 

3. Net Income.  Non-GAAP net income increased 35% to $1.310 billion; GAAP net income increased 13% to $880.2 million.

 

4. EPS.  Non-GAAP diluted earnings per share increased 34% to $2.79; GAAP diluted earnings per share increased 13% to $1.88.

 

On the basis of these performance factors and other corporate and individual performance assessments made by our Compensation Committee, the actual bonus amounts awarded to our Named Executive Officers for fiscal 2010 ranged from 100% to 142.75% of target.

 

Non-GAAP financial measures are utilized as core metrics in setting performance goals for our Named Executive Officers as we believe that they provide investors and management with supplemental measures of

operating performance and trends that facilitate comparisons between periods before, during and after certain items that would not otherwise be apparent on a GAAP basis. See “2010 Executive Compensation Components — Cash Bonus/Performance-Based Incentive Compensation — Management Incentive Plan — Fiscal 2010 MIP” for more information regarding non-GAAP financial measures. Reconciliation of non-GAAP financial measures to the nearest corresponding GAAP financial measure appears in Appendix A attached to this proxy statement.

 

The Compensation Committee provided initial guidance that any payments made to Mr. Hugin and Ms. Fouse under the LTIP for the 2011 — 2013 period will be made in shares of our Common Stock, however, the plan provides discretion to decide the method of plan settlement at the time of payment. In addition, shares issued to Mr. Hugin and Ms. Fouse under the LTIP plan will have a mandatory three-year hold after the completion of the Plan Cycle. These changes were made to align compensation with long-term company performance and to align executive equity holdings with long-term performance of Celgene stock. Details on calculations for 2011 — 2013 LTIP are discussed under the heading “2010 Executive Compensation Components — Cash Bonus/Performance-Based Incentive Compensation — Long-Term Incentive Plan — LTIP Performance Measures.” In addition, during fiscal 2010, we successfully completed Mr. Hugin’s succession of Dr. Barer as our Chief Executive Officer. Consistent with our benchmarking process, we have increased the level of compensation payable to Mr. Hugin in connection with his promotion from Chief Operating Officer to Chief Executive Officer.

 

Compensation Philosophy

 

Our overall executive compensation philosophy is set by the Compensation Committee and links executive pay primarily to the achievement of short- and long-term financial and strategic corporate performance objectives that are directly related to the achievement of our long-term strategic business plan. Within our philosophy, we seek to remain closely aligned with the interests of our stockholders, ensure internal equity and to remain competitive with our peer companies as described below.

 

Our executive compensation arrangements, which represent a portion of our corporate-wide total rewards program covering all employees including our Named Executive Officers, are designed to:

 

 

As described below, the components of our executive compensation program are base salary, an annual short-term incentive component linked to annual (short-term) performance targets (both financial and strategic), a long-term incentive component linked to key three-year performance targets (financial only) and an equity component that aligns our Named Executive Officers’ interests with those of our stockholders. In addition, certain eligible Named Executive Officers received Company matching contributions under our 401(k) Plan (other than Mr. Brouwer who received Company matching contributions under a pension plan maintained pursuant to the mandatory requirements of Swiss law). Our current and former Chief Executive Officers also received matching contributions on their base salary compensation they deferred under our Nonqualified Plan.

 

Our long-term performance program is directly linked to our long-term strategic plan and is designed to focus our Named Executive Officers on key financial metrics that drive long-term stockholder growth. We deliver compensation only if those financial metrics are met. Corporate and individual performance and compensation levels are evaluated and approved by the Compensation Committee annually to ensure that we maintain a focus on delivering results and stockholder value. In fiscal 2010, the equity compensation provided to our Named Executive Officers included a mix of stock options that are subject to service-based vesting over the first four years, i.e., 25% on each anniversary, and RSUs that are subject to a three-year, service-based cliff vesting schedule. Both the stock options and RSUs are subject to accelerated vesting in certain limited circumstances. In addition, certain of our

Named Executive Officers received additional equity compensation in connection with a change in their position or as an inducement grant to join the Company and to make up for equity awards forfeited from a prior employer.

 

As further described below, our compensation decisions with respect to the components of executive compensation provided to our Named Executive Officers (including base salary, short-term incentives and long-term incentives such as stock options and RSUs) are influenced by:

 

 

Overview of Compensation Committee

 

The Compensation Committee is responsible for, among other things, overseeing our executive compensation and benefit programs, establishing the base salary, incentive compensation, equity awards and any other compensation for Named Executive Officers, including reviewing and approving the Chief Executive Officer’s recommendations for the compensation of certain Named Executive Officers reporting to him. In addition, the Compensation Committee in conjunction with the Board reviews and approves the Chief Executive Officer’s performance and compensation levels. The Compensation Committee also ensures that the total compensation paid to our Named Executive Officers is reasonable, competitive and consistent with market practice and the goal of delivering results to our stockholders.

 

Role of the CEO.  The Compensation Committee relies on the judgment of the Chief Executive Officer regarding setting performance objectives for the Named Executive Officers and other leadership positions reporting to him. The Chief Executive Officer also evaluates the actual performance of each of these positions against those objectives through the performance review process and recommends appropriate salary and incentive awards through the compensation review process. The Chief Executive Officer participates in Compensation Committee meetings at the request of the Compensation Committee, and provides relevant assessment and explanation supporting his recommendations. Other members of our management, as well as certain advisors, including an outside compensation consultant, attend many Compensation Committee meetings at the request of the Compensation Committee.

 

Role of the Compensation Consultant.  The Compensation Committee engages an outside compensation consultant, Radford, to provide advice regarding our executive compensation programs, which includes, among other things: (i) reviewing and making recommendations concerning our executive compensation program; (ii) providing market data and performing benchmarking; and (iii) advising the Compensation Committee as to best practices. For more information about the Compensation Committee’s engagement of Radford, please see the section above entitled “Board Meetings; Committees and Membership — Compensation Committee Consultant.”

 

Overview of Compensation Programs

 

Our short- and long-term executive compensation programs incorporate a pay-for-performance approach that is designed to align the interests of our Named Executive Officers to those of our stockholders. Other than our base salary program, all of our executive cash and stock compensation programs for fiscal 2010 were directly dependent upon the achievement of our performance goals, whether financial, strategic, or both.

 

The compensation packages provided to our Named Executive Officers include:

 

 

CEO — Robert J. Hugin

 

 

Other Named Executive Officers*

 

 

 

 

Determination of Appropriate Pay Levels (Competitive Positioning)

 

Benchmarking

 

To establish appropriate pay levels for our Named Executive Officers, we utilize market-based benchmarking. Benchmarking entails comparing compensation paid to key executives at companies that have profiles similar to ours to help establish our own compensation levels. Market information regarding pay practices at other companies is compiled, reviewed and considered in assessing the reasonableness and competitiveness of the compensation we award to our Named Executive Officers for their contributions.

 

With the assistance of Radford, we analyze competitive market data each year. Data sources include public company proxy statements and third-party industry compensation surveys. The benchmarking information we obtain is used to determine our competitive position among similarly situated companies in the marketplace and to set our targeted pay at a competitive range relative to our peers.

 

Radford recommended, and the Compensation Committee approved, a comparison group of companies that we believe best represents the companies in our industry that compete with us for executive talent and criteria as described earlier that create a relevant comparator group. Our initial peer group for fiscal 2010, which was approved by the Compensation Committee in October 2009, was selected on the basis of employee headcount, industry, revenue, stage of development, complexity, and market capitalization, included the following 11 companies (the

“Initial Peer Group”): Allergan, Amgen, Amylin Pharmaceuticals, Biogen Idec, Cephalon, Forest Laboratories, Genzyme, Gilead Sciences, OSI Pharmaceuticals, Sepracor, and Vertex Pharma.

 

In Radford’s January 2010 report, the Initial Peer Group was used in the evaluation of fiscal 2009 cash and equity compensation for the Chief Executive Officer and the other Named Executive Officers (other than Ms. Fouse who was hired subsequent to the report), relying on 2009 public filings for specific peers. In addition, the Compensation Committee also considered information in the following surveys: 2009 Radford Global Life Sciences Survey (which includes biotechnology/pharmaceutical companies with more than 1,000 employees), 2009 Towers Watson U.S. CBD Pharmaceutical Executive Database (which includes pharmaceutical companies with annual revenue levels of less than $5 billion), and 2009 SIRS Executive Compensation Survey (which includes specific pharmaceutical companies with revenue levels generally greater than $1 billion).

 

Based upon Radford’s recommendations, the Compensation Committee approved revisions to our Initial Peer Group at its October 12, 2010 meeting. The following four companies were removed from the Initial Peer Group: Amylin Pharmaceuticals and Vertex Pharma (due to their lower revenues levels as compared to our revenue levels); OSI Pharmaceuticals (due to its acquisition by Astellas Pharma); and Sepracor (due to its acquisition by Dainippon Sumitomo Pharma). The following three companies were added based on our increasing level of revenue: Baxter International, Bristol-Myers Squibb, and Eli Lilly and Company. Although our revenue is currently on the low end when compared to these new companies, we believe that the revised peer group will provide sufficient room for us to grow within the peer group and minimize dramatic changes to our peer group in the future. We refer to the revised peer group as the “Current Peer Group.”

 

In December 2010, the Current Peer Group was used by Radford in the evaluation of fiscal 2010 cash and equity compensation for the Chief Executive Officer and the other Named Executive Officers (other than Dr. Barer and Mr. Brouwer, each of whom retired on December 31, 2010, and Mr. Gryska, who ceased to be an executive officer during 2010), relying on 2010 public filings for specific peers. In addition, the Compensation Committee also considered information in the following surveys: 2010 Radford Global Life Sciences Survey, 2010 Towers Watson U.S. CBD Pharmaceutical Executive Compensation Database, and 2010 SIRS Executive Compensation Survey. Consistent with our analysis since fiscal 2008, we continue to place greater emphasis on pharmaceutical industry surveys rather than biotechnology industry surveys, which better reflect our evolving profile.

 

Fiscal 2010 Benchmarking and Adjustments

 

General

 

Based on Radford’s analysis of the Initial Peer Group completed in January 2010, the compensation levels of the Named Executive Officers relative to those of the executives of each of the companies in the Initial Peer Group were as follows:

 

 

Excluded from the peer group analysis was Mr. Brouwer due to his transition to Chairman, International and his anticipated retirement at the end of fiscal 2010, and Ms. Fouse who was hired subsequent to the peer group analysis.

 

Based on Radford’s analysis of the Initial Peer Group completed in January 2010, the base salary, short-term incentive opportunity (which is target bonus), target total cash (which includes base salary and target bonus) and long-term incentive compensation of the Named Executive Officers referenced in the chart above generally approximated the market 60th percentile, which is consistent with our stated philosophy. The exception was Mr. Hugin, whose target total cash and long-term incentive compensation exceeded the market 75th percentile.

While Mr. Hugin’s base salary was competitive with the 75th percentile, his short-term incentive opportunity approximated the market 60th percentile.

 

On February 4, 2010, the Compensation Committee established a merit/performance adjustment pool of 3.5% based on the base salaries of all of the Named Executive Officers, which was consistent with our broad-based employee pool and pursuant to which the base salaries of certain Named Executive Officers were adjusted as discussed below. The effective date of the base salary increases for Dr. Barer and Mr. Hugin was May 1, 2010, commensurate with the timing of their employment contracts. The effective date of the base salary increase for all other Named Executive Officers was March 1, 2010, which is consistent with our broad-based employee population. The Compensation Committee did not adjust the target bonuses under the MIP for such Named Executive Officers since the target bonuses generally approximated the market 60th percentile.

 

In addition, in December 2009, Radford also recommended, and the Compensation Committee approved, adjusting the annual equity awards for such Named Executive Officers to be divided between stock options and RSUs on a two-thirds to one-third basis using a three-to-one ratio of stock options to RSUs in calculating the number of RSUs. The use of RSUs as part of the annual equity incentive program for Named Executive Officers provides a competitive profile within our peer group. Supplementing our stock option grants with RSUs enabled us to use fewer shares while continuing to provide a long-term incentive award that serves as an effective retention tool. Because some of our stock option awards currently are underwater, the retention value, as well as the incentive value, of the RSU awards is significant.

 

CEO Transition

 

Effective immediately after our Annual Meeting on June 16, 2010, Dr. Barer retired as Chief Executive Officer and Mr. Hugin become our new Chief Executive Officer. The Compensation Committee retained Radford to advise it concerning reasonable and appropriate compensation arrangements and competitive market practices in the industry with respect to transitions to executive and non-executive chairmen of boards of directors and internal promotions to chief executive officer. The Compensation Committee, with the assistance of Radford, also reviewed and evaluated compensation of comparable chief executive officers in the biotechnology and pharmaceutical industries and determined that Mr. Hugin’s compensation should be adjusted in connection with his promotion to Chief Executive Officer to reflect a compensation package that is competitive with the market. Accordingly, effective June 16, 2010, Mr. Hugin’s compensation was increased as follows:

 

 

In addition, the Compensation Committee also granted Mr. Hugin additional stock options to purchase 39,000 shares of Common Stock which was allocated over the remaining quarterly grants commencing on June 16, 2010, and 6,500 RSUs which were granted to him on June 16, 2010.

 

Appointment of New CFO

 

Effective September 27, 2010, Ms. Fouse joined the Company as our Senior Vice President and Chief Financial Officer. In setting Ms. Fouse’s compensation, the Compensation Committee, with the assistance of Radford, reviewed and evaluated competitive chief financial officer compensation levels and analyzed and evaluated the equity and retirement benefits that Ms. Fouse would forfeit from her prior employer if she joined the Company. Based on the foregoing, the Compensation Committee approved the following compensation for Ms. Fouse:

 

 

 

The contribution to the Nonqualified Plan and a portion of the one-time equity grants were made to compensate Ms. Fouse for certain retirement benefits and equity awards forfeited from her prior employer.

 

Departure of CFO

 

On August 23, 2010, Mr. Gryska resigned as Chief Financial Officer effective as of September 27, 2010 and as Senior Vice President effective as of November 1, 2010. In connection with his resignation and in consideration of his remaining with the Company following his resignation to provide transition services, on August 23, 2010, we entered into a separation agreement with Mr. Gryska that provided him with the following severance benefits:

 

 

Pay Mix

 

For our Named Executive Officers, the mix of compensation generally is weighted toward at-risk pay (short- and long-term incentives). Maintaining this pay mix results in a pay-for-performance orientation for our Named Executive Officers that is aligned to our stated compensation philosophy of providing compensation commensurate with overall delivery of corporate performance. This philosophy is supported by delivering an average of 72% of total compensation through long-term incentives and 28% through base salary, short-term incentives and retirement benefits. The pie charts under the section entitled “Overview of Compensation Program” detail the components of the Named Executive Officers’ total compensation and highlight the focus on “at risk” pay in our executive compensation programs.

 

Pay-for-Performance

 

Our compensation programs are designed to deliver compensation that is commensurate with the level of performance achieved and are intended to ensure that the interests of our stockholders are reflected in our overall compensation philosophy. The Compensation Committee considers the following factors in determining the level of compensation awarded to each Named Executive Officer:

 

 

Timing of Compensation

 

As discussed elsewhere, compensation for our Named Executive Officers, including base salary adjustments, incentive plan eligibility, incentive plan goal specifications and incentive plan payments, is established annually (usually in the first quarter) and is reviewed periodically throughout the year. Awards of options to purchase shares of our Common Stock are currently granted under our 2008 Stock Incentive Plan on a quarterly basis. RSUs currently are granted under our 2008 Stock Incentive Plan on an annual basis and are subject to a three-year, service-based cliff vesting schedule to certain employees, including our Named Executive Officers. Unlike other participants granted awards under our 2008 Stock Incentive Plan, the Named Executive Officers are not given the choice whether to elect stock options or RSUs; rather, the mix is mandatory. To derive the number of RSUs granted, the target number of stock options is divided between stock options and RSUs on a two-thirds to one-third basis using a three-to-one ratio of stock options to RSUs in calculating the number of RSUs. The actual grant of stock options and RSUs is based on the Company’s and the individual’s performance during the prior year. All stock option and RSU grant dates are approved by the Compensation Committee for the Named Executive Officers in December of the year preceding the year the grants are awarded; grant dates are scheduled in advance without regard to any anticipated earnings or other major announcement by the Company. These dates are set forth for fiscal 2010 in the Grants of Plan-Based Awards Table. The exercise price of each stock option granted under our 2008 Stock Incentive Plan is the closing price of our Common Stock on the date of the quarterly grant.

 

Our matching contributions under our 401(k) Plan and Nonqualified Plan are pre-established, as further discussed under the headings “2010 Executive Compensation Components — Matching Contributions” and “2010 Executive Compensation Components — Employer Contributions to the Nonqualified Deferred Compensation Plan.” Matching contributions under the 401(k) Plan are usually granted in the first quarter of each year for services rendered in the preceding year. Matching contributions under the Nonqualified Plan are made semi-monthly throughout the plan year.

 

Stock Ownership Requirements

 

In fiscal 2009, we implemented minimum stock ownership guidelines to be achieved within the later of the five-year period of our adoption of the guidelines and five years from the date such individual becomes a named executive officer. In December 2010, in connection with his promotion to Chief Executive Officer and President, the target stock holdings for Mr. Hugin was increased from three times base salary to six times annual base salary. In addition, the guidelines provide for target stockholdings in an amount equal to three times base salary and one time base salary for Ms. Fouse and Dr. Burton, respectively. Such guidelines will be deemed satisfied if the Named Executive Officer holds, by the end of the applicable five-year period, at least that number of shares of our Common Stock equal to the value of the target amount divided by our stock price on the date the Named Executive Officer becomes subject to the guidelines, and in the case of Mr. Hugin, December 15, 2010. In determining whether a Named Executive Officer meets the guidelines, we consider owned shares, vested restricted or deferred stock units and vested shares held in the Named Executive Officer’s 401(k) plan account, but we do not consider stock options. Although not yet required, Mr. Hugin and Dr. Burton currently meet such stock ownership guidelines.

 

In addition, we maintain a comprehensive securities trading policy which provides, among other things, that our employees who obtain material, non-public information regarding the Company may not: disclose or trade on such information, transact in derivative securities of the Company without prior written consent of the Chief Executive Officer, short sell Company securities, buy or sell Company securities during any blackout period, or hold Company stock in a margin account or pledge Company stock as collateral for a loan without consulting the Treasurer or the Chief Financial Officer of the Company. Individuals classified as “insiders” (which include the Named Executive Officers) and their family members generally may not buy or sell Company securities without prior approval, except under approved Rule 10b5-1 trading plans. To our knowledge, our Named Executive Officers comply with the policy, and none of our Named Executive Officers currently holds our securities in a margin account or has used our securities as collateral for a loan.

 

2010 Executive Compensation Components

 

Set forth below are the principal components of fiscal 2010 compensation for our Named Executive Officers.

Base Salary

 

Salaries are intended to be competitive relative to the biotechnology and pharmaceutical industries in which we compete for our highly skilled talent. Requisite breadth and depth of experience and are considered when setting salary ranges for each position. Annual reviews are held and adjustments are made based on attainment of performance goals and market-wide changes in salaries for comparable positions and qualifications.

 

During the review of fiscal 2010 base salaries for Dr. Barer, Messrs. Hugin and Gryska, and Dr. Burton, the following factors were considered by the Compensation Committee:

 

 

We entered into employment contracts with each of Dr. Barer and Mr. Hugin, effective May 1, 2006, which were further amended to comply with the deferred compensation rules under Section 409A of the Internal Revenue Code of 1986, as amended, or the Code, effective on December 31, 2008. Effective on June 16, 2010, Dr. Barer’s employment agreement was further amended to reflect his transition from Chief Executive Officer to Executive Chairman of the Board of Directors, and Mr. Hugin’s employment agreement was further amended to reflect his appointment as our new Chief Executive Officer. We have entered into a Services Agreement with Dr. Barer, effective January 1, 2011, pursuant to which Dr. Barer serves as non-executive Chairman of the Board of Directors until immediately after the Annual Meeting and as a consultant from January 1, 2011 until December 31, 2012. We also entered into a letter agreement with Dr. Burton effective June 2, 2003, as amended on April 2, 2008, an employment agreement with Mr. Brouwer effective November 1, 2008, as amended effective January 1, 2009, a letter agreement with Mr. Gryska effective December 6, 2006, as amended April 2, 2008, and a letter agreement with Ms. Fouse dated August 18, 2010. These employment and letter agreements specify an annual base salary for each of the Named Executive Officers. In addition, on August 23, 2010, we entered into a separation agreement with Mr. Gryska providing for the terms of his separation from the Company. Other than with respect to Dr. Barer and Mr. Hugin, none of our Named Executive Officers is entitled to a golden parachute (Code Section 280G) excise tax gross-up. Although Dr. Barer and Mr. Hugin are entitled to a “modified” tax gross-up (i.e., only if amounts paid in connection with a change in control is in excess of 105% of the greater amount that could be paid without triggering the excise tax), neither would have received an excise tax gross-up had a change in control occurred on December 31, 2010. If Ms. Fouse becomes entitled to any amounts subject to the excise tax under Code Section 280G, such amounts will be reduced to the extent necessary to avoid such excise tax if such reduction would result in a greater payment amount to Ms. Fouse. We discuss the terms and conditions of these agreements elsewhere in this proxy statement under the heading “Additional Information Regarding Executive Compensation — Agreements with our Named Executive Officers.”

 

On February 4, 2010, the Compensation Committee established a merit/performance adjustment pool of 3.5% based on the base salaries of all of the Named Executive Officers, which was consistent with our broad-based employee pool. The base salaries of the Named Executive Officers were increased as follows:

 

 

The Compensation Committee determined that these changes were appropriate in light of our strong performance and the relevant market data. No adjustments were made to Mr. Brouwer’s base salary of 500,000 Swiss francs (or $480,000 based on the 2010 average exchange rate of approximately 1.04 Swiss francs per U.S. dollar) due to his transition to Chairman International and anticipated retirement at the end of fiscal 2010.

As discussed above, in connection with his becoming our Chief Executive Officer, effective June 16, 2010, Mr. Hugin’s annual base salary was increased to $975,000. In December 2010, Radford determined that Mr. Hugin’s base salary was below the stated benchmark of the 60th percentile of chief executive officers in our peer group. Based on such determination and Radford’s recommendation, the Compensation Committee approved an increase of Mr. Hugin’s base salary to $1,075,000 effective as of May 1, 2011.

 

Effective September 27, 2010, the start date of her employment with the Company, Ms. Fouse’s annual base salary is $700,000.

 

Cash Bonus/Performance-Based Incentive Compensation

 

General

 

In addition to base salaries, the total cash compensation for our Named Executive Officers in fiscal 2010 included an annual bonus payable under our MIP and our LTIP.

 

Under the MIP, each of Dr. Barer, Mr. Hugin, Ms. Fouse, Mr. Gryska, and Dr. Burton were eligible to receive an annual target incentive bonus for fiscal 2010 of 120%, 120%, 65%, 60% and 55% of base salary, respectively. Mr. Hugin, Ms. Fouse, and Dr. Burton are eligible to receive an annual target incentive bonus for fiscal 2011 of 125%, 65% and 55% of base salary, respectively. All of the foregoing targets were approved by the Compensation Committee. In addition, for Mr. Hugin, 50% of his 2011 annual earned incentive bonus will be credited and deferred to the Non-Qualified Plan. The annual target incentive bonus for Mr. Brouwer was 200,000 Swiss francs (or $192,000 based on the 2010 average exchange rate of 1.04 Swiss francs per U.S. dollar) for fiscal 2010.

 

Under the LTIP, each of Dr. Barer, Messrs. Hugin and Brouwer, and Dr. Burton were eligible to receive an award for the 2008 — 2010 performance cycle. Mr. Hugin and Dr. Burton are also eligible to receive an award for each of the three separate three-year performance cycles that have not been completed (i.e., 2009 — 2011, 2010 — 2012 and 2011 — 2013). Dr. Barer is eligible to receive an award for the 2009 — 2011 and 2010 — 2012 performance cycles; however, due to his transition, his LTIP awards for such performance cycles will be prorated based on the number of days Dr. Barer was employed during the performance cycle and actual achievement of the performance targets. Dr. Barer is not a participant in the LTIP for the 2011 — 2013 performance cycle. Ms. Fouse is eligible to receive an award for the 2011 — 2013 performance cycle. Due to his separation from the Company, Mr. Gryska was not eligible to receive an award for the 2008 — 2010 performance cycle nor is he entitled to receive any award under any other LTIP in which he participated prior to his separation. These targets are expressed as a percentage of the Named Executive Officer’s annual base salary at the time the LTIP was approved by the Compensation Committee, and are as follows:

 

 

 

 

Differences among the targets reflect plan design, each of the Named Executive Officer’s organizational impact and responsibility and are consistent with our benchmarking process and analysis described above. The maximum payout under the LTIP ranges from 100% to 200% of annual base salary at the time of plan approval and the minimum payout is zero.

Management Incentive Plan

 

The MIP is designed to provide variable short-term cash compensation to our Named Executive Officers and certain other employees upon attainment of annual corporate, divisional, functional and individual goals. Each Named Executive Officer’s goals are set annually by the Compensation Committee and are based upon our business plan for that year. Awards granted under the MIP may be higher or lower than the executive officer’s annual bonus target for each year and are based on achievement of corporate objectives and achievement of individual performance objectives. For all Named Executive Officers other than Dr. Barer and Mr. Hugin, the maximum total bonus payout under the MIP for 2010 was 200% of the annual bonus target and the minimum total bonus payout was zero. For Dr. Barer and Mr. Hugin the maximum total bonus payout under the MIP for 2010 was 200% of their annual earned base salaries.

 

Awards generally are payable on the last payroll payment date in February. If a Named Executive Officer retires, has any extended period of absence (such as sick leave or personal leave) or dies, the MIP award will be pro-rated based on the Named Executive Officer’s earned annual base salary.

 

Fiscal 2010 MIP

 

For fiscal 2010, Dr. Barer, Mr. Hugin and Ms. Fouse received cash bonus payments entirely determined by the achievement of corporate goals. Due to his transition into an advisory role in anticipation of his retirement, Mr. Brouwer received a cash bonus determined 100% on the achievement of individual goals, as evaluated by the Compensation Committee in its sole discretion. Dr. Burton received a cash bonus payment determined 80% on the achievement of corporate goals and 20% on the achievement of individual goals, as evaluated by the Compensation Committee in its sole discretion.

 

For fiscal 2010, Ms. Fouse’s MIP was calculated as the sum of: (i) a target bonus of 65% of the actual base salary she earned from September 27, 2010 through December 31, 2010, weighted based on the Company’s achievement of the performance goals under the MIP for full fiscal 2010, plus (ii) 65% of $700,000 minus the actual base salary she earned from September 27, 2010 through December 31, 2010.

 

For fiscal 2010, as a result of our significant growth and achievements in the past year, the Compensation Committee determined that the corporate performance measures under the MIP were satisfied at 142.75% of target. The corporate performance measures for fiscal 2010 were based on the following components, which were weighted as follows:

 

56% Financial Objectives

 

 

44% Non-Financial Objectives (Selected Strategic Corporate Objectives)

 

 

We have not disclosed all of the non-financial performance targets for the fiscal 2010 MIP performance period because we believe that disclosing certain non-financial performance targets for the plan will result in competitive harm to us. Such information represents confidential business information that could place us at a competitive disadvantage because it provides insight into our strategic long-term and financial goals including: the development of our proprietary pipeline and research strategies, our clinical development plans, our regulatory strategies and our

international expansion plans. The Compensation Committee approves each plan year’s cycle metric under the MIP to ensure an accelerated and ongoing degree of difficulty commensurate with our short- and long-term business plan. We believe that the targets under the MIP while challenging, are achievable.

 

Our total results achieved as compared to target for fiscal 2010 were 142.75%, which includes financial performance of 72% and non-financial performance of 28%, with weighted scores of 103% and 39.75%, respectively. Past year financial achievements include non-GAAP diluted EPS of $2.79 (a score of 168% achieved) and non-GAAP total revenue of $3.60 billion (a score of 200% achieved). Among the achievements in the clinical area are multiple patient accruals on key strategic studies, both domestically and internationally, clinical pipeline advancements in key products and the advancement of multiple clinical compounds.

 

Financial measures that are not defined by generally accepted accounting principles (GAAP) provide investors and management with supplemental measures of operating performance and trends that facilitate comparisons between periods before, during and after certain items that would not otherwise be apparent on a GAAP basis. We exclude certain items that management does not believe affect our basic operations and do not meet the GAAP definition of unusual or non-recurring items. Non-GAAP total revenue, non-GAAP net income and non-GAAP diluted earnings per share are not, and should not be viewed as, a substitute for similar GAAP items. The following is a discussion of the differences between each non-GAAP financial measure included in this proxy statement with the most comparable financial measure calculated and presented in accordance with GAAP:

 

 

For a reconciliation of the non-GAAP financial measures to the most comparable financial measure calculated and presented in accordance with GAAP for fiscal 2010, see Appendix A.

 

Under the MIP, the Compensation Committee may adjust, modify or amend the performance measures and targets in the plan to reflect certain events that affect such performance measures and targets, including: (i) restructurings, discontinued operations, extraordinary items or events, corporate transactions (including dispositions or acquisitions) and other unusual or non-recurring items and (ii) changes in tax law or accounting standards required by generally accepted accounting principles.

 

At its February 2010 meeting, the Compensation Committee determined that the non-GAAP diluted EPS, non-GAAP total revenue and certain non-financial measures were appropriate measures for use in the fiscal 2010 MIP as each financial measurement provides management with an incentive to increase non-GAAP revenue and non-GAAP net income, while meeting the non-GAAP diluted EPS objective. This balanced with our long-term objective of maintaining a significant research and development reinvestment rate fuels our long-term growth. The Compensation Committee approved these targets for the fiscal 2010 MIP at its February 2010 meeting.

 

In setting these objectives, we considered our fiscal 2009 performance and established the fiscal 2010 targets considering our long-term strategic plan and our commitment to deliver strong financial results to our stockholders.

As noted above, 100% of Mr. Brouwer’s MIP for fiscal 2010 was based on the achievement of personal goals. Mr. Brouwer’s individual goals for fiscal 2010 were related to the initiation and/or completion of key transition activities that were critical to minimizing disruption during Mr. Brouwer’s transition into retirement. The following were the key components of his fiscal 2010 performance goals: assist in moving the Company to a functionally aligned global organization in key areas, transition key accountability for management of Europe and Asia-Pacific regions to Region Heads, and act as a key advisor for our Chief Executive Officer on matters such as clinical development, strategies for key therapeutic areas and Celgene Global Health.

 

As noted above, 20% of Dr. Burton’s MIP for fiscal 2010 was based on the achievement of personal goals. The key components of Dr. Burton’s individual goals for fiscal 2010 were as follows: advance strategies and/or key regulatory filings in marketed products in new markets and/or new indications; develop and advance global regulatory strategy for key late stage products; and establish strategy for early stage products in key new indications and/or therapeutic areas.

 

In determining the MIP bonuses, each of the Named Executive Officer’s actual target modifier was calculated by adding the Named Executive Officer’s corporate target and the individual target (if applicable) as follows:

 

 

 

 

Fiscal 2011 MIP

 

We have disclosed the annual short-term incentive bonus for the fiscal 2011 MIP as a percentage of annual base compensation for each Named Executive Officer. Additionally, below are the financial and several selected non-financial targets for the fiscal 2011 annual MIP:

 

56% Financial Objectives⁽¹⁾

 

 

44% Non-Financial Objectives (Selected Strategic Corporate Objectives)⁽¹⁾

 

 

 

      ⁽¹⁾ Matters discussed in this proxy statement, including financial targets, may constitute forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. No forward-looking statement can be guaranteed. Risks and uncertainties include risks associated with current or pending research and development activities, actions by the U.S. Food and Drug Administration and other regulatory authorities, and those other factors detailed in our filings with the SEC.

 

 

We have not disclosed all of the non-financial performance targets for the fiscal 2011 MIP performance period because we believe that disclosing certain performance targets for the plan will result in competitive harm to us. Such information represents confidential business information that could place us at a competitive disadvantage because it provides insight into our strategic long-term and financial goals including, the development of our proprietary pipeline and research strategies, our clinical development plans, our regulatory strategies and our international expansion plans. The Compensation Committee approves each plan year’s cycle metric under the MIP to ensure an accelerated and ongoing degree of difficulty commensurate with our short- and long-term business plan. We believe that the targets under the MIP, while challenging, are achievable.

 

Long-Term Incentive Plan

 

The LTIP is designed to provide our Named Executive Officers and other key employees with long-term performance-based incentive opportunities contingent upon achievement of pre-established corporate performance objectives. Another goal of the LTIP is to create focus on key long-term objectives while creating a retention vehicle to promote management continuity in key functional areas. To qualify for an award under the LTIP, our Named Executive Officers must work each year of a three-year period which we refer to as a “performance cycle.” If a Named Executive Officer’s employment is terminated during the performance period due to the Named Executive Officer’s death, permanent disability or retirement (subject to the approval by the Compensation Committee), then the Named Executive Officer is entitled to receive a pro rata LTIP amount upon termination solely based on actual LTIP performance of each performance cycle. In addition, if we have a change in control, participants are entitled to an immediate payment equal to their target award or, if higher, an award based on actual performance through the date of the change in control for each performance cycle.

 

At the end of a three-year performance cycle, the Compensation Committee evaluates performance against the established plan targets during the last year of the three-year performance cycle against the plan targets. To the extent established targets under the LTIP are not achieved, no LTIP payment will be awarded for such performance cycle. Awards for the 2008 — 2010 performance cycle were paid in cash to each of our Named Executive Officers that participated in that LTIP in the first quarter of fiscal 2011 based on our achievement of 160.50%, as a result of our significant achievements over the performance cycle. We anticipate at this time that awards for the 2009 — 2011 and 2010 — 2012 performance cycles, to the extent the established targets under the LTIP plan are achieved, will also be paid in cash. We also anticipate at this time that any payments made to Mr. Hugin and Ms. Fouse under the LTIP for the 2011 — 2013 performance cycle, to the extent the established targets under the LTIP plan are achieved, will be made in shares of our Common Stock rather than cash and will have a mandatory three-year hold after the completion of the Plan Cycle. These changes were made to align compensation with long-term company performance and to align executive equity holdings with long-term performance of Celgene stock. Details relating to the calculations and methodology for all active LTIP plans are discussed below. The Compensation Committee reserves the right at the time of payment to pay awards under the, 2009 — 2011 performance cycle, 2010 — 2012 performance cycle and 2011 — 2013 performance cycle in the form of cash, shares or restricted stock units.

 

LTIP Performance Measures

 

We currently have three separate three-year performance cycles running concurrently ending December 31, 2011, 2012 and 2013, for the performance periods 2009 — 2011, 2010 — 2012 and 2011 — 2013, respectively. Performance measures for each of these cycles are based on performance delivered against the following plan components achieved over the last year of the three-year cycle and culminating in the achievement of the final plan year forecasted target of: 25% on non-GAAP EPS, 25% on non-GAAP net income and 50% on non-GAAP revenue. For purposes of the 2008 — 2010 performance period, non-GAAP EPS, non-GAAP net income and non-GAAP revenue have similar meanings as defined above.

 

We have disclosed the LTIP compensation targets for the 2008 — 2010, 2009 — 2011, 2010 — 2012 and 2011 — 2013 performance cycles below, and we have disclosed the results achieved for the 2008 through 2010 performance cycle below and in other public filings. We have not disclosed the specific performance targets under

the LTIP because we believe that disclosing performance targets will result in competitive harm to us. Such information represents confidential business information that could place us at a competitive disadvantage because it provides insight into our long-term performance and financial goals. The LTIP is unique among our peers and provides a competitive retention vehicle with a focus on delivery of long-term corporate performance. As a result, we believe that disclosing the targets will give our competitors insight into the plan and thus an unfair advantage in potentially enticing and recruiting our leadership talent. The Compensation Committee approves each plan year’s cycle metric under the LTIP to ensure an accelerated and ongoing degree of difficulty commensurate with our long-term business plan. We believe that the targets under the LTIP while challenging, are achievable.

 

For each of the above-described performance cycles, awards are expressed in the range of 0% to 200% of the Named Executive Officer’s individual annual base salary, and bonus targets within the range are adopted by the Compensation Committee.

 

Due to his separation from the Company, Mr. Gryska is not eligible to receive a payment for the 2008 — 2010 performance cycle nor is he entitled to receive any payments under any other LTIP in which he participated prior to his separation.

 

2008 — 2010 Performance Period

 

The potential payouts, expressed as the Named Executive Officer’s base salary multiplied by the applicable percentage (threshold, target or maximum), under the LTIP for the 2008 — 2010 performance period were as follows:

 

 

 

 

2009 — 2011 Performance Period

 

The potential payouts, expressed as the Named Executive Officer’s base salary multiplied by the applicable percentage (threshold, target or maximum), under the LTIP for the 2009 — 2011 performance period are as follows:

 

 

 

 

 

2010 — 2012 Performance Period

 

The potential payouts, expressed as the Named Executive Officer’s base salary multiplied by the applicable percentage (threshold, target or maximum), under the LTIP for the 2010 — 2012 performance period are as follows:

 

 

 

 

2011 — 2013 Performance Period

 

The potential payouts, expressed as the Named Executive Officer’s base salary multiplied by the applicable percentage (threshold, target or maximum), under the LTIP for the 2011 — 2013 performance period are as follows:

 

 

 

 

2008 — 2010 LTIP Performance Measures and Results

 

On December 18, 2007, the Compensation Committee determined that the non-GAAP diluted EPS, non-GAAP net income and non-GAAP total revenue were appropriate measures for the LTIP three-year cycle which ended on December 31, 2010, as each financial measurement provides management with an incentive to increase non-GAAP revenues and non-GAAP net income while meeting the non-GAAP EPS objective. See “Cash Bonus/Performance-Based Incentive Compensation — Fiscal 2010 MIP” for more information regarding non-GAAP financial measures.

Accordingly, the Compensation Committee approved the performance measures of the 2008-2010 LTIP, consisting of three financial performance objectives: (1) a pre-established non-GAAP diluted EPS target, (2) a pre-established non-GAAP net income target and (3) a pre-established non-GAAP revenue target. At the time the Compensation Committee established the 2008 — 2010 LTIP performance measures and targets, these targets represented a significant increase over our 2007 results. These targets were designed to be aligned with our long-term strategic plan and our ongoing commitment to deliver superior financial results to our stockholders.

 

Performance results for 2008 — 2010 LTIP were as follows:

 

 

Fiscal 2010 MIP and 2008 — 2010 LTIP Payments

 

The goals of the MIP are both financial and strategic; the goals of the LTIP are financial. Both the MIP and LTIP are designed to promote short- and long-term achievement of key corporate objectives and milestones that focus on stockholder return and link a significant portion of compensation to variable and equity-based awards. Achievement of these goals is substantially uncertain at the time such goals are established.

 

The following payouts of the aggregate incentive awards for the fiscal 2010 MIP and the 2008 — 2010 LTIP performance cycle were approved by the Compensation Committee on February 15, 2011:

 

 

 

 

Equity Grants under our 2008 Stock Incentive Plan

 

General

 

A portion of our Named Executive Officers’ and other employees’ compensation relates to the granting of equity awards, and such grants are based on the successful attainment of corporate and individual goals. Our 2008 Stock Incentive Plan is an important component of our total compensation strategy. It promotes focus on short- and long-term financial and strategic goals, enabling us to attract and retain the talented employees necessary to achieve long-term success.

 

In determining awards to our Named Executive Officers, the Compensation Committee reviews both the value of equity compensation and the average percentage of equity awards granted to comparable executive officers at the peer group level, and also factors in total corporate performance. The Compensation Committee’s policy on equity awards is designed to align the interests of our Named Executive Officers with those of our stockholders to achieve exceptional corporate performance over time. The stock option/RSU pool is approved each year by the Compensation Committee.

Radford recommended, and the Compensation Committee approved, the following annual equity grants to the Named Executive Officers for fiscal 2010:

 

 

In connection with the commencement of her employment, Radford recommended, and the Compensation Committee approved, one-time grants to Ms. Fouse of a stock option to purchase 125,000 shares of Common Stock, vesting 25% each year over four years on each anniversary of the grant date, and 16,500 RSUs that are subject to a three-year, service-based cliff vesting schedule. A portion of such equity grants were made to compensate Ms. Fouse for certain equity awards that she forfeited from her prior employer. In addition, commencing in October 2010, Ms. Fouse is entitled to receive an annual equity award of stock options to purchase 11,250 shares of Common Stock and, commencing in April 2011, annual grants of 7,800 RSUs.

 

No equity awards were granted to Mr. Brouwer in fiscal 2010 due to his transition to Chairman International and his anticipated retirement at the end of fiscal 2010.

 

In December 2010, Radford recommended based on its review of Mr. Hugin’s compensation compared to the Current Peer Group, and the Compensation Committee approved, an increase in Mr. Hugin’s annual equity grant to 180,000 stock options and 30,000 RSUs.

 

Stock Options

 

Awards of options to purchase shares of our Common Stock currently are granted pursuant to our 2008 Stock Incentive Plan on a quarterly basis to our Named Executive Officers and certain other employees. Such grants vest over a four-year period in equal installments, subject to the Named Executive Officer’s continued service with us or our subsidiaries and his or her performance through each applicable vesting date, thereby encouraging retention. Stock options are subject to accelerated vesting in certain limited circumstances. In addition, the 2008 Stock Incentive Plan allows for the immediate exercise of stock options whereby shares of Common Stock acquired on exercise of the stock option are subject to the same vesting schedule as the stock option. As expressly provided in our 2008 Stock Incentive Plan, we are prohibited from any repricing of stock options unless we seek to obtain stockholder approval of any such repricing, which we do not currently anticipate seeking.

 

Restricted Stock Units (RSUs)

 

Awards of restricted stock units, or RSUs, are granted under our 2008 Stock Incentive Plan annually to our Named Executive Officers and are subject to a three-year, service-based cliff vesting schedule in order to provide an effective incentive award with a strong retention component. RSUs are subject to accelerated vesting in certain limited circumstances. Unlike other participants granted awards under our 2008 Stock Incentive Plan, the Named Executive Officers are not given the choice of whether to elect stock options or RSUs; rather, the mix is mandatory. To derive the number of RSUs granted, the target number of stock options is divided between stock options and RSUs on a two-thirds to one-third basis using a three-to-one ratio of stock options to RSUs in calculating the number of RSUs. The use of RSUs as part of the annual equity incentive program for Named Executive Officers provides a competitive profile within our peer group. Supplementing our stock option grants with RSUs enables us to use fewer shares while continuing to provide a long-term incentive award that served as an effective retention tool. Because some of our stock option awards currently are underwater, the retentive value, as well as the incentive value, of the RSU awards are significant.

 

Reload Options

 

Stock options granted to our Named Executive Officers and other executives at the vice president level and above between September 19, 2000 and October 1, 2004 contained a reload feature. The reload feature generally provided that if the optionee exercised a stock option at least six months prior to its expiration, the optionee would

be granted a new stock option. The number of shares of Common Stock underlying the additional stock option would equal the number of shares of Common Stock exchanged by the optionee to exercise the original stock option or to pay withholding taxes thereon. The reload feature was removed from our 2008 Stock Incentive Plan and stock options granted after October 1, 2004 do not contain any reload feature. In connection with the exercise of a previously granted reload option, Dr. Burton received an option to purchase 148 shares of Common Stock on November 2, 2010. The grant date fair value of the additional option is reflected in the Summary Compensation Table and the Grants of Plan Based Awards Table.

 

Accelerated Vesting of Mr. Brouwer’s RSUs

 

In connection with, and effective upon, his retirement on December 31, 2010, in consideration for his years of service to the Company, the Compensation Committee approved the accelerated vesting of 2,778 RSUs previously granted to Mr. Brouwer.

 

Aggregate Equity Use

 

We believe that employee stock ownership focuses employees on long-term performance and aligns such employees’ financial interests with those of our stockholders. We are also mindful of the possible dilutive effect of such equity issuances. Our three-year average burn rate increased from 2.0% in 2009 to 2.3% in 2010 based on ISS methodology. This burn rate¹ is below the Institutional Shareholder Services, Inc.’s (ISS) 2011 limit of 7.16%. In addition, our last-fiscal and three-year average gross burn rate is closely aligned with the 75th percentile of the Current Peer Group. Our issued stock overhang (i.e., total stock options and unvested RSUs outstanding divided by total shares of Common Stock issued and outstanding) is at the 75th percentile of the Current Peer Group and our total stock overhang (i.e., total stock options and unvested RSUs outstanding plus shares available for future grant divided by total shares of Common Stock issued and outstanding) trail the 50th percentile of the Current Peer Group.

 

The burn rate reflects the gross annual rate at which available shares have been allocated for employee stock option awards. This rate is calculated by dividing the total number of shares subject to stock option grants by the total number of shares outstanding.

 

Matching Contributions

 

Our 401(k) Plan is a tax-qualified retirement savings plan available to all of our eligible employees, including certain Named Executive Officers. Under the 401(k) Plan, we make discretionary matching contributions to participants (including certain Named Executive Officers) in the form of shares of our Common Stock to such participant’s plan account of up to 6% of their eligible earnings or the maximum permitted by law.

 

Mr. Brouwer, as a resident of Switzerland, does not participate in our 401(k) Plan. For fiscal 2010, we were required to make a matching payment of $76,044 (which reflects the value of the payment in Swiss francs as converted to the U.S. dollar using the 2010 average exchange ratio of approximately 1.04 Swiss francs per U.S. dollar) into a pension plan on Mr. Brouwer’s behalf pursuant to the mandatory requirements of Swiss Law.

 

The table below set forth the matching contributions we made under the 401(k) Plan for fiscal 2010 to eligible Named Executive Officers:

 

 

 

 

Employer Contributions to the Nonqualified Deferred Compensation Plan

 

The Nonqualified Plan is an unfunded nonqualified deferred compensation plan to which certain U.S. management level employees and certain Named Executive Officers may elect to defer up to 90% of their base salary and up to 100% of their MIP and LTIP. For fiscal 2010, we made semi-monthly cash matching contributions to the Nonqualified Plan on behalf of Dr. Barer and Mr. Hugin as a percent of gross base salary earnings, at a rate of 20% and 15%, respectively. Ms. Fouse, Messrs. Gryska and Brouwer, and Dr. Burton were not eligible to receive matching contributions under the Nonqualified Plan. For further discussion of the Nonqualified Plan, see “Additional Information Regarding Executive Compensation — Nonqualified Deferred Compensation Table” elsewhere in this proxy statement.

 

In addition, in connection with the commencement of her employment, in fiscal 2010 we made a one-time, $1 million contribution to the Nonqualified Plan on behalf of Ms. Fouse with a three-year ratable vesting schedule.

 

The following Named Executive Officers participated in our Nonqualified Plan and received cash contributions from us for fiscal 2010 under the Nonqualified Plan as follows:

 

 

 

 

Perquisites and Other Benefits

 

Each of the Named Executive Officers receives medical, dental, disability and life insurance coverage on the same terms as other employees. Our executive compensation program also includes limited perquisites and other benefits. Dr. Barer, Mr. Hugin, Ms. Fouse, Mr. Brouwer and Dr. Burton, and Mr. Gryska prior to his resignation, were eligible for reimbursement of reasonable expenses incurred in obtaining professional tax and financial counseling up to a maximum of $15,000 annually with respect to Dr. Barer and Mr. Hugin, Ms. Fouse and Mr. Gryska, and 17,000 Swiss francs (or $16,320 based on the 2010 average exchange rate of approximately 1.04 Swiss francs per U.S. dollar) with respect to Mr. Brouwer. We believe such reimbursements allow them to focus on managing our business and assist them in optimizing the value received from the various compensation and benefit programs offered. In fiscal 2010, professional tax and financial counseling reimbursements of $15,000 were made to Dr. Barer, $12,580 to Mr. Gryska, $3,000 to Dr. Burton and 10,868 Swiss francs to Mr. Brouwer ($10,433 based on the 2010 average exchange rate of approximately 1.04 Swiss francs per U.S. dollar). In addition, we provide an excess liability insurance policy. The premiums for such policies are taxable income for Dr. Barer, Mr. Hugin and Dr. Burton. These premium payments are taxable to each of Dr. Barer, Mr. Hugin and Dr. Burton. For fiscal 2010, we made premium payments as follows: $1,866 for each of Dr. Barer and Mr. Hugin and $891 for Dr. Burton. Mr. Hugin also received Company contributions to a health savings account in fiscal 2010 equal to $5,550. Attributed costs of the perquisites and other personal benefits described above for our Named Executive Officers for fiscal 2008, fiscal 2009 and fiscal 2010 are included in column (i) of the Summary Compensation Table.

 

We have entered into certain employment agreements with our Named Executive Officers as discussed elsewhere in this proxy statement which provide for, in part, termination benefits and, in certain cases, change of control benefits that are designed to promote stability and continuity of senior management. Information regarding applicable payments under such agreements for the Named Executive Officers is provided under the heading “Additional Information Regarding Executive Compensation — Agreements with Our Named Executive Officers”

and “Additional Information Regarding Executive Compensation — Potential Payments Upon Termination or Change in Control” elsewhere in this proxy statement.

 

On August 23, 2010, we entered into a Separation Agreement with Mr. Gryska providing for the terms of his separation from the Company, as discussed elsewhere in this proxy statement.

 

Accounting and Tax Considerations

 

FASB ASC 718

 

We have adopted Financial Accounting Standards Board Accounting Standards Codification Topic 718 “Compensation — Stock Compensation” (“FASB ASC 718”) (formerly known as FAS 123R) using the modified prospective application method on January 1, 2006. Our estimate of future stock-based compensation expense is affected by our stock price, the number of stock-based awards our Board of Directors may grant in fiscal 2010 and subsequent years, as well as a number of complex and subjective valuation assumptions and the related tax impact. These valuation assumptions include, but are not limited to, the volatility of our stock price and employee stock option exercise behaviors.

 

Policy with respect to Compensation Deductibility

 

Our policy with respect to the deductibility limit of Section 162(m) of the Code generally is to preserve the federal income tax deductibility of compensation paid when it is appropriate and is in our best interest. We reserve the right to authorize the payment of non-deductible compensation if we deem that it is appropriate to do so under the circumstances.

 

The Compensation Committee of our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Respectfully submitted,

 

THE COMPENSATION COMMITTEE

 

Rodman L. Drake, Chairman
Michael D. Casey
James J. Loughlin

 

Executive Officers

 

Our executive officers and their ages and positions:

 

 

 

 

Robert J. Hugin is our Chief Executive Officer, President and Director. See “Proposal One: Election of Directors — Nominees” for a discussion of Mr. Hugin’s business experience.

 

Jacqualyn A. Fouse joined us as Senior Vice President and Chief Financial Officer effective September 27, 2010. Ms. Fouse most recently served as Chief Financial Officer of Bunge Limited, a leading global agribusiness and food company (“Bunge”), since July 2007. Prior to joining Bunge, Ms. Fouse served as Senior Vice President, Chief Financial Officer and Corporate Strategy at Alcon Laboratories, Inc. since 2006, and as its Senior Vice President and Chief Financial Officer since 2002. Ms. Fouse served as Chief Financial Officer from 2001 to 2002 at SAirGroup. Previously, Ms. Fouse held a variety of senior finance positions at Alcon and its then majority owner Nestlé S.A. Ms. Fouse worked at Nestlé from 1993 to 2001, including serving as Group Treasurer of Nestlé from 1999 to 2001. Ms. Fouse worked at Alcon from 1986 to 1993 and held several positions, including Manager Corporate Investments and Domestic Finance. Earlier in her career, she worked at Celanese Chemical and LTV Aerospace and Defense. Ms. Fouse earned a B.A. and an M.A. in Economics from the University of Texas at Arlington. Ms. Fouse also serves as a member of the board of directors of Dick’s Sporting Goods.

 

Dr. Graham Burton has served as our Senior Vice President, Global Regulatory Affairs, Pharmacovigilance and Corporate Quality Assurance and Compliance from July 2003. Since then, his responsibilities have increased to the extent where he has become one of our executive officers, even though his title remains the same. Previously, Dr. Burton had been Senior Vice President Global Regulatory Affairs and Quality Assurance at Johnson & Johnson Pharmaceutical Research & Development, LLC from 1997 to 2003. Dr. Burton received his medical degree in 1975 from St. George’s Hospital Medical School, London and became a Fellow of the Royal College of Physicians in 1997. He was a practicing physician specializing in internal medicine and cardio-pulmonary disorders from 1975 to 1984 followed by four years as a Senior Medical Officer with the Medicines Control Agency of the UK’s Department of Health. He was the Medical Director for Upjohn UK from 1988 to 1995 and then for two years was Vice President Global Regulatory Affairs in the United States with Pharmacia & Upjohn.

 

The following table sets forth information regarding compensation earned by our Named Executive Officers for the fiscal years ended December 31, 2010, 2009 and 2008.

 

 

 

 

 

 

 

Employment Agreements with Dr. Barer and Mr. Hugin

 

Effective as of May 1, 2006, we entered into new employment contracts with Dr. Barer and Mr. Hugin, which were subsequently amended effective December 31, 2008 solely for the purpose of addressing the deferred

compensation requirements under Section 409A of the Code, and effective on June 16, 2010 in connection with Dr. Barer’s retirement as, and Mr. Hugin’s becoming Chief Executive Officer.

 

The employment agreements both had an initial term of three years. Dr. Barer’s agreement expired on December 31, 2010 in accordance with his amended employment agreement. Mr. Hugin’s employment agreement will automatically extend for successive one-year terms unless either we or Mr. Hugin provide written notice to the other, at least six months prior to the expiration of the then term, of such party’s intention to terminate his employment at the end of such term, unless terminated sooner as provided in Mr. Hugin’s employment agreement.

 

By action of the Compensation Committee, consistent with his employment agreement, in February 2010, Dr. Barer’s base salary was approved to be increased effective May 1, 2010 to $1,140,000, his MIP target bonus increased to 120% and his annual LTIP bonus established with a threshold, target and maximum bonus of 50%, 125% and 200%, respectively, for the three-year performance cycles for the 2009 — 2011 and 2010 — 2012 LTIPs, except that his awards for the 2009 — 2011 and 2010 — 2012 LTIPs will be prorated based on the number of days Dr. Barer was employed during the performance cycle and actual achievement of the performance targets under the LTIP.

 

In connection with his amended employment agreement, effective June 16, 2010, Mr. Hugin’s base salary was increased to $975,000 (after being increased to $810,000 in February 2010) and his MIP target bonus was increased to 120% of his base salary. Under his employment agreement Mr. Hugin is eligible to earn an annual LTIP bonus with the threshold, target and maximum bonuses equal to 50%, 100% and 200% of base salary, respectively, for the three-year performance cycle 2009 — 2011, and, effective beginning with the 2011 — 2013 performance cycle of the LTIP, his target LTIP award will increase to 125% of base salary.

 

By action of the Compensation Committee, in February 2010, Dr. Barer’s and Mr. Hugin’s annual option target grant was increased to 267,000 and 150,000 shares of Common Stock, respectively. In addition, Mr. Hugin’s amended employment agreement provided for an additional option to purchase 39,000 shares of Common Stock to be allocated over the remaining quarterly grant year commencing on June 16, 2010, and 6,500 RSUs which were granted to him on June 16, 2010. By action of the Compensation Committee, consistent with his employment agreement, in February 2011, Mr. Hugin’s base salary was increased by 10.3% to $1,075,000 (to be effective May 1, 2011), his MIP target was increased to 125% (for fiscal 2011) and his target equity award was adjusted as follows: an option to purchase 180,000 shares of Common Stock and 30,000 RSUs.

 

The following provisions which continue to apply to Mr. Hugin under his employment agreement, also applied to Dr. Barer under his employment agreement prior to his retirement on December 31, 2010:

 

 

 

For purposes of the employment agreements, “cause” generally means:

 

 

For purposes of the employment agreements, “good reason” generally means, without the executive’s consent:

 

 

For purposes of the employment agreements, “change in control” generally means:

 

 

The definition of “change in control” that applies if the executive is terminated by the Company without cause or by the executive for good reason during the 90-day period prior to a “change in control” is the definition provided in the Treasury regulations under Section 409A of the Code, which eliminates, among other things, the approval by the Company’s stockholders of any plan of complete liquidation.

 

Services Agreement with Dr. Barer

 

We entered into a Services Agreement with Dr. Barer which provides that effective January 1, 2011, Dr. Barer will serve as non-executive Chairman of the Board of Directors until immediately after the 2011 Annual Meeting and as a consultant to the Company from January 1, 2011 to December 31, 2012 (the period that Dr. Barer will be providing services under the Services Agreement is referred to as the “Contract Period”). The Services Agreement provides that, during the Contract Period, Dr. Barer will be an independent contractor and that he will be entitled to the following compensation and benefits:

 

 

During the Contract Period, Dr. Barer will not be eligible to participate in any of our employee benefit plans or programs, including the MIP, the LTIP and our 2008 Stock Incentive Plan.

 

If Dr. Barer’s services are terminated by us without “cause” (which is the same definition in his employment agreement) or due to his death or disability or incapacitation, then, in addition to certain accrued amounts, Dr. Barer will be entitled to receive his annual consulting fee and monthly retainer that he would have been entitled to receive from the date of his termination through the end of the Contract Period (the “Contract Amount”). Further, if Dr. Barer’s services are terminated by us without “cause” or by him for “good reason” at any time during the two-year period commencing on a “change in control” (which is the Code Section 409A-compliant definition contained in his employment agreement) or the 90-day period prior to a “change in control,” Dr. Barer will be entitled to receive the Contract Amount. Such amount will be reduced by any payment made to him prior to the “change in control” on account of his termination. In addition, upon the occurrence of a “change in control,” Dr. Barer will receive full and immediate vesting of all stock options and equity awards.

 

For purposes of the Services Agreement, “good reason” generally means, without Dr. Barer’s consent:

 

 

 

The Services Agreement also contains a non-competition provision which applies during the Contract Period and for one year thereafter (or, if change in control payments are made, generally the second anniversary of the later of the date his services are terminated or the change in control date). In addition, the Services Agreement contains a patent/inventions provision and a perpetual confidentiality provision.

 

Letter Agreement with Ms. Fouse

 

On August 18, 2010, effective September 27, 2010, we entered into an employment letter agreement with Ms. Fouse. The letter agreement provides for an initial base salary of $700,000 and a target incentive under the MIP equal to 65% of annual base salary (up to a maximum of 200%). The letter agreement provided that Ms. Fouse would receive a one-time grant of options to purchase 125,000 shares of Common Stock and 16,500 RSUs and an annual grant of options to purchase 45,000 shares of Common Stock and 7,800 RSUs. The stock options are subject to service-based vesting over four years and the RSUs are subject to a three year service-based cliff vesting schedule. Ms. Fouse is entitled to participate in our Deferred Compensation Plan and she received a one-time cash contribution into her non-qualified deferred compensation account of $1,000,000 with a three-year ratable vesting schedule. Ms. Fouse also is entitled to reimbursement for reasonable expenses incurred in obtaining professional tax and financial counseling up to a maximum of $15,000 annually. The letter agreement also provides that Ms. Fouse is entitled to participate in our U.S. comprehensive health and welfare benefit programs. The letter agreement also provides that if Ms. Fouse’s employment is terminated by us for any reason other than for cause, she would be entitled to receive a lump sum payment equal to 12 months’ base salary and bonus plus continuation of benefits, less applicable taxes. Further, the letter agreement provides that in the event of a change in control Ms. Fouse would be entitled to receive a lump sum payment equal to 18 months’ base salary and bonus plus continuation of benefits, less applicable taxes, and that her unvested stock options and RSUs would become fully vested if her employment is terminated in connection with a change in control. If Ms. Fouse becomes entitled to any amounts subject to the excise tax under Code Section 280G, such amounts will be reduced to the extent necessary to avoid such excise tax if such reduction would result in a greater payment amount to Ms. Fouse. We do not have any separate change in control agreements or arrangements with Ms. Fouse.

 

Letter Agreement with Mr. Gryska

 

Effective as of December 6, 2006, we entered into an employment letter agreement with Mr. Gryska. The letter agreement provided for an initial annual base salary of $450,000 and a target incentive under the MIP equal to 50% of annual base salary (up to a maximum of 200%) and a target LTIP of 50% of annual base salary (up to a maximum of 100%). In February 2010, by action of the Compensation Committee, Mr. Gryska’s base salary was increased by 3.5% to $550,000 and his annual target equity award consisted of an option to purchase 46,700 shares of Common Stock and a grant of 7,800 RSUs. Mr. Gryska also was entitled to reimbursement for reasonable expenses incurred in obtaining professional tax and financial counseling, up to a maximum of $15,000 annually, and payment of excess liability insurance premiums (which Mr. Gryska waived for fiscal 2010). The letter agreement also provided that Mr. Gryska was entitled to participate in all group health and insurance programs and all other fringe benefit or retirement plans which are generally available to our employees. The letter agreement also provided that if Mr. Gryska’s employment was terminated by us for any reason other than for cause or as a result of a change in control, he would have been entitled to receive a lump sum payment equal to 12 months’ base salary and bonus, less applicable taxes. We amended Mr. Gryska’s employment agreement effective April 28, 2008 as follows: (i) to define the term “cause” as such term is defined in Dr. Barer’s employment agreement; (ii) to define “change in control” as such term is defined in the 2008 Stock Incentive Plan; and (iii) to include 12 months of Company-paid benefit coverage under COBRA for health and dental insurance, subject to Mr. Gryska’s payment of premiums at the applicable active rate (at a coverage level equal to or below elected coverage on the day before the termination date) if he would be terminated by the Company without cause or if he would be terminated by the Company for any reason on or following a change in control. We did not have any separate change in control agreements or arrangements with Mr. Gryska.

 

Separation Agreement with Mr. Gryska

 

On August 23, 2010, Mr. Gryska resigned as Chief Financial Officer effective as of September 27, 2010 and as Senior Vice President effective as of November 1, 2010. In connection with his resignation, on August 23, 2010, we entered into a separation agreement with Mr. Gryska that provided for his full release of claims against the Company and provided him a $550,000 lump sum payment and continued coverage under our health plan pursuant to COBRA at the Company’s expense for up to 12 months.

 

Employment Agreement with Mr. Brouwer

 

We entered into an updated employment agreement with Mr. Brouwer effective November 1, 2008 in connection with the change in his responsibilities and appointment to Chairman International and Senior Advisor to the Celgene Chairman and Chief Executive Officer which provided that, effective January 1, 2009 (i) his base salary was 500,000 Swiss francs (or $462,963 based on the 2009 average exchange rate of approximately 1.08 Swiss francs per U.S. dollar and $480,000 based on the 2010 average exchange rate of 1.04 Swiss francs per U.S. dollar); (ii) his bonus target was 340,000 Swiss francs (or $314,815 based on the 2009 average exchange rate of approximately 1.08 Swiss francs per U.S. dollar) and 200,000 Swiss francs (or $192,000 based on the 2010 average exchange rate of 1.04 Swiss francs per U.S. dollar) for fiscal 2009 and fiscal 2010, respectively; (iii) he was entitled to receive financial planning assistance up to 17,000 Swiss francs (or $15,741 based on the 2009 average exchange rate of approximately 1.08 Swiss francs per U.S. dollar and $16,320 based on the 2010 average exchange rate of 1.04 Swiss francs per U.S. dollar); and (iv) his annual option target grant was 25,000 shares of Common Stock. In addition, Mr. Brouwer was authorized to use a Company-paid car when commuting for business, and he was no longer a participant in the LTIP. Mr. Brouwer was entitled to participate in all employee benefit programs offered by our subsidiary, Celgene International Sarl. The agreement also contained provisions for duties of loyalty, confidentiality, inventions and non-competition (which apply during the period he was employed by us and until the first anniversary of the date his employment terminated). We did not have any change in control agreements or arrangements with Mr. Brouwer. We also made contributions into a non-company sponsored pension plan as required pursuant to the laws of Switzerland. Mr. Brouwer retired from the Company effective December 31, 2010.

 

Letter Agreement with Dr. Burton

 

Effective as of June 2, 2003, we entered into an employment letter agreement with Dr. Burton. The letter agreement provides for an initial annual base salary of $375,000 and an annual target bonus of 40% of annual base salary. In addition, pursuant to his letter agreement, Dr. Burton received an initial grant of an option to purchase 50,000 shares of our Common Stock (at the fair market value of our Common Stock on the grant date) and is entitled to receive an annual grant to purchase 20,000 shares of our Common Stock (at the fair market value of our Common Stock on the grant date). In February 2010, by action of the Compensation Committee, Dr. Burton’s base salary was increased by 3.5% to $495,000 and his annual target equity award consists of an option to purchase 46,700 shares of Common Stock and a grant of 7,800 RSUs. The letter agreement also provides that Dr. Burton is entitled to participate in all group health and insurance programs and all other fringe benefit or retirement plans which are generally available to our employees. In addition, the letter agreement provides that if Dr. Burton’s employment is terminated by us without “cause,” he is entitled to receive a lump sum payment equal to 12 months’ base salary, less applicable taxes. We have amended Dr. Burton’s employment agreement effective April 28, 2008 as follows: (i) to define the term “cause” as such term is defined in Dr. Barer’s employment agreement; (ii) to include bonus in the severance calculation; (iii) to include 12 months of Company-paid COBRA benefit coverage for health and dental insurance, subject to Dr. Burton’s payment of premiums at the applicable active rate (at a coverage level equal to or below elected coverage on the day before the termination date) in the event he is terminated by the Company other than for “cause”; and (iv) to provide that if Dr. Burton is terminated by the Company for any reason on or following a “change in control” (as defined in the 2008 Stock Incentive Plan) he will receive the same severance payable if he is terminated by the Company other than for cause. We do not have any separate change in control agreements or arrangements with Dr. Burton.

 

The following table provides information about equity and non-equity awards granted to Named Executive Officers eligible to participate in fiscal 2010: (a) the name; (b) the grant date; (c), (d) and (e) the estimated potential/future payouts under: (1) our LTIP non-equity incentive plan awards, which consist of estimated future payouts under the LTIP for the fiscal 2010 — 2012 performance period granted in fiscal 2010 and payable after the three-year performance period if either the threshold, target or maximum goal is satisfied and (2) the target and maximum potential MIP payouts that could have been earned in fiscal 2010; (i) all stock awards, which consist of RSUs awarded to Named Executive Officers in fiscal 2010; (j) all stock option awards, which consist of the number of shares underlying stock options awarded to Named Executive Officers in fiscal 2010; (k) the exercise price of the stock option awards, which reflects the closing price of the shares of our Common Stock on the date of grant; and (l) the grant date fair value of each equity award, computed in accordance with FASB ASC 718. Columns (f), (g) and (h) relating to estimated future payouts under equity incentive plan awards have been omitted because no such awards have been granted for the periods presented.