Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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þ    Definitive Proxy Statement
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¨    Soliciting Material Pursuant to § 240.14a-12
NewLink Genetics Corporation
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Form, Schedule or Registration Statement No.:
 
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Date Filed:
 





NEWLINK GENETICS CORPORATION
2503 South Loop Drive
Ames, IA 50010

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2019
Dear Stockholder:
You are cordially invited to attend the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of NEWLINK GENETICS CORPORATION, a Delaware corporation (the “Company”). The Annual Meeting will be held on Thursday, May 9, 2019 at 9:00 a.m. local time at the offices of NewLink Genetics Corporation, 2503 South Loop Drive, Suite 5100, Ames, IA 50010 for the following purposes:
1.
To elect the Board's nominees for director, Matthew L. Sherman, M.D. and Nicholas N. Vahanian, M.D., to serve until the 2022 Annual Meeting of Stockholders.
2.
To approve, on a non-binding, advisory basis, the compensation of our named executive officers, as disclosed in the proxy statement accompanying this notice.
3.
To amend the Company's 2009 Equity Incentive Plan to, among other things, extend the term of the 2009 Equity Incentive Plan.
4.
To approve a stock option exchange program, pursuant to which employees and directors may exchange eligible stock options for new stock options with an exercise price equal to the fair market value of the Company’s common stock at the time of the exchange.
5.
To approve stock option grants to Chief Executive Officer Charles J. Link, Jr., M.D. and President Nicholas N. Vahanian, M.D.
6.
To ratify the selection by the Audit Committee of the Board of Directors of KPMG LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2019.
7.
To conduct any other business properly brought before the meeting.
These items of business are more fully described in the Proxy Statement.
The record date for the Annual Meeting is March 28, 2019. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof. All stockholders of NewLink Genetics Corporation are invited to attend the Annual Meeting in person. Whether or not you expect to attend the Annual Meeting, please vote your shares as promptly as possible using the enclosed proxy card, or via the Internet or telephone as instructed in the enclosed materials, in order to ensure your representation at the Annual Meeting.
By Order of the Board of Directors
/s/ Carl W. Langren     

Carl W. Langren
Chief Financial Officer

Ames, Iowa
April 5, 2019


Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on May 9, 2019:
You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy, or vote over the telephone or the internet, so that your shares may be voted in accordance with your wishes and in order that the presence of a quorum may be assured. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record




by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder. Please date and sign the enclosed proxy and return it promptly in the enclosed envelope, or vote over the telephone or Internet. Your vote is important.
You may vote by proxy by completing and mailing the enclosed proxy card. If you submit a proxy card, we will vote your shares as you direct. If you submit a proxy card without giving specific voting instructions for a particular proposal or nominee, those shares will be voted as recommended by our Board of Directors with respect to such proposal or nominee.
You may also vote by proxy via the Internet by going to the website http://www.envisionreports.com/NLNK, and following the instructions provided there, or by telephone, by calling the following number: 1-800-652-VOTE (8683) using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number found on the proxy card. Your proxy card, Internet or telephone vote must be received by 11:59 p.m., Eastern Time, on May 8, 2019, to be counted.

We intend to provide definitive copies of our proxy materials to our stockholders on or about April 5, 2019. We will make all of our proxy materials available on the Internet at http://www.envisionreports.com/NLNK, beginning on or about April 5, 2019, and permit voting via the Internet and by telephone as of that date.
If your shares are held by a broker, bank, or other agent, you are considered the beneficial owner of those shares, and your shares are held in “street name.” If you hold your shares in “street name” you will receive instructions from your broker, bank or other agent describing how to vote your shares. If you hold shares in “street name” and do not receive instructions on how to vote your shares, you should contact your broker, bank or other agent promptly and request this information.

Even if you have voted by proxy via one of the procedures listed above, you may still vote in person if you attend the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the Annual Meeting, you must obtain a proxy issued in your name from that record holder.





NEWLINK GENETICS CORPORATION

TABLE OF CONTENTS

 
Page
 
 
 
Proposal 2 - Advisory Vote on Compensation of Our Named Executive Officers
Proposal 3 - Amendment to Our 2009 Equity Incentive Plan
Proposal 4 - Stock Option Exchange Program
Proposal 5 - Option Grants to Our CEO and President
Proposal 6 - Ratification of Selection of KPMG LLP as Our Independent Registered Public Accounting Firm





NEWLINK GENETICS CORPORATION
2503 South Loop Drive
Ames, Iowa 50010

PROXY STATEMENT
FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2019
NewLink Genetics Corporation, sometimes referred to as the Company, NewLink, we, us or our, is furnishing this proxy statement, or Proxy Statement, to holders of our common stock. Proxies are being solicited on behalf of the Board of Directors of NewLink, which we refer to as our Board, to be used at NewLink’s 2019 Annual Meeting of Stockholders, or Annual Meeting, to be held on May 9, 2019 at 9:00 a.m. local time at our offices at 2503 South Loop Drive, Suite 5100, Ames, IA 50010 and at any postponement or adjournment thereof, for the purposes set forth in the Notice of Annual Meeting of Stockholders.
NewLink is delivering a “full set” of our proxy materials by mail to all of our stockholders of record as of the close of business on March 28, 2019, the Record Date. Our proxy materials include the Notice of Annual Meeting, or the Notice, this Proxy Statement and a proxy card, which we refer to collectively as the Proxy Materials. We intend to provide definitive copies of our Proxy Materials to our stockholders on or about April 5, 2019. In addition to mailing our Proxy Materials, we will also provide access to our Proxy Materials over the Internet at http://www.envisionreports.com/NLNK, by April 5, 2019. The Notice and the Proxy Statement instruct you on how to access and review all of the important information contained in the Proxy Materials via the Internet. The Notice and the Proxy Statement also instruct you on how you may submit your vote by mail, the Internet, toll-free number, or in person at the Annual Meeting.
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING
Why am I receiving this proxy statement?
You are receiving this proxy statement because you have been identified as a holder of the Company’s common stock as of the Record Date.

How do I attend the Annual Meeting?
The Annual Meeting will be held on Thursday, May 9, 2019 at 9:00 a.m. local time at the principal executive offices of NewLink Genetics Corporation, 2503 South Loop Drive, Suite 5100, Ames, IA 50010. Directions to the meeting are posted on the internet at http://www.newlinkgenetics.com/contact/. Information on how to vote in person at the Annual Meeting is discussed below. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card, or follow the instructions below to submit your proxy over the telephone or through the Internet.
Who can vote at the Annual Meeting?
Only stockholders of record as of the Record Date will be entitled to vote at the Annual Meeting. On the Record Date, there were 37,276,102 shares of common stock outstanding and entitled to vote.
Stockholder of Record: Shares Registered in Your Name
If on March 28, 2019 your shares were registered directly in your name with our transfer agent, Computershare Shareowner Services LLC, then you are a stockholder of record. As a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to vote by proxy over the telephone or on the internet as instructed below, or to fill out and return the enclosed proxy card to ensure your vote is counted.

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Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on March 28, 2019 your shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in "street name." The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account in accordance with the instructions you have received from your brokerage firm, bank, dealer or other similar organization. You are also invited to attend the meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your broker or other agent.
What am I voting on?
There are six matters scheduled for a vote:
1.
Election of the Board of Directors’ nominees for director, Matthew L. Sherman, M.D. and Nicholas N. Vahanian, M.D., to serve until the 2022 Annual Meeting of Stockholders.;
2.
Advisory approval of the compensation of our named executive officers, as disclosed in this proxy statement in accordance with SEC rules;
3.
Amendment of Our 2009 Equity Incentive Plan to, among other things, extend the term of the 2009 Equity Incentive Plan;
4.
Stock Option Exchange Program pursuant to which employees and directors may exchange eligible stock options for new stock options with an exercise price equal to the fair market value of the Company's common stock at the time of the exchange;
5.
Option Grants to Our CEO Charles J. Link, Jr., M.D. and President Nicholas N. Vahanian, M.D.; and
6.
Ratification of the selection, by the Audit Committee of our Board, of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.

What if another matter is properly brought before the meeting?
We know of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment.
How do I vote?
With respect to Proposal No. 1 (Election of Directors), you may either vote "For" all the nominees to our Board or you may "Withhold" your vote for any nominee you specify. For each of the other matters to be voted on, you may vote "For" or "Against" or abstain from voting.
The procedures for voting are:
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at the Annual Meeting, vote by proxy over the telephone, vote by proxy through the internet, or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure that your vote is counted. You may still attend the meeting and vote in person even if you have already voted by proxy.
To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.
To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the meeting, we will vote your shares as you direct.
To vote over the telephone, dial toll-free 1-800-652-VOTE (8683) using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. Your telephone vote must be received by 11:59 p.m., Eastern Time, on May 8, 2019 to be counted.
To vote through the internet, go to http://www.envisionreports.com/NLNK to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your internet vote must be received by 11:59 p.m., Eastern Time, on May 8, 2019 to be counted.


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Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a voting instruction form accompanying the proxy materials containing voting instructions from that organization rather than from us. Simply follow the voting instructions in the Notice to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.


Internet proxy voting may be provided to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.


How many votes do I have?
On each matter to be voted upon, you have one vote for each share of common stock you own as of March 28, 2019. Common stock is the only class of voting securities currently outstanding and entitled to vote.
What happens if I do not vote?
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record and do not vote (1) by completing and returning your proxy card, (2) by telephone, (3) through the internet or (4) in person at the Annual Meeting, your shares will not be voted.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner and do not instruct your broker, bank, or other agent how to vote your shares, the question of whether your broker or nominee will still be able to vote your shares depends on whether the New York Stock Exchange (NYSE) deems the particular proposal to be a "routine" matter. Brokers and nominees can use their discretion to vote "uninstructed" shares with respect to matters that are considered to be "routine," but not with respect to "non-routine" matters. Under the rules and interpretations of the New York Stock Exchange, "non-routine" matters are matters that may substantially affect the rights or privileges of shareholders, such as mergers, shareholder proposals, elections of directors (even if not contested), executive compensation (including any advisory shareholder votes on executive compensation and on the frequency of shareholder votes on executive compensation), and certain corporate governance proposals, even if management-supported. These rules apply to brokers holding our shares even though our common stock is traded on the NASDAQ Global Market. Accordingly, your broker or nominee may not vote your shares on Proposal Nos. 1 (Election of Directors), 2 (Advisory Vote on Compensation of Our Named Executive Officers), 3 (Amendment to Our 2009 Equity Incentive Plan), 4 (Stock Option Exchange Program) or 5 (Option Grants to Our CEO and President) without your instructions, but may vote your shares on Proposal No. 6 (Ratification of Selection of KPMG LLP as Our Independent Registered Public Accounting Firm) even in the absence of your instruction.
What if I return a proxy card or otherwise vote but do not make specific choices?
If you return a signed and dated proxy card or otherwise vote without marking voting selections, your shares will be voted, as applicable, "For" the election of the nominees for director, "For" the advisory approval of executive compensation, "For" amending our 2009 Equity Incentive Plan, "For" the Stock Option Exchange Program, "For" the stock option grants for our CEO and President, and "For" ratification of the selection, by the Audit Committee of our Board, of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2019. If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies, however, we have retained Okapi Partners LLC to help us solicit proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

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What does it mean if I receive more than one set of Proxy Materials?
If you receive more than one set of Proxy Materials, your shares may be registered in more than one name or in different accounts. For example, you may own some shares directly as a stockholder of record and other shares through a broker, or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must complete, sign, date and return all of the proxy cards or follow the instructions for any alternative voting procedures on each of the proxy cards you receive in order to vote all of the shares you own. Each proxy card you receive will come with its own postage-paid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanied that proxy card.
Can I change my vote after submitting my proxy?
Stockholder of Record: Shares Registered in Your Name
Yes. You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:
You may submit another properly completed proxy card with a later date;
You may grant a subsequent proxy by telephone or through the internet;
You may send a timely written notice that you are revoking your proxy to NewLink Genetics Corporation's Secretary at 2503 South Loop Drive, Suite 5100, Ames, IA 50010; or
You may attend the Annual Meeting and vote in person (simply attending the meeting will not, by itself, revoke your proxy).

Your most current proxy card or telephone or internet proxy is the one that is counted.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.
When are stockholder proposals due for next year's annual meeting?
To be considered for inclusion in next year's proxy materials, your proposal must be submitted in writing and received by December 7, 2019 to Corporate Secretary, NewLink Genetics Corporation, 2503 South Loop Drive, Ames, Iowa 50010. If you wish to submit a director nomination or a proposal at next year's annual meeting that is not to be included in next year's proxy materials, you must do so by no later than the close of business on February 8, 2020, nor earlier than the close of business on January 9, 2020, and you must comply with the requirements of Section 5(b) in the our Bylaws, including submitting written notice to our Corporate Secretary as set forth above. However, if the date of next year's annual meeting is more than 30 days before or more than 30 days after May 9, 2020, then we must receive your notice no earlier than the close of business on the one hundred twentieth (120th) day prior to such meeting and no later than the close of business on the later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. You are also advised to review our bylaws, which contain additional requirements regarding advance notice of stockholder proposals and director nominations.
What happens if I do not provide instructions on how to vote or if other matters are presented for determination at the Annual Meeting?
If you are a stockholder of record and return your proxy card without instructions, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors.
If you are a beneficial owner as noted above you generally cannot vote your shares directly and must instead instruct your broker, trustee, bank or nominee how to vote your shares using the voting instructions form provided by that intermediary. If you do not provide voting instructions, whether your shares can be voted by your broker, bank or nominee depends on the type of item being considered.
Non-Discretionary Items. If you do not provide voting instructions for any of the non-discretionary items at the Annual Meeting, your broker, bank or nominee cannot vote your shares, resulting in a "broker non-vote." All items of business other than Proposal No. 6 (Ratification of Selection of KPMG LLP as Our Independent Registered Public Accounting Firm) are non-discretionary items. Shares constituting broker non-votes will be counted as present for the purpose of

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determining a quorum at the Annual Meeting, but generally are not counted or deemed to be present in person or by proxy for the purpose of voting on any of the non-discretionary items.

Discretionary Items. Even if you do not provide voting instructions, your broker, bank or nominee may vote in its discretion on Proposal No. 6 (Ratification of Selection of KPMG LLP as Our Independent Registered Public Accounting Firm) because it is a discretionary item.

What items are being voted upon, how does the Board recommend that you vote, and what are the standards for determining whether an item has been approved?
Proposal Number
Proposal Description
Board Recommendation
Vote Required for Approval
Effect of Abstentions
Effect of Broker Non-Vote
1
Election of Directors
FOR each director nominee
Nominees receiving the most "For" votes
No effect
None
2
Advisory Vote on Compensation of Our Named Executive Officers
FOR
"For" votes from a majority of the votes cast
Against
None
3
Amendment of Our 2009 Equity Incentive Plan
FOR
"For" votes from a majority of the votes cast*
Against
None
4
Stock Option Exchange Program
FOR
"For" votes from a majority of the votes cast**
Against
None
5
Option Grants to Our CEO and President
FOR
"For" votes from a majority of the votes cast***
Against
None
6
Ratification of Selection of KPMG LLP as Our Independent Registered Public Accounting Firm
FOR
"For" votes from a majority of the votes cast
Against
Not applicable
 
*
Approval for Proposal No. 3 (Amendment of Our 2009 Equity Incentive Plan) shall require the approval of a majority of the total votes of shares of NewLink common stock cast that are not owned, beneficially or of record, by our non-employee directors, in the interest of obtaining a disinterested vote of our stockholders.
 
**
Approval for Proposal No. 4 (Stock Option Exchange Program) shall require the approval of a majority of the total votes of shares of NewLink common stock cast that are not owned, beneficially or of record, by our employees and directors. As part of the vote on this proposal, our stockholders are asked to confirm if they were an employee or director of the Company as of the Record Date. If a stockholder confirms that they were an employee or director of the Company as of the Record Date, such votes will not be voted on Proposal No. 4 in the interest of obtaining a disinterested vote of our stockholders.
 
***
Approval for Proposal No. 5 (Option Grants to our CEO and President) shall require the approval of a majority of the total votes of shares of NewLink common stock cast that are not owned, beneficially or of record, by Dr. Charles J. Link, Jr. and Dr. Nicholas N. Vahanian, in the interest of obtaining a disinterested vote of our stockholders.

What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding a majority of the outstanding shares entitled to vote are present at the meeting in person or represented by proxy. On the Record Date, there were 37,276,102 shares outstanding and entitled to vote. Thus, the holders of 18,638,052 shares must be present in person or represented by proxy at the meeting to have a quorum.
Your shares will be counted toward the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the holders of a majority of shares present at the meeting in person or represented by proxy may adjourn the meeting to another date.

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How can I find out the results of the voting at the annual meeting?
Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.



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PROPOSAL 1
ELECTION OF DIRECTORS
NewLink Genetics Corporation's Board is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term. Vacancies on our Board may be filled only by persons elected by a majority of the remaining directors. A director elected by our Board to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director's successor is duly elected and qualified.
Our Board presently has seven members. There are two directors in the class whose term of office expires in 2019, each of whom has been nominated for re-election. Nicholas N. Vahanian, M.D. currently serves on our Board and was previously elected by the stockholders in 2016. Matthew L. Sherman, M.D. currently serves on our Board and was elected by our Board to fill a vacancy in April 2018. If elected at the Annual Meeting, each nominee would serve until the 2022 Annual Meeting of Stockholders and until his successor has been duly elected and qualified, or, if sooner, until the director's death, resignation or removal.

Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors. If a choice is specified on the proxy card by a stockholder, their shares will be voted as specified. If a choice is not specified on the proxy card, and authority to do so is not withheld, the shares will be voted "FOR" the election of nominees named below. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below. If any nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee will instead be voted for the election of a substitute nominee proposed by us. Each person nominated for election has agreed to serve if elected. Our management has no reason to believe that any nominee will be unable to serve.

Class I Director Nominees
Below is a brief biography of each nominee and each director whose term will continue after the Annual Meeting, including the ages of each nominee and director as of April 1, 2019. Each individual listed below is nominated for election for a three-year term expiring at the 2022 Annual Meeting.
Name of Nominee
Age
Position Held with
Company
Committees
Director
Since
 
 
 
 
 
Nicholas N. Vahanian, M.D.
51
Director
None
2016
Matthew L. Sherman, M.D.
63
Director
 Nominating and Corporate Governance Committee
2018
    
Nicholas N. Vahanian, M.D., age 51, a co-founder of our Company, has served as President of our Company since 2009. He served as Chief Medical Officer of the Company from 2001 until November 2017 and previously served as Chief Operations Officer of the Company from 2001 to 2011. Dr. Vahanian began his research career at the National Cancer Institute and subsequently worked at the National Center for Human Genome Research Institute, National Institute of Health. He attended St Bartholomew's and Royal London Hospital Medical College and earned his Medical Degree and subsequently completed a Molecular Oncology Fellowship at the John Stoddard Cancer Research Institute. Dr. Vahanian holds a B.S. in Biology from Virginia Commonwealth University and an MBA from the University of Notre Dame.

Our Board believes that Dr. Vahanian's experience with our Company as a founder and executive officer since inception and his extensive medical and scientific background provides important experience, expertise and leadership to our Board as our Company continues to grow.

Matthew L. Sherman, MD, age 63, has served as a member of our Board since April 2018. Most recently, Dr. Sherman was Executive Vice President and Chief Medical Officer of Acceleron Pharma Inc., a clinical-stage biopharmaceutical company researching and developing innovative compounds that engage the body's ability to regulate cellular growth and repair for the treatment of serious and rare diseases. Dr. Sherman joined Acceleron as Chief Medical Officer in May 2006 and became Executive Vice President in March 2015. Prior to joining Acceleron, Dr. Sherman was Senior Vice President and Chief Medical Officer at Synta Pharmaceuticals Corp. from 2004 to 2006. From 1991 to 2004, Dr. Sherman held various leadership positions at Wyeth-Ayerst Research and Genetics Institute (acquired by Wyeth/American Home Products in 1997) in Clinical Research and Development. Dr. Sherman received an SB degree in Chemistry from the Massachusetts Institute of Technology in Cambridge,

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MA and an MD degree with Honors from Dartmouth Medical School in Hanover, NH. Dr. Sherman is board certified in Medical Oncology and Internal Medicine and held various clinical and teaching positions at Harvard Medical School with corresponding hospital appointments at the Dana-Farber Cancer Institute and Brigham and Women's Hospital, Boston, MA. Dr. Sherman serves on the Geisel School of Medicine at Dartmouth Board of Advisors and Alumni Council.
    
Our Board believes that Dr. Sherman's extensive scientific experience provides important experience and background necessary for him to serve as a member of our Nominating and Corporate Governance Committee.

    

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH DIRECTOR NOMINEE.


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Class II Directors Continuing in Office Until the 2020 Annual Meeting of Stockholders
Charles J. Link, Jr., M.D., age 59, founded NewLink Genetics Corporation in 1999 and has served as Chairman of our Board and our Chief Scientific Officer since inception in 1999. He served as President from 2001 to 2009 and has served as Chief Executive Officer since 2003. From 1995 to November 2013, Dr. Link was a practicing oncologist at the Medical Oncology and Hematology Associates of Iowa. From 1995 to 2003, Dr. Link served as the Director of the John Stoddard Cancer Research Institute, which he co-founded. Dr. Link served as a Medical Oncology Clinical Fellow at the National Cancer Institute and National Institutes of Health from 1988 to 1991. Dr. Link attended the U.S. Air Force Academy from 1977 to 1980. Dr. Link holds a B.A. from Stanford University, an M.D. from Stanford University School of Medicine and is certified in Internal Medicine by the American Board of Internal Medicine and has previously been certified in Medical Oncology.

Our Board believes that Dr. Link's experience with our Company, as a founder and director since inception and as Chief Executive Officer since 2003, brings continuity to our Board. In addition, our Board believes that Dr. Link's extensive medical and scientific background and experience provides important experience, expertise and leadership as our Company continues to grow.
    
Thomas A. Raffin, M.D., age 72, has served as a member of our Board since 1999 and is currently our Board's Lead Independent Director. Dr. Raffin has spent 30 years on the faculty at Stanford University School of Medicine, where he is the Colleen and Robert Haas Professor Emeritus of Medicine and Biomedical Ethics. Over the past two decades, Dr. Raffin has worked extensively in the healthcare and medical device business sectors and was an advisor to Cell Therapeutics Inc. from 1993 to 1997, Broncus Technologies from 1997 to 2004, iMedica from 1998 to 2002, and Inhale Technologies from 1998 to 2001. He co-founded Rigel Pharmaceuticals, a publicly traded company, in 1996. In 2001, he co-founded Telegraph Hill Partners, a San Francisco life sciences private equity firm as a General Partner. Dr. Raffin has been a director of the following Telegraph Hill Partners private portfolio companies: AngioScore, Inc., Confirma, Inc., Freedom Innovations, LDR Holding Corporation, PneumRx, Inc., Akoya BioSciences, Inc. and InvisALERT Solutions. Dr. Raffin received a B.A. from Stanford University and an M.D. from Stanford University School of Medicine and did his medical residency at the Peter Bent Brigham Hospital (now Brigham and Women's Hospital) in Boston, MA.

Our Board believes that Dr. Raffin's extensive medical and business background and experience provides important experience in business operations and medical technology and provides the background necessary for him to serve as the Chair of our Compensation Committee and as a member of our Nominating and Corporate Governance Committee.


9



Class III Directors Continuing in Office Until the 2021 Annual Meeting of Stockholders
Chad A. Johnson, J.D., age 40, has served as a member of our Board since March 2018. Mr. Johnson is currently General Counsel at Stine Seed Company. From May 2015 to April 2017, Mr. Johnson was the Assistant Corporate Secretary and Senior Corporate Counsel for Renewable Energy Group, Inc., the largest supplier of advanced biofuels by volume in North America. In addition to his role as a corporate officer, Mr. Johnson was a senior in-house attorney for the company where he helped advance the company’s strategic expansion into Europe and other merger and acquisition activities, managed the company's intellectual property portfolio and managed the legal aspects of the company's securities and public filings. From 2007 to April 2015, he spent eight years in roles of increasing responsibility at DuPont Pioneer, a subsidiary of DuPont and a global leading seed and agriculture biotechnology company. Mr. Johnson is admitted to practice law in the state of Iowa and before the United States Patent and Trademark Office. Mr. Johnson graduated from Iowa State University with a Master of Science in Crop Production and Physiology and received his J.D. from Drake University Law School.

Our Board and our Nominating and Corporate Governance Committee believes that Mr. Johnson's career at major biotechnology companies, service as a public company officer and experience overseeing various legal matters provides him with the background necessary for him to serve as a member of our Board and our Compensation Committee and our Nominating and Corporate Governance Committee.

Ernest J. Talarico, III, AIF, age 48, has served as a member of our Board since 1999. Mr. Talarico has worked for Mesirow Financial Holdings, Inc., a diversified financial services firm headquartered in Chicago, Illinois since 1998, where he has been a Senior Managing Director since December 2015. Prior to becoming Senior Managing Director, Mr. Talarico served as Managing Director from 2008 to 2015, Senior Vice President from 2005 to 2008, Vice President from 2003 to 2005 and Investment Executive from 1998 to 2003. Mr. Talarico specializes in financial planning and asset allocation, as well as other wealth accumulation and preservation strategies for individuals and businesses. Mr. Talarico sits on several boards and committees, including the Select Advisory Board and Committee and the Retirement Plan Advisory Investment Committee at Mesirow Financial and Benevolent Enabler, Inc., and the Advisory Board of Catholic Charities for the Archidiocese of Chicago. Mr. Talarico is also the Founder and Chairman of the Talarico Ataxia Open. Mr. Talarico holds a bachelor's degree from the University of Iowa as well as licenses in equities and options.
    
Our Board believes that Mr. Talarico's experience with our Company, as a director since inception and as a member of both our Compensation Committee and our Audit Committee of our Board, brings continuity to our Board. In addition, our Nominating and Corporate Governance Committee believes that Mr. Talarico’s extensive experience in the investment management business provides important experience in corporate finance and investor relations and provides the background necessary for him to serve as a member of our Compensation Committee and our Audit Committee.

Lota S. Zoth, CPA, age 59, has served as a member of our Board and Chair of our Audit Committee since November 2012. Ms. Zoth currently serves on the Board of Directors of Spark Therapeutics, Inc., (NASDAQ: ONCE) Zymeworks, Inc. and Orexigen Therapeutics, Inc. In March 2018, Orexigen filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. Ms. Zoth plans to remain on the Board of Directors for Orexigen until a plan of liquidation for Orexigen is approved by the U.S. Bankruptcy Court. She also previously served on the Board of Directors for nonprofit Aeras from 2011 to 2018, Circassia Pharmaceuticals, PLC from 2015 to 2019, Hyperion Therapeutics, Inc. from 2008 to May 2015 and Ikaria, Inc. from 2008 to 2014. Prior to her board service, Ms. Zoth served as Chief Financial Officer of MedImmune, Inc. from 2004 through 2007, and as its Corporate Controller from 2002 to 2004. Prior to that, Ms. Zoth was a financial executive at several companies, including Sodexho Marriott Services, Inc., PSINet Inc., Marriott International, Inc. and PepsiCo, Inc. Ms. Zoth began her career as an auditor at Ernst & Young, LLP. Ms. Zoth received a BBA in accounting, summa cum laude, from Texas Tech University.

Our Board believes that Ms. Zoth's experience with our Company, as a director since 2012 and as the current chair of our Audit Committee of our Board and a member of our Compensation Committee of our Board, brings continuity to our Board. In addition, our Nominating and Corporate Governance Committee believes that Ms. Zoth’s extensive financial background and experience provides important experience in corporate finance, corporate management, and investor relations and provides the background necessary for her to serve as a member of our Audit Committee and our Compensation Committee.


10



INFORMATION REGARDING OUR BOARD OF DIRECTORS AND CORPORATE GOVERNANCE


Independence of our Board of Directors

In determining independence, our Board considers the definition of "independent" set forth in the listing standards of the NASDAQ Stock Market, or NASDAQ, as well as other factors that contribute to effective oversight and decision-making by our Board. Our independence standards are set forth in our Corporate Governance Guidelines on our website at www.newlinkgenetics.com in the "Investors & Media - Corporate Governance - Corporate Governance Guidelines" section. As required under the NASDAQ listing standards, a majority of the members of a listed company's board of directors must qualify as "independent," as affirmatively determined by our Board. Our Board consults with our counsel to ensure that our Board’s determinations are consistent with relevant securities and other laws and regulations regarding the definition of "independent," including those set forth in pertinent listing standards of NASDAQ, as in effect from time to time.

Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members and our Company, its senior management and its independent auditors, our Board has affirmatively determined that the following four directors who served on our Board in 2018 and continue to serve are independent directors within the meaning of the applicable NASDAQ listing standards: Mr. Johnson, Mr. Talarico, Ms. Zoth and Dr. Raffin. Our Board has also determined that 2019 appointee and nominee for election at the Annual Meeting Dr. Sherman is an independent director within the meaning of the applicable NASDAQ listing standards. In making its independence assessments, our Board found that none of these directors or nominees for director had a material or other disqualifying relationship with our Company.

Dr. Charles J. Link, Jr. and Dr. Nicholas N. Vahanian are not independent directors by virtue of their employment with our Company.

There are no family relationships between our directors, director nominees and executive officers.

Board Leadership

Our Board is currently chaired by the Chief Executive Officer of our Company, Dr. Charles J. Link, Jr. Our Board has appointed Dr. Raffin as Lead Independent Director.

Our Company believes that combining the positions of Chief Executive Officer and Chairman of our Board, which we refer to as the Chairman, helps to ensure that our Board and management act with a common purpose. We believe combining the positions of Chief Executive Officer and Chairman is appropriate for a biopharmaceutical company focused on drug development in that it enhances our Board's focus on our progress on scientific research, clinical trials and commercialization as inputs to developing and implementing strategy. Our Company believes that combining the positions of Chief Executive Officer and Chairman provides a single, clear chain of command to execute our strategic initiatives and business plans related to drug development and commercialization. In addition, our Company believes that a combined Chief Executive Officer/Chairman is well-positioned to act as a bridge between management and our Board, facilitating the regular flow of information. Our Company also believes that it is advantageous to have a Chairman with an extensive history with and knowledge of our Company (as is the case with our Chief Executive Officer) as compared to a relatively less informed independent Chairman at this stage in our development.

Our Board appointed Dr. Raffin as the Lead Independent Director to help reinforce the independence of our Board as a whole. The position of Lead Independent Director has been structured to serve as an effective balance to a combined Chief Executive Officer/Chairman: the Lead Independent Director is empowered, among other duties and responsibilities, to develop, together with the Chief Executive Officer, the agenda for meetings of our Board, to develop, together with committee chairs, the agendas for meetings of committees, to preside over Board meetings in the absence of the officers and to oversee our Board's annual evaluation of the Chief Executive Officer's performance.

Role of Our Board Directors on Risk Oversight

One of our Board's key functions is informed oversight of our risk management process. Our Board does not have a standing risk management committee, but rather administers this oversight function directly through our Board as a whole, as well as through various Board standing committees that address risks inherent in their respective areas of oversight. In particular, while our Board is responsible for monitoring and assessing strategic risk exposure, our Audit Committee has the responsibility to consider and discuss the major financial risk exposures and the steps management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our Audit Committee also monitors compliance with legal and regulatory requirements with respect to SEC regulations and NASDAQ listing standards, in addition to oversight of the performance of our accounting and financial reporting processes. Our Nominating and Corporate Governance Committee monitors the effectiveness of the corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any compensation policies and programs have the potential to encourage excessive risk-taking. The entire Board and its committees address risk management issues from time-to-time and meet at least annually with the employees responsible for risk management in the committees' respective areas of oversight. Both our Board as a whole and the various standing committees receive periodic reports from the employees responsible for risk management, as well as incidental reports as matters may arise. It is the responsibility of the committee chairs to report findings regarding material risk exposures to our Board as quickly as possible.

Meeting Attendance

Our Board met nine times during the last fiscal year. Our Audit Committee met four times during the 2018 fiscal year, our Compensation Committee met eight times during the 2018 fiscal year, and our Nominating and Corporate Governance Committee met five times. None of our directors attended fewer than 75% of the meetings of our Board or committee meetings of which he or she was a member.

It is our policy to encourage directors and nominees for director to attend the Annual Meeting. Seven of the eight directors continuing their service as members of our Board after the 2018 Annual Meeting of Stockholders attended the meeting.

Committees of our Board of Directors
The following table sets forth membership of each of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee as of March 15, 2019:
Name
Audit
Compensation
Nominating and Corporate Governance
Dr. Charles J. Link, Jr.
 
 
 
Dr. Thomas A. Raffin
X
Chair
X
Mr. Ernest J. Talarico, III
X
X
 
Dr. Matthew L. Sherman
 
 
X
Ms. Lota Zoth
Chair
X
 
Dr. Nicholas N. Vahanian
 
 
 
Mr. Chad A. Johnson
 
X
Chair
Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems appropriate to carry out its responsibilities. Our Board has determined that, except as specifically described below, each current member of each committee meets the applicable NASDAQ rules and regulations regarding "independence" and that each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to the Company.
Below is a description of each committee of our Board.


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Audit Committee
Our Audit Committee was established by our Board in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, to oversee our corporate accounting and financial reporting processes and audits of its financial statements. For this purpose, our Audit Committee performs several functions. Our Audit Committee evaluates the performance of and assesses the qualifications of the independent auditors; determines and approves the engagement of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent auditors on our audit engagement team as required by law; confers with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and meets to review our annual audited financial statements and quarterly financial statements with management and the independent auditor, including a review of our disclosures in our Annual Report on Form 10-K under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Our Audit Committee is currently comprised of three directors: Ms. Zoth, Dr. Raffin and Mr. Talarico. Our Board has adopted a written Audit Committee charter that is available to stockholders on our website at www.newlinkgenetics.com in the "Investors & Media - Corporate Governance" section.

Our Board reviews the NASDAQ listing standards definition of independence for Audit Committee members on an annual basis and has determined that each current member of our Audit Committee meets the independence requirement (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the NASDAQ listing standards).

Our Board has also determined that Ms. Zoth qualifies as an "audit committee financial expert," as defined in applicable SEC rules. Our Board made a qualitative assessment of Ms. Zoth's level of knowledge and experience based on a number of factors, including her formal education and her years of experience.

Compensation Committee
The Compensation Committee of our Board is currently comprised of four directors: Dr. Raffin, Mr. Talarico, Ms. Zoth and Mr. Johnson. All current members of our Compensation Committee are independent (as independence is currently defined in Rule 5605(d)(2) of the NASDAQ listing standards). Additionally, all current members of our Compensation Committee are "outside directors" for 162(m) purposes and non-employee directors under Rule 16b-3 of the Exchange Act. Our Board has adopted a written Compensation Committee charter that is available to stockholders on our website at www.newlinkgenetics.com in the "Investors & Media - Corporate Governance" section.

The purpose of our Compensation Committee is to discharge the responsibilities of our Board to oversee our compensation policies, plans and programs and to review and determine the compensation to be paid to our directors, executive officers and other senior management. The scope of authority and specific responsibilities of our Compensation Committee include:

determining the compensation and other terms of employment of our executive officers and reviewing and approving corporate performance goals and objectives relevant to such compensation;
evaluating and recommending to our Board the compensation plans and programs advisable for the Company, and evaluating and recommending the modification or termination of existing plans and programs;
reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers;
selecting, retaining and terminating compensation consultants to assist in its evaluation of executive and director compensation, including the sole authority to approve the consultant's reasonable fees and other retention terms; and
reviewing and recommending to our Board the type and amount of compensation to be paid or awarded to members of our Board.

If we are no longer eligible for or elect not to provide scaled disclosure as a "smaller reporting company", our Compensation Committee would review with management our Compensation Discussion and Analysis and consider whether to recommend that it be included in proxy statements and other filings.

Nominating and Corporate Governance Committee
    
Our Nominating and Corporate Governance Committee of our Board is responsible for overseeing our corporate governance functions on behalf of our Board, making recommendations to our Board regarding corporate governance issues, identifying, reviewing and evaluating candidates to serve as directors of the Company consistent with criteria approved by our Board, reviewing and evaluating incumbent directors, recommending to our Board for selection candidates for election to our Board and making other recommendations to our Board regarding affairs relating to the directors of the Company, including director compensation.
    
Our Nominating and Corporate Governance Committee is currently comprised of three directors: Mr. Johnson, Dr. Raffin and Dr. Sherman. All current members of our Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards). Our Board has adopted a written Nominating and Corporate Governance Committee charter that is available to stockholders on our website at www.newlinkgenetics.com in the "Investors & Media - Corporate Governance" section.

Our Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. Our Nominating and Corporate Governance Committee also considers whether the candidate possesses the following factors among others: relevant expertise upon which to base advice and guidance to management, sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, the ability to exercise sound business judgment and the commitment to rigorously represent the long-term interests of our stockholders. Candidates for director nominees are reviewed in the context of the current composition of our Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, our Nominating and Corporate Governance Committee typically considers diversity, age, skills and such other factors as it deems appropriate given the current needs of our Board and the Company to maintain a balance of knowledge, experience and capability. Our Nominating and Corporate Governance Committee does not have a policy regarding how it considers diversity in selecting candidates.

In the case of incumbent directors whose terms of office are set to expire, our Nominating and Corporate Governance Committee reviews these directors' overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance and any relationships and transactions that might impair the directors' independence. Our Nominating and Corporate Governance Committee also takes into account the results of our Board’s self-evaluation, conducted annually on a group and individual basis. In the case of new director candidates, our Nominating and Corporate Governance Committee also determines whether the nominee is independent for NASDAQ purposes, which determination is based upon applicable NASDAQ listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. Our Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. Our Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of our Board. Our Nominating and Corporate Governance Committee meets to discuss and consider the candidates' qualifications and then selects a nominee for recommendation to our Board by majority vote. During 2015 and 2018, our Nominating and Corporate Governance Committee retained and paid a search firm to assist in the identification and evaluation of candidates for director.
    
In identifying potential candidates for Board membership, our Nominating and Corporate Governance Committee relies on suggestions and recommendations from our Board, stockholders, management and others. Our Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. Our Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above based on whether or not the candidate was recommended by a stockholder.

Code of Business Conduct and Ethics

The Company has adopted the NewLink Genetics Corporation Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available on our website at www.newlinkgenetics.com in the "Investors & Media - Corporate Governance" section. The Company amended the code of ethics in October 2015 and any future amendments or waivers to our code of ethics will be promptly disclosed on its website and as required by applicable laws, rules and regulations of the SEC and NASDAQ.

Corporate Governance Guidelines
Our Board adopted Corporate Governance Guidelines to assure that our Board will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of our management. The guidelines are also intended to align the interests of directors and management with those of our stockholders. The Corporate Governance Guidelines set forth the practices our Board intends to follow with respect to board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning and board committees and compensation. The Corporate Governance Guidelines, as well as the charters for each committee of our Board, may be viewed at www.newlinkgenetics.com in the "Investors & Media - Corporate Governance" section.


12



PROPOSAL 2
ADVISORY VOTE ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
At the 2018 Annual Meeting of Stockholders, our stockholders indicated their preference that the Company solicit a non-binding advisory vote on the compensation of the named executive officers, commonly referred to as a "say-on-pay vote," every year. Our Board has adopted a policy that is consistent with that preference.
This vote is being provided pursuant to section 14A of the Securities Exchange Act. It is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. The compensation of our named executive officers subject to the vote is disclosed in the compensation tables and the related narrative disclosure contained in this proxy statement. As discussed in those disclosures, the Company believes that its compensation policies and decisions are consistent with our strategic compensation and retention needs. Further, our compensation policies and decisions are designed to align its executive officers' compensation with our business objectives and the interests of its stockholders, to incentivize and reward its executive officers for our success and to promote teamwork within our executive management team. Compensation of our named executive officers is designed to enable the Company to attract and retain talented and experienced executives to lead the Company successfully in a competitive environment.
Accordingly, our Board is asking the stockholders to indicate their support for the compensation of our named executive officers as described in this proxy statement by casting a non-binding advisory vote "FOR" the following resolution:
"RESOLVED, that the compensation paid to our named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion, is hereby APPROVED."
Because the vote is advisory, it is not binding on our Board or our Company. Nevertheless, the views expressed by the stockholders, whether through this vote or otherwise, are important to management and our Board and, accordingly, our Board and our Compensation Committee intend to consider the results of this vote in making determinations in the future regarding executive compensation arrangements.
Advisory approval of this proposal requires the vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting. Abstentions will be counted toward the tabulation of votes on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted toward a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Unless our Board decides to modify its policy regarding the frequency of soliciting advisory votes on the compensation of our named executive officers, the next scheduled say-on-pay vote will be at the 2020 Annual Meeting of Stockholders.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.


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PROPOSAL 3
APPROVAL OF AN AMENDMENT TO OUR 2009 EQUITY INCENTIVE PLAN
Overview
On March 22, 2019, our Board of Directors amended the NewLink Genetics Corporation 2009 Equity Incentive Plan, as amended (the "2009 Plan"), subject to stockholder approval, to among other things, extend the term of the 2009 Plan. We refer to the 2009 Plan, as amended on March 22, 2019, as the "Amended 2009 Plan" throughout this proxy statement. References in this proposal to our Board of Directors include the Compensation Committee of the Board, where applicable.
A description of the material terms of the Amended 2009 Plan are summarized below. The key differences between the terms of the 2009 Plan and the Amended 2009 Plan are as follows:

The Amended 2009 Plan eliminates references to Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and references to performance cash awards as the Code was amended in 2018 to eliminate the exemption for "performance-based compensation" under Code Section 162(m).

The Amended 2009 Plan eliminates references to performance cash awards, because those awards were included in the 2009 Plan in order to allow the Company to comply with the exemption for "performance-based compensation" under Section 162(m), which has been repealed, effective for taxable years beginning after December 31, 2017.

The Amended 2009 Plan provides generally that dividends and dividend equivalents with respect to shares subject to a stock award will be subject to the same restrictions, including vesting restrictions, as the underlying stock award.

The Amended 2009 Plan provides that shares returned to the Company upon the "net exercise" of options or shares that are withheld by the Company for tax withholding purposes do not return to the share reserve

The Amended 2009 Plan decreases the automatic annual "evergreen" share increase from 4% of the outstanding shares to 3% and extends the term of such "evergreen" through January 1, 2029.

The Amended 2009 Plan prohibits repricing of stock awards without stockholder approval.

The Amended 2009 Plan clarifies that, in the event of a corporate transaction in which the surviving corporation or acquiring corporation (or its parent company) does not assume, continue, or substitute for performance stock awards granted by the Company, the vesting of such performance stock awards will be deemed to be satisfied at the target level.

The Amended 2009 Plan contains provisions that call for automatic, non-discretionary grants to the non-employee members of our Board.

The Amended 2009 Plan adds clawback language.

The Amended 2009 Plan extends the termination date originally set in the 2009 Plan indefinitely and provides that incentive stock options may not be granted more than 10 years after March 22, 2019 (the date of the Board's approval of the Amended 2009 Plan).
In this Proposal 3, our Board of Directors is requesting stockholder approval of the Amended 2009 Plan. The Board of Directors believes that the Amended 2009 Plan is an integral part of our long-term compensation philosophy and the Amended 2009 Plan is necessary to continue providing the appropriate levels and types of equity compensation for our employees.
Equity Awards Are an Integral Component of Our Compensation Program
Equity awards have been historically and, we believe, will continue to be an integral component of our overall compensation program for our employees and directors. Approval of the Amended 2009 Plan will allow us to continue to grant stock options and other equity awards at levels we determine to be appropriate in order to attract new employees and directors, retain our existing employees and to provide incentives for such persons to exert maximum efforts for the Company's success and ultimately increase stockholder value. The Amended 2009 Plan allows the Company to utilize a broad array of equity incentives with flexibility in designing such incentives, including traditional option grants, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance stock awards.

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As of March 22, 2019, stock awards covering an aggregate of 9,357,879 shares were outstanding under our 2009 Plan and the 2010 Non-Employees Director Plan, collectively. In addition, 1,923,269 shares remained available for future grant under the 2009 Plan as of such date.

The following table provides certain additional information regarding our equity incentive program.
 
 
 
As of March 22, 2019
 
Total number of shares of common stock subject to outstanding stock options
 
 
9,333,623

 
Weighted-average exercise price of outstanding stock options
 
 
$10.26
 
Weighted-average remaining term of outstanding stock options
 
 
5.17 years

 
Total number of shares of common stock subject to outstanding full value awards
 
 
24,256

 
Total number of shares of common stock available for grant under the 2009 Plan
 
 
1,923,269

 
Total number of shares of common stock available for grant under other equity incentive plans
 
 
53,509

 
Total number of shares of common stock outstanding
 
 
37,276,102

 
Per-share closing price of common stock as reported on Nasdaq Global Select Market
 
 
$1.91
 
We Manage Our Equity Incentive Award Use Carefully, and Dilution Is Reasonable
We continue to believe that equity awards such as stock options and other types of stock awards are a vital part of our overall compensation program. Our compensation philosophy reflects broad-based eligibility for equity incentive awards, and we grant awards to substantially all of our employees. However, we recognize that equity awards dilute existing stockholders, and, therefore, we must responsibly manage the growth of our equity compensation program. We are committed to effectively monitoring our equity compensation share reserve, including our "burn rate," to ensure that we maximize stockholders' value by granting the appropriate number of equity incentive awards necessary to attract, reward, and retain employees.
The following table shows our historical dilution and burn rate percentages for fiscal years 2016, 2017 and 2018.
As of December 31
2018
2017
2016
Full Dilution(1)
21.0
18.8
20.7
(1)
Full dilution is calculated as (shares available for grant + shares subject to outstanding equity incentive awards)/(common stock outstanding + shares available for grant + shares subject to outstanding equity incentive awards).

 
Burn Rate
The following table provides detailed information regarding the activity related to our equity incentive plans for fiscal years 2016, 2017 and 2018.
 
Fiscal Year
2018
 
2017
 
2016
 
Total number of shares of common stock subject to stock options granted
1,657,523

 
1,526,787

 
1,346,758

 
Total number of shares of common stock subject to full value awards granted

 

 
193,834

 
Weighted-average number of shares of common stock outstanding
37,195,624

 
31,375,045

 
28,971,884

 
Burn Rate
4.5

%
4.9

%
5.3

%
The approval of the Amended 2009 Plan will allow us to continue to grant stock options, and would allow us to grant other awards described below, at levels determined appropriate by our Board of Directors or its delegate. The Amended 2009 Plan will continue to provide us with flexibility in designing equity incentives in an environment where a number of companies have moved from traditional option grants to other stock-based awards, including stock appreciation rights, restricted stock awards, restricted stock unit awards, and performance stock awards. The Amended 2009 Plan allows us to utilize multiple types of equity incentives

15



in order to secure and retain the services of our employees, consultants and directors, and to provide long-term incentives that align the interests of our employees, consultants and directors with the interests of our stockholders.
Important Aspects of Our Amended 2009 Plan Designed to Protect Our Stockholders' Interests
The Amended 2009 Plan includes certain provisions that are designed to protect our stockholders' interests and to reflect corporate governance best practices including:
Repricing is not allowed. The Amended 2009 Plan prohibits the repricing of outstanding equity awards and the cancelation of any outstanding equity awards that have an exercise price or strike price greater than the current fair market value of our common stock in exchange for cash or other stock awards under the Amended 2009 Plan.
Submission of amendments to Amended 2009 Plan to stockholders. The Amended 2009 Plan requires stockholder approval for material amendments to the Amended 2009 Plan.
Flexibility in designing equity compensation scheme. The Amended 2009 Plan allows us to provide a broad array of equity incentives, including traditional option grants, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, and other stock awards. By providing this flexibility we can quickly and effectively react to trends in compensation practices and continue to offer competitive compensation arrangements to attract and retain the talent necessary for the success of our business.
Automatic non-employee director awards. The Amended 2009 Plan contains provisions that call for automatic, non-discretionary grants to the non-employee members of our Board.
Broad-based eligibility for equity awards. We grant equity awards to the vast majority of our employees. By doing so, we tie our employees' interests with stockholder interests and motivate our employees to act as owners of the business.
Restrictions on dividends. The Amended 2009 Plan provides that (i) no dividends or dividend equivalents may be paid with respect to any shares of our common stock subject to an award before the date such shares have vested, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of the applicable award agreement (including any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to us on the date such shares are forfeited to or repurchased by us due to a failure to vest.
 

 General 2009 Plan Information
Our 2009 Plan was adopted by the Board of Directors on May 13, 2009 and approved by our stockholders on July 15, 2009. The 2009 Plan was the successor to and continuation of the 2000 Plan. All outstanding stock awards granted under the 2000 Plan continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the 2000 Plan; provided, however, that any shares subject to outstanding stock options granted under the 2000 Plan that expire or terminate for any reason prior to exercise become available for issuance pursuant to stock awards granted under the Amended 2009 Plan. Following May 13, 2009, the effective date of the 2009 Plan, no additional stock awards have been granted under the 2000 Plan. As of May 13, 2009, 1,535,000 shares remaining available for issuance as new stock awards under the 2000 Plan became available for issuance pursuant to stock awards granted under the 2009 Plan. In October 2010, our Board of Directors adopted, and in January 2011, our stockholders approved, an amendment to the 2009 Plan to increase the number of shares reserved for issuance under the 2009 Plan to 3,992,857 shares.
In this Proposal No. 3, stockholders are requested to approve the Amended 2009 Plan. Approval of the adoption of the Amended 2009 Plan requires "For" votes from a majority of the votes cast at the Annual Meeting by the holders of shares present in person or represented by proxy and entitled to vote on this Proposal No. 3, excluding votes of shares owned, beneficially or of record, by our non-employee directors, in the interest of obtaining a disinterested vote of our stockholders. Abstentions will be counted toward the tabulation of votes cast on Proposal No. 3 and will have the same effect as negative votes. Broker non-votes are counted toward a quorum, but are not counted for any purpose in determining whether this matter has been approved.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.

Description of the Amended 2009 Plan
The material features of the Amended 2009 Plan are outlined below. This summary is qualified in its entirety by reference to the complete text of the Amended 2009 Plan. Stockholders are urged to read the actual text of the Amended 2009 Plan in its entirety, which is appended to this proxy statement as Appendix A and may be accessed from the SEC's website at www.sec.gov.

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Background
The terms of the Amended 2009 Plan provide for the grant of both nonstatutory stock options ("NSOs") and incentive stock options ("ISOs"), restricted stock, restricted stock units, stock appreciation rights, other stock-related awards, and performance stock awards.
Shares Available for Awards
If this Proposal 3 is approved, the total number of shares of our common stock reserved for issuance under the Amended 2009 Plan will consist of:
1,309,523 shares approved by the stockholders on July 15, 2009;
1,238,095 shares approved by the stockholders on May 15, 2010;
714,285 shares approved by the stockholders on January 7, 2011;
an aggregate of 9,138,750 shares automatically added to the share reserve on January 1 of each year during the period beginning January 1, 2012 through January 1, 2019;
the number of shares to be added as a result of our annual automatic "evergreen" increase; and
any returning shares, if any, as such shares become available.


     As of March 22, 2019, there were 1,923,269 shares of common stock (plus any shares that might in the future be returned to the plan as a result of cancellation or expiration of options) available for future grant under the 2009 Plan. In addition, as of such date, options covering an aggregate of 9,333,623 shares, collectively, were outstanding under the 2009 Plan, and 24,256 restricted stock awards were outstanding. The weighted average exercise price of all options outstanding as of March 20, 2019 was approximately $10.26 and the weighted average remaining term of such options was approximately 5.17 years. A total of 37,276,102 shares of our common stock were outstanding as of March 22, 2019.
If we issue common stock pursuant to a stock award and the common stock is later forfeited, then the forfeited shares will become available for issuance under the Amended 2009 Plan. Any shares underlying a stock option or stock appreciation right that we reacquire pursuant to our withholding obligations and any shares that we reacquire as consideration for the exercise of an option or stock appreciation right, however, do not become available for issuance under the Amended 2009 Plan. In addition, if the exercise price of any award is satisfied by the tender of shares of common stock to us (whether by actual delivery or attestation), the tendered shares do not become available for issuance under the Amended 2009 Plan.

Eligibility
All of our approximately 50 employees and all of our 5 non-employee directors are eligible to participate in the Amended 2009 Plan and may receive all types of awards; provided that incentive stock options may be granted under the Amended 2009 Plan only to our employees. Although our Amended 2009 Plan provides that consultants are eligible to participate in the plan, historically we have rarely granted equity awards to our consultants.
Administration
The Amended 2009 Plan is administered by our Board of Directors, which may in turn delegate authority to administer the plan to a committee. Our Board of Directors has delegated administration of the Amended 2009 Plan to our Compensation Committee Subject to the terms of the Amended 2009 Plan, our Compensation Committee may determine the recipients, numbers and types of stock awards to be granted, and terms and conditions of the stock awards, including the period of their exercisability and vesting. The fair market value applicable to a stock award and the exercise price of options granted under the Amended 2009 Plan is determined in accordance with the terms of the Amended 2009 Plan.
At the discretion of our Board of Directors, the Compensation Committee may consist solely of two or more "non-employee directors" within the meaning of Rule 16b-3 of the Exchange Act. Our Compensation Committee has the authority to delegate certain administrative powers to a subcommittee of one or more members. As used herein, except as explicitly stated otherwise, with respect to the Amended 2009 Plan, the "Board" refers to any committee the Board of Directors appoints (including the Compensation Committee) or, if applicable, any subcommittee, as well as to the Board of Directors itself.

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Repricing
Under the Amended 2009 Plan, the Board does not have the authority to reprice any outstanding equity awards by reducing the exercise price of the stock award or cancelling any outstanding stock awards in exchange for cash or other stock awards under the plan without the approval of our stockholders (which approval must be obtained within 12 months prior to the repricing event).
Dividends and Dividend Equivalents
The Amended 2009 Plan provides that dividends or dividend equivalents may be paid or credited with respect to any shares of our common stock subject to an award, as determined by the Board and contained in the applicable award agreement; provided, however, that (i) no dividends or dividend equivalents may be paid with respect to any such shares before the date such shares have vested, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of the applicable award agreement (including any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to us on the date such shares are forfeited to or repurchased by us due to a failure to vest.
Options
Options may be granted under the Amended 2009 Plan pursuant to stock option agreements. The Amended 2009 Plan permits the grant of options that qualify as incentive stock options, or ISOs, and nonstatutory stock options, or NSOs. Individual stock option agreements may be more restrictive as to any or all of the permissible terms described in this section.
The exercise price of NSOs may not be less than 100% of the fair market value of the common stock subject to the option on the date of grant. The exercise price of ISOs may not be less than 100% of the fair market value of the common stock subject to the option on the date of grant and, in some cases (see "Limitations" below), may not be less than 110% of such fair market value.
The term of stock options granted under the Amended 2009 Plan may not exceed ten years. Unless the terms of an optionholder's stock option agreement provide for earlier or later termination, if an optionholder's service relationship with us, or any affiliate of ours, ceases due to (i) disability, the optionholder may exercise any vested options for up to 12 months after the date the service relationship ends or (ii) death, the optionholder’s beneficiary, may exercise any vested options for up to 18 months after the date the service relationship ends. Except as explicitly provided otherwise in an optionholder's award agreement, if an optionholder's service relationship with us is terminated for "cause" as defined in the Amended 2009 Plan, all options terminate upon the service termination date, and the optionholder is prohibited from exercising any option from the time of such termination. If an optionholder's service relationship with us ceases for any reason other than for cause or upon disability or death, the optionholder may exercise any vested options for up to three months after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer or shorter period to exercise the option. In no event may an option be exercised after its expiration date. Under the Amended 2009 Plan, the option term may be extended in the event that exercise of the option following termination of service is prohibited by applicable securities laws or if the sale of stock received upon exercise of an option would violate our insider trading policy. In no event, however, may any option be exercised beyond the expiration of its term.
Acceptable forms of consideration for the purchase of our common stock issued under the Amended 2009 Plan will be determined by our Board and may include cash, check, bank draft or money order made payable to us, the recipient’s past services performed for us or an affiliate of ours, or other legal consideration approved by our Board.
Options granted under the Amended 2009 Plan may become exercisable in cumulative increments, or "vest", as determined by our Board at the rate specified in the option agreement. Shares covered by different options granted under the Amended 2009 Plan may be subject to different vesting schedules as our Board may determine. Vesting can be time-based or performance-based or can be a hybrid of performance- and time-based vesting. Our Board also has flexibility to provide for accelerated vesting of equity awards in certain events. Our Board and Compensation Committee intend to continue to grant stock options to our officers with accelerated vesting, subject to additional conditions, in the event of a change of control of the Company as defined in the Amended 2009 Plan.
Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order. However, an optionholder may designate a beneficiary who may exercise the option following the optionholder's death.

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Limitations
The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by a participant during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any affiliate unless the following conditions are satisfied:
the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and
the term of any ISO must not exceed five years from the date of grant.

Subject to adjustment for certain changes in our capitalization, the aggregate maximum number of shares of our common stock that may be issued pursuant to the exercise of ISOs under the Amended 2009 Plan is fifty million (50,000,000) shares.
Restricted Stock Awards
Restricted stock awards may be granted pursuant to restricted stock award agreements. A restricted stock award may be granted in consideration for cash, check, bank draft or money order payable to us, the recipient's past services performed for us or an affiliate of ours, or any other form of legal consideration acceptable to the Board. Shares of our common stock acquired under a restricted stock award may be subject to forfeiture to us in accordance with a vesting schedule to be determined by our Board. Rights to acquire shares of our common stock under a restricted stock award may be transferred only upon such terms and conditions as are set forth in the restricted stock award agreement.
Restricted Stock Unit Awards
Restricted stock unit awards may be granted pursuant to restricted stock unit award agreements. Payment of any purchase price may be made in any legal form acceptable to the Board. We will settle a payment due to a recipient of a restricted stock unit award by delivery of shares of our common stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by our Board and set forth in the restricted stock unit award agreement. Dividend equivalents may be credited in respect of shares of our common stock covered by a restricted stock unit award. Restricted stock unit awards may be subject to vesting in accordance with a vesting schedule to be determined by our Board. Except as otherwise provided in the applicable restricted stock unit award agreement, restricted stock units that have not vested will be forfeited upon the participant’s termination of continuous service for any reason.

Stock Appreciation Rights
Stock appreciation rights may be granted pursuant to a stock appreciation right agreement. Each stock appreciation right is denominated in common stock share equivalents. The strike price of each stock appreciation right will be determined by our Board, but shall in no event be less than 100% of the fair market value of the stock subject to the stock appreciation right at the time of grant. Our Board may also impose restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate. Stock appreciation rights may be paid in our common stock, in cash, in any combination of the two, or any other form of legal consideration approved by our Board and contained in the stock appreciation right agreement. Stock appreciation rights shall be subject to the same conditions upon termination and restrictions on transfer as stock options under the Amended 2009 Plan.
Performance Stock Awards
The Amended 2009 Plan provides for the grant of performance stock awards. Performance stock awards may be granted, may vest or may be exercised based upon the attainment during a certain period of time of certain performance goals. The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained shall be determined by the Board.
Performance goals under the Amended 2009 Plan shall be determined by a committee of the Board composed solely of outside directors members, based on any one or more of the following performance criteria: (i) earnings (including earnings per share and net earnings); (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity or average stockholder’s equity; (vi) return on assets, investment, or capital employed; (vii) stock price; (viii) margin (including gross margin); (ix) income (before or after taxes); (x) operating income; (xi) operating income after taxes; (xii) pre-tax profit; (xiii) operating cash flow; (xiv) sales or revenue targets; (xv) increases in revenue or product revenue; (xvi) expenses and cost reduction goals; (xvii) improvement in or attainment of working capital levels; (xviii) economic value added (or an equivalent metric); (xix) market share; (xx) cash flow; (xxi) cash flow per share; (xxii)

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share price performance; (xxiii) debt reduction; (xxiv) commencement of, progress in, or completion of clinical trials or other development projects; (xxv) receipt of government contracts, grants or awards; (xxvi) stockholders’ equity; (xxvii) capital expenditures; (xxviii) debt levels; (xxix) operating profit or net operating profit; (xxx) workforce diversity; (xxxi) growth of net income or operating income; (xxxii) completion of financing transactions; (xxxiii) completion of, progress under, or receipt of upfront, milestone, royalty or other payments under, licensing or strategic transactions; and (xxxiv) other measures of performance selected by the Board.

Other Stock Awards
Other forms of stock awards valued in whole or in part with reference to our common stock may be granted either alone or in addition to other stock awards under the Amended 2009 Plan. Our Board will have sole and complete authority to determine the persons to whom and the time or times at which such other stock awards will be granted, the number of shares of our common stock to be granted and all other conditions of such other stock awards. Other forms of stock awards may be subject to vesting in accordance with a vesting schedule to be determined by our Board.
Changes to Capital Structure
In the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the class and number of shares reserved under the Amended 2009 Plan (including share limits) and the class and number of shares and exercise price or strike price, if applicable, of all outstanding stock awards will be appropriately adjusted.
Corporate Transactions
Unless otherwise provided in a written agreement between the Company or any of its affiliates and the holder of the stock award, or expressly provided by the Board or the Compensation Committee at the time of grant of a stock award, in the event of a corporate transaction (as specified in the Amended 2009 Plan and described below), all outstanding stock awards under the Amended 2009 Plan shall be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such stock awards, then (i) with respect to any such stock awards that are held by individuals whose continuous service with us or an affiliate has not terminated prior to the effective date of the corporate transaction, the vesting and exercisability provisions of any such time-based stock awards will be accelerated in full (and any such performance-based stock awards will be accelerated to the target level) and such awards will terminate if not exercised prior to the effective date of the corporate transaction, and (ii) with respect to any stock awards that are held by individuals whose continuous service with the Company or an affiliate of the Company has terminated prior to the effective date of the corporate transaction, the vesting and exercisability provisions of such stock awards will not be accelerated and such awards will terminate if not exercised prior to the effective date of the corporate transaction (except that any reacquisition or repurchase rights held by the Company with respect to such stock awards shall not terminate and may continue to be exercised notwithstanding the corporate transaction).
For purposes of the Amended 2009 Plan, a corporate transaction will be deemed to occur in the event of the consummation of (i) a sale of all or substantially all of our consolidated assets, (ii) a sale of at least 90% of our outstanding securities, (iii) a merger or consolidation in which we are not the surviving corporation, or (iv) a merger or consolidation in which we are the surviving corporation but shares of our outstanding common stock are converted into other property by virtue of the transaction.
A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as provided in the stock award agreement or in any other written agreement between us and the participant, but in the absence of such provision, no acceleration shall occur.
Plan Amendments
Our Board will continue to have the authority to amend or terminate the Amended 2009 Plan. However, no amendment, including the one put forth in this Proposal 3, or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the Amended 2009 Plan as required by applicable law.

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U.S. Federal Income Tax Consequences
The information set forth below is a summary only and does not purport to be complete. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any recipient may depend on his or her particular situation, each recipient should consult the recipient's tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award. The Amended 2009 Plan is not qualified under the provisions of Section 401(a) of the Code, and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974. Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income as well as the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of our tax reporting obligations.
Nonstatutory Stock Options
Generally, there is no taxation upon the grant of an NSO where the option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date. On exercise, an optionholder will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. If the optionholder is employed by us, that income will be subject to withholding tax. The optionholder's tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and the optionholder's capital gain holding period for those shares will begin on that date.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the optionholder.
Incentive Stock Options
The Amended 2009 Plan provides for the grant of stock options that qualify as "incentive stock options", as defined in Section 422 of the Code. Under the Code, an optionholder generally is not subject to ordinary income tax upon the grant or exercise of an ISO, subject to alternative minimum tax obligations upon exercise of an ISO. If the optionholder holds a share received on exercise of an ISO for more than two years from the date the stock option was granted and more than one year from the date the stock option was exercised, which is referred to as the required holding period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder's tax basis in that share will be long-term capital gain or loss.
If, however, an optionholder disposes of a share acquired on exercise of an ISO before the end of the required holding period, which is referred to as a disqualifying disposition, the optionholder generally will recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date the ISO was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the stock option, the amount of ordinary income recognized by the optionholder will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the stock option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.
For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price of that stock option generally will be an adjustment included in the optionholder's alternative minimum taxable income for the year in which the stock option is exercised. If, however, there is a disqualifying disposition of the share in the year in which the stock option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the stock option is exercised.
We are not allowed an income tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired on exercise of an ISO after the required holding period. If there is a disqualifying disposition of a share, however, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionholder, subject to Section 162(m) of the Code and provided that amount constitutes an ordinary and necessary business expense for us and is reasonable in amount, and either the employee includes that amount in income or we timely satisfy our reporting requirements with respect to that amount.

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Restricted Stock Awards
Generally, the recipient of a restricted stock award will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is not vested when it is received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.
The recipient's tax basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.
Stock Appreciation Rights
We may grant under the Amended 2009 Plan stock appreciation rights separate from any other award or in tandem with other awards under the Amended 2009 Plan.
Where the rights are granted with a strike price equal to the fair market value of the underlying stock on the grant date and where the recipient may only receive the appreciation inherent in the stock appreciation rights in shares of our common stock, the recipient will recognize ordinary compensation income equal to the fair market value of the stock received upon such exercise. If the recipient may receive the appreciation inherent in the stock appreciation rights in cash or other property and the stock appreciation right has been structured to conform to the requirements of Section 409A of the Code, then the cash will be taxable as ordinary compensation income to the recipient at the time that the cash is received.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation right.
 
Restricted Stock Units
Generally, the recipient of a stock unit structured to conform to the requirements of Section 409A of the Code or an exception to Section 409A of the Code will recognize ordinary compensation income at the time the stock is delivered equal to the excess, if any, of the fair market value of the shares of our common stock received over any amount paid by the recipient in exchange for the shares of our common stock. To conform to the requirements of Section 409A of the Code, the shares of our common stock subject to a stock unit award may generally only be delivered upon one of the following events: a fixed calendar date (or dates), separation from service, death, disability or a change in control. If delivery occurs on another date, unless the stock units otherwise comply with or qualify for an exception to the requirements of Section 409A of the Code, in addition to the tax treatment described above, the recipient will owe an additional 20% federal tax and interest on any taxes owed.
The recipient's tax basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock units will be the amount paid for such shares plus any ordinary income recognized when the stock is delivered.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.
Section 162 Limitations
Compensation of persons who are "covered employees" of the Company is subject to the tax deduction limits of Section 162(m) of the Code. The exemption from Section 162(m)'s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered employees in excess

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of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
Interest of Certain Persons in the Amended 2009 Plan
Stockholders should understand that our directors, executive officers and other employees may be considered as having an interest in the approval of the Amended 2009 Plan because they may, in the future, receive awards under it. If approved, the annual grants made to our non-employee directors in connection with our Annual Meeting, beginning with the 2019 Annual Meeting of Stockholders, would be issued under the Amended 2009 Plan. The Board believes that it is important to our growth and long-term success to be able to continue to offer these incentives.
New Plan Benefits
Amended 2009 Plan
Name and position(1)
Dollar value of awards
Number
of shares of common stock subject to awards
Charles J. Link, Jr., M.D., Chief Executive Officer (2)
 
250,000

Nicholas N. Vahanian, M.D., President (2)
 
100,000

All Current Executive Officers as a group
 
350,000

All Current Non-Employee Directors as a group (3)
(4)
(4
)
All Current Employees as a group (excluding all current executive officers)
 


(1)
Except as listed in the table, no other awards that may be made under the Amended 2009 Plan are currently determinable, as there are no guaranteed or contractually required awards. Future grants are subject to approval of our Board or the applicable committee.
(2)
See "Proposal 5 - Option Grants to Our CEO and President."
(3)
Includes Matthew L. Sherman as a nominee for re-election at the Annual Meeting.
(4)
As described in the paragraph preceding the table, NSO grants equivalent to a specified dollar value will be made pursuant to our non-employee director compensation plan at the Annual Meeting as described under "Director Compensation" below.



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Plan Benefits Table
        The following table sets forth, for each of the individuals and groups indicated, the total number of shares of our common stock subject to awards that have been granted (even if not currently outstanding) under the 2009 Plan through December 31, 2018.
2009 Plan
Name and position
Number of shares
Charles J. Link, Jr., M.D.
2,575,357

   Chief Executive Officer
 

Nicholas N. Vahanian, M.D.
1,905,572

   President
 
Eugene P. Kennedy, M.D.
411,141

   Chief Medical Officer
 

Carl W. Langren
354,731

   Chief Financial Officer
 
All current executive officers as a group
5,246,801

All current directors who are not executive officers as a group
891,483

Each nominee for election as a director:
 

Nicholas N. Vahanian, M.D.
See above

Matthew L. Sherman, M.D.
(1
)
Each associate of any executive officers, current directors or director nominees

Each other person who received or is to receive 5% of awards

All employees, including all current officers who are not executive officers, as a group
6,165,903

(1) 91,224 total stock options granted included in "All current directors who are not executive officers as a group"
Equity Compensation Plan Information
Our Equity Compensation Information Plan table is incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 5, 2019.


OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.



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PROPOSAL 4
APPROVAL OF THE STOCK OPTION EXCHANGE PROGRAM

On March 22, 2019, our Board authorized a stock option exchange program, or Option Exchange, pursuant to which our employees, including our executive officers, and our non-employee directors would be given the opportunity to exchange eligible stock options for new stock options with an exercise price equal to the fair market value of our common stock at the time of the exchange. As disclosed in the Interests of Our Executive Officers and Non-Employee Directors in the Option Exchange table and related narrative disclosure contained in this proxy statement, the Company’s executive officers and non-employee directors have an interest in this Proposal 4.
An eligible stock option generally includes any employee stock option that has an exercise price equal to or greater than $2.97 per share and was granted on or prior to December 31, 2018 pursuant to either our 2000 Equity Incentive Plan, 2009 Equity Incentive Plan, or 2010 Non-Employee Directors' Stock Award Plan, which we collectively refer to as our Equity Plans.
Implementation of the Option Exchange is contingent upon (i) stockholder approval of the Option Exchange in this Proposal No. 4 and (ii) stockholder approval of the amendment of the Amended 2009 Plan, as described in Proposal No. 3.
As of December 31, 2018, we had outstanding stock options held by employees and directors to purchase 7,979,644 shares of common stock with a weighted average exercise price of $11.86 per share, which includes 937,406 shares held by our CEO and our President that will expire prior to the Option Exchange and 1,053,129 shares held by non-employees that will not be eligible for the Option Exchange. The remaining 5,880,097 shares with an exercise price equal to or greater than $2.97 per share have a weighted average exercise price of $12.61 and would be considered eligible stock options for purposes of the Option Exchange.
The Board believes that the Option Exchange is in the best interests of stockholders and the Company, as new stock options granted under the program will provide added incentive to motivate and retain our talented employees and directors. As an alternative to increased cash compensation, the Option Exchange will allow us to devote more of our cash resources towards advancing our clinical development programs. In addition, it will provide the opportunity to reduce the "overhang" of outstanding stock options, many of which are well out of the money.
Rationale for Option Exchange
Our Compensation Committee evaluated several alternatives for remaining competitive within our industry and with our employees and directors, including increasing cash compensation and/or granting additional equity awards. While these components are part of our overall compensation packages, we do not believe that relying exclusively on such approaches is an ideal use of our resources. For example, increasing cash compensation would reduce the cash resources we devote to research and development, and granting additional stock awards would cause dilution to our current stockholders. Accordingly, we determined that the Option Exchange was the most attractive alternative for stockholders for the reasons set forth below.
Performance Incentives
We face significant competition for experienced personnel in our industry, and stock options are an important part of our incentive compensation. The price of our common stock has significantly decreased over the last several years. While we have worked to refocus the Company and remain optimistic regarding our technologies and growth potential, the price of our common stock remains relatively low. On March 22, 2019, the closing price of our common stock on The Nasdaq Global Market was $1.91 per share, resulting in greater than 99% of our outstanding eligible employee and director stock options being underwater (meaning the stock option exercise price exceeded the market price of our common stock on such date). Our compensatory stock options cannot be sold; they may either be voluntarily exercised when there is a positive spread between the exercise price and the market price of our common stock, or they will expire unexercised. Underwater stock options are no longer effective as performance incentives because they provide little perceived value to employee optionholders. In addition, because many of our options are significantly underwater, the likelihood that there will be a positive spread between their exercise prices and the near-term price of our common stock is too low to provide meaningful incentive to employee optionholders.
Employee Retention
We have designed the Option Exchange to restore equity value, increase retention and motivation in a competitive labor market, provide non-cash compensation incentives and align our employee and stockholder interests for long-term growth.

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Underwater stock option awards are of limited benefit in motivating and retaining our employees, including our executive officers, and our non-employee directors. Through the Option Exchange, we believe that we will be able to enhance long-term stockholder value by increasing our ability to retain experienced and talented employees and by aligning the interests of these individuals more fully with the interests of our stockholders. As of March 22, 2019, greater than 99% of our eligible employee stock options are underwater (and for a large number of employees, significantly so), so we may face a considerable challenge in retaining our employees and directors, and there is a possibility that our competitors may be able to offer equity incentives that are more attractive, which in some cases, could make the terms of employment at a new employer more attractive than we can offer to our existing employees and directors. The Option Exchange is designed to address these concerns as well as improve morale among our employees and directors generally and reinvigorate a culture where equity compensation is a key component of our overall compensation package.
As discussed in more detail below, none of the new stock options issued under the Option Exchange program will be vested on the date of grant. Stock options issued in the Option Exchange for options that are already vested as of the exchange date will vest as to 50% on the first anniversary of grant date and 50% on the second anniversary of grants date, while stock options that are unvested at the exchange date will vest as to 50% at the second anniversary and 50% at the at the third anniversary. The stock options eligible to be exchanged are generally subject to a four-year vesting schedule, in which twenty-five percent of shares vest after one year, and the remaining shares vest in equal monthly installments. Our Compensation Committee believes that implementing a new extended vesting schedule is appropriate because it encourages retention of employees and directors over the next one to three years, during an important period for the Company.
Reduce Stock Overhang
Under the Option Exchange, eligible participants will receive new stock options covering a smaller number of shares than are covered by the surrendered stock options. Therefore, implementation of the Option Exchange would significantly reduce the number of outstanding stock options if employees and directors participate in the program. The number of shares covered by the new stock options are based on exchange ratios developed by using a Black-Scholes calculation that values the old grant relative to the projected value of the new grant, such that the new stock options will have a fair value, on an aggregate basis, approximately equal to the fair value of the eligible stock options they replace. Our Compensation Committee established the exchange ratios, which vary based on the original exercise price of the eligible stock option, as described further in the section "Exchange Ratios" below.
As of December 31, 2018, we had outstanding stock options held by employees and directors to purchase 7,979,644 shares of common stock with a weighted average exercise price of $11.86 per share, which includes 937,406 shares held by our CEO and our President that will expire prior to the Option Exchange and 1,053,129 shares held by non-employees that will not be eligible for the Option Exchange. The remaining 5,880,097 shares with an exercise price ranging from $2.97 per share to $52.85 per share and have a weighted average exercise price of $12.61 and would be considered eligible stock options for purposes of the Option Exchange. As a result, we have developed a significant stock option "overhang" consisting of outstanding but unexercised options that are not serving their intended purposes of motivating and retaining employees, including our executive officers, and directors. Not only do the underwater stock options have diminished employee and director retention value, they cannot be removed from our equity award overhang until they are exercised, expire or otherwise cancelled (for example, when an employee leaves our employment). Significant overhang may portend additional dilution to existing and potential stockholders and may therefore have the effect of inhibiting additional investment in our common stock, which can have a negative impact on stock price and trading volume. By replacing stock options through the Option Exchange, we estimate that we can reduce our overhang of outstanding stock options by as much as 11.6% of our outstanding common stock.
Alternatives Considered
Our Compensation Committee considered alternatives to the Option Exchange to provide meaningful performance and retention incentive to our employees and directors, including providing new options to employees and directors, exchanging underwater options for full value shares, or exchanging underwater options for a cash payment. The Compensation Committee determined that the Option Exchange provides better performance and retention incentives with less cost to the Company or dilution to stockholders than the other alternatives.

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Structure of the Option Exchange
The Board authorized the Option Exchange on March 22, 2019, subject to stockholder approval, and subject to stockholder approval of our Amended 2009 Plan, as described in Proposal No. 3. It is currently anticipated that the Option Exchange will commence as soon as practicable following approval of this Proposal No. 4 by our stockholders, or the Commencement Date. At the start of the Option Exchange, employees and directors holding eligible stock options will receive a written exchange offer that will set forth the precise terms of the Option Exchange. The written offer will be governed by the tender offer rules of the SEC. At or before the Commencement Date, we will file the offer to exchange and other related documents with the SEC as part of a tender offer statement on Schedule TO. Eligible optionholders will be given at least 20 business days to elect to participate in the Option Exchange. Eligible optionholders may choose which eligible option grants they wish to exchange, though they may not choose to exchange portions of eligible option grants. Set forth below is a description of the key features of the Option Exchange.
Eligible Participants
The Option Exchange will be available to all employees and non-employee directors of the Company, who, on the Commencement Date, hold outstanding eligible stock options and are employed by, or providing service to, the Company. As of March 22, 2019, eligible stock options were held by approximately 100% of our employees and directors. Participants in the Option Exchange must continue to be employed by or provide services to the Company on the date the surrendered options are cancelled and replacement stock options are granted (such date, the "Exchange Date"). Any employee or director holding eligible stock options who elects to participate in the Option Exchange but whose service with the Company terminates for any reason before the Exchange Date, including a termination due to voluntary resignation, retirement, involuntary termination, layoff, death or disability, would retain his or her eligible options subject to their existing terms and will not be eligible to receive new stock options in the Option Exchange.
Eligible Stock Options
As of December 31, 2018, we had outstanding eligible stock options to purchase 5,880,097 shares of common stock under our Equity Plans at a weighted-average exercise price of $12.61 per share. The eligible stock options represent approximately 15.8% of the issued and outstanding shares of our common stock as of December 31, 2018. If all of the eligible stock options are exchanged and replaced by new stock options in accordance with the exchange ratios described below under the section heading "Exchange Ratios," the number of outstanding stock options under our Equity Plans would be reduced by 3,291,725 shares, representing approximately 6.0% of our common stock issued and outstanding as of December 31, 2018.
Exchange Ratios; Exercise Price of New Options
The exchange ratios for the Option Exchange have been designed to result in a fair value of the new stock options that will be approximately equal, on an aggregate basis, to the fair value of the eligible stock options that would be surrendered (based on valuation assumptions made when the Option Exchange was approved). The exchange ratios have been established by grouping together eligible stock options with similar exercise prices. At the time the Compensation Committee set the exchange ratios, the fair market value of our common stock was $1.91 per share (the closing price of our common stock on The Nasdaq Global Market on March 22, 2019). The exchange ratios are based on the fair value of the eligible stock options (calculated using the Black-Scholes model) within the relevant grouping. Calculation of fair value takes into account variables such as the volatility of our stock, the expected term of a stock option and interest rates. As illustrated in the table below, the applicable exchange ratios will vary based on the exercise price of the eligible stock option.

Exercise Price Range per Share
 
Number of Outstanding Eligible Options
 
Exchange Ratio (Surrendered Stock Options to New Stock Options)
$2.97-$10.99
 
4,143,604

 
 
2 to 1
$11.00-$24.99
 
990,587

 
 
3 to 1
$25.00-And Up
 
745,906

 
 
4 to 1


The total number of shares of common stock issuable upon exercise of new stock options will be determined by dividing the number of shares underlying the surrendered stock option by the applicable exchange ratio and rounding up to the nearest whole share. For purposes of illustration, if an employee holds a stock option to purchase 10,000 shares of common stock with an exercise price of $25 per share, the employee would be entitled to exchange that option for a replacement stock option to purchase 2,500 shares of common stock after applying the applicable 4:1 exchange ratio. An eligible employee who holds an

27



option to purchase 10,000 shares of common stock with an exercise price of $20 per share could exchange that option for a replacement stock option to purchase 3,334 shares of common stock after applying the applicable 3:1 exchange ratio. An eligible employee who holds an option to purchase 10,000 shares of common stock with an exercise price of $10 per share could exchange that option for a replacement stock option to purchase 5,000 shares of common stock after applying the applicable 2:1 exchange ratio. All replacement stock options granted based on the foregoing exchange ratios would have an exercise price equal to the fair market value of our common stock at the time of the exchange.
Vesting Schedules for New Options
New stock option awards will not be vested on the date of grant. To the extent an eligible stock option is vested as of the Exchange Date, such vested portion may be exchanged for a new stock option that will vest as to 50% on the first anniversary and 50% on the second anniversary of grant date, and to the extent an eligible stock option is unvested as of the Exchange Date, such unvested portion may be exchanged for a new stock option that will vest 50% on the second anniversary and 50% on the third anniversary from the date of grant. These new vesting schedules support the nature of stock options as an incentive vehicle, recognize the prior services and contributions by eligible participants and provide us with valuable additional years of employee and director retention during an important time for the Company.
Term for New Options
The new stock options will expire seven (7) years following the date the new options are granted.
Intended Implementation of the Option Exchange As Soon As Practicable Following Stockholder Approval
We expect that the Option Exchange will begin as soon as practicable, but no later than four (4) months following stockholder approval, if received. Our Board in its discretion reserves the right to amend, postpone or, under certain circumstances, cancel the Option Exchange once it has commenced, but the Option Exchange will not be materially amended in a manner more beneficial to eligible participants without first seeking additional stockholder approval.
Impact of Option Exchange on Surrendered Options
All shares of stock options surrendered under the Option Exchange that are not replaced by shares of new stock options, which number is estimated to be 3,291,725 shares assuming 100% participation in the Option Exchange, will be returned to the share reserve of the Amended 2009 Plan and will be available for future grant of equity awards under the Amended 2009 Plan.
Option Exchange Process
Additional information about how we expect to conduct the Option Exchange, if approved by stockholders, is set forth below. While the terms of the Option Exchange are expected to conform to the material terms described above in this Proposal No. 4, we may find it necessary or appropriate to change the terms of the Option Exchange to take into account our administrative needs, accounting rules, company policy decisions or to comply with any comments we receive from the SEC. We may decide not to implement the Option Exchange even if stockholder approval of the Option Exchange is obtained, or we may delay, amend or terminate the Option Exchange once it is in progress. The final terms of the Option Exchange will be described in the exchange offer documents that will be filed with the SEC and available at www.sec.gov.
Overview of the Option Exchange Process
Upon commencement of the Option Exchange, eligible participants holding eligible stock option awards will receive a written offer setting forth the terms of the Option Exchange and may voluntarily elect to participate. All of our employees, including our executive officers, and all of our non-employee directors of the Company who hold eligible stock options and are continuously employed by, or providing service to, the Company from the Commencement Date through the Exchange Date are eligible to participate in the Option Exchange. Eligible participants will be given at least 20 business days to elect to surrender eligible stock options in exchange for a smaller number of new stock options. Upon completion of the Option Exchange, surrendered stock options will be cancelled and new stock options will be granted. Cancelled options will then be available for future grant under the Amended 2009 Plan.
The Amended 2009 Plan will govern all terms or conditions of new stock options not specifically addressed by the Option Exchange described in this proxy statement. Additionally, it is anticipated that new options will be incentive stock options (that is, they will qualify for the tax-favored treatment) to the extent allowable under Section 422 of the Internal Revenue Code and available for grant under our Amended 2009 Plan.

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Election to Participate
Eligible participants will receive a tender offer document and will be able to voluntarily elect to participate in the Option Exchange. If you are both a stockholder and employee or director holding stock options that are potentially subject to the Option Exchange, note that voting to approve the Option Exchange does not constitute an election to participate in the Option Exchange. The written exchange offer documents described above will be provided if and when the Option Exchange is commenced. You can elect to participate after that time only.
Impact of Option Exchange on Number of Options Issued
The Compensation Committee established exchange ratios that will result in the issuance of a lesser number of stock options through the Option Exchange, which have been grouped together based on similar exercise prices. The following table illustrates the impact of the Option Exchange on the number of stock options outstanding, assuming that 100% of eligible participants exchange 100% of their eligible stock options in the Option Exchange.
 
 
Outstanding Eligible Options
 
 
 
Exchange
 
Exercise Price Range per Share
 
Number of Existing Options (shares)
 
Weighted Average Exercise Price ($)
 
Exchange Ratio
 
Total New Options Granted (shares)
 
Potential Net Shares Recaptured
$2.97-$10.99
 
4,143,604

 
 
$6.86
 
 
2 to 1
 
2,071,764

 
 
2,071,840

 
 
$11.00-$24.99
 
990,587

 
 
$16.62
 
 
3 to 1
 
330,150

 
 
660,437

 
 
$25.00-And Up
 
745,906

 
 
$39.27
 
 
4 to 1
 
186,458

 
 
559,448

 
 
Totals:
 
5,880,097

 
 
$12.61
 
 
 
 
2,588,372

 
 
3,291,725

 
 

As described above under the section "Exchange Ratios," the total number of shares of common stock issuable upon exercise of new stock options that a participating employee or director will receive with respect to a surrendered stock option will be determined by dividing the number of shares surrendered by the applicable exchange ratio and rounding up to the nearest whole share.
Effect on Stockholders
Under the terms of the Option Exchange, the new stock options are meant to have a fair value that will be approximately equal, on an aggregate basis and grouped by similar exercise prices, to the fair value of the cancelled stock options they would replace. While we cannot predict how many employees or directors will elect to participate in the Option Exchange, assuming that 100% of eligible employees and directors participate in the Option Exchange and based on the exchange ratios established by the Compensation Committee, eligible stock options for approximately 5,880,097 shares of common stock may be surrendered and cancelled, which would result in stock options for approximately 2,588,372 shares of common stock being issued, resulting in a net reduction in our stock option overhang of approximately 3,291,725 shares.

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Interests of Our Executive Officers and Non-Employee Directors in the Option Exchange
Our executive officers and non-employee directors will be permitted to participate in the Option Exchange. The following table shows the number of shares subject to eligible stock options held by our named executive officers and non-employee directors as of December 31, 2018 and the number of shares subject to new stock options that they may receive assuming, for purposes of illustration only, that each named executive officer and non-employee director decides to exchange all of his or her eligible stock options.
Name
 
Number of Shares Underlying Eligible Options
 
Weighted Average Exercise Price ($)
 
Weighted Average Remaining Life (years)
 
Number of Shares that may be Granted in the Option Exchange
Charles J. Link, Jr., M.D. Chief Executive Officer
 
1,840,282
 
$12.94
 
5.15
 
807,068
Nicholas N. Vahanian, M.D. President
 
1,459,810
 
$10.89
 
4.37
 
661,703
Gene P. Kennedy, M.D. Chief Medical Officer
 
411,141
 
$15.55
 
7.23
 
173,236
Carl W. Langren Chief Financial Officer
 
342,644
 
$10.48
 
7.14
 
157,159
Chad A. Johnson Director
 
76,101
 
$6.43
 
9.29
 
38,050
Thomas A. Raffin Director
 
210,742
 
$10.77
 
4.72
 
93,976
Matthew L. Sherman, M.D. Director
 
91,224
 
$4.79
 
9.36
 
45,611
Ernest J. Talarico, III Director
 
171,454
 
$10.86
 
4.95
 
75,325
Lota S. Zoth Director
 
120,267
 
$14.27
 
6.71
 
47,946

Accounting Impact
The incremental compensation cost associated with the Option Exchange will be measured as the excess, if any, of the fair value of each award of new stock option granted to participants in the Option Exchange, measured as of the Exchange Date, over the fair value of the stock options surrendered in exchange for the new stock options, measured immediately prior to the cancellation. We are unable to predict the precise impact the Option Exchange will have on our stock compensation expense as we do not know how many or which employees or directors will exchange their eligible stock options, nor can we compute the future fair value of the stock options. However, the Option Exchange is intended to better align compensation expense with the retention and motivation value that we are trying to capture with our outstanding equity grants, to restore competitive and appropriate employee equity incentives, and to reduce our existing overhang and potential dilution.
Material U.S. Federal Income Tax Consequences of the Option Exchange
The exchange of stock options pursuant to the Option Exchange should be treated as a non-taxable exchange because the new stock options will have an exercise price equal to or greater than the fair market value of our common stock on the grant date. Neither the Company, nor participants in the Option Exchange, should recognize any income for U.S. federal income tax purposes upon the grant of the new stock options. To the extent permissible and available for grant under our Amended 2009 Plan, new stock options granted under the Option Exchange will be incentive stock options for U.S. federal income tax purposes. Tax

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effects may vary in other countries; a more detailed summary of tax considerations will be provided to all participants in the Option Exchange documents.
Financial Statements
Our financial statements and other information required by Item 13(a) of Schedule 14A under the Exchange Act are incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 5, 2019.
Vote Required
Approval of the Option Exchange requires "For" votes from a majority of the votes cast at the Annual Meeting by the holders of shares present in person or represented by proxy and entitled to vote on this Proposal No. 4, excluding votes of shares owned, beneficially or of record, by our employees and directors. As part of the vote on this proposal, our stockholders are asked to confirm if they were an employee or director of the Company as of the Record Date. If a stockholder confirms that they were an employee or director of the Company as of the Record Date, such votes will not be voted on Proposal No. 4 in the interest of obtaining a disinterested vote of our stockholders. We do not count abstentions and broker non-votes as votes cast and they will have no effect on the vote.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.



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PROPOSAL 5
OPTION GRANTS TO OUR CEO AND PRESIDENT

On March 22, 2019, our Board approved (with Dr. Link and Dr. Vahanian abstaining), subject to approval by our disinterested stockholders, stock option grants under the Amended 2009 Plan to each of Charles L. Link, Jr., M.D., our Chief Executive Officer, Chief Scientific Officer and Chairman of the Board, and Nicholas N. Vahanian, M.D., our President, current director and director nominee for our 2019 Annual Meeting, to replace certain outstanding grants held by Drs. Link and Vahanian that will expire in May 2019. Such replacement grants are referred to herein as the Replacement Grants.

Issuance of the Replacement Grants is contingent upon (i) stockholder approval of the amendment of the Amended 2009 Plan, as described in Proposal No. 3, (ii) stockholder approval of the Option Exchange, as described in Proposal No. 4 and (iii) stockholder approval of the Replacement Grants as described in this Proposal 5.

Our Board believes that the Replacement Grants are in the best interests of stockholders and the Company, as the Replacement Grants will provide added incentive to motivate and retain our CEO and President.

Background
 
Each of Dr. Link and Dr. Vahanian hold outstanding stock options to purchase shares of our common stock that are due to expire in May 2019. The below table provides information about such expiring options:

Name
Number of Shares Underlying Unexercised Options
Option Exercise Price
Option Expiration Date
Fully Vested?
Charles J. Link, Jr. M.D.
264,474
$4.20
5/13/2019
Yes
Chief Executive & Scientific Officer, Chairman of the Board
468,037
$2.10
5/13/2019
Yes
Total number of expiring options
732,511
 
 
 
 
 
 
 
Nicholas N. Vahanian, M.D.
145,451
$2.10
5/13/2019
Yes
President, Director, 2019 Director Nominee
59,444
$2.10
5/13/2019
Yes
Total number of expiring options
204,895
 
 
 

Our Board approved Replacement Grants to purchase 250,000 and 100,000 shares of our common stock to Drs. Link and Vahanian respectively. If this Proposal 5 is approved by our disinterested stockholders, the Replacement Grants shall:

be granted under the Amended 2009 Plan on the Exchange Date (described under Proposal 3), which is referred to as the Date of Grant with respect to this Proposal 5;
have an exercise price of 100% of the closing price of the Company’s common stock as of the Date of Grant as reported on the Nasdaq Stock Market;
be incentive stock options to the maximum extent permitted, with the remainder being non-incentive stock options; and
be subject to vesting, with:
50% of the options vesting on the two year anniversary of the Date of Grant;
25% of the options vesting on the third year anniversary of the Date of Grant; and
25% of the options vesting on the fourth year anniversary of the Date of Grant.

Dr. Link and Dr. Vahanian’s security ownership of NewLink is described in the section “Security Ownership of Certain Beneficial Owners and Management” below. On March 1, 2019, Dr. Link and Dr. Vahanian were respectively granted options to purchase 500,000 and 185,000 shares of our common stock at a purchase price of $1.80 per share under our 2009 Plan, with 50% subject to time-based vesting, 25% subject to performance-based vesting and 25% subject to event-based vesting.

Rationale

With a substantial number of Drs. Link and Vahanian’s vested options due to expire in May 2019, our Board determined that it would be in the best interests of our stockholders and the Company to award new options as partial replacement for such expiring stock options.

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Our Board considered that the Replacement Grants would not have a substantial negative dilutive impact on the Company, particularly considering that options to purchase an aggregate 937,406 shares of common stock were expiring while options to purchase only an aggregate of 350,000 were proposed to be issued. Our philosophy with respect to dilution and our historical dilution is described in Proposal 3. Moreover, our Board determined that the exercise price of 100% of the closing price of the Company’s common stock as of the Date of Grant was fair.

The expiring options are already fully vested and thus are not a strong incentive for continued service by Drs. Link and Vahanian. The new stock option awards will not be vested on the date of grant and are subject to time-based vesting. These new vesting schedules support the nature of stock options as an incentive vehicle, recognize the valuable prior services and contributions each of Drs. Link and Vahanian have provided to the Company for more than a decade to the Company and provide us with valuable additional years of employee and director retention during an important time for the Company.

Vote Required

Approval of the Replacement Grants requires "For" votes from a majority of the votes cast at the Annual Meeting by the holders of shares present in person or represented by proxy and entitled to vote on this Proposal No. 5, excluding votes of shares owned, beneficially or of record, by Dr. Link and Dr. Vahanian in the interest of obtaining a disinterested vote of our stockholders. We do not count abstentions and broker non-votes as votes cast and they will have no effect on the vote.

Although our Board is not required to seek or receive stockholder approval to issue option grants under our Amended 2009 Plan, our Board made the issuance of Replacement Grants contingent on stockholder approval in the interest of good corporate governance. Our Board believes that approval of the Replacement Grants by our disinterested stockholders is in the best interests of us and our stockholders because it appropriately compensates our CEO and President, who we believe are important to our success. If our disinterested stockholders do not approve the Replacement Grants, but our stockholders approve the amendment of the Amended 2009 Plan, then our Board or Compensation Committee may nevertheless make option grants, including option grants materially similar to those described in this Proposal 5, to Dr. Link and Dr. Vahanian at any time during the year without notice to, or the consent of, the stockholders, if our Board or Compensation Committee determines that making such option grants would be in the best interests of the Company and our stockholders, although they do not plan to do so at this time.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5.



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PROPOSAL 6
RATIFICATION OF SELECTION OF KPMG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has selected KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 and has further directed that management submit the selection of independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. KPMG LLP has audited our financial statements since inception in 1999. Representatives of KPMG LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of KPMG LLP as our independent registered public accounting firm. However, our Audit Committee is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, our Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, our Audit Committee in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of our Company and our stockholders.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting will be required to ratify the selection of KPMG LLP. Abstentions will be counted toward the tabulation of votes on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Principal Accountant Services and Fees
The following table represents aggregate fees billed to the Company for the fiscal years ended December 31, 2018 and December 31, 2017, by KPMG LLP, our principal accountant. All tax fees described below were pre-approved by our Audit Committee.
 
Year Ended
 
2018
2017
Audit Fees (1) 
$524,000
$606,904
Audit-related Fees


Tax Fees (2)
$114,660
$101,261
All Other Fees


Total Fees
$638,660
$708,165

(1) Represents fees for the audit of our annual financial statements and of our internal control over financial reporting, review of our quarterly financial statements included in our Forms 10-Q, accounting consultations and the issuance of consents and comfort letters.

(2) Consists of fees for tax services provided to the Company, including tax planning and compliance services and the review of certain tax returns.

Pre-Approval Policies and Procedures
 
Our Audit Committee has adopted a policy and procedures for the pre-approval of audit services, audit-related services and tax services rendered by our independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services, and tax services up to specified amounts. Pre-approval may also be given as part of our Audit Committee's approval of the scope of the engagement of the independent registered public accounting firm or on an individual explicit case-by-case basis before the independent registered public accounting firm is engaged to provide each service. The pre-approval of services has been delegated to the Chairperson of our Audit Committee, but the decision must be reported to the full Audit Committee at its next scheduled meeting.


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In connection with the audit of the 2018 financial statements, our Audit Committee entered into an engagement agreement with KPMG LLP which sets forth the terms by which KPMG LLP was to perform audit services for the Company.
    
Report of Our Audit Committee (1) 

Our Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2018 with management of the Company. Our Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard 1301, Communications with Audit Committee, as adopted by the Public Company Accounting Oversight Board, or PCAOB. Our Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with our Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm's independence.

Based on the foregoing, our Audit Committee has recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

AUDIT COMMITTEE

Ms. Lota Zoth (Chair)
Mr. Ernest J. Talarico, III
Dr. Thomas A. Raffin

(1) The material in this Audit Committee report is not "soliciting material," is not deemed "filed" with the Commission and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
    
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 6.


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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of our common stock as of March 20, 2019, except as set forth below, by: (i) each current director and nominee for director; (ii) each of the named executive officers specified in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than 5% of its common stock. The percentage of shares beneficially owned is computed on the basis of 37,276,102 shares of our common stock outstanding as of March 20, 2019. Shares of our common stock that a person has the right to acquire within 60 days of March 20, 2019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
Names of Beneficial Owner
 
Shares
 
Percentage
 
 
 
 
 
5% Stockholders
 
Total
 
 
Stine Seed Farm, Inc. (1)
 
7,857,732


 
 
21.1
%
   Renaissance Technologies LLC (2)
 
2,061,013

 
 
5.5
%
   BlackRock Inc. (3)
 
1,871,127

 
 
5.0
%
Directors and Named Executive Officers
 
 
 
 
Charles J. Link, Jr., M.D. (4)
 
2,531,230

 
 
6.4
%
Nicholas N. Vahanian, M.D. (5)
 
1,538,357

 
 
4.0
%
Eugene P. Kennedy, M.D. (6)
 
296,632

 
 
*
 
Thomas A. Raffin, M.D. (7)
 
275,363

 
 
*

 
Ernest J. Talarico, III (8)
 
209,519

 
 
*

 
Lota S. Zoth (9)
 
128,173

 
 
*

 
Matthew L. Sherman, M.D. (10)
 
48,925

 
 
*
 
Chad A. Johnson (11)
 
46,569

 
 
*
 
 
 
 
 
 
 
 
All Executive Officers & Directors as a Group (9 persons)(12)
 
5,350,450

 
 
12.7
%

*Represents beneficial ownership of less than 1%.


36



(1
)
Address: 22555 Laredo Trail, Adel, Iowa 50003, Based solely upon a Schedule 13D filed with the SEC on October 6, 2017.
(2
)
Address: 800 Third Avenue, New York, New York 10022. Based solely upon a Schedule 13G filed with the SEC on February 12, 2019 reflecting the beneficial ownership by Renaissance Technologies LLC as of December 10, 2018.
(3
)
Address: 55 East 52nd Street, New York, New York 10055. Based solely upon a Schedule 13G filed with the SEC on February 11, 2019 reflecting the beneficial ownership by BlackRock Inc. as of January 31, 2019.
(4
)
Includes 2,266,950 shares Dr. Link has the right to acquire through the exercise of stock options within 60 days of March 20, 2019 and 25,139 shares held by his spouse.
(5
)
Includes 1,497,168 shares Dr. Vahanian has the right to acquire through the exercise of stock options within 60 days of March 20, 2019.
(6
)
Includes 283,281 shares Dr. Kennedy has the right to acquire through the exercise of stock options within 60 days of March 20, 2019.
(7
)
Includes 210,742 shares Dr. Raffin has the right to acquire through the exercise of stock options within 60 days of March 20, 2019.
(8
)
Consists of 171,454 shares Mr. Talarico has the right to acquire through the exercise of stock options within 60 days of March 20, 2019, 32,223 shares of common stock held by Mr. Talarico, 977 shares of common stock held by Ernie Talarico Roth IRA, 1,737 shares of common stock held by Kelli Talarico Roth IRA, 1,564 shares of common stock held by son's trust and 1,564 shares of common stock held by daughter's trust.
(9
)
Includes 120,267 shares Ms. Zoth has the right to acquire through the exercise of stock options within 60 days of March 20, 2019.
(10
)
Includes 48,925 shares Dr. Sherman has the right to acquire through the exercise of stock options within 60 days of March 20, 2019.
(11
)
Includes 46,569 shares Mr. Johnson has the right to acquire through the exercise of stock options within 60 days of March 20, 2019.
(12
)
Includes 4,851,708 shares issuable upon exercise of stock options exercisable within 60 days of March 20, 2019 and 498,742 shares of common stock held by our current directors and executive officers, including Charles J. Link, Jr., M.D., Nicholas N. Vahanian, M.D., Eugene P. Kennedy, M.D., Carl W. Langren, Thomas A. Raffin, M.D., Ernest J. Talarico, III, Lota S. Zoth, Matthew L. Sherman, M.D. and Chad A. Johnson. In the case of Carl W. Langren, 49,691 shares of common stock are held by a trust of his spouse, who is the grantor of the trust and such shares are subject to a loan and pledge agreement.

Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Directors, executive officers and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2018, the Company believes that all reports required by Section 16(a) of the Exchange Act to be filed by our officers, directors and greater than 10% beneficial owners were complied with.


37



DIRECTOR COMPENSATION
The following table shows certain information with respect to the compensation of all of our non-employee directors for the fiscal year ended December 31, 2018.
 
 
 
 
 
 
 
 
 
Name
 
Cash Compensation (1)
 
 
Option Awards ($) (2)(3)(4)
 
 
Total ($)
Paul R. Edick(5)
 
$33,625
 
 
$0
 
 
$33,625
Chad A. Johnson
 
$48,733
 
 
$344,583
(6)
 
$393,316
Paolo Pucci(7)
 
$71,029
 
 
$106,000
 
 
$177,029
Thomas A. Raffin, M.D.
 
$98,262
 
 
$106,000
 
 
$204,262
Matthew L. Sherman, M.D.
 
$45,845
 
 
$313,077
(8)
 
$358,922
Ernest J. Talarico, III
 
$69,000
 
 
$106,000
 
 
$175,000
Lota Zoth
 
$75,125
 
 
$106,000
 
 
$181,125


(1
)
Cash compensation paid quarterly based on the annual amount of $45,000 for all Non-Employee Directors with additional annual cash compensation of $27,000 for Lead Independent Director, $18,000, $18,000, $15,500 and $9,000 for the Chairs of the Audit, Science, Compensation and Nominating and Corporate Governance Committees, respectively; and $12,000, $10,000, $10,000 and $6,500 for members of the Audit, Compensation, Science and Nominating and Corporate Governance Committees, respectively.
(2
)
The assumptions we used in valuing options are described under the caption "Share-Based Compensation" in note 2 to our financial statements included in our Annual Report on Form 10-K filed March 5, 2019. This column reflects compensation expense that would be recorded under FASB ASC topic 718 as stock-based compensation in our financial statements for the indicated year in connection with options we granted in the indicated year, disregarding the effects of any estimate of forfeitures related to service-based vesting.
(3
)
The aggregate number of shares subject to stock option awards outstanding for each non-employee director as of December 31, 2018 are as follows:
 
 
 
Option Awards
 
     Chad A. Johnson
 
76,101
 
     Thomas A. Raffin, M.D.
 
210,742
 
     Ernest J. Talarico, III
 
171,454
 
     Matthew L. Sherman, M.D.
 
91,224
 
     Lota Zoth
 
120,267
(4
)
Grant date fair value of 27,777 options granted in 2018 at an exercise price of $5.33, which was the per share closing price of our common stock on the NASDAQ Global Market on the date of grant.
(5
)
Mr. Edick resigned from the Board effective as of April 30, 2018.
 
 
(6
)
Grant date fair value of 27,777 options granted at an exercise price of $5.33 and 48,324 options granted at an exercise price of $7.07, which was the per share closing price of our common stock on the NASDAQ Global Market on the date of grant in each instance.
(7
)
Dr. Pucci resigned from the Board effective as of October 31, 2018.
 
 
(8
)
Grant date fair value of 27,777 options granted at an exercise price of $5.33 and 63,447 options granted at an exercise price of $4.56, which was the per share closing price of our common stock on the NASDAQ Global Market on the date of grant in each instance.

Non-Employee Director Compensation

The following compensation components are paid to our non-employee directors:

38




Annual cash retainer fees;
An equity grant upon initial election or appointment to our Board; and
An annual equity grant.

Our non-employee director compensation program as in effect for the fiscal year ended December 31, 2018 is as described below. For a description of our compensation program in effect for prior years, please refer to the proxy statement for our 2018 Annual Meeting of stockholders.  Under our program, each non-employee director was entitled to receive annual cash retainer fees in the amounts set forth below and were paid in cash quarterly on the first day of each quarter during their annual term commencing upon their election or re-election at each Annual Meeting of Stockholders.  Such amounts were pro-rated for appointments made to our Board between our annual meetings.

Director Compensation
 
 
 
2018 #
Annual retainer fee payable to all non-employee directors
 
 
$
45,000
Additional annual retainer fee payable to the Lead Independent Director of our Board
 
 
$
27,000
Additional annual retainer fee payable to our Audit Committee Chair
 
 
$
18,000
Additional annual retainer fee payable to other Audit Committee members
 
 
$
12,000
Additional annual retainer fee payable to our Scientific Committee Chair
 
 
$
18,000
Additional annual retainer fee payable to our Compensation Committee Chair
 
 
$
15,500
Additional annual retainer fee payable to other Compensation Committee members
 
 
$
10,000
Additional annual retainer fee payable to our Nominating and Corporate Governance Committee Chair
 
 
$
9,000
Additional annual retainer fee payable to other Nominating and Corporate Governance Committee members
 
 
$
6,500
# effective March 2018

During 2018, upon election to our Board, each new non-employee director would have been eligible to receive an initial grant of stock options for a number of shares equal to $250,000 divided by the per share grant date fair value that will be used for reporting compensation under applicable accounting guidance.  Additionally, during the term of his or her service on our Board, each non-employee director receives an annual grant comprised of stock options for a number of shares equal to $150,000 divided by the per share grant date fair value that will be used for reporting compensation under applicable accounting guidance. During 2018, we made such annual grants pursuant to our 2009 Plan since our 2010 Non-Employee Directors' Stock Award Plan did not have sufficient shares to cover such grants and the Board elected to reduce the number of shares underlying the 2018 stock option grants to $100,000 for each non-employee director.

We also reimburse our directors, including our employee directors, for their reasonable expenses incurred in attending meetings of our Board and the committees of our Board. Other than reimbursement of any such reasonable expenses, our employee directors do not receive compensation for their service on our Board.

Director Stock Ownership Guidelines
Our stock ownership guidelines for non-employee directors anticipate that each director will, by December 31, 2019, hold shares of our common stock representing at least $150,000 worth of common stock or 10,000 shares, whichever is less. All of our directors currently meet stock ownership guidelines or are making acceptable progress toward their required level.


39





Our executive officers are appointed by and serve at the direction of our Board of Directors. There are no family relationships between our directors, director nominees and executive officers.

Our Named Executive Officers are:

Name
Age
Title
Charles J. Link, Jr., M.D.
59
Chairman of the Board and Chief Executive and Scientific Officer
Nicholas N. Vahanian, M.D.
51
President
Eugene P. Kennedy, M.D.
50
Chief Medical Officer

Charles J. Link, Jr., M.D., See Dr. Link's biography in "Proposal Number 1-Election of Directors."

Nicholas N. Vahanian, M.D., See Dr. Vahanian’s biography in "Proposal Number 1-Election of Directors."

Eugene P. Kennedy, MD, FACS, has served as our Chief Medical Officer since November 2017, where he leads clinical development across all immuno-oncology product candidates as well as investigator initiated trials. From January 2014 to November 2017, Dr. Kennedy served as our Vice President for Clinical and Medical Affairs. Prior to joining NewLink Genetics, he was on faculty and clinical staff at Thomas Jefferson University in Philadelphia, Pennsylvania where he served as Associate Professor of Surgery and held leadership positions as Chief of the Section of Pancreaticobiliary Surgery and co-director of the Jefferson Pancreas, Biliary, and Related Cancers Center from January 2006 to December 2013. Previously, Dr. Kennedy held faculty positions at Johns Hopkins Hospital and the Louisiana State University School of Medicine. He has considerable experience in clinical trial design and implementation, leading both investigator initiated and industry-sponsored efforts.

Our Chief Financial Officer is Carl W. Langren, age 63. Mr. Langren was not a Named Executive Officer as of the end of our 2018 fiscal year.

Carl W. Langren has served as our Chief Financial Officer since July 2018. Previously, he was our Vice President of Finance of NewLink since November 2011 and has also been Chief Financial Officer of our subsidiary BioProtection Systems Corporation since February 2005. Prior to NewLink, Mr. Langren served as Chief Financial Officer for each of Housby Mixer Group from 1998 to 2002 and Equity Dynamics, Inc from 1988 to 1989. He also served as a Principal in Capital Management Solutions, President of Iowa Machinery and Supply, Treasurer of DFM Corporation, and Tax Manager with McGladrey Pullen and Company. Mr. Langren received a BBA with highest honors in accounting from the University of Iowa in Iowa City, Iowa.

EXECUTIVE SUMMARY OF EXECUTIVE COMPENSATION
We have made progress in our efforts to rebuild and refocus the Company for future success. In 2018 we published further clinical results on indoximod that suggest it has significant activity in combination therapy for a variety of cancer indications. We presented numerous times through the year, including final results from two Phase 2 studies of indoximod at the 2018 American Society of Clinical Oncology (ASCO) Annual Meeting.
Beyond our clinical results and progress, our financial position is strong. We ended 2018 with cash and cash equivalents totaling $120.7 million, which we project is sufficient to fund planned operations through 2021. As we enter 2019 with a strong cash position, our intention is to focus on developing the best potential registration strategy for indoximod and further developing our pipeline assets, including NLG207. However, we also realize that as we continue to advance our product candidates through clinical trials, pursue regulatory approval of our product candidates, and prepare for one or more of our product candidates receiving marketing approval, our stock price has declined due to various internal and external factors including clinical success and market perception, among others.
As our stock price has declined, our Compensation Committee has adjusted our pay program to better reflect our new reality of a lower market capitalization. Actions taken include:
Revising our peer group for 2018 (and 2019);
Freezing 2018 base salaries at 2017 post-voluntary reductions;
Freezing bonus opportunities;
Granting significantly less equity value; and

40



Proposing an option exchange program to support incentivizing our employees in this new reality.
As described throughout this CD&A, our stock price performance has had a significant impact on compensation results as well. While target pay levels have been lowered, the actual value received (or "realizable") by executives is significantly lower, an indication that our pay for performance philosophy is working and management and stockholders have aligned interests. We believe our Compensation Committee has refined our executive compensation program to reflect our current size, strategy, and operational priorities, and motivated and incentivized our management team to build long-term, sustainable stockholder value.
Consideration of Say-on-Pay Results and Stockholder Outreach
At our 2018 annual stockholder meeting, our annual non-binding advisory vote on executive compensation ("say-on-pay") vote was approved by a substantial majority of our voting shareholders. The Compensation Committee reviewed these final vote results, which we believe reinforces our pay for performance philosophy and the appropriateness of our compensation structure. The Compensation Committee determined that the structure of our executive compensation policies continues to be appropriately aligned to the achievement of Company goals and objectives and stockholder best interests. We believe that compensation program enhancements of the past several years, as well as our commitment to improved transparency in our CD&A disclosure, have resulted in a compensation program that best serves our Company, our executives, and our stockholders. That said, the Compensation Committee and management recognize the value of engaging in a dialogue with our stockholders, and we expect to review our compensation practices and continue to consider stockholder feedback on an ongoing basis to ensure alignment between our executive officers' compensation, our business objectives, and the interests of our stockholders.
How Our Compensation Program Works

Our executive compensation philosophy continues to be based on attracting and retaining top talent while providing competitive compensation that creates a direct, meaningful link between business results and compensation opportunities. We rely on the following three primary elements:

Annual
 
 
 
Base Salary
Base salaries are set to be competitive to the marketplace and are important in attracting and retaining talented executives. Recognition of an individual's role and responsibilities; provides fixed competitive pay for retention purposes.
 
Short-Term Incentives
Cash incentives are designed to reward the achievement of annual corporate and individual objectives.
Multi-Year
 
 
 
Long-Term
Equity
Long-term equity awards are delivered as time-based and performance-based stock options.
 
 
These awards incentivize executives to create and deliver long-term shareholder value, while also providing a retention vehicle for our executive talent.
 
 
In 2018, 50% of equity awards to our top executives were delivered as performance-based equity.

We view each of the elements of our compensation program as related but distinct, and we have not established any formal policies or guidelines for allocating compensation between the elements. For example, we do not believe that significant compensation derived from one element of compensation, such as equity appreciation, should adversely affect compensation from other elements, such as salary or bonus.


41



Executive Target Pay Mix

Consistent with our desire to align pay and performance, we take the above-mentioned elements and more heavily weight their distribution towards variable or at-risk pay. Although our Compensation Committee does not target a specific allocation for each pay element, the Compensation Committee is nevertheless cognizant of delivering an appropriate balance between fixed and variable elements, as well as short- and long-term incentives, as evidenced here in the following 2018 target pay mix allocation charts:

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12826934&doc=4http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12826934&doc=6


Realizable Pay

We believe strong pay for performance programs align the short-term and long-term interests of management and stockholders. One way to demonstrate this alignment is to take a snapshot of compensation and note the variance versus the amounts reported as the grant date fair value in the Summary Compensation Table (an accounting value, as required by the SEC).

In light of our stock price performance over the last three years, the stark difference between the grant date target values of equity (the left stacked bar) and the realizable pay (the other bar) illustrates our alignment of pay and performance.


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12826934&doc=5http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12826934&doc=7







42



Compensation Governance Practices

Our pay-for-performance philosophy and compensation governance practices provide an appropriate framework for our executives to achieve our financial and strategic goals without encouraging them to take excessive risks in their business decisions. Some of our core practices include:

What We Do
ü
Pay-for-performance philosophy and culture
ü
At least 50% of NEO annual equity grants are performance-based
ü
Comprehensive clawback policy for executive officers on cash and equity incentives
ü
Responsible use of shares under our long-term incentive program
ü
Strong stock ownership requirements for all executives
ü
Engage an independent compensation consultant
ü
Perform an annual risk assessment of our compensation program
ü
Conduct annual shareholder outreach
ü
Peer group revised to reflect current market capitalization and stage of development
ü
Double-trigger change-in-control provision
What We Don't Do
û
No hedging and pledging of Company stock
û
No excise tax gross-ups
û
No backdating or repricing of stock option awards, without shareholder approval
û
No supplemental executive retirement plans
û
No excessive perquisites


Summary Compensation Table
The following table sets forth information regarding compensation earned during the years ended December 31, 2018 and 2017, by our named executive officers.

Name and Principal Position
Year
Salary
($)
Bonus (1)
Stock Awards (2)($)
Option
Awards(3)($)
Non-Equity
 Incentive Plan Compensation
 ($)(4)
All Other
Compensation
($)(5)
 
Total
($)
Charles J. Link, Jr., M.D.
2018
593,910



1,745,244

374,200

76,135

(6)
2,789,489

Chief Executive & Scientific Officer
2017
634,520



2,288,799

374,200

94,298

(7)
3,391,817

 
 
 
 
 
 
 
 
 
 
Nicholas N. Vahanian, M.D.
2018
495,002



712,173

180,915

24,126

(8)
1,412,216

President
2017
552,212



2,192,081

184,200

53,546

(9)
2,982,039

 
 
 
 
 
 
 
 
 
 
Eugene P. Kennedy, M.D.
2018
425,000



589,073

170,000

24,640

 
1,208,713

Chief Medical Officer
2017
376,007



589,829

153,000

30,354

 
1,149,190



43



(1
)
The amounts shown in this column represent the supplementary cash bonuses earned by the named executive officers with respect to the fiscal year in connection with the restructuring of the Company after the failure of the Phase 3 algenpantucel-L clinical trials.
(2
)
The assumptions we used in valuing RSUs are described under the caption "Share-Based Compensation" in note 2(l) to our financial statements included in our Annual Report on Form 10-K filed March 5, 2019. This column reflects compensation expense that would be recorded under FASB ASC topic 718 as stock-based compensation in our financial statements for the indicated year in connection with RSUs we granted in the indicated year.
(3
)
The assumptions we used in valuing options are described under the caption "Share-Based Compensation" in note 2 to our financial statements included in our Annual Report on Form 10-K filed March 5, 2019. This column reflects compensation expense that would be recorded under FASB ASC topic 718 as stock-based compensation in our financial statements for the indicated year in connection with options we granted in the indicated year, disregarding the effects of any estimate of forfeitures related to service-based vesting.
(4
)
The amounts shown in this column represent the cash bonuses earned by the named executive officers with respect to the fiscal year under our performance-based cash bonus program. Amounts earned with respect to the fiscal year are generally paid in the first quarter of the following year. For additional information, see the section titled "Executive Summary of Executive Compensation" beginning on page 43 of this proxy statement.
(5
)
Unless otherwise indicated, amounts in this column represent our contributions under our 401(k) plan.
(6
)
Amount includes: (i) a $24,035 contribution under our 401(k) plan; and (ii) $52,100 in personal benefits received by Dr. Link that we reimbursed or paid on his behalf in 2018, including rent for an apartment near our Texas office.
(7
)
Amount includes: (i) a $42,698 contribution under our 401(k) plan; and (ii) $51,600 in personal benefits received by Dr. Link that we reimbursed or paid on his behalf in 2017, including rent for an apartment near our Texas office.
(8
)
Amount includes: (i) a $22,615 contribution under our 401(k) plan; and (ii) $1,511 in perquisites and personal benefits received by Dr. Vahanian that we reimbursed or paid on his behalf in 2018, including rent for an apartment near our Texas office.
(9
)
Amount includes: (i) a $36,000 contribution under our 401(k) plan; and (ii) $17,546 in personal benefits received by Dr. Vahanian that we reimbursed or paid on his behalf in 2017, including rent for an apartment near our Texas office.

Narrative Disclosure to Summary Compensation Table

Our executive compensation program consists of three primary components: base salary, short-term incentives, and long-term equity incentives.
Base Salary

Base salary is the primary fixed element of our executive compensation program. We use base salary to compensate our executive officers for services rendered during the fiscal year, and to ensure that we remain competitive in attracting and retaining executive talent.

Upon joining us, each of our executive officers, with the exception of Dr. Link, received an offer letter that provided for an initial base salary. These initial base salaries are the product of negotiation with the executive, but we generally seek to establish salaries that we believe are commensurate with the salaries paid to industry peers with comparable qualifications, experience, responsibilities and performance at similar companies. Our Compensation Committee has also relied on its members' collective experience in the marketplace for determining what they believe to be the market rate of salaries for executives of comparable companies.

Historically, we have not applied, nor do we intend to apply, specific formulas to determine base salary increases. Instead, we annually review corporate and individual performance. Our Compensation Committee examines numerous factors, including the executive's expertise, seniority, position, functional role, level of responsibility and individual performance during the previous year. Further, our Compensation Committee reviews peer and market data as provided by Radford.

In early 2018, after reviewing market data as well as our corporate performance, our Compensation Committee determined to freeze executive base salaries at the reduced levels set in July 2017.


44



Executive
2017
Base Salary
July 2017
Voluntary Reduction1
New Annual Base Salary Rate of 2017
2018
Base Salary
% Change
Charles J. Link, Jr., M.D.
$659,900
10%
$593,910
$593,910
0.0%
Nicholas N. Vahanian, M.D.
$574,300
10%
$516,900
$516,900
0.0%
Eugene P. Kennedy, M.D.
$425,000
0
$425,000
$425,000
0.0%
(1)
In July 2017, based on our stock price performance through the first half of the year, our top executive team voluntarily reduced their base salaries by 10%.

Short-Term Cash Incentives

Our performance-based cash incentives are designed to provide executive officers with the opportunity to earn annual cash awards based upon the achievement of pre-specified corporate and individual performance objectives which align with and support NewLink's business strategy.

Shortly before the end of each fiscal year, our Board determines the annual target bonus percentages for our executive officers for the upcoming fiscal year based on the recommendations of our Compensation Committee. Generally, each executive officer is eligible for a discretionary annual cash incentive payment up to a specified percentage of the executive officer's salary. Our Board sets these annual target bonus percentages at levels that, upon achievement of the target percentage, are likely to result in cash bonus payments that our Board believes to be approximately the level paid to high-performing executives of comparable companies in the biopharmaceutical industry.

For 2018, based upon recommendations of our Compensation Committee with the assistance of Radford, our Board maintained target bonus amounts for Dr. Link, Dr. Vahanian, and Dr. Kennedy equal to 70%, 50%, and 40% of their respective base salaries. Our Board reserved the ability to grant bonuses in excess of the executives' target bonus percentages for extraordinary performance.

2018 Performance Objectives

The performance goals for each fiscal year are determined by the Board in the first quarter of each fiscal year, and typically include corporate and individual performance objectives which are tailored to each executive's role and responsibilities.

For 2018, our CEO, Dr. Charles Link, had the following performance goals:

Metric
Weight
Exceeds
Meets Expectations
(100%)
Partially Meets Expectations
(50%)
Low
(0%)
Advance Acute Myelogenous Leukemia Program
35%
Enroll patients in Phase 2 AML trial
If "Go", Develop Phase 2 plan and protocol.
If "No Go", identify a specific capital allocation/investment alternative to AML.
Complete Data Analysis and "Go No Go" decision
Not Accomplished
Complete Corporate Reorganization
20%
 
Accomplished
 
Not Accomplished
Advance Pediatric Brain Tumor Program
35%
Enroll patients in Phase 2 pediatric brain tumor trial
If "Go", Develop Phase 2 plan and protocol
If "No Go", Develop plan for alternate indication and/or candidate
Complete Data Analysis and "Go No Go" decision
Not Accomplished
Continue development of NLG802 (indoximod pro-drug)
10%
Phase 2 Plan of NLG802 developed
Complete NLG802 Phase IA Clinical Trial Enrollment
 
Not Accomplished



45



Our other NEOs had similar corporate goals with specified weightings and performance measures, as follows:

Executive
Metric
Weighting
Nicholas Vahanian
Phase 3 Trial of Indoximod
60%
 
Phase II Pancreatic Trial (AstraZeneca Collaboration)
20%
 
First patients treated in new disease indications with indoximod or NLG 919 (renal cancer, bladder cancer, head and neck cancer, NSCLC or other)
20%
Eugene Kennedy
Phase 3 Trial of Indoximod
40%
 
Publication Planning and execution
25%
 
Effective execution of the Phase II Pancreatic Trial (AstraZeneca Collaboration)
25%
 
First patients treated in new disease indications with indoximod or NLG 919 (renal cancer, bladder cancer, head and neck cancer, NSCLC or other)
10%

At the end of the fiscal year, our Compensation Committee assesses the accomplishments of each executive versus each of the aforementioned goals and recommends earned bonus amounts to the Board for approval. The Compensation Committee retains the ability to apply negative discretion to adjust bonus amounts lower based on other corporate performance factors.

2018 Earned Bonuses

In 2018, the Compensation Committee took a two-tiered approach at determining the amount of earned bonus for each executive based on the current company conditions as well as actual performance. First, the Compensation Committee looked at the performance of each executive against each of their stated performance goals. Secondly, in light of current events and the refocus of the company as a whole, the Compensation Committee determined it to be in the best interests of the company and its stockholders to use the bonus earning as a retention device in efforts to retain key personnel. In 2018, the Compensation Committee determined that executives had achieved different percentages of their bonus objectives for 2018, and bonuses were paid accordingly.

Final bonus payouts for 2018 performance were as follows:

Executive
2018 Target Bonus
2018 Earned Bonus
%(1)
$
%(2)
%(3)
%(4)
$
Charles J. Link, Jr., M.D.
70%
$415,730
35%
28%
63%
$374,200
Nicholas N. Vahanian, M.D.
50%
$258,450
25%
10%
35%
$180,915
Eugene P. Kennedy, M.D.
40%
$170,000
20%
20%
40%
$170,000
(1) Target bonus percentage represents a percentage of base salary.
(2) Each executive received 50% of their 2018 target bonus as a retention measure.
(3) Represents the additional bonus earned based on performance.
(4) Represents bonus percentage of target bonus actually awarded.

Long-Term Equity Compensation

Equity incentives represent the largest at-risk element of our executive compensation program. Our equity incentives are designed to align the interests of our executive officers with those of our stockholders by creating an incentive for our executive officers to maximize stockholder value and to remain employed with us despite a competitive labor market.

In 2018, target long-term incentive awards were delivered in the form of time-based stock options and performance-based stock options, weighted equally between the two award types. The Compensation Committee believes this vehicle mix further reinforces our pay for performance philosophy, as value is only provided to executives if shareholder value is created and important business milestones are met.

The awards had the following vesting and performance criteria:

Time-vesting Options - These option vest and become exercisable in a series of 48 successive equal monthly installments.
Performance-based Options - These options vest and become exercisable as follows:

46



a)
25% of such shares shall vest as to 8.33%, 8.33% and 8.34% on the 1st day of the month following an increase of closing share price on Nasdaq Stock Market by at least 33.33%, 66.66% and 100%, respectively, above the exercise price of the options when measured over 30 consecutive calendar days, provided such increase occurs within four years of the date of grant, otherwise such options shall be cancelled;
b)
12.50% shall vest on the 1st day of the month following the hiring of a new senior operations executive to oversee the Company's chemistry and manufacturing control ("CMC") activities and clinical trials; and    
c)
The remaining 12.50% shall vest on the 1st day of the month following completion of a CMC formulation for indoximod for adult patients and completion of a CMC plan for a pediatric formulation of indoximod, the completion of each to be determined by the Board.

2018 Equity Grants

On March 9, 2018, our Compensation Committee granted the following equity awards to our executives as follows:

Executive
Time-vesting
Stock Options (#)
Performance-based
Stock Options (#)
Charles J. Link, Jr., M.D.
155,000
155,000
Nicholas N. Vahanian, M.D.
63,250
63,250
Eugene P. Kennedy, M.D.
55,000
55,000

Separation and Release Agreement

In July 2018, John B. "Jack" Henneman III and Brian Wiley ceased to serve as Chief Financial Officer and Chief Commercial Officer of the Company, respectively. Upon his resignation as CFO, Mr. Henneman was appointed to the position of Chief Administrative Officer of the Company to provide transition assistance to the Company until the earlier of November 9, 2018 or the date Mr. Henneman's employment with the Company ends pursuant to his employment agreement dated December 31, 2015. Under this arrangement, Mr. Henneman left the Company effective November 9, 2018.

Severance payments and benefits payable based on their separation and release agreements with respect to each of the terminated officers were as follows:

Mr. John Henneman

1.
cash severance of:
an accrued base salary and remaining accrued but unused vacation,
a lump sum payment of $42,360 on the date that the revocation period for the release of certain claims expire,
bonus for 2018 services of $152,496 multiplied by the percentage completion of the Company's 2018 corporate goals to be paid no later than March 15, 2019 and
continued payment of current base salary for a period of twelve months, following the separation date;
2.
reimbursement for COBRA premiums up to November 2019; and
3.
(i) one-year of accelerated vesting of certain outstanding and unvested stock options and RSUs granted and (ii) an extension of the exercise period for vested equity awards until November 8, 2020.

Mr. Brian Wiley

1.
cash severance of:
an accrued base salary and remaining accrued but unused vacation,
a lump sum payment of $18,535 on the date that the revocation period for the release of certain claims expire,
bonus for 2018 services of $68,116 multiplied by the percentage completion of the Company's 2018 corporate goals to be paid no later than March 15, 2019 and
$166,815, representing six months of Mr. Wiley's base salary;
2.
reimbursement for COBRA premiums up to January 2019; and
3.
(i) one-year of accelerated vesting of certain Awards and (ii) an extension of the exercise period for vested Awards until July 27, 2019.

More detailed information on the resigned officers' severance benefits can be found on the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2018.

47




Executive Stock Ownership Guidelines

In March 2017, we adopted stock ownership guidelines for our executive officers requiring each individual serving as an executive officer to maintain beneficial ownership of a minimum dollar amount of shares of our common stock. For the purposes of determining stock ownership levels, the following forms of equity interests are included: shares owned by the executive officer directly or through a broker, or held in trust for the benefit of, the executive officer or his or her immediate family members; 50% of shares held as restricted stock; 50% of shares underlying restricted stock units; and 50% of the in-the-money value of vested stock options granted under our equity plans; and other stock or stock equivalent awards determined by the Compensation Committee. The applicable guidelines must be met within three years from the date he or she becomes subject to the stock ownership guidelines to achieve compliance.

Position
Requirement
Chief Executive Officer
3x base salary
President
2x base salary
Other executives
1x base salary

Anti-Hedging and Anti-Pledging Policies

We expressly prohibit our employees and directors from: (i) engaging in hedging transactions or (ii) pledging our stock as collateral.

Federal Tax Considerations

Generally, Section 162(m) of the Internal Revenue Code disallows a tax deduction to any publicly-held corporation for any remuneration in excess of $1.0 million paid in any taxable year to its chief executive officer and each of its three next most highly-compensated named executive officers (other than its chief financial officer only for fiscal years prior to 2017). Remuneration in excess of $1.0 million may be deducted if, among other things, it qualifies as "performance-based compensation" within the meaning of the Internal Revenue Code.

The 2017 tax reform legislation removed the "performance-based compensation" exception from Section 162(m). Accordingly, awards made after November 2, 2017, generally are not eligible for the "performance-based compensation" exception and will not be deductible to the extent that they cause the compensation of the affected executive officers to exceed $1,000,000 in any year. Awards that were made and subject to binding written contracts in effect on November 2, 2017, are "grandfathered" under prior law and can still qualify as deductible "performance-based compensation," even if paid in future years. Our Compensation Committee will continue to monitor these awards and endeavor to ensure that they are deductible if and when paid. While the Compensation Committee considers the deductibility of compensation as one factor in determining executive compensation, the Compensation Committee believes that it is in the best interests of our stockholders to maintain flexibility in our approach to executive compensation and to structure a program that we consider to be the most effective in attracting, motivating and retaining key employees.

Accounting Considerations

We account for equity compensation paid to our employees in accordance with Accounting Standards Codification, or ASC, topic 718, which requires us to measure and recognize compensation expense in our financial statements for all share-based payments based upon an estimate of their fair value over the service period of the award. We record cash compensation as an expense at the time the obligation is incurred.

401(k) Plan

Our employees, including our executive officers, are eligible to participate in our 401(k) plan. Our 401(k) plan is intended to qualify as a tax qualified plan under Section 401 of the Code. Pursuant to the terms of our 401(k) plan, we provide a non-elective employer contribution of up to 3% of each participant's eligible compensation with an additional 2% discretionary contribution, or the Safe Harbor Contribution, with a possibility of additional discretionary contributions.


48



Other Benefits and Perquisites

We pay a portion of the premiums for medical insurance, dental insurance, life insurance and accidental death and dismemberment insurance benefits to all full-time employees, including our executive officers. These benefits are available to all employees, subject to applicable laws.
Our CEO and President also receive reimbursement or payment on their behalf for rent on an apartment near our Texas office.

Employment Agreements
We have entered into employment agreements with each of the NEOs. The material terms of the agreements that were in effect during fiscal 2018 for the NEOs are summarized below. Each of these agreements also contains severance and change of control provisions discussed under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.
Employment Agreement with Dr. Charles J. Link, Jr.
Pursuant to the employment agreement between us and Dr. Link that was amended and restated on January 4, 2016, Dr. Link earns an annual base salary, which is subject to annual review and adjustment by our Board. For 2018, Dr. Link earned an annual base salary of $593,910. Dr. Link is also eligible to receive an annual performance bonus based on his achievement of certain milestones and performance objectives. For 2018, Dr. Link’s target bonus was set at 70% of his annual base salary.
The employment agreement with Dr. Link also provides that his employment with us is at-will and may be altered or terminated by either Dr. Link or us at any time. However, if we terminate Dr. Link's employment without just cause or if he resigns for good reason (other than in connection with a change in control of us), as long as Dr. Link executes a general release in favor of us, he will be entitled to receive certain payments and other benefits, which are described in more detail under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.
The employment agreement with Dr. Link further provides that if we (or any surviving or acquiring corporation) terminate Dr. Link’s employment without just cause or if he resigns for good reason within one month prior to or 13 months following the effective date of a change in control, as long as Dr. Link executes a general release in favor of us (or any surviving or acquiring corporation), he will be entitled to receive certain payments and other benefits, which are described in more detail under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.
Employment Agreement with Dr. Nicholas N. Vahanian
Pursuant to the employment agreement between us and Dr. Vahanian that was amended and restated on January 4, 2016, Dr. Vahanian earns an annual base salary, which is subject to annual review and adjustment by our Board. For 2018, Dr. Vahanian earned an annual base salary of $516,900. Dr. Vahanian is also eligible to receive an annual performance bonus based on his achievement of certain milestones and performance objectives. For 2018, Dr. Vahanian's target bonus was set at 50% of his annual base salary.
The employment agreement with Dr. Vahanian also provides that his employment with us is at-will and may be altered or terminated by either Dr. Vahanian or us at any time. However, if we terminate Dr. Vahanian’s employment without just cause or if he resigns for good reason (other than in connection with a change in control of us), as long as Dr. Vahanian executes a general release in favor of us, he will be entitled to receive certain payments and other benefits, which are described in more detail under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.
The employment agreement with Dr. Vahanian further provides that if we (or any surviving or acquiring corporation) terminate Dr. Vahanian’s employment without just cause or if he resigns for good reason within one month prior to or 13 months following the effective date of a change in control, as long as Dr. Vahanian executes a general release in favor of us (or any surviving or acquiring corporation), he will be entitled to receive certain payments and other benefits, which are described in more detail under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.

49



Employment Agreement with Dr. Eugene Kennedy
Pursuant to the employment agreement between us and Dr. Kennedy dated January 4, 2016, Dr. Kennedy earns an annual base salary, which is subject to annual review and adjustment by our Board. For 2018, Dr. Kennedy earned an annual base salary of $425,000. Dr. Kennedy is also eligible to receive an annual performance bonus based on his achievement of certain milestones and performance objectives. In 2018, Dr. Kennedy's target bonus was set at 40% of his annual base salary.
The employment agreement with Dr. Kennedy also provides that his employment with us is at-will and may be altered or terminated by either Dr. Kennedy or us at any time. However, if we terminate Dr. Kennedy’s employment without just cause or if he resigns for good reason (other than in connection with a change in control of us), as long as Dr. Kennedy executes a general release in favor of us, he will be entitled to receive certain payments and other benefits, which are described in more detail under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.
The employment agreement with Dr. Kennedy further provides that if we (or any surviving or acquiring corporation) terminate Dr. Kennedy’s employment without just cause or if he resigns for good reason within one month prior to or 13 months following the effective date of a change in control, as long as Dr. Kennedy executes a general release in favor of us (or any surviving or acquiring corporation), he will be entitled to receive certain payments and other benefits, which are described in more detail under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 56 of this proxy statement.
Confidential Information and Inventions Agreement
Each of our named executive officers has entered into a form agreement with respect to confidential information and inventions. Among other things, this agreement obligates each named executive officer to refrain from disclosing any of our confidential information received during the course of employment and, with some exceptions, to assign to us any inventions conceived or developed during the course of employment.

Each of our named executive officers entered into a new form of agreement with respect to confidential information and inventions on January 4, 2016. The terms of these new agreements did not materially change from those to which the executives were previously party.

Outstanding Equity Awards at December 31, 2018
The following table provides information about outstanding stock options and restricted stock units held by each of our named executive officers at December 31, 2018. All of these options or restricted stock units were granted under our 2000 Equity Incentive Plan or our 2009 Plan.
 
Number of Shares Underlying Unexercised Options(1)
Number of Shares Underlying Unvested Restricted Stock Units (2)
Option Grant Date
Option Exercise Price
Option Expiration Date
 
 
 
 
 
 
 
 
 
 
(#) Exercisable

 
(#) Unexercisable (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charles J. Link, Jr., M.D.
264,474

(4)(6)

 
 
 
6/1/2007
$4.20
5/13/2019
 
468,037

(4)(6)

 
 
 
12/4/2009
$2.10
5/13/2019
 
428,571

 

 
 
 
1/1/2009
$2.97
12/4/2019
 
50,792

 

 
 
 
4/14/2011
$7.00
4/13/2021
 
44,446

 

 
 
 
4/14/2011
$7.00
4/13/2021
 
9,385

 

 
 
 
1/19/2012
$6.87
1/18/2022
 
130,615

 

 
 
 
1/19/2012
$6.87
1/18/2022
 
10,012

 

 
 
 
1/14/2013
$11.79
1/13/2023
 
144,988

 

 
 
 
1/14/2013
$11.79
1/13/2023
 
5,162

 

 
 
 
1/2/2014
$21.38
1/1/2024
 
103,588

(5)

 
 
 
1/2/2014
$21.38
1/1/2024

50



 
1,181

(5)
2,290

 
 
 
1/2/2015
$43.65
1/1/2025
 
138,839

(5)
690

 
 
 
1/2/2015
$43.65
1/1/2025
 
 
 
 
 
11,250

 
1/2/2015
$43.65
 
 

(5)
2,780

 
 
 
1/4/2016
$34.73
1/3/2026
 
97,296

(5)
33,359

 
 
 
1/4/2016
$34.73
1/3/2026
 
 
 
 
 
23,320

 
1/4/2016
$34.73
 
 

(5)
3,726

 
 
 
1/3/2017
$10.55
1/2/2027
 
78,173

(5)
81,245

 
 
 
1/3/2017
$10.55
1/2/2027
 
40,786

(9)

 
 
 
1/3/2017
$10.55
1/2/2027
 
40,786

(10)

 
 
 
1/3/2017
$10.55
1/2/2027
 
40,786

(11)

 
 
 
1/3/2017
$10.55
1/2/2027
 
40,786

(12)

 
 
 
1/3/2017
$10.55
1/2/2027
 

(5)
17,858

 
 
 
3/1/2018
$7.85
2/28/2028
 
29,062

(5)
108,080

 
 
 
3/1/2018
$7.85
2/28/2028
 
38,750

 

(13)
 
 
3/1/2018
$7.85
2/28/2028
 

 
38,750

(14)
 
 
3/1/2018
$7.85
2/28/2028
 

 
25,823

(15)
 
 
3/1/2018
$7.85
2/28/2028
 

 
25,823

(16)
 
 
3/1/2018
$7.85
2/28/2028
 

 
25,854

(17)
 
 
3/1/2018
$7.85
2/28/2028
Nicholas N. Vahanian, M.D.
145,451

(4)(7)

 
 
 
6/1/2007
$2.10
5/13/2019
 
59,444

(4)

 
 
 
6/1/2007
$2.10
5/13/2019
 
45,160

 

 
 
 
12/4/2009
$2.97
12/4/2019
 
335,792

 

 
 
 
12/4/2009
$2.97
12/4/2019
 
190,476

 

 
 
 
3/3/2010
$3.07
3/2/2020
 
14,286

 

 
 
 
4/14/2011
$7.00
4/13/2021
 
28,571

 

 
 
 
4/14/2011
$7.00
4/13/2021
 
16,159

 

 
 
 
1/19/2012
$6.87
1/18/2022
 
63,841

 

 
 
 
1/19/2012
$6.87
1/18/2022
 
9,385

 

 
 
 
1/14/2013
$11.79
1/13/2023
 
80,615

 

 
 
 
1/14/2013
$11.79
1/13/2023
 
5,128

(5)

 
 
 
1/2/2014
$21.38
1/1/2024
 
66,122

(5)

 
 
 
1/2/2014
$21.38
1/1/2024
 
1,563

(5)
1,688

 
 
 
1/2/2015
$43.65
1/1/2025
 
77,749

(5)

 
 
 
1/2/2015
$43.65
1/1/2025
 
 
 
 
 
6,250

 
1/2/2015
$43.65
 
 

(5)
2,513

 
 
 
1/4/2016
$34.73
1/3/2026
 
61,450

(5)
20,312

 
 
 
1/4/2016
$34.73
1/3/2026
 
 
 
 
 
14,728

 
1/4/2016
$34.73
 
 

(5)
6,954

 
 
 
1/3/2017
$10.55
1/2/2027
 
74,869

(5)
74,427

 
 
 
1/3/2017
$10.55
1/2/2027
 
39,063

(9)

 
 
 
1/3/2017
$10.55
1/2/2027
 
39,063

(10)

 
 
 
1/3/2017
$10.55
1/2/2027

51



 
39,062

(11)

 
 
 
1/3/2017
$10.55
1/2/2027
 
39,062

(12)

 
 
 
1/3/2017
$10.55
1/2/2027
 

(5)
12,613

 
 
 
3/1/2018
$7.85
2/28/2028
 
11,859

(5)
39,075

 
 
 
3/1/2018
$7.85
2/28/2028
 
15,812

 

(13)
 
 
3/1/2018
$7.85
2/28/2028
 

 
15,813

(14)
 
 
3/1/2018
$7.85
2/28/2028
 

 
10,537

(15)
 
 
3/1/2018
$7.85
2/28/2028
 

 
10,537

(16)
 
 
3/1/2018
$7.85
2/28/2028
 

 
10,550

(17)
 
 
3/1/2018
$7.85
2/28/2028
 
 
 
 
 
 
 
 
 
 
Eugene P. Kennedy, M.D.
14,170

 

 
 
 
1/7/2014
$22.85
1/6/2024
 

(5)
1,226

 
 
 
1/4/2016
$34.73
1/3/2026
 

(5)
146

 
 
 
7/13/2017
$7.73
7/12/2027
 
487

 
209

 
 
 
1/20/2015
$39.05
1/19/2025
 

 
1,250

 
 
 
6/23/2015
$46.73
6/22/2025
 

(5)
8,594

 
 
 
11/13/2017
$8.90
11/12/2027
 

(5)
9,651

 
 
 
1/3/2017
$10.55
1/2/2027
 
1,875

 

 
 
 
3/11/2014
$30.48
3/10/2024
 
35,830

 

 
 
 
1/7/2014
$22.85
1/6/2024
 
23,958

(5)
16,391

 
 
 
1/3/2017
$10.55
1/2/2027
 
38,888

(5)
11,112

 
 
 
8/9/2016
$10.78
8/8/2026
 
354

(5)
500

 
 
 
7/13/2017
$7.73
7/12/2027
 
9,304

 

 
 
 
1/20/2015
$39.05
1/19/2025
 
8,750

 

 
 
 
6/23/2015
$46.73
6/22/2025
 
10,156

(5)
18,750

 
 
 
11/13/2017
$8.90
11/12/2027
 
50,000

 

 
 
 
5/10/2013
$15.33
5/9/2023
 
28,125

 

 
 
 
3/11/2014
$30.48
3/10/2024
 
9,217

(5)
2,198

 
 
 
1/4/2016
$34.73
1/3/2026
 
 
 
 
 
250
 
1/20/2015
$39.05
 
 
 
 
 
 
2,209
 
1/4/2016
$34.73
 
 
 
 
 
 
1,250
 
6/23/2015
$46.73
 
 

(5)
4,889

 
 
 
3/1/2018
$7.85
2/28/2028
 
10,312

(5)
39,799

 
 
 
3/1/2018
$7.85
2/28/2028
 

 
13,750

(13)
 
 
3/1/2018
$7.85
2/28/2028
 
13,750

 

(14)
 
 
3/1/2018
$7.85
2/28/2028
 

 
9,163

(15)
 
 
3/1/2018
$7.85
2/28/2028
 

 
9,163

(16)
 
 
3/1/2018
$7.85
2/28/2028
 

 
9,174

(17)
 
 
3/1/2018
$7.85
2/28/2028
 
 
 
 
 
 
 
 
 
 


52



(1)
Unless otherwise indicated, these options have a 10-year term and vest over a four-year period, with 25% of the options vesting on the first anniversary of the vesting commencement date and the remaining 75% of the options vesting in equal monthly installments thereafter over the next three years, subject to the recipient's continued employment with us through such vesting dates.
(2)
Unless otherwise indicated, these restricted stock units vest annually over a four-year period, with 25% vesting on each of the first, second, third and fourth anniversaries, subject to the recipient's continued employment with us through such vesting dates.
(3)
This column shows options that were unvested as of December 31, 2018.
(4)
These options vest over a five-year period, with 20% of the options vesting on the first anniversary of the vesting commencement date and the remaining 80% of the options vesting in equal monthly installments thereafter over the next four years, subject to the recipient's continued employment with us through such vesting dates.
(5)
These options vest in equal monthly installments over 48 months.
(6)
Dr. Link was granted a total option of 732,511 shares at $2.10 per share, which was amended on July 1, 2010 and split into separate grants of 468,037 with a price of $2.10 and 264,474 with a price of $4.20.
(7)
Dr. Vahanian was granted a total option of 331,296 shares at $2.10 per share, which was amended on July 1, 2010 and split into separate grants of 313,673 with a price of $2.10 and 17,624 with a price of $4.20.
(8)
This number represents outstanding stock options to purchase our stock that were issued on January 7, 2011 in exchange for options to purchase stock in our subsidiary, BioProtection Systems Corporation.
(9)
These options vest upon completion of current planned Phase 1 equivalency study of new indoximod salt formulation with "completion" measured by the last patient enrolled in such study.
(10)
These options vest upon completion of the current planned Phase 1 study of pro-indoximod new chemical entity with "completion" measured by the last patient enrolled in such study.
(11)
These options vested upon an increase of closing share price of the Company’s common stock on the Nasdaq Stock Market by at least 33% above exercise price of the stock options granted on January 3, 2017, when measured over 30 consecutive calendar days (must occur by January 3, 2021 or such shares will be forfeited).
(12)
These options vested upon an increase of closing share price of the Company’s common stock on the Nasdaq Stock Market by at least 50% above the exercise price of the stock options granted on January 3, 2017, when measured over 30 consecutive calendar days (must occur by January 3, 2021 or such shares will be forfeited).
(13)
These options vested upon completion of a CMC formulation for indoximod for adult patients and completion of a CMC plan for pediatric formulation of indoximod.
(14)
These options vest on the hiring of a new senior operations executive to oversee the Company's chemistry and manufacturing control ("CMC") activities and clinical trials.
(15)
These options will vest upon an increase of closing share price of the Company’s common stock on the Nasdaq Stock Market by at least 33.33% above exercise price of the stock options granted on March 9, 2018, when measured over 30 consecutive calendar days (must occur by March 9, 2022 or such shares will be forfeited).
(16)
These options will vest upon an increase of closing share price of the Company’s common stock on the Nasdaq Stock Market by at least 66.66% above exercise price of the stock options granted on March 9, 2018, when measured over 30 consecutive calendar days (must occur by March 9, 2022 or such shares will be forfeited).
(17)
These options will vest upon an increase of closing share price of the Company’s common stock on the Nasdaq Stock Market by at least 100% above exercise price of the stock options granted on March 9, 2018, when measured over 30 consecutive calendar days (must occur by March 9, 2022 or such shares will be forfeited).

Potential Payments Upon Termination or Change in Control
Under our 2009 Plan, the vesting of stock options granted to our employees and officers may be accelerated in connection with specified corporate transactions and change in control transactions. Other than as set forth in the tables below, none of our other option grants provide for acceleration of vesting of any options in connection with such a transaction, except for certain options originally granted under our 2000 Equity Incentive Plan that may vest upon a change in control if the acquirer does not assume outstanding option grants. In addition, under our 2010 Non-Employee Directors' Stock Award Plan, in the event of a change in control, 100% of the shares subject to each Director’s options will vest.
Under the terms of employment agreements with certain of our named executive officers in effect as of December 31, 2018, if we terminate such named executive officer’s employment for "cause" or such named executive officer resigns without "good reason," such named executive officer is entitled to the following: (i) any salary earned but unpaid prior to termination; (ii) any benefits accrued prior to termination; (iii) all accrued but unused vacation; and (iv) any business expenses that were incurred

53



but not reimbursed as of the date of termination (collectively, the "Accrued Obligations"). Following such termination, vesting of such named executive officer’s then outstanding stock options shall cease on the date of such termination.
Under the terms of employment agreements with such named executive officers, if we terminate such named executive officer's employment without cause or such named executive officer resigns with good reason (other than in connection with a change in control), and in each case such named executive officer signs a general release and written acknowledgment of his continuing obligations under his confidentiality and inventions assignment agreement with us, such named executive officer is entitled to the following: (i) payment of the Accrued Obligations; (ii) depending on the named executive officer and as described in the tables below, the equivalent of 24, 18 or 6 months of such named executive officer’s base salary as in effect immediately prior to the termination date, payable on the same basis and at the same time as previously paid and subject to employment tax withholdings and deductions; (iii) for certain of the named executive officers and as described in the tables below, a bonus payout equal to the most recent annual bonus paid to the named executive officer or a portion thereof; (iv) depending on the named executive officer and as described in the tables below, payment of such named executive officer’s COBRA premiums for 24, 18, 12 or 6 months to be paid in order for such named executive officer to maintain medical insurance coverage that is substantially equivalent to that which such named executive officer received immediately prior to the termination payment of premiums for his group health insurance and (v) 12 months accelerated vesting of such named executive officer's equity compensation awards (so such executive becomes vested in the portion of such awards that would have become vested if executive remained employed for 365 days after the termination date). In the event that such named executive officer breaches his confidentiality, non-compete or non-solicitation obligations under his confidentiality and inventions assignment agreement with us, the payments described above, except for the Accrued Obligations, shall cease, and we shall have no further obligations to such named executive officer with respect thereto. Our obligation to pay such named executive officer’s COBRA premiums ceases upon such named executive officer’s eligibility for comparable coverage provided by a new employer.
Under the terms of the employment agreements with the named executive officers in effect as of December 31, 2018, if we (or any surviving or acquiring corporation) terminate a named executive officer's employment without cause or a named executive officer resigns with good reason within one month prior to or 13 months following the effective date of a change in control (either constituting a "Change of Control Termination"), and in each case such named executive officer signs a general release and written acknowledgment of his continuing obligations under his confidentiality and inventions assignment agreement with us, such named executive officer is entitled to the following: (i) payment of the Accrued Obligations; (ii) depending on the named executive officer and as described in the tables below, the equivalent of 24, 18 or 12 months of such named executive officer’s base salary as in effect immediately prior to the termination date, payable on the same basis and at the same time as previously paid and subject to employment tax withholdings and deductions; (iii) depending on the named executive officer and as described in the tables below, a bonus payout equal to two, one and one-half or one times the most recent annual cash bonus paid to the named executive officer; (iv) depending on the named executive officer as described in the tables below, payment of such named executive officer’s COBRA premiums for 18 or 12 months to be paid in order for such named executive officer to maintain medical insurance coverage that is substantially equivalent to that which such named executive officer received immediately prior to the termination payment of premiums for his group health insurance; and (v) we will vest 100% of the shares subject to such named executive officer's equity compensation awards and such vesting shall occur upon the occurrence of the change of control in the case of a Change of Control Termination occurring prior to the change in control or upon termination in the case of a Change of Control Termination occurring after the change of control. If a named executive officer breaches his confidentiality, non-compete or non-solicitation obligations under his confidentiality and inventions assignment agreement with us, the payments described above, except for the Accrued Obligations, shall cease, and we shall have no further obligations to such named executive officer with respect thereto. Our obligation to pay such named executive officer's COBRA premiums ceases upon such named executive officer’s eligibility for comparable coverage provided by a new employer.
The following tables reflect the estimated potential payments that would be payable to each named executive officer, upon a termination or change in control of us under the terms of his employment agreement in effect as of December 31, 2017. The amounts shown below reflect only the additional payments or benefits that each named executive officer would have received upon the occurrence of the respective triggering events listed below, but they do not include the value of payments or benefits that would have been earned, or any amounts associated with equity awards that would have vested, absent the triggering event. For purposes of calculating the potential payments set forth in the tables below, we have assumed that (i) the date of termination was December 31, 2018 and (ii) the stock price was $1.52, which was the per share closing price of our common stock on the NASDAQ Global Market on December 31, 2018.

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Charles J. Link, Jr., M.D.
Termination
For Just Cause or
Resignation
Without Good
Reason
 
Termination
Without Just
Cause or
Resignation
With Good
Reason
 
Termination
Without Just
Cause or
Resignation With
Good Reason (in
connection with a
Change in Control)
 
Cash Payments
 
 
 
 
 
 
Cash Severance
 
$
1,694,000

(1)
$
2,068,200

(2)
Long-Term Incentives
 
 
 
 
 
 
RSUs and Stock Options (Unvested and Accelerated)
 
$
34,823

(3)
$