PHARMACYCLICS, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

(3)

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

 

 

 

 

 

With his experience as a Partner in investment funds with investments in a wide variety of biotechnology and other healthcare companies and his years as a respected biotechnology analyst, Mr. van den Broek brings deep industry and financial expertise to our board.

 

Dr. Fyfe is a nominee for director of the Company.  Dr. Fyfe is an oncology biotechnology veteran with more than 20 years of drug development experience. From 1997 to 2009, Dr. Fyfe was an employee of Genentech, Inc. where she held a variety of positions including most recently Vice President, Oncology Development; Vice President, Avastin® Franchise Team; as well as the honorary title of Senior Staff Scientist.  Dr. Fyfe played an important role in the development of Genentech’s approved oncology agents including Rituxan®, Herceptin®, Avastin® and Tarceva®.  Dr. Fyfe sat on the Development oversight committee for all of Genentech’s products and participated in the Research Review Committee that moved products fr om research into clinical development.  Since leaving Genentech in 2009, Dr. Fyfe has been a consultant for venture capitalists and for a variety of biotechnology companies, including the Company.   Dr. Fyfe is a recognized oncology expert in the broader oncology community and has been an invited member of Institute of Medicine panels, National Cancer Institute working groups and grant committees and American Society of Clinical Oncologists oversight committees.  She is a graduate of Washington University School of Medicine and a board certified pediatric oncologist.

 

 

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With her extensive experience in drug development and her leadership role within the broader oncology community, Dr. Fyfe would bring deep strategic oncology development expertise to our board.

 

Dr. Booth is a nominee for director of the Company.  Dr. Booth is currently the Chief Executive Officer of Virobay, Inc., a drug discovery and development company.  Dr. Booth was also the Executive Chairman of Virobay, Inc. from 2006 to 2010 and served concurrently as an Operating Partner and Senior Advisor at TPG Biotech, a venture capital company. From 2006 to 2007, Dr. Booth served as the acting Chief Scientific Officer of Galleon Pharmaceuticals, a company which is developing new therapeutics for diseases of the respiratory system. From 2002 to 2006, Dr. Booth was the Chief Scientific Officer at Celera Genomics, where he was responsible for leading all discovery and development activities. The therapeutic areas pursued by Celera included oncology, autoimmunit y, respiratory diseases and thrombosis. Dr. Booth was Senior Vice President at Roche Bioscience from 1989 to 2002, and was responsible for research and early development activities in the therapeutic areas of inflammation, autoimmunity, respiratory diseases, transplantation, bone diseases and viral diseases. Dr. Booth was a member of the Global Research Management Team and a member of the Business Development Committee, which oversaw  licensing opportunities for Roche. During his time at Roche, Dr. Booth managed R&D organizations in both the US and Europe. The Biology team for which Dr. Booth was responsible in the U.K. discovered and contributed to the development of saquinavir, the first HIV protease inhibitor to be launched. This achievement was recognized by the winning of the Prix Galien for Roche. Dr. Booth is currently a member of the Scientific Advisory Board of ShangPharma, a large, privately held CRO in China. Dr. Booth received his Ph.D. and B.Sc. from the University of London in the field of biochemistry.

 

With his experience in biopharmaceutical companies in Europe and the USA as well as his experience with the venture capital industry, Dr. Booth would bring extensive technical and business expertise to our board.

 

Mr. Hardiman is a nominee for director of the Company.  Mr. Hardiman spent almost two decades with Genentech, Inc. in roles that included Vice President of Alliance Management in 2009, Vice President, Corporate Law from 2000 to 2009 and Director and Far East Representative, Business Development from 1998 to 2000.  In these roles, Mr. Hardiman had accountability for all Genentech alliances, for jointly leading the Partnering Merger Transition Team and the Roche/Genentech Joint Business Committee and for leading all Genentech corporate law matters, including accountability for the legal relationship with Roche.  Mr. Hardiman also chaired the Commercial Compliance Committee and the Environmental Sustainability and Compliance Committees at Genentech. & #160;Prior to joining Genentech, Mr. Hardiman was an attorney with the law firm, Morrison & Foerster.  Mr. Hardiman also serves on the board of Woodlands, Inc., a private company.  Mr. Hardiman has degrees in law, biology (biochemistry/molecular biology) and pharmacology.

 

With his experience in a wide variety of senior roles at Genentech, Mr. Hardiman will provide our board significant legal, transaction and compliance expertise.

 

 

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There are no family relationships among executive officers or directors of the Company.

 

Board Meetings, Independence, Committees and Compensation

 

Our Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.  During the fiscal year ended June 30, 2010, the Board held four (4) meetings.  All directors attended at least 75% of the aggregate of all meetings of our Board and of the committees on which they served during the fiscal year ended June 30, 2010.  Current and former committee membership is shown in the table below:

 

Current Directors:		Board		Audit Committee		Compensation Committee		Nominating and Corporate Governance Committee
Robert W. Duggan		Chairman
Minesh P. Mehta, M.D.		Member		Member		Member		Member
David D. Smith, Ph.D.		Member						Member
Richard A. van den Broek		Member		Member				Member
Directors Not Standing For     Reelection:
Cynthia C. Bamdad, Ph.D.						Member		Member
Glenn C. Rice, Ph.D.
Jason T. Adelman				Chair		Chair		Member

Although the Company does not have a formal policy regarding attendance by members of the Board at its Annual Meeting, the Board encourages directors to attend. Five of the current Board Members attended our annual stockholder meeting in December 2009.

 

The Board has determined that all of the members of the Board during the fiscal year ended June 30, 2010, other than Mr. Duggan and Dr. Rice were “independent” and that other than Mr. Duggan and Dr. Fyfe, all director nominees, including Dr. Booth and Mr. Hardiman are “independent” as that term is defined in the Nasdaq Marketplace Rules.  Mr. Duggan is not considered independent because he is an executive officer of the Company and Dr. Rice is not considered independent because he had been employed by the Company during the past three years.  Dr. Fyfe is not considered independent because she received fees in excess of $120,000 from the Company within the last 12 months as payment for consulting services.  The Board considered that Dr. David Smith received an option to purcha se 1,100 shares of the Company’s common stock as compensation for consulting services during fiscal 2010 and determined that he is still “independent” under the Nasdaq Marketplace rules.  The Board has further determined that director nominees Richard A. van den Broek and Minesh Mehta, who are members of the Company’s Audit Committee, satisfy the more restrictive independence requirements for Audit Committee members set forth in United States securities laws.  As required under applicable Nasdaq Marketplace Rules, the Company’s independent directors meet regularly in executive session at which only they are present.

 

 

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Audit Committee

 

The primary purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company.  The Audit Committee is also charged with the review and approval of all related party transactions involving the Company.  The Audit Committee acts pursuant to a written charter that has been adopted by the Board.   A more complete description of the powers and responsibilities delegated to the Committee is set forth in the Audit Committee charter.  The Board had determined that all current members of the Audit Committee, Jason T. Adelman, Richard A. van den Broek and Minesh P. Mehta, M.D., and former member, Cynthia C. Bamdad, Ph.D., for the fiscal year ended June 30, 2010, were “independent” as that ter m is defined in Rule 4200(a)(15) of the Nasdaq Marketplace Rules.  The Board has determined that each of Mr. Adelman, the Audit Committee Chairman, and Mr. van den Broek, is an “audit committee financial expert” as defined by Item 407(d)(5) of Regulation S-K of the Securities Act of 1933, as amended (the “Securities Act”).  The Audit Committee held five (5) meetings during the fiscal year ended June 30, 2010.

 

Compensation Committee

 

The Compensation Committee reviews and approves the Company’s general compensation policies, sets compensation levels for the Company’s executive officers and administers the Company’s 2004 Equity Incentive Award Plan (the “2004 Plan”) and the Employee Stock Purchase Plan.  The Compensation Committee has adopted a written charter.  The Board had determined that all of the members of the Compensation Committee for the fiscal year ended June 30, 2010 were “independent” as that term is defined in the Nasdaq Marketplace Rules.  The Compensation Committee held two (2) meetings during the fiscal year ended June 30, 2010.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance (“NCG”) Committee establishes qualification standards for Board membership, identifies qualified individuals for Board membership and considers and recommends director nominees for approval by the Board and the stockholders.  The NCG Committee has adopted a written charter.  The NCG Committee considers suggestions from many sources, including stockholders, regarding possible candidates for director.  The NCG Committee also takes a leadership role in shaping the corporate governance of the Company.  The Board had determined that all of the members of the NCG Committee for the fiscal year ended June 30, 2010 were “independent” as that term is defined in the Nasdaq Marketplace Rules.  The Nominating and Corporate Governance Commi ttee did not hold a meeting during the fiscal year ended June 30, 2010.  The meeting normally held in June was held in July 2010.

 

Board Leadership Structure

 

Our governing documents provide the Board with flexibility to determine the appropriate leadership structure for the Board and the Company, including but not limited to whether it is appropriate to separate the roles of Chairman of the Board and Chief Executive Officer.  In making these determinations, the Board considers numerous factors, including the specific needs and strategic direction of the Company and the size and membership of the Board at the time.

 

 

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At this time, the Board believes that Mr. Duggan, the Company’s Chief Executive Officer, is best situated to serve as Chairman of the Board because he is the director most familiar with the Company’s business and industry and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy.  The Board also believes that combining the positions of Chairman of the Board and Chief Executive Officer is the most effective leadership structure for the Company at this time, as the combined position enhances Mr. Duggan’s ability to provide insight and direction on strategic initiatives to both management and the Board, facilitating the type of information flow between management and the Board that is necessary for effective governance.  Although the Board does not have a Lead Independent Director position, the Board believes that each incumbent director’s and director nominee’s knowledge of the Company and industry as a result of his or her years of service on the Board and in the industry, and the fact that each of the current directors other than Mr. Duggan and Dr. Rice and director nominees other than Dr. Fyfe is independent, the independent directors are able to provide appropriate independent oversight of management and to hold management accountable for the execution of strategy.

 

Board Role in Risk Oversight

 

Senior management is responsible for assessing and managing the Company’s various exposures to risk on a day-to-day basis, including the creation of appropriate risk management programs and policies.  The Board is responsible for overseeing management in the execution of its responsibilities and for assessing the Company’s approach to risk management.  The Board exercises these responsibilities periodically as part of its meetings and also through the Board’s three committees, each of which examines various components of enterprise risk as part of its responsibilities.  Members of each committee report to the full Board as necessary at Board meetings regarding risks discussed by such committee.  In addition, an overall review of risk is inherent in the Board’s consideration o f the Company’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters.

 

Director Nomination and Communication with Directors

 

Criteria for Nomination to the Board

 

In evaluating director nominees, the NCG Committee considers the following factors:

 

·

the appropriate size of the Board;

 

·

the level of technical, scientific, operational, strategic and/or economic knowledge of the Company’s business and industry;

 

·

experience at the senior executive or board level of a public company;

 

·

integrity and commitment to the highest ethical standards;

 

 

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·

whether the candidate possesses complimentary skills and background with respect to other Board members; and

 

·

the ability to devote a sufficient amount of time to carry out the duties and responsibilities as a director.

 

In selecting the slate of nominees to be recommended by the NCG Committee to the Board, and in an effort to maintain a proper mix of directors that results in a highly effective governing body, the NCG Committee also considers such factors as the diverse skills and characteristics of all director nominees; the occupational, geographic and age diversity of all director nominees; the particular skills and ability of each nominee to understand financial statements and finance matters generally; the particular skills and experience of each nominee in managing and/or assessing risk; community involvement of each nominee; and, the independence status of each nominee under the Nasdaq Marketplace Rules and applicable law and regulation.

 

The objective of the NCG Committee is to structure a Board that brings to the Company a variety of skills and perspectives developed through high-quality business and professional experience.  In doing so, the NCG Committee also considers candidates with appropriate non-business backgrounds.  Other than the foregoing, there are no stated minimum criteria for director nominees.  The NCG Committee may, however, consider such other factors as it deems are in the best interests of the Company and its stockholders.

 

The NCG Committee identifies nominees by first evaluating the current members of the Board willing to continue in service.  Current members of the Board with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining new perspectives.  If any member of the Board does not wish to continue in service, or if the NCG Committee decides not to nominate a member for re-election, the Committee will identify the desired skills and experience of a new nominee as outlined above, providing that the Board determines to fill the vacancy.  To date, the Company has not engaged a third party to identify or evaluate or assist in identifyin g potential nominees, although the Company reserves the right to do so in the future.

 

Stockholder Proposals for Nominees and Other Communications

 

The NCG Committee will consider proposed nominees whose names are submitted to it by stockholders, providing that the stockholder has held Company stock at least one (1) year and holds a minimum of 1% of the Company’s outstanding voting securities.  If a stockholder wishes to suggest a proposed name for consideration, he or she must follow our procedures regarding the submission of stockholder proposals.  Our amended and restated bylaws permit stockholders to nominate directors for election at our annual meeting of stockholders as long as stockholders provide the Company with proper notice of such nomination.  Any notice of director nomination must meet all of the requirements contained in our bylaws and include other information required pursuant to Regulation 14A under the Securities Exchange Act of 1 934, as amended (the “Exchange Act”), including the nominee’s consent to serve as a director.  Stockholders may send recommendations for director nominees or other communications to the Board or any individual director c/o Secretary, Pharmacyclics, Inc., 995 East Arques Avenue, Sunnyvale, California, 94085.  All communications received are reported to the Board or the individual directors, as appropriate.  For any stockholder to make a director nomination at the Company’s 2011 annual meeting, the stockholder must follow the procedures which are described above under “Deadline for Receipt of Stockholder Proposals.”

 

 

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Code of Ethics and Committee Charters

 

The Board has also adopted a formal code of conduct that applies to all of our employees, officers and directors.  The latest copy of our Code of Business Conduct and Ethics, as well as the Charters of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee of the Board are available in the “Investors & Media Corporate Governance” section of our website at www.pharmacyclics.com.  Any person may obtain a copy of the Code of Business Conduct and Ethics, without charge, by writing to Pharmacyclics, Inc., 995 East Arques Avenue, Sunnyvale, California 94085, Attn: Secretary.

 

PROPOSAL TWO – AMENDMENT OF THE

PHARMACYCLICS 2004 EQUITY INCENTIVE AWARD PLAN

 

Stockholders are requested in this Proposal Two to approve an amendment to our 2004 Plan that will increase the maximum number of shares available for issuance under the 2004 Plan by an additional 2,500,000 shares.

 

The amendment was adopted by the Board on November 3, 2010.  The Board believes that the increase in the share reserve is necessary in order to enable the Company to continue to attract and retain the highest caliber of employees, to link incentive rewards to Company performance, to encourage employee ownership in the Company and to align the interests of employees and directors with those of stockholders.

 

The Company has reserved an aggregate of 6,600,000 shares of our Common Stock for issuance under the 2004 Plan.  All such shares were approved by our stockholders.  As of September 30, 2010, there were 7,914,130 shares to be issued upon exercise of outstanding options with 1,853,680 shares remaining for grant under the 2004 Plan.  The weighted average exercise price of all outstanding options is $4.83 and the weighted average remaining term of all options is 6.06 years.  On November 1, 2010, the closing selling price per share of Common Stock on NASDAQ was $6.02 per share.

 

There have been no stock option grants to our Chief Executive Officer.  For information regarding stock option grants to our two other most highly compensated executive officers for the fiscal year ended June 30, 2010, see the section entitled “Executive Compensation.”

 

Stockholders are requested in this proposal to approve the amendment of the 2004 Plan.

 

Vote Required and Board Recommendation

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to approve the amendment of the 2004 Plan.  Abstentions will be counted towards the tabulation of Votes Cast and will have the same effect as negative votes.  Broker non-votes are counted towards a quorum, but are not counted for any purposes in determining whether this matter has been approved.

 

 

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The Board of Directors recommends that the stockholders vote IN FAVOR OF adoption of the amendment of the 2004 Plan.

 

A summary of the key features of the 2004 Plan is outlined below.  This summary is not a complete description of all the provisions of the 2004 Plan and is therefore qualified by reference to the 2004 Plan.  Any stockholder of the Company who wishes to obtain a copy of the actual 2004 Plan may do so upon written request to the Secretary of the Company at the Company’s principal offices in Sunnyvale, California.

 

Purpose

 

The 2004 Plan allows the Company to provide employees, consultants and members of the Company’s Board who are selected to receive awards under the 2004 Plan the opportunity to acquire an equity interest in the Company.  The Board believes that equity incentives are a significant factor in attracting and motivating eligible persons whose present and potential contributions are important to the Company.

 

Key Provisions

 

The following is a summary of the key provisions of the 2004 Plan:

 

Plan Termination Date:	September 17, 2014
Eligible Participants:	Employees, directors and consultants of the Company (except that only employees are eligible for Incentive Stock Options)
Shares Authorized:	2,500,000 plus any shares previously authorized and available for issuance under the 2004 Plan.
Restricted Stock/Full Value Award Limit:	The reserved shares shall be reduced by 1.38 shares for every restricted stock, performance share, restricted stock unit, deferred stock, or other full value award
Award Types:	(1)   Incentive stock options
	(2)   Nonstatutory stock options
	(3)   Restricted Stock
	(4)   Stock Appreciation Rights
	(5)   Performance Shares
	(6)   Deferred Stock
	(7)   Restricted Stock Units
	(8)   Dividend Equivalents
	(9)   Performance Stock Units
	(10) Stock Payment Awards
	(11) Performance Bonus Awards

 

 

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	(12) Performance-Based Awards
	(13) Other Stock-Based Awards
Grant Limits Per Person Per Year:	Stock Options/SARs: 1,000,000
Vesting:	Determined by Compensation Committee
Not Permitted:	Repricing of stock options without stockholder approval
Incentive Stock Option Limit:	No more than 5,000,000 shares may be issued pursuant to incentive stock options

Eligibility

 

Company employees are eligible to receive all types of awards approved under the 2004 Plan.  Directors and consultants of the Company are eligible to receive all types of approved awards except for incentive stock options.  The Compensation Committee or its delegate will determine which employees and consultants will receive awards under the 2004 Plan.  As of September 30, 2010, approximately 58 employees, including five executive officers, were eligible to participate in the 2004 Plan.

 

Awards

 

Awards under the 2004 Plan may be designed to constitute “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, or discretionary.  Specifically, at the Compensation Committee’s discretion, it may condition the grant or vesting of awards on the attainment of individual or company-wide performance goals.  In doing so, the Compensation Committee may select performance factors based on measures, including the criteria noted below, for purposes of determining whether performance goals relating to awards have been satisfied:

 

·

revenue;

 

·

achievements of specified milestones in the discovery and development of one or more of the Company’s products;

 

·

achievement of specified milestones in the commercialization of one or more of the Company’s products;

 

·

expense targets;

 

·

personal management objectives;

 

·

share price (including, but not limited to, growth measures and total stockholder returns);

 

·

net earnings (either before or after interest, taxes, depreciation and amortization);

 

 

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·

net losses;

 

·

operating earnings;

 

·

operating cash flow;

 

·

return on net assets;

 

·

return on stockholders’ equity;

 

·

return on assets;

 

·

return on capital;

 

·

gross or net profit margin;

 

·

earnings per share; and

 

·

market share.

 

The above criteria may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.

 

Non-Employee Director Stock Options

 

Under the 2004 Plan, our non-employee Directors will receive annual, automatic, non-discretionary grants of nonqualified stock options.

 

Each new non-employee Director will receive an option to purchase 10,000 shares as of the date he or she first becomes a non-employee Director.  This option grant vests in equal annual installments over five (5) years.  In addition, on the date of each annual meeting, each individual re-elected as a non-employee Director will receive an automatic option grant to purchase an additional 7,500 shares of our Common Stock, provided such individual has served as a director for at least six (6) months prior to the grant.  This option grant vests in equal monthly installments over twelve (12) months following the date of grant.  Upon a non-employee Director’s termination of membership on the Board due to death or disability, his or her options shall immediately vest in full and the Company’s rep urchase right shall lapse in its entirety.

 

The exercise price of each option granted to a non-employee Director will be equal to 100% of the fair market value on the date of grant of the shares covered by the option.  Options will have a maximum term of ten (10) years measured from the grant date, subject to termination in the event of the optionee’s cessation of Board service.  The 2004 Plan provides that the optionee will have a thirty-six (36) month period following a cessation of Board service in which to exercise any outstanding vested options.  Each option will be immediately exercisable for any or all of the option shares.  However, any shares purchased under the option will be subject to repurchase by the Company, at the exercise price paid per share, upon the optionee’s cessation of Board service prior to vesting in thos e shares.

 

 

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Adjustment Provisions

 

In the event of a stock dividend, recapitalization, stock split, reorganization, merger, spin-off, repurchase or exchange of the Company’s Common Stock or similar event affecting the Common Stock, the Compensation Committee shall adjust the number and kind of shares granted under the 2004 Plan, as well as the number and kind of shares subject to outstanding awards and the grant or exercise price of outstanding awards.

 

Change in Control

 

In the event of a “change in control” of the Company, each outstanding award under the 2004 Plan shall automatically be vested with respect to fifty percent (50%) of the unvested shares of Common Stock.  To the extent the remaining fifty percent (50%) of unvested awards are not assumed or replaced by the successor corporation, they will also be accelerated.  However, if the successor corporation assumes or provides a replacement award, then the remaining fifty percent (50%) of unvested awards will not automatically vest; provided that if the participant is terminated for reasons other than “misconduct” during the twelve (12) month period following the change in control, then the remaining fifty percent (50%) of such participant’s award will immediately vest and become exercisable. &#1 60;The acceleration of an award in the event of an acquisition or similar corporate event may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of the Company.

 

Stock Options

 

The exercise price of all stock options granted under the 2004 Plan may not be less than the fair market value of the Company’s Common Stock on the date of grant and no stock option will be exercisable more than ten (10) years after the date it is granted.  The Compensation Committee will determine at the time of grant when each stock option becomes exercisable.  Payment of the exercise price of a stock option may be in cash, Common Stock owned by the participant or by a combination of cash and Common Stock.  The Company may require, prior to issuing Common Stock under the 2004 Plan, that the participant remit an amount in cash or Common Stock sufficient to satisfy tax withholding requirements.

 

Restricted Stock and Other Full Value Awards

 

Except with respect to a maximum of 5% of the shares authorized for issuance, any awards of restricted stock, restricted stock units, deferred stock, dividend equivalent rights or other stock-based awards that vest on the basis of a participant’s continuous active service with the Company will not provide for vesting that is any more rapid than annual pro rata vesting over a three (3) year period and any awards of restricted stock, deferred stock, restricted stock units or performance share awards that provide for vesting upon the attainment of performance goals shall provide for a minimum vesting period of at least twelve (12) months.

 

Restrictions on Transfer

 

An optionee may only transfer an incentive stock option by will or by the laws of descent and distribution.  During the lifetime of the optionee, only the optionee may exercise an incentive stock option.  Nonstatutory stock options are transferable only to the extent provided in the individual option agreement.  An optionee may designate a beneficiary who may exercise the option following the optionee’s death.  Shares subject to repurchase by the Company under an early exercise stock purchase agreement may be subject to restrictions on transfer that the Board deems appropriate.  Rights under a restricted stock or restricted stock unit agreement will be transferred only if expressly authorized by the terms of the applicable purchase agreement.

 

 

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Termination of Employment

 

Upon termination of a participant’s employment, a participant has a limited period of time in which to exercise outstanding stock options for any shares in which the participant is vested at that time.  This period will be specified by the Compensation Committee, need not be uniform among all options issued under the 2004 Plan, and may reflect distinctions based on the reasons for termination of employment.  All outstanding awards will be forfeited to the Company to the extent they are not vested when the participant terminated employment.

 

Administration

 

Under Section 162(m) of the Internal Revenue Code (the “Code”), grants may be made only by a committee comprised solely of two (2) or more directors eligible to serve as a committee making awards qualified as performance-based compensation.  The Compensation Committee will select the employees of the Company who shall receive awards, determine the number of shares covered thereby, and establish the terms, conditions and other provisions of the grants.  The Compensation Committee may interpret the 2004 Plan and establish, amend and rescind any rules relating to the 2004 Plan.  The Compensation Committee may delegate all or part of its responsibilities to anyone it selects.

 

No Repricing of Options

 

The 2004 Plan does not permit the Board, without stockholder approval, to amend the terms of any outstanding award under the 2004 Plan to reduce its exercise price or cancel and replace any outstanding award with grants having a lower exercise price.

 

New Plan Benefits

 

Under the 2004 Plan, the Company’s Chief Executive Officer and two most highly compensated executive officers other than the Chief Executive Officer have received the following option grants: Robert W. Duggan, Chairman and Chief Executive Officer has not received any option grants, Ahmed Hamdy, M.D., Chief Medical Officer, has received options to purchase 360,000 shares since 2009 and David J. Loury, Ph.D., Chief Scientific Officer has received options to purchase 730,000 shares since 2006.  All of the Company’s executive officers as a group have received options to purchase an aggregate of 2,203,000 shares under the 2004 Plan.  Non-executive officer employees as a group have received options to purchase an aggregate of 3,171,250 under the 2004 Plan.

 

The Company’s non-employee directors as a group are eligible to receive grants under the 2004 Plan, as described under “Director Compensation.”  Under the 2004 Plan, the director nominees standing for election at the Annual Meeting have received the following option grants: Richard A. van den Broek has received options to purchase 27,571 shares; Minesh P. Mehta, Ph.D. has received options to purchase 33,394 shares; David D. Smith has received options to purchase 139,155 shares; Gwen Fyfe has received options to purchase 330,000 shares and each of Robert Booth and Roy Hardiman have not received any options to purchase shares.  Under the 2004 Plan, the current non-employee directors as a group have received options to purchase an aggregate of 511,832 shares.

 

 

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All other future grants under the 2004 Plan are within the discretion of the Board of Directors or the Compensation Committee and the benefits of such grants are, therefore, not determinable.

 

Duration, Amendment and Termination

 

Without stockholder approval or ratification, the Board may suspend or terminate the 2004 Plan at any time or from time to time.  The 2004 Plan will terminate on September 17, 2014, unless terminated sooner.  The Board may also amend the 2004 Plan at any time or from time to time.  However, no amendment will be effective unless approved by the stockholders of the Company if such amendment (i) increases the number of shares of Common Stock reserved for issuance under the 2004 Plan, (ii) expands the class of eligible participants under the 2004 Plan, (iii) materially increases the benefits available under the 2004 Plan, or (iv) is an amendment for which stockholder approval is necessary in order for the 2004 Plan to satisfy Section 422 of the Code, Rule 16b-3 of the Exchange Act, or any applicable Nasdaq Stock Market or securities exchange listing requirements. The Board may submit any other amendment to the 2004 Plan for stockholder approval, including but not limited to amendments intended to satisfy the requirements of Section 162(m) of the Code regarding excluding performance-based compensation from the limitation on the deductibility of compensation paid to certain employees.

 

Federal Income Tax Information

 

The following is a general summary under current law of the material federal income tax consequences to us and participants in the 2004 Plan with respect to the grant and exercise of awards under the 2004 Plan.  The summary does not discuss all aspects of income taxation that may be relevant to a participant in light of his or her personal investment circumstances.  This summarized tax information is not tax advice.  We advise all participants to consult their own tax advisor as to the specific tax consequences of participating in the 2004 Plan.

 

Incentive Stock Options.  Incentive stock options under the 2004 Plan are intended to be eligible for the favorable tax treatment accorded “incentive stock options” under the Code.  There generally are no federal income tax consequences to the optionee or the Company by reason of the grant or exercise of an incentive stock option.  However, the exercise of an incentive stock option may increase the optionee’s alternative minimum tax liability, if any.

 

If an optionee holds stock acquired through exercise of an incentive stock option for at least two (2) years from the date on which the option is granted and at least one (1) year from the date on which the shares are transferred to the optionee upon exercise of the option, any gain or loss on a disposition of such stock will be treated for tax purposes as long-term capital gain or loss.

 

Generally, if the optionee disposes of the stock before the expiration of either of these holding periods (a “disqualifying disposition”), then at the time of disposition the optionee will realize taxable ordinary income equal to the lesser of (a) the excess of the stock’s fair market value on the date of exercise over the exercise price, or (b) the optionee’s actual gain, if any, on the purchase and sale.  The optionee’s additional gain (or any loss) upon the disqualifying disposition will be a capital gain (or loss), which will be long-term or short-term depending on whether the stock was held for more than one (1) year.

 

 

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To the extent the optionee recognizes ordinary income by reason of a disqualifying disposition, the Company will generally be entitled  to a corresponding business expense deduction in the tax year in which the disqualifying disposition occurs.

 

Nonstatutory Stock Options, Restricted Stock Awards, Restricted Stock Units, and Deferred Stock.  Nonstatutory stock options, restricted stock awards, restricted stock units and deferred stock granted under the 2004 Plan generally have the following federal income tax consequences:

 

There are no tax consequences to the participant or the Company by reason of the grant of a nonstatutory stock option.  Upon exercise of the option, the participant ordinarily will recognize taxable ordinary income equal to the excess, if any, of the stock’s fair market value on the exercise date over the exercise price.  If the stock received pursuant to the exercise is subject to further vesting requirements, the taxable event will be delayed until the vesting restrictions lapse unless the participant elects under Section 83(b) of the Code to be taxed on receipt of the stock.

 

There are no tax consequences to the participant or the Company by reason of the grant of restricted stock, restricted stock units or deferred stock awards.  The participant ordinarily will  recognize taxable ordinary income equal to the excess, if any, of the stock’s fair market value over the purchase price, if any when such award vests.  Under certain circumstances, the participant may be permitted to elect under Section 83(b) of the Code to be taxed on the grant date.

 

With respect to employees, the Company is generally required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. The Company will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the participant.

 

Upon disposition of the stock, the participant will generally recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock (if any) plus any amount recognized as ordinary income upon acquisition (or vesting) of the stock.  Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one (1) year.

 

Stock Appreciation Rights.  No taxable income is generally recognized upon the receipt of a SAR, but upon exercise of the SAR, the fair market value of the shares (or cash in lieu of shares) received generally will be taxable as ordinary income to the recipient in the year of such exercise.  The Company generally will be entitled to a compensation deduction for the same amount which the recipient recognizes as ordinary income.

 

Performance Shares and Performance Stock Units.  A participant who has been granted a performance award generally will not recognize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time.  When an award is paid, whether in cash or common shares, the participant generally will recognize ordinary income, and the Company will be entitled to a corresponding deduction.

 

 

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Stock Payments and other Stock-Based Awards.  A participant who receives a stock payment in lieu of a cash payment that would otherwise have been made will generally be taxed as if the cash payment has been received, and the Company generally will be entitled to a deduction for the same amount.

 

PROPOSAL THREE - RATIFICATION OF SELECTION

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board has selected the firm of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2011, and has further directed that management submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting.  PricewaterhouseCoopers LLP has audited the Company’s financial statements since 1993.  A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting to respond to appropriate questions, and will be given the opportunity to make a statement if he or she so desires.

 

Stockholder ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm is not required by law or the Company’s bylaws or otherwise.  However, the Board is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice.  In the event the stockholders fail to ratify the appointment, the Audit Committee of the Board will reconsider its selection.  Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.

 

Independent Registered Public Accounting Firm Fees

 

The following table sets forth the aggregate fees billed or to be billed by PricewaterhouseCoopers LLP for the following services during fiscal 2010 and 2009:

 

		Fiscal 2010				Fiscal 2009(1)
Audit fees		$	332,800			$	353,400
Audit-related fees			-				-
Tax fees			40,800				57,700
All other fees			-				-
Total		$	373,600			$	411,100

(1)  The presentation for the 2009 fees has been changed to conform with the 2010 presentation.

 

 

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In the above table, “audit fees” for professional services for the audit of the Company’s financial statements included in its Annual Report on Form 10-K for the years ended June 30, 2010 and 2009, and review of financial statements included in its quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory and regulatory filings.  “Tax fees” are fees for tax compliance, tax advice and tax planning.  All fees described above were approved by the Audit Committee, pursuant to the pre-approved policy described below.

 

Pre-Approval Policy and Procedures

 

In accordance with the Audit Committee charter, the Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm, including the estimated fees and other terms of any such engagement. These services may include audit services, audit-related services, tax services and other services. Any pre-approval is detailed as to the particular service or category of services. The Audit Committee may elect to delegate pre-approval authority to one or more designated Committee members in accordance with its charter. The Audit Committee has delegated to Mr. Adelman, as Chairman, the ability to pre-approve certain audit and non-audit services. The Audit Committee considers whether such audit or non-audit services are consistent with the SEC’s rules on auditor independ ence. The Audit Committee has considered whether the provision of the services noted above is compatible with maintaining PricewaterhouseCoopers LLP’s independence.

 

Vote Required and Board Recommendation

 

The affirmative vote of a majority of the votes present in person or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the selection of PricewaterhouseCoopers LLP.

 

The Board recommends that the stockholders vote IN FAVOR OF the ratification of the selection of PricewaterhouseCoopers LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2011.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of October 20, 2010, by: (i) each stockholder who, based on publicly available records, is known by the Company to own beneficially more than five percent (5%) of the Company’s Common Stock; (ii) each current director and director nominee; (iii) each executive officer named in the “Summary Compensation Table” below (the “Named Executive Officers”); and (iv) all current directors and executive officers of the Company as a group. The address for each director and executive officer listed in the table below is c/o: Pharmacyclics, Inc., 995 East Arques Avenue, Sunnyvale, California 94085.

 

 

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		Beneficial Ownership (1)
Name		Outstanding Shares of Common Stock				Shares Issuable Pursuant to Options Vested and Exercisable Within 60 Days of October 20, 2010				Percent of Total Shares Outstanding
PRIMECAP Management Company (2)			3,306,481				-				5.5	%
Quogue Capital, Inc. (3)			3,330,000				-				5.6	%
Jason T. Adelman(4)(5)			25,403				72,631				*
Cynthia C. Bamdad(5)			-				31,467				*
Robert W. Duggan (6)			13,417,092				-				22.5	%
Ahmed Hamdy, M.D.			2,010				61,250				*
David J. Loury, Ph.D.			5,980				327,916				*
Minesh P. Mehta, M.D.			-				27,394				*
Glenn C. Rice, Ph.D.(5)			605,944				74,332				1.1	%
David D. Smith, Ph.D.			2,000				133,155				*
Richard A. van den Broek (7)			138,730				19,571				*
Robert F. Booth, Ph.D			-				-				-
Gwen A. Fyfe, M.D.			-				45,000				*
Roy C. Hardiman			-				-				-
All current executive officers, directors and director nominees as a group (15 persons)			14,205,405				1,169,107				25.3	%

 

_______________

 

* Less than 1%.

 

(1)

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options which are vested and exercisable within sixty (60) days of the October 20, 2010 date of this table. Except as indicated by footnote, and subject to community property laws where applicable, to the knowledge of the Company, all persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such holders. The percentages of beneficial ownership are based on 59,583,266 shares of Common Stock outstanding as of October 20, 2010, adjusted as required by rules promulgated by the Commission. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above on a given date, any shares which such person or persons has the right to acquire within sixty (60) days after such date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

 

(2)	Derived from a Form 13G/A filed July 9, 2010.  The address of PRIMECAP Management Company is 225 South Lake Avenue, #400, Pasadena, CA 91101.

 

(3)	Derived from a Form 13G filed September 1, 2010.  The address of Quogue Capital, Inc. is 50 West 57th Street, 15th Floor, New York, New York 10019.

 

 

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(4)	Based on a Form 4 filed July 6, 2010.

 

(5)           Jason T Adelman, Cynthia C. Bamdad, Ph.D. and Glenn C. Rice, Ph.D. are not standing for reelection.

 

(6)	Based on a Schedule 13D/A filed June 23, 2010.  Mr. Duggan disclaims beneficial ownership of 602,714 shares held in managed accounts except to the extent of his pecuniary interest in those shares.

 

(7)	Based on a Form 4 filed July 6, 2010.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s directors and Section 16 officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file with the Commission initial reports of beneficial ownership and reports of changes in beneficial ownership of Common Stock and other equity securities of the Company. Such officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file.

 

Based solely on its review of the copies of such forms furnished to the Company and written representations that no other reports were required, the Company believes that, during the period from July 1, 2009 to June 30, 2010, all officers, directors and beneficial owners of more than 10% of the outstanding Common Stock complied with all Section 16(a) requirements, with the exception of the following late filings: Dr. Mehta was late filing two Form 4’s.

 

EXECUTIVE OFFICERS

 

Executive officers of the company, and their ages as of June 30, 2010, are as follows:

Name		Age		Position
Robert W. Duggan		66		Chairman, Chief Executive Officer and Director
Rainer M. Erdtmann		46		Vice President, Finance and Administration and Secretary
Joseph J. Buggy, Ph.D.		43		Vice President, Research
Ahmed Hamdy, M.D.		45		Chief Medical Officer
Eric E. Hedrick, M.D.		45		Vice President, Oncology Development
David J. Loury, Ph.D.		54		Chief Scientific Officer

See section entitled “Business Experience of Directors” above, for a brief description of the business experience and educational background of Mr. Duggan.

Mr. Erdtmann has served as Vice President, Finance and Administration and Corporate Secretary since February 2009.  Since 2002, he served as a managing director of Oxygen Investments, LLC, a manager of equity and real estate funds that he co-founded in December 2002. Prior to co-founding Oxygen, Mr. Erdtmann co-founded a real estate development company in Europe and was responsible for building up its organization and overseeing its finance division.  Mr. Erdtmann began his career in investment banking with Commerzbank in Frankfurt, Germany, and later joined Commerz International Capital Management as a portfolio manager for international clients.  He graduated with distinction from the Westfaelische Wilhelms Universitaet in Muenster, majoring in financ e and banking.

 

 

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Dr. Buggy has served as Vice President, Research since September 2007. From May 2006 to August 2007, Dr. Buggy served as Senior Director, Cancer Biology. From November 2001 to April 2006, he served as Director, Department of Biology at Celera Genomics, a biotechnology company. From June 1996 to October 2001, he was a staff scientist at AXYS Pharmaceuticals, Inc., a biotechnology company. Prior to that Dr. Buggy worked as a scientist at Bayer Corporation in West Haven, CT. Dr. Buggy received a Ph.D. in Molecular, Cellular, and Developmental Biology from Indiana University and a B.S. degree in Microbiology from the University of Pittsburgh.

Dr. Hamdy has served as Chief Medical Officer since March of 2009. From July 2008 to February 2009, Dr. Hamdy served as Therapeutic Area Head at Elan Pharmaceuticals responsible for gastroenterology and autoimmune clinical development. Dr. Hamdy has also served as the General Medicine Therapeutic Area Head at PDL BioPharma from February 2006 to June 2008. From September 2004 to February 2006, Dr. Hamdy was a medical director at Johnson and Johnson/ALZA. From October 2000 to August 2004, Dr. Hamdy was a Senior Principal Scientist at Watson Pharmaceuticals. Dr. Hamdy received his M.D. (M.B.B.Ch) from Cairo University, Egypt.

Dr. Hedrick has served as Vice President, Oncology Development since August 2010.  From October 2009 to August 2010, Dr. Hedrick was an independent drug development consultant, including consulting with the Company on the development of PCI-32765.  From November 2000 to September 2009 Dr. Hedrick was an employee of Genentech, Inc. where he held a variety of positions including Group Medical Director/Development Sub-Team Leader and Senior Clinical Scientist and was responsible for multiple aspects of the drug development and post-marketing programs for rituximab (Rituxan®) and bevacizumab (Avastin®).  Prior to his time at Genentech Dr. Hedrick was an Associate Attending Physician at Memorial Sloan-Kettering Cancer Center where he focused on cli nical research in non-Hodgkin’s lymphoma, myelodysplastic syndromes, multiple myeloma and hematopoietic growth factors.   He served as resident and chief resident in Internal Medicine at Boston City Hospital and completed a fellowship in Medical Oncology and Hematology at the Memorial Sloan-Kettering Cancer Center.  Dr. Hedrick received his M.D. from the University of Maryland School of Medicine and is Board certified in Medical Oncology and Internal Medicine.

Dr. Loury has served as Vice President, Preclinical Sciences since May 2006 and as Chief Scientific Officer since February 2010.  From April 2003 to May 2006, Dr. Loury served as Senior Director, Toxicology with Celera Genomics, a biotechnology company.  From June 2001 to April 2003, he was employed by Essential Therapeutics, Inc., a pharmaceutical company, as Director, Pharmacology and Toxicology.  From 1996 to 2001, Dr. Loury was employed by IntraBiotics Pharmaceuticals, Inc., most recently as Senior Director, Preclinical Development.  From 1986 to 1996 he worked in a variety of toxicology positions with Syntex/Roche Bioscience.  Dr. Loury received a Ph.D. in Pharmacology and Toxicology and a B.S. in Bio-Environmental Toxicology fr om the University of California, Davis.

 

 

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EXECUTIVE COMPENSATION

 

Overview

 

The Compensation Committee of the Board of Directors is responsible for developing and determining the Company’s executive compensation policies and administering the Company’s executive compensation plans. Additionally, the Compensation Committee determines the compensation to be paid to each of the principal executive officer and the principal financial officer of the Company, as well as other key employees. The Compensation Committee may delegate any of its duties and responsibilities, including the administration of equity incentive or employee benefit plans, to one or more of its members, to one or more other directors, or to one or more other persons, unless otherwise prohibited by applicable laws or listing standards.

 

Compensation Philosophy and Objectives

 

The Compensation Committee considers the ultimate objective of an executive compensation program to be the creation of stockholder value. To achieve that objective, the Company’s executive compensation program is tied to the financial performance of the Company and is based on two core elements: (i) pay for performance and (ii) providing a compensation package competitive with the compensation paid to employees with similar responsibilities and experience at companies of comparable size, capitalization, and complexity in order to ensure the Company’s continued ability to hire and retain superior employees in key positions.  The Compensation Committee designs compensation packages for named executive officers that include both cash and stock-based compensation (the latter vesting over time) tied to an individual’ ;s experience and performance and the Company’s achievement of certain short-term and long-term goals.

 

Determination of Compensation Awards

 

The Compensation Committee recommends to the Board the compensation awards for the named executive officers based on Company performance and individual performance.  To assist the Compensation Committee in making such recommendations, the Chief Executive Officer conducts an annual performance review with each of the named executive officers to determine whether specific pre-determined individual goals related to their specific job responsibility have been achieved.  Subsequently, the Chief Executive Officer provides compensation recommendations to the Compensation Committee regarding each of such officers.

 

To date, Robert Duggan, the Company’s Chief Executive Officer, has declined to receive any compensation, whether cash or stock.

 

 

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Tax Considerations

 

Section 162(m) of the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly held companies for compensation exceeding $1 million paid to certain of the corporation’s executive officers. The limitation applies only to compensation that is not considered to be performance-based. The non-performance-based compensation to be paid to the Company’s executive officers for the 2010 fiscal year did not exceed the $1 million limit per officer, nor is it expected that the non-performance-based compensation to be paid to the Company’s executive officers for fiscal 2011 will exceed that limit. The 2004 Plan is structured so that any compensation deemed paid to an executive officer in connection with the exercise of options granted under that plan with an exercise price equal to the fair market value of the option shares on the grant date will qualify as performance-based compensation, which will not be subject to the $1 million limitation. Because it is very unlikely that the cash compensation payable to any of the Company’s executive officers in the foreseeable future will approach the $1 million limit, the Compensation Committee has decided at this time not to take any other action to limit or restructure the elements of cash compensation payable to the Company’s executive officers. The Compensation Committee will reconsider this decision should the individual compensation of any executive officer approach the $1 million level.

 

Severance and Change in Control Arrangements

 

The Company’s 2004 Equity Incentive Award Plan provides that 50% of all unvested options shall become fully vested upon a change in control of the Company. The plan further provides that if the employee’s employment is terminated within twelve (12) months of a change in control, the remaining balance of unvested options shall become fully vested.

 

The Company has entered into a severance agreement with Dr. Loury that provides, upon the involuntary termination of Dr. Loury’s employment, Dr. Loury will be paid one year’s base salary, provided such termination is not for cause, as defined in the agreement.  The Company does not have a severance or other employment agreement with any other executive officer.

 

 

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Separation Agreements

 

Glenn Rice, the Company’s former President and Chief Operating Officer, on October 28, 2009, entered into an Agreement and Release with the Company (the “Rice Separation Agreement”) pursuant to which Dr. Rice’s employment with the Company was ended by mutual agreement effective February 11, 2010.  Pursuant to the Rice Separation Agreement, Dr. Rice continued to receive his annual base salary until December 1, 2009. Between December 1, 2009 and February 11, 2010, Dr. Rice received a pro-rated portion of his annual base salary based on hours of all work performed during that time period.  In addition, pursuant to the Rice Separation Agreement options to purchase an aggregate of 200,000 shares of common stock of the Company held by Dr. Rice were accelerated and became exercisable and options t o purchase an aggregate of 800,000 shares of common stock of the Company held by Dr. Rice were terminated. Dr. Rice has provided the Company with a general release from any and all claims related to his employment. The Rice Separation Agreement also includes confidentiality and non-disparagement provisions.

 

Retirement Plans

 

We maintain a 401(k) Plan that is a defined contribution plan intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended.  In fiscal 2010, the Company matched 50% of all participant contributions up to a maximum of $1,500 per employee.  The Company does not maintain a defined benefit pension plan or a nonqualified deferred compensation plan.

 

Summary Compensation Table

 

The following table sets forth all compensation awarded to, paid or earned by the following type of executive officers for each of the Company’s last two completed fiscal years: (i) individuals who served as, or acted in the capacity of, the Company’s principal executive officer for the fiscal year ended June 30, 2010; (ii) the Company’s two most highly compensated executive officers, other than the chief executive, who were serving as executive officers at the end of the fiscal year ended June 30, 2010; and (iii) up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the Company at the end of the fiscal year ended June 30, 2010 (of which there were none).  We refer to these individuals collectively as our nam ed executive officers.

 

Name and Principal Position	Fiscal Year		Salary ($) (1)				Bonus ($)				Option Awards ($) (2)				All Other Compensation ($)				Total ($)
Robert W. Duggan (3)	2010			-				-				-				-				-
Chairman and Chief Executive Officer	2009			-				-				-				-				-
Ahmed Hamdy, M.D.	2010			315,000				4,822				548,100				-				867,922
Chief Medical Officer	2009			83,596				25,000				39,833				-				148,429
David J. Loury, Ph.D.	2010			305,481				5,900				400,775				1,500	(4)			713,656
Chief Scientific Officer	2009			265,215				-				199,095				1,500	(4)			465,810

(1)	Includes amounts earned but deferred at the election of the Named Executive Officer, such as salary deferrals under the Company’s 401(k) plan.

 

(2)

The Company’s share-based compensation program includes incentive and non-statutory stock options. The amounts set forth under this column represent the aggregate grant date fair value of stock options granted in each fiscal year for financial reporting purposes under Statement of Financial Accounting Standards ASC Topic 718, “Stock Compensation,” disregarding the estimate of forfeitures for service-based vesting conditions. The Company’s  methodology, including its underlying estimates and assumptions used in calculating these values, is set forth in Note 6 to its audited financial statements included in its annual report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2010. The option awards for Dr. Loury and Dr. Hamdy include awards with performance-based vesting conditions for which the value was calculated using the probable ou tcome of the established performance conditions.  If the value of the option awards had been calculated assuming maximum achievement of both previously established performance conditions and performance conditions that had yet to be established, the option award amounts reflected in this column for Dr. Hamdy would have been $1,684,721 and $159,331 for 2010 and 2009, respectively and the amounts reflected in this column for Dr. Loury would have been $1,041,400 and $239,880 for 2010 and 2009, respectively.  During the fiscal year ended June 30, 2010 Dr. Hamdy and Dr. Loury were granted options for 30,000 shares and 125,000 shares, respectively.

 

 

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(3)	Mr. Duggan has declined any compensation from the Company.  Mr. Duggan became the Company’s Interim Chief Executive Officer on September 10, 2008 and became the Company’s Chief Executive Officer on February 12, 2009.

 

(4)	Consists of the Company’s matching contribution under its 401(k) plan.

 

Outstanding Equity Awards at 2009 Fiscal Year-End

 

The following table provides information on the holdings of stock options by the named executives at June 30, 2010.  Each option grant is shown separately for each named executive. The vesting schedule for each option grant is shown following this table.

 

		Option Awards
Name		Number of Securities Underlying Unexercised Options Exercisable								Number of Securities Underlying Unexercised Options Un-exercisable								Option Exercise Price ($)				Option Expiration Date
Robert W. Duggan			-								-											-
Ahmed Hamdy, M.D.			75,000				(1	)			225,000				(1	)			0.73			03/10/19
			-								30,000				(2	)			7.19			04/11/20
David J. Loury, Ph.D.			65,000				(3	)			-								4.16			05/23/16
			75,000				(4	)			-								2.76			03/13/17
			125,000				(5	)			-								0.86			03/18/18
			80,000				(6	)			120,000				(6	)			1.35			11/04/18
			25,000				(7	)			75,000				(7	)			0.75			03/03/19
			30,974				(8	)			19,026				(8	)			3.51			01/12/20
			-								75,000				(2	)			7.19			04/11/20

(1)	Option vests in four equal annual installments beginning March 10, 2010, subject to the satisfaction of certain performance criteria with respect to each annual period.

 

(2)	Option vests in four equal annual installments beginning April 11, 2011, subject to the satisfaction of certain performance criteria with respect to each annual period.

 

(3)	25% of the shares subject to the option vest on the one year anniversary of the date of grant (May 23, 2006)  and the remaining shares subject to the option vest in a series of 36 equal and successive monthly installments thereafter.

 

(4)	Option vests in forty-eight (48) equal installments beginning on the date of grant (March 13, 2007).

 

 

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(5)	Option vests in forty-eight (48) equal installments beginning on the date of grant (March 18, 2008).

 

(6)	Option vests in a series of five equal and successive annual installments measured from November 4, 2008.

 

(7)	Option vests in four equal annual installments beginning March 3, 2010, subject to the satisfaction of certain performance criteria with respect to each annual period.

 

(8)	25% of the shares subject to the option vest on the one year anniversary of the date of grant (January 12, 2010)  and the remaining shares subject to the option vest in a series of 36 equal and successive monthly installments thereafter.

 

None of our Named Executive Officers exercised any of his stock options in fiscal 2010 and as a result, there was no value realized.

 

DIRECTOR COMPENSATION

 

Cash Compensation

 

During fiscal 2010, each non-employee director received $7,500 for each full Board meeting attended, payable quarterly, and $500 for each Board committee meeting attended.  Each committee chairman received $1,000 for each Board committee meeting attended.  Board members may elect to receive their compensation in the form of non-qualified stock options with a face value equal to three (3) times the amount of cash compensation earned.

 

Equity Compensation

 

Each non-employee Director receives an automatic option grant to purchase 10,000 shares on the day they become a member of the Board with an exercise price of one hundred (100%) of the fair market value on the date of grant (“Initial Option”).  Each non-employee Director of the Company receives an annual automatic grant on the day of the Company’s Annual Meeting of a non-qualified stock option to purchase 7,500 shares with an exercise price of one hundred (100%) of the fair market value on the date of grant (“Annual Replenishment Option”), providing that the Director has served as a Director for at least the six (6) months prior to the Annual Meeting.

 

All Director option grants are nonstatutory stock options subject to the terms and conditions of the 2004 Plan.  Each Initial Option vests at the rate of 1/60th per month over sixty (60) months from the date of grant of the Initial Option, and each Annual Replenishment Option vests at the rate of 1/12th per month over twelve (12) months from the date of grant of the Annual Replenishment Option.  Furthermore, Initial Options and Annual Replenishment Options vest only during the option holder’s service as a Board member; provided however, that the Compensation Committee has the power to accelerate the time during which an option granted to a Director may vest.

 

Initial Options and Annual Replenishment Options terminate upon the earlier of (i) ten (10) years after the date of grant or (ii) thirty-six (36) months after the date of termination of the option holder’s service as a Board member.

 

 

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During the fiscal year ended June 30, 2010, Mr. van den Broek received Initial Options to acquire 10,000 shares of common stock at an exercise price of $2.90 per share.

 

The following table sets forth the compensation earned or awarded to the Company’s non-employee directors during the fiscal year ended June 30, 2010.

 

Current Directors:		Fees Earned or Paid in Cash ($) (1)				Option Awards ($) (2)				Total ($)
Robert W. Duggan			-				-				-
Jason T. Adelman			-				103,383				103,383
Cynthia C. Bamdad, Ph.D.			-				87,731				87,731
Minesh P. Mehta, M.D.			16,500				53,061				69,561
Glenn C. Rice, Ph.D.(3)			-				33,615				33,615
David D. Smith, PhD			-				83,267				83,267
Richard A. van den Broek			-				74,212				74,212

(1)

See the section entitled “Director Compensation - Cash Compensation”, above, for a description of the cash compensation program for the Company’s non-employee directors during the fiscal year ended June 30, 2010.  Amounts earned in one year and paid in the following year are, for purposes on this table only, accounted for in the year earned. Includes fees with respect to which directors elected to receive option shares in lieu of such fees. The following directors received option shares in the amounts set forth below in lieu of the fees set forth below (includes fees forgone earned in the fourth quarter of fiscal 2010 where the related options were granted the first day of fiscal 2011):

 

Current Directors:		Fees Forgone				Option Shares Received in Lieu Of Cash
Jason T. Adelman		$	39,000				33,694
Cynthia C. Bamdad, Ph.D.			32,000				27,836
Minesh P. Mehta, M.D.			16,500				14,140
Glenn C. Rice, Ph.D.			15,000				6,726
David D. Smith, Ph.D.			30,000				25,581
Richard A. van den Broek			23,500				14,432

(2)

The amounts set forth under this column represent the aggregate grant date fair value of stock options granted in each fiscal year for financial reporting purposes under Statement of Financial Accounting Standards ASC Topic 718, “Stock Compensation,” disregarding the estimate of forfeitures for service-based vesting conditions. The Company’s  methodology, including its underlying estimates and assumptions used in calculating these values, is set forth in Note 6 to its audited financial statements included in its annual report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2010.  See the section entitled “Director Compensation - Equity Compensation”, above, for a description of the Company’s cash compensation policy for non-employee directors and the specific terms of the stock options granted to the Company&#8 217;s non-employee directors during the fiscal year ended June 30, 2010. The grant date fair value of option awards granted in fiscal year 2010 is as follows:

 

 

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Current Directors:	Grant Date		Grant Date Fair Value
Jason T. Adelman	10/01/09		$	23,356
	12/17/09			16,168
	01/04/10			20,160
	04/01/10			23,548
	07/01/10			20,151
			$	103,383
Cynthia C. Bamdad, Ph.D.	10/01/09		$	18,908
	12/17/09			16,168
	01/04/10			17,919
	04/01/10			17,941
	07/01/10			16,795
			$	87,731
Minesh P. Mehta, M.D.	10/01/09		$	9,453
	12/17/09			16,168
	01/04/10			8,958
	04/01/10			9,528
	07/01/10			8,954
			$	53,061
Glenn C. Rice, Ph.D.	04/01/10		$	16,820
	07/01/10			16,795
			$	33,615
David D. Smith, Ph.D.	10/01/09		$	16,683
	12/17/09			16,168
	01/04/10			16,801
	04/01/10			16,820
	07/01/10			16,795
			$	83,267
Richard A. van den Broek	12/17/09		$	21,557
	01/04/10			16,801
	04/01/10			17,941
	07/01/10			17,913
			$	74,212

The aggregate number of stock options outstanding as of June 30, 2010 is as follows: 72,385 shares for Mr. Adelman, 30,995 shares for Dr. Bamdad, 29,863 shares for Dr. Mehta, 74,229 share for Dr. Rice, 131,768 shares for Dr. Smith, and 20,877 shares for Mr. van den Broek. There were no options that were repriced or otherwise materially modified during fiscal year 2010.

 

(3)	Represents compensation earned by Dr. Rice after he ended his position as President and Chief Operating Officer in February 2010.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

The table below shows, as of June 30, 2010, information for all equity compensation plans previously approved by stockholders and for all compensation plans not previously approved by stockholders.

 

 

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Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) (1)
Equity compensation plans approved by security holders (2)			8,395,394			$	4.83				2,081,546
Equity compensation plans not approved by security holders			-				-				-
Total			8,395,394			$	4.83				2,081,546

(1)	Includes approximately 417,546 shares issuable under the Company’s Employee Stock Purchase Plan.

 

(2)	Includes our:

 

·	2004 Equity Incentive Award Plan

·	1995 Stock Option Plan

·	1995 Non-Employee Director Stock Option Plan

·	Employee Stock Purchase Plan

 

BOARD AUDIT COMMITTEE REPORT*

 

The Audit Committee of the Board is comprised of three (3) independent directors (as defined in Rule 4200(a)(15) of the Nasdaq Marketplace Rules listing standards) and operates under a written charter adopted by the Board of Directors.

 

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board.  Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control.  In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in the Annual Report on Form 10-K for the year ended June 30, 2010 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The Audit Committee reviewed with the independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards, including Statement of Accounting Standard 61, as amended (AICPA, Professional Standards Vol. 1 AU Section 380), as adopted by the Public Company Oversight Board in Rule 3200T.  In addition, the Audit Committee has received the written disclosures and the letter from the independent accountant required by applicable requirements of the Pub lic Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence.

 

 

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The Audit Committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for their audit.  The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussion referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the year ended June 30, 2010 for filing with the SEC.  The Audit Committee has also recommended, subject to stockholder ratification, the retention of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.

 

Jason T. Adelman (chairman)

Richard A. van den Broek

Minesh P. Mehta

 

_______________

* The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into 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 contained in such filing.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loan to Company

 

In December 2008, the Company borrowed $5,000,000 and in March 2009, borrowed $1,400,000 from an affiliate of Robert W. Duggan, the Company’s Chairman of the Board and Chief Executive Officer.  Under the terms of the unsecured loans, the Company was to repay the principal sum of $6,400,000 on the earlier of (i) July 1, 2010 or (ii) upon the closing of an equity offering or rights offering by the Company.  The loans bore interest as follows: (i) 1.36% from December 30, 2008 until March 31, 2009, and (ii) the rate of interest in effect for such day as publicly announced from time to time by Citibank N.A. as its “prime rate” from April 1, 2009 until December 31, 2009.  Interest was to be paid annually.  The full $6,400,000 amount of the loans plus accrued interest was repaid in August 2009 in connection with the July closing of the Company’s rights offering.

 

Participation in Registered Direct Offering

 

 In June 2010, we sold approximately 8.1 million shares of our common stock to a group of institutional investors in a registered direct offering at $6.51 per share for net proceeds of approximately $50,800,000.   Robert W. Duggan, the Company’s Chairman of the Board and Chief Executive Officer, participated in the offering in the amount of $7,000,000.

 

 

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Consulting Services

 

Director nominee Dr. Gwen Fyfe provides consulting services to the Company under a Consulting Services Agreement that is cancelable by either party upon 30 days written notice.  Dr. Fyfe was paid approximately $235,000 in fees for consulting services and expense reimbursements during the period from April 2010 to October 2010.  Additionally, Dr. Fyfe was granted options to purchase 330,000 shares of the Company’s common stock that vest monthly over 48 months.

 

The Audit Committee is charged with the review and approval of all related party transactions involving the Company.  The Audit Committee acts pursuant to a written charter that has been adopted by the Board.  The policy provides that the Audit Committee reviews certain transactions subject to the policy and decides whether or not to approve or ratify those transactions. In doing so, the Audit Committee determines whether the transaction is in the best interests of the Company.

 

ANNUAL REPORT

 

A copy of the Company’s Annual Report for the year ended June 30, 2010 has been included with this Proxy Statement to all stockholders entitled to notice of and to vote at the Annual Meeting.  The Annual Report is not incorporated into this Proxy Statement and is not considered proxy-soliciting material.

 

FORM 10-K

 

The Company filed an Annual Report on Form 10-K for the year ended June 30, 2010 with the Securities and Exchange Commission.  A copy of the Form 10-K has been included with this Proxy Statement to all stockholders entitled to notice of and to vote at the Annual Meeting.  The Form 10-K is not incorporated into this Proxy Statement and is not considered proxy-soliciting material.  Stockholders may obtain additional copies of the Form 10-K, without charge, by writing to Pharmacyclics, Inc., 995 East Arques Avenue, Sunnyvale, California 94085, Attn: Secretary.

 

OTHER MATTERS

 

The Company knows of no other matters that will be presented for consideration at the Annual Meeting.  If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed form of Proxy to vote the shares they represent as the Board may recommend.  Discretionary authority with respect to such other matters is granted by the execution of the enclosed Proxy.

 

THE BOARD OF DIRECTORS

 

Dated: November 11, 2010

 

 

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Under rules recently adopted by the Securities and Exchange Commission,

we are now furnishing proxy materials on the Internet in addition to

mailing paper copies of the materials to each stockholder of record.

This Proxy Statement and our Annual Report on Form 10-K for

the fiscal year ended June 30, 2010 are available at:

http://www.ir.pharmacyclics.com/annuals.cfm

 

 

[ ]

Mark this box with an X if you have made changes to your name or address details above.

Annual Meeting Proxy Card

This proxy, when properly executed, will be voted as specified below, if no specification is made, this Proxy will be voted FOR the election of the directors listed below and FOR the other proposals.

A  Election of Directors
1. The Board of Directors recommends a vote FOR each of the directors listed below.  To elect the following directors to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified.
	For	Withhold		For	Withhold		For	Withhold
01 — Robert F. Booth, Ph.D.	[ ]	[ ]	04 — Roy C. Hardiman	[ ]	[ ]	07 — Richard A. van den Broek	[ ]	[ ]
	For	Withhold		For	Withhold
02 — Robert W. Duggan	[ ]	[ ]	05 — Minesh P. Mehta, M.D.	[ ]	[ ]
	For	Withhold		For	Withhold
03 — Gwen A.  Fyfe, M.D.	[ ]	[ ]	06 — David D. Smith, Ph.D.	[ ]	[ ]

 

 

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B Proposals
The Board of Directors recommends a vote FOR the following proposals.
2. to amend the Company’s 2004 Equity Incentive Award Plan (the “2004 Plan”) in order to increase the total number of shares of common stock authorized for issuance over the term of the 2004 Plan by an additional 2,500,000 shares;	For   [ ]	Against   [ ]	Abstain   [ ]
3.  to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2011.	For   [ ]	Against   [ ]	Abstain   [ ]

Proxy — Pharmacyclics, Inc.

MARK HERE IF YOU PLAN TO ATTEND THE MEETING

C  Authorized Signatures - Sign Here - This section must be completed for your instructions to be executed.

Please sign your name(s) exactly as it appears hereon.

Signature 1- Please keep signature within the box		Signature 2 - Please keep signature within the box		Date (mm/dd/yyyy)

Annual Meeting of Stockholders, December 9, 2010

 

This Proxy is Solicited on Behalf of the Board of Directors of Pharmacyclics, Inc.

 

The undersigned revokes all previous proxies, acknowledges receipt of the Notice of Annual Meeting of Stockholders and the Proxy Statement and appoints Robert W. Duggan and Rainer Erdtmann, and each of them, the Proxy of the undersigned, with full power of substitution, to vote all shares of Common Stock of Pharmacyclics, Inc. (the “Company”) which the undersigned is entitled to vote, either on his or her own behalf or on behalf of any entity or entities, at the Annual Meeting Of Stockholders of the Company to be held at the Company’s facility, 999 East Arques Avenue, Sunnyvale, CA 94085 on Thursday December 9, 2010 at 1:30 p.m.  (the “Annual Meeting”), and at any adjournment or postponement thereof, with the same force and effect as the undersigned might or could do if personally present thereat.&# 160; The shares represented by this Proxy shall be voted in the manner set forth on the reverse side.

 

SEE REVERSE SIDE

CONTINUED AND TO BE SIGNED ON REVERSE SIDE.

SEE REVERSE SIDE

 

 

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