Under the NASDAQ Listing Rules the audit committee is responsible for the appointment, compensation, retention and oversight of the work of the company’s independent auditors, among other things. However, under Israeli law, the appointment of independent auditors and their compensation require the approval of the shareholders of the company, or the board of directors if so determined in the company’s articles of association. Our Articles have authorized our board of directors to determine the compensation of our independent auditors. In addition, pursuant to the Companies Law, the audit committee is required to examine the independent auditors’ fees and to provide its recommendations with respect thereto to the appropriate corporate organ. Accordingly, the appointment of the independent auditors will be required to be approved and recommended to the shareholders by the audit committee and approved by the shareholders. The compensation of the independent auditors will be required to be approved by the audit committee and recommended to the shareholders or, if so authorized by the shareholders, to the board of directors and approved by either the shareholders or the board of directors, as the case may be.
In compliance with new regulations under the Companies Law, our audit committee also approves our financial statements, thereby fulfilling the requirement that a board committee provide such approval.
We have an audit committee consisting of three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. The members of the audit committee are Dr. Arie Ovadia, who serves as the chairman of our audit committee, Professor Yair Aharonowitz, and Professor Joshua Shemer. All of the members of our audit committee qualify as independent directors under the current NASDAQ Listing Rules and as external directors under the Companies Law. We have adopted a charter for the audit committee, which sets forth the purpose and responsibilities of such committee under the above-described legal requirements.
Other Committees
Our board of directors does not maintain a nominating committee or a compensation committee. The functions of such committees are performed by the full board of directors (or, in the case of compensation, by our audit committee, as described below under “—Director and Officer Compensation”). This practice is compliant with Israeli law and, as a foreign private issuer under the SEC’s rules, we have elected, pursuant to NASDAQ Listing Rule 5615(a)(3), to follow Israeli practice, in lieu of compliance with the NASDAQ Listing Rules 5602(d) or 5602(e).
In lieu of appointing a separate board committee with responsibility for setting appropriate compensation levels for our executive officers, the audit committee of our board of directors serves as the body with authority for establishing such compensation levels (subject to follow-up approval by the board of directors as a whole). In setting compensation levels, our audit committee and board of directors are guided by the levels of compensation provided to executives in other companies in our industry and our home country, as adjusted to account for differences in size and other relevant distinguishing factors. The amendment of existing compensation terms of our office holders who are not directors merely requires the approval of our audit committee, if such committee determines that the amendment is not substantial in relation to the existing terms. The compensation levels of executive officers who are also directors requires the approval of the audit committee, the board of directors and our shareholders, except in certain circumstances prescribed in regulations promulgated under the Companies Law.
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Internal Auditor
Under the Companies Law, the board of directors must appoint an internal auditor, recommended by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company's actions comply with the law and orderly business procedure. Under the Companies Law, the internal auditor may be an employee of the company but not an interested party or an office holder, or a relative of an interested party or of an office holder, and he or she may not be the company's independent accountant or any one on its behalf. The internal auditor’s tenure cannot be terminated without his or her consent, nor can he or she be suspended from such position unless the board of directors has so resolved after hearing the opinion of the audit committee and after providing the internal auditor with the opportunity to present his or her case to the board of directors and to the audit committee. “Interested party” is defined in the Companies Law as a holder of 5% or more of the company's outstanding shares or voting rights, any person or entity who has the right to designate one director or more or the chief executive officer of the company or any person who serves as a director or as a chief executive office,
On February 8, 2010, our board of directors appointed Hila Barr of Brightman Almagor Zohar & Co., a member company of Deloitte Touche Tohmatsu, as Compugen’s internal auditor. Hila Barr is not an employee, affiliate or office holder of the company, or affiliated with the company's auditors.
Directors’ Severance Benefits upon Termination of Employment
We have not entered into any service contracts with any members of our board of directors that provide for specific benefits upon termination of employment. The only severance pay benefits that may be provided are required under Israeli law and are described below in the section titled “Employees”.
D. EMPLOYEES
The following table sets out the number of our employees engaged in specified activities, at the end of the fiscal years 2009, 2010 and 2011:
December 31, 2011
December 31, 2010
December 31, 2009
Research & Development
Administration, Accounting and Operations
Marketing and Business Development
Total
All of our employees are based in Israel.
The Israeli labor laws govern the employment of our employees. These statutes cover a wide range of subjects and provide certain minimum employment standards including the length of the workday, minimum wage, hiring and dismissal procedures, determination of severance pay, annual leave, sick days and other terms of employment. In addition we have entered into an employment agreement with our active chairman of the board Mr. Martin Gerstel, according to which he is entitled to employment terms required by Israeli law. The employment agreement may be terminated by either party by the providing 90 days, prior written notice.
We contribute monthly amounts for the benefit and on behalf of all our employees located in Israel to a managers insurance plan and/or a pension plan on account of remuneration and severance pay. Our severance pay liability to our employees is based upon the number of years of their employment and their latest monthly salary and is partly covered by the amounts contributed to the managers insurance plan and the pension plan.
Our employees are not represented by a labor union. We have written employment contracts with each of our employees. We have never experienced labor-related work stoppages and we believe that our relations with our employees are good.
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E. SHARE OWNERSHIP
Share Ownership by Directors and Senior Management
All of the persons listed above under the caption “Directors and Senior Management” own ordinary shares and/or options to purchase ordinary shares. Except as set forth in the table below, none of the directors or executive officers beneficially owns ordinary shares and/or ordinary shares underlying options amounting to 1% or more of the outstanding ordinary shares. The following table sets forth certain information as of February 29, 2012, regarding the beneficial ownership by our directors and executive officers. All numbers quoted in the table are inclusive of options to purchase shares that are exercisable within 60 days after February 29, 2012.
Beneficial Owner
Amount Owned
Percent of Class
Martin S. Gerstel (1)
Anat Cohen-Dayag (2)
Alex Kotzer (3)
All directors and senior management as a group (4) (11 persons)
(1) Includes 550,000 shares held by Shomar Corporation, an affiliate of Mr. Martin S. Gerstel, 669,033 shares held by Merrill Lynch IRA for Martin Gerstel, of which Martin Gerstel is the beneficiary, 634,735 shares held in various brokerage accounts for the benefit of Martin Gerstel and 406,247 options (of the 500,000 options granted to Martin Gerstel during 2009) that are exercisable within 60 days after February 29, 2012.
(2) Consists of 492,264 options that are exercisable within 60 days after February 29, 2012 with a weighted average exercise price of $2.22 per stock option, and which expire between the periods April 2013 and July 2021.
(3) Consists of 390,001 options that are exercisable within 60 days after February 29, 2012 with a weighted average exercise price of $3.18 per stock option, and which expire between the period July 2015 and July 2020.
(4) Includes (i) a total of 3,142,280 shares and options that are beneficially owned by Martin S. Gerstel, Anat Cohen-Dayag and Alex Kotzer, as noted in the first three rows of the above table, (ii) 785,681 options that are beneficially owned by other officers and directors, with a weighted average exercise price of $2.28 per stock option and which expire between July 2013 and July 2021 and (iii) 5,000 ordinary shares held by other officers and directors.
Share Option Plans
We maintain one active share option plan, plus one additional share option plan under which prior grants remain outstanding, for our employees, directors and consultants. In addition to the discussion below, see Note 13 of our 2011 consolidated financial statements.
Our board of directors administers our share option plans and has the authority to designate all terms of the options granted under our plans including the grantees, exercise prices, grant dates, vesting schedules and expiration dates, which may be no more than ten years after the grant date. Options may not be granted with an exercise price of less than the fair market value of our ordinary shares on the date of grant, unless otherwise determined by our board of directors.
Compugen Share Option Plan (2000)
The Compugen Share Option Plan (2000), or the “2000 Option Plan”, enabled granting options for up to an aggregate of 10,191,511 ordinary shares to our and our subsidiaries' employees, directors and consultants. No further options are being granted under this plan following a July 25, 2010 decision of our board of directors which resolved to cancel the then remaining “available for grant” options remaining under the 2000 Option Plan. As of December 31, 2011, options to purchase 4,774,100 ordinary shares at a weighted average exercise price of approximately $2.76 per share were outstanding (i.e., were granted but not canceled, expired or exercised) under the 2000 Plan. Options to purchase 2,939,236 ordinary shares under the plan have previously been exercised at a weighted average exercise price of approximately $2.75.
Compugen 2010 Share Incentive Plan
On July 25, 2010, our board of directors adopted the Compugen 2010 Share Incentive Plan or the “2010 Option Plan”, and determined to cease making grants under the 2000 Option Plan. In addition, the board of directors resolved that the options available for grants under the 2000 Options Plan, at such time, as well as any options that may return to such pool in connection with terminated options, will be made available for future grants under the 2010 Options Plan. 1,953,851 shares were initially reserved for the grant under the 2010 Options Plan. In keeping with our board of directors’ resolution any options granted prior to the adoption of the 2010 Options Plan which terminate unexercised, will also be made available for future grants under the 2010 Options Plan.
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If a grantee leaves his or her employment or other relationship with us, or if his or her relationship with us is terminated without cause, the term of his or her unexercised options will generally expire in 90 days, unless determined otherwise by our board of directors. As of December 31, 2011, options to purchase 1,169,300 ordinary shares at a weighted average exercise price of approximately $4.35 per share were outstanding (i.e., were granted but not canceled, expired or exercised) under the 2010 Options Plan. Options to purchase 4,311,875 ordinary shares remain available for future grant as of December 31, 2011.
Administration of our Share Options Plans
Our board of directors has elected the “Capital Gains Track” (as defined in Section 102(b)(2) of the Israeli Income Tax Ordinance or the “Tax Ordinance”) for the grant of options to Israeli grantees. Generally, under the Capital Gains Track, the tax liability to a Grantee resulting from the grant and exercise of options will be postponed until the time that shares that are acquired upon the exercise of options will be sold or released from trust, subject to fulfillment of the requirements of Section 102 of the Tax Ordinance. Entitlement to the benefits under the Capital Gains Track is contingent upon the trustee holding the options or the shares issued upon their exercise on behalf of the grantee of options for a period of at least 24 months from the time of grant. Under the Capital Gains Track, generally a rate of 25% applies to gains that are realized from the sale of shares issued upon exercise of options (i.e., for sales proceeds in excess of the exercise price of the options, assuming that the exercise price is equal to the fair market value of the shares on the date of the award), and provided that the sale occurs after the required holding period.