Dr. Johnson joined our board of directorsBoard in January 2018. He is the founder and Chief Scientist of Glycyx PharmaVentures Ltd., a biopharma investment and development company. In 1989, he co-founded Salix Pharmaceuticals, Inc. (Nasdaq: SLXP), a specialty pharmaceutical company specializing in gastrointestinal products, and held senior leadership positions prior to its $15.8 billion acquisition by Valeant Pharmaceuticals International, Inc. (NYSEA: VRX) in April 2015. Prior to Salix, Dr. Johnson served as Director of Scientific Operations and Chief Scientist at Scios, Inc. (formerly California Biotechnology, Inc). Since June 2019, he has been a board member of Edesa Biotech, Inc. (Nasdaq: EDSA), a biopharmaceutical company in the fields of inflammation, infectious disease and gastroenterology. He is also a board member of Glycyx MOR, LTDInc. (Delaware) and Kinisi Therapeutics, Ltd. (Isle of Man), both GI specialty pharma companies based on the Isle of Man,as well as Intact Inc., a (California). All are GI specialty drug delivery company based in Belmont, CA and Tumour Trace Ltd, a cancer diagnostic company based in Nottingham, UK.development companies. In addition to his career in industry, Dr. Johnson has served as an Assistant Professor of Pathology at Stanford University Medical Center and held academic positions at Stanford University School of Medicine and the University of California, San Francisco. He is the co-author of 75 journal articles and book chapters and is the co-inventor on 22 issued patents. Dr. Johnson holds a Ph.D. from the University of Southern California and was a Postdoctoral Fellow at the University of California, San Francisco.
We believe that Dr. Johnson’s extensive experience in the pharmaceutical and life science industries, both as an executive and investor, qualifies him to serve on our board of directors.Board.
Dr. MaidaSirgo joined our Board in April 2020 upon completion of the RDD Merger and was appointed as Board chairman. In January 2019, Dr. Sirgo was appointed Chief Executive Officer of Aruna Bio, Inc., a private development-stage company focused on central nervous system and neurodegenerative disorders, a position he held until April of this year. He was President and Chief Executive Officer of Jenner Biotherapies,BioDelivery Sciences International, Inc., an immunotherapy company. From 1997 through 2010, Dr. Maida served as Chairman, Founder and Director of BioConsul Drug Development Corporation and Principal of Anthony Maida Consulting International, advising pharmaceutical and investment firms, (Nasdaq: BDSI) (“BDSI”) from January 2005 to January 2018. He joined BDSI in the clinical development of therapeutic products and product/company acquisitions. From June 2009 through June 2010, Dr. Maida served as Vice President of Clinical Research and General Manager, Oncology, Worldwide for PharmaNet, Inc., a clinical research organization. Since June 2010, Dr. Maida has servedAugust 2004 as Senior Vice President Clinical Research for Northwest Biotherapeutics,of Commercialization and Corporate Development upon its acquisition of Arius Pharmaceuticals, Inc., of which he was a cancer vaccine company focused on therapy for patients with glioblastoma multiformeco-founder and prostate cancer.Chief Executive Officer. Dr. MaidaSirgo served as a director of BDSI from August 2005 until the sale of the Company in March of this year. Dr. Sirgo has servedover 30 years of experience in the pharmaceutical industry, including senior and/or executive positions in research and development, business development, sales, marketing and business operations. Dr. Sirgo spent 16 years in a numbervariety of executive roles,positions of increasing responsibility in both clinical development and marketing at Glaxo, Glaxo Wellcome, and GlaxoSmithKline, including Vice President of International OTC Development and CEOVice President of Replicon NeuroTherapeutics,New Product Marketing. From 1996 to 1999, Dr. Sirgo was Senior Vice President of Global Sales and Marketing at Pharmaceutical Product Development, Inc. (Nasdaq: PPDI), a leading contract service provider to the pharmaceutical industry. Dr. Maida is currently a member of the board of directors and audit chair of Spectrum Pharmaceuticals, Inc. (Nasdaq GS: SPPI) and Vitality Biopharma, Inc. (OTCQB: VBIO) and was formerly a member ofSirgo served on the Board of Directors and audit chair of OncoSec Medical Inc. (OTCQB: ONCS). Dr. Maida holds a B.A. in Biology and History, an M.B.A., an M.A. in Toxicology and a Ph.D. in Immunology. He is a memberas Chairman of the American SocietyCompensation Committee of Clinical Oncology,Salix Pharmaceuticals, Inc. (Nasdaq: SLXP), a specialty pharmaceutical company specializing in gastrointestinal products, from 2008 until its sale in 2015. Dr. Sirgo has also served on the American Association for Cancer Research, the SocietyBoard of Neuro-Oncology, the International Society for Biological TherapyDirectors of CancerBiomerica, Inc. (Nasdaq: BMRA), a gastrointestinal diagnostics and the American Chemical Society.therapeutic company, since 2016. Dr. Sirgo received his BS in Pharmacy from The Ohio State University and his Doctorate from Philadelphia College of Pharmacy and Science.
We believe that Dr. Maida’sSirgo’s extensive executive level experience as an executive at various biotechnologyin the pharmaceutical industry, including leading both public and biopharmaceuticalprivate companies as well as his serviceand served on private and public companymultiple boards of directors, qualifies him to serve on our board of directors.Board.
Samantha Ventimiglia
Roy Proujansky, M.D.
Dr. Proujansky
Ms. Ventimiglia joined our board of directorsBoard in January 2018. He is a pediatric gastroenterologist who since July 2013October 2021. Since December 2011, Ms. Ventimiglia has served as the Executivein various leadership roles at Vertex Pharmaceuticals, Inc., a global biotechnology company, and is currently Senior Vice President, U.S. Public Affairs, responsible for developing and Chief Executive of Delaware Valley Operations (DuPont Hospital for Children) foroverseeing the Nemours Children’s Health System,company’s policy, government affairs and patient advocacy strategy, including building relationships with state and federal government officials, industry organizations, patient groups and other stakeholders. From February 2008 until December 2010, Ms. Ventimiglia was government affairs director at Astellas Pharma US, a non-profit children’s health organization. Before his current position, Dr. Proujansky served as Executive Vice President for Patient Operationsmultinational pharmaceutical company, and Chief Operating Officer of Nemours from 2006 to July 2013. From 2000 to 2006, Dr. ProujanskyApril 2004 until February 2008, she was the Robert L. Brent Professor and Chairman of Pediatrics and Associate Dean for Jefferson Medical Collegea principal consultant at Thomas Jefferson University. Additionally, from 1998 to 2015, Dr. Proujansky was the co-director or direct supervisor of Nemours Research Programs and has authored 47 original publications and book chaptersJeffrey J. Kimbell & Associates, a federal government affairs firm representing clients in the fieldhealthcare community who are seeking legislative and regulatory solutions to problems related to product approval, coverage and reimbursement and marketing practices. Prior to that, Ms. Ventimiglia was a policy director at the Pharmaceutical Research & Manufacturers of pediatric gastroenterology. Dr. ProujanskyAmerica (PhRMA) and the National Governors Association (NGA) where she played a pivotal role in developing the associations’ policy and legislative agenda on Medicare, Medicaid, private sector healthcare and Food & Drug Administration issues. She also held legislative positions in the offices of U.S. Senator Olympia J. Snowe and U.S. Congressman Elton Gallegly. Ms. Ventimiglia received an M.D.a B.A. from Northwestern University, an M.B.A. from theCatholic University of Massachusetts at AmherstAmerica and a B.S. in Medical ScienceMaster of Public Policy from NorthwesternGeorgetown University.
We believe Dr. Proujansky’s extensive knowledge and experience in the field of pediatric gastroenterology qualifies him to serve on our board of directors.
Saira Ramasastry, M.S., M. Phil. Ms. Ramasastry has served as a member of our board of directors since June 2018. Since April 2009, she has served as Managing Partner of Life Sciences Advisory, LLC, a company that she founded to provide strategic advice, business development solutions and innovative financing strategies for the life science industry. From August 1999 to March 2009, Ms. Ramasastry was an investment banker with Merrill Lynch & Co., Inc. where she helped establish the biotechnology practice and was responsible for origination of mergers and acquisitions, strategic and capital markets transactions. Prior to joining Merrill Lynch she served as a financial analyst in the mergers and acquisitions group at Wasserstein Perella & Co., an investment banking firm, from July 1997 to September 1998. Ms. Ramasastry currently serves on the board of directors of Sangamo Therapeutics Inc. (Nasdaq: SGMO) and Pain Therapeutics Inc., biotechnology companies, on the Industry Advisory Board of the Michael J. Fox Foundation for Parkinson’s Research, and as lead business advisor for the European Prevention of Alzheimer’s Dementia consortium. Ms. Ramasastry received her B.A. in economics with honors and distinction and an M.S. in management science and engineering from Stanford University, as well as an M. Phil. in management studies from the University of Cambridge where she is a guest lecturer for the Bioscience Enterprise Programme and serves on the Cambridge Judge Business School Advisory Council. Ms. Ramasastry is also a Health Innovator Fellow of the Aspen Institute and a member of the Aspen Global Leadership Network.
We believe that Ms. Ramasastry’sVentimiglia’s years of experience seeking legislative and regulatory solutions in the life sciencehealthcare industry as well as her experience on public company boards qualifies herMs. Ventimiglia to serve on our boardBoard.
Required Vote
Provided there is a quorum for the Annual Meeting, the director nominees receiving the highest number of affirmative votes of our common stock present or represented and entitled to be voted for them will be elected as directors. Votes withheld will have no legal effect on the election of a director. Under applicable exchange rules, brokers are not permitted to vote shares held for a customer on “non-routine” matters without specific instructions from the customer. As such, broker non-votes will have no effect on the outcome of this Proposal 1.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE “FOR” THE DIRECTOR NOMINEES LISTED ABOVE.
19
PROPOSAL 2
APPROVAL OF REVERSE STOCK SPLIT
The Board of Directors deems it advisable and in the best interest of the Company that the Board be granted the discretionary authority to amend the Company’s amended and restated certificate of incorporation (the “Charter”) to effect a reverse stock split of the Company’s issued and outstanding common stock as described below (the “Reverse Stock Split Amendment”). The form of Reverse Stock Split Amendment to be filed with the Delaware Secretary of State is set forth in Annex A.
The Company intends to drive organic growth of the per share price of our common stock by continuing to pursue our goal of becoming a leading biopharmaceutical company focused on rare or debilitating digestive diseases that have the potential to transform current treatment paradigms for patients and address unmet medical needs. However, we also intend to consider other options in order to regain or maintain compliance with the continued listing requirements of Nasdaq Listing Rules and optimize trading in our stock. One of these options is to undertake a reverse stock split of our common stock, which requires the approval of our stockholders.
Approval of the proposal would permit (but not require) our Board of Directors to effect a reverse stock split of our issued and outstanding common stock by a ratio of not less than one-for-two and not more than one-for-twenty (a “Reverse Stock Split”), with the exact ratio to be set at a number within this range as determined by our Board in its sole discretion, provided that the Company effects a Reverse Stock Split no later than one year following the approval of this proposal by stockholders. We believe that enabling our Board to set the ratio within the stated range will provide us with the flexibility to implement a Reverse Stock Split in a manner designed to maximize the anticipated benefits for our stockholders. If our Board implements a Reverse Stock Split, it may consider a variety of factors in determining the exact ratio within the approved range.
Our Board of Directors reserves the right to elect to abandon a Reverse Stock Split, including the proposed reverse stock split ratio, if it determines, in its sole discretion, that a Reverse Stock Split is not in the best interests of the Company and its stockholders.
If our Board implements a Reverse Stock Split, depending on the ratio for a Reverse Stock Split, no less than two (2) and no more than twenty (20) shares of outstanding common stock, as determined by our Board, will be combined into one share of common stock. Holders of fractional shares will be entitled to receive, in lieu of any fractional share, the number of shares rounded up to the next whole number.
Reasons for a Reverse Stock Split; Potential Consequences of a Reverse Stock Split
The Company’s primary reasons for approving and recommending a Reverse Stock Split are to increase the per share price and bid price of our common stock to help the Company regain compliance with the continued listing requirements of Nasdaq Listing Rules.
On February 8, 2022, we received a letter from the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). The Nasdaq letter had no immediate effect on the listing of the Company’s common stock on the Nasdaq Capital Market.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has a compliance period of 180 calendar days, or until August 8, 2022, to regain compliance with the Bid Price Rule. If at any time before August 8, 2022, the bid price of the Company's common stock closes at $1.00 per share or more for a minimum of ten consecutive business days, Nasdaq will provide the Company with a written confirmation of compliance with the Bid Price Rule.
If the Company does not regain compliance with the Bid Price Rule by August 8, 2022, the Company may be eligible for an additional 180-day compliance period, until February 5, 2023. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing
standards for the Nasdaq Capital Market, with the exception of the Bid Price Rule, and would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period, by effecting a Reverse Stock Split, if necessary.
Executive Officers
Reducing the number of outstanding shares of common stock should, absent other factors, generally increase the per share market price of our common stock. Although the intent of a Reverse Stock Split is to increase the price of our common stock, there can be no assurance, however, that even if a Reverse Stock Split is effected, that the bid price of the Company’s common stock will be sufficient for the Company to regain compliance with the Bid Price Rule.
In addition, the Company believes a Reverse Stock Split will make its common stock more attractive to Drs. Laumasa broader range of investors, as it believes that the current market price of its common stock may prevent or deter certain institutional investors, professional investors and Prior,other members of the investing public from purchasing stock. The Company believes that a Reverse Stock Split will make its common stock a more attractive and Mr. Madan, whose information appears above,cost-effective investment for many investors, which in turn would enhance the below provides additional information about our other executive officers.liquidity of the holders of common stock.
June S. Almenoff, M.D., Ph.D., F.A.C.P.
Dr. Almenoff, 62, began serving
There can be no assurance that a Reverse Stock Split, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following a Reverse Stock Split, that as a result of a Reverse Stock Split we will be able to meet or maintain a bid price over the minimum bid price requirement of Nasdaq or that the market price of our Chief Operating Officer and Chief Medical Officercommon stock will not decrease in March 2018. Prior to Dr. Almenoff’s servicethe future.
Procedure for Implementing a Reverse Stock Split
If we implement a Reverse Stock Split, it will become effective upon the filing or such later time as specified in the filing (the “Split Effective Time”) of a Reverse Stock Split Amendment with the Delaware Secretary of State. The form of the Reverse Stock Split Amendment is attached hereto as Annex A. The exact timing of the filing of a Reverse Stock Split Amendment and the ratio of a Reverse Stock Split (within the approved range), if any, will be determined by our Board of Directors based on its evaluation as to when such action and at what ratio will be the most advantageous to the Company beginningand our stockholders. In addition, our Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with a Reverse Stock Split if, at any time prior to filing a Reverse Stock Split Amendment, our Board, in its sole discretion, determines that it is not in our best interest and the best interests of our stockholders to proceed with a Reverse Stock Split. If a Reverse Stock Split Amendment has not been filed with the Delaware Secretary of State by the date that is one year following the approval of this Proposal 2 by our stockholders, our Board will abandon a Reverse Stock Split.
Principal Effects of a Reverse Stock Split
If implemented, a Reverse Stock Split will be effected simultaneously for all outstanding shares of Company common stock. A Reverse Stock Split will affect all of the Company’s stockholders uniformly and will not affect any stockholder’s percentage ownership interests in the Company, except to the extent that a Reverse Stock Split results in any stockholders owning a fractional share. Holders of fractional shares will be entitled receive, in lieu of any fractional share, the number of shares rounded up to the next whole number. Common stock issued pursuant to a Reverse Stock Split will remain fully paid and nonassessable. A Reverse Stock Split will not affect the Company’s continuing to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As of the Split Effective Time, the Company will adjust and proportionately decrease the number of shares of common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants and other rights to acquire shares of common stock. In addition, as of the Split Effective Time, the Company will adjust and proportionately decrease the total number of shares of common stock that may be the subject of the future grants under stock option plans.
As an example, the following table illustrates the effects of a 1-for-20 and a 1-for-2 reverse stock split (without giving effect to the treatment of fractional shares) as of March 2015, Dr. Almenoff, served as an independent biopharma consultant, including serving31, 2022:
| | | | | | | | | | | | | | | | | |
| Prior to Reverse Stock Split | | After 1-for-20 Reverse Stock Split | | After 1-for-2 Reverse Stock Split |
| Common stock outstanding | 258,235,418 | | | 12,911,771 | | | 129,117,709 | |
| Common stock issuable pursuant to outstanding equity awards | 30,205,484 | | | 1,510,274 | | | 15,102,742 | |
| Common stock issuable pursuant to outstanding warrants | 23,044,062 | | | 1,152,203 | | | 11,522,031 | |
Authorized Shares of Common Stock
A Reverse Stock Split will not change the number of authorized shares or the par value of the Company’s common stock under the Charter. Because the number of issued and outstanding shares of common stock will decrease, the number of shares of common stock remaining available for issuance will increase. Currently, under our Charter, our authorized capital stock consists of 550,000,000 shares of common stock.
Subject to limitations imposed by Nasdaq Listing Rules, the additional shares available for issuance may be issued without stockholder approval at any time, in the sole discretion of our Board of Directors. The authorized and unissued shares may be issued for cash, for acquisitions or for any other purpose that is deemed in the best interests of the Company.
Registered “Book-Entry” Holders of Common Stock (i.e. stockholders that are registered on the transfer agent’s books and records but do not hold stock certificates)
Certain of our registered holders of common stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
Stockholders who hold shares electronically in book-entry form with the transfer agent will not need to take action (the exchange will be automatic) to receive whole shares of post-Reverse Stock Split common stock, subject to adjustment for treatment of fractional shares.
Holders of Certificated Shares of Common Stock
Stockholders holding shares of our common stock in certificated form will be sent a transmittal letter by our transfer agent after the Split Effective Time. The letter of transmittal will contain instructions on how a stockholder should surrender his, her or its certificate(s) representing shares of our common stock (the “Old Certificates”) to the transfer agent in exchange for certificates representing the appropriate number of whole shares of post-Reverse Stock Split common stock (the “New Certificates”). No New Certificates will be issued to a stockholder until such stockholder has surrendered all Old Certificates, together with a properly completed and executed letter of transmittal, to the transfer agent. No stockholder will be required to pay a transfer or other fee to exchange his, her or its Old Certificates. Stockholders will then receive a New Certificate(s) representing the number of whole shares of common stock that they are entitled to as a consultantresult of a Reverse Stock Split, subject to the treatment of fractional shares. Until surrendered, we will deem outstanding Old Certificates held by stockholders to represent the number of whole shares of post-Reverse Stock Split common stock to which these stockholders are entitled, subject to the treatment of fractional shares. Any Old Certificates submitted for Innovate beginningexchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates. If an Old Certificate has a restrictive legend on the back of the Old Certificate, the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate.
The Company expects that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. No service charges will be payable by holders of shares of common stock in January 2018. From December 2014 until June 2016, Dr. Almenoff served as an executive-in-residence and consultant at Hatteras Venture Partners,connection with the exchange of certificates. All of such expenses will be borne by the Company.
Beneficial Holders of Common Stock (i.e. stockholders who hold in street name)
Upon the implementation of a venture capital firm. From March 2010 until October 2014, Dr. Almenoff served as the president, the chief medical officer andReverse Stock Split, we will treat shares held by stockholders through a director of Furiex Pharmaceuticals, Inc., a pharmaceutical company acquired by Allergan in 2014. Prior to serving at Furiex, Dr. Almenoff served for 12 years in various senior roles at GlaxoSmithKline (“GSK”), including as vice presidentbank, broker, custodian or other nominee in the clinical safetysame manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect a Reverse Stock Split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing a Reverse Stock Split. Stockholders who hold shares of our common stock with a bank, broker, custodian or other nominee and pharmacovigilance organization at GSK. Priorwho have any questions in this regard are encouraged to joining GSK, Dr. Almenoffcontact their banks, brokers, custodians or other nominees.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES(S) AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATES(S) UNTIL REQUESTED TO DO SO.
Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are not entitled to appraisal or dissenter’s rights with respect to a Reverse Stock Split, and we do not intend to voluntarily provide our stockholders with such rights.
Potential Anti-Takeover Effect
Even though a Reverse Stock Split would result in an increased proportion of unissued authorized shares to be issued, which could, under certain circumstances, have an anti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of our Company with another company), the Reverse Stock Split Proposal is not being proposed in response to any effort of which we are aware to accumulate shares of our common stock or obtain control of us, nor is it part of a plan by management to recommend a series of similar amendments to our Board and stockholders.
Fractional Shares
Holders of fractional shares will be entitled to receive, in lieu of any fractional share, the number of shares rounded up to the next whole number. The ownership of a fractional share interest following a Reverse Stock Split will not give the holder any voting, dividend or other rights, except to receive the number of shares rounded up to the next whole number.
Effect of a Reverse Stock Split on Equity Incentive Plans, Options, Warrants, and Convertible or Exchangeable Securities
Based upon the Reverse Stock Split ratio determined by the Board of Directors, proportionate adjustments are generally required to be made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants and convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of common stock. This would result in approximately the same aggregate price being required to be paid under such options, warrants and convertible or exchangeable securities upon exercise, and approximately the same value of shares of common stock being delivered upon such exercise, exchange or conversion, immediately following a Reverse Stock Split as was the case immediately preceding a Reverse Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted, subject to our treatment of fractional shares. The number of shares reserved for issuance pursuant to these securities will be proportionately based upon the Reverse Stock Split ratio determined by the Board, subject to our treatment of fractional shares.
Accounting Matters
A Reverse Stock Split Amendment will not affect the par value of our common stock per share, which will remain $0.0001 par value per share. As a result, as of the Split Effective Time, the stated capital attributable to common stock and the additional paid-in capital account on our balance sheet, in the aggregate, will not change due to a Reverse Stock Split. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.
Certain Federal Income Tax Consequences of a Reverse Stock Split
The following summary describes certain material U.S. federal income tax consequences of a Reverse Stock Split to holders of our common stock. Unless otherwise specifically indicated herein, this summary addresses the tax consequences only to a “U.S. holder”, which means a beneficial owner of our common stock that is (i) a citizen or individual resident of the United States, (ii) an entity taxable as a corporation for U.S. tax purposes and organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if (1) a U.S. court is able to exercise primary supervision over administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.
This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to stockholders that (i) may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market, and dealers in securities or currencies, (ii) hold our common stock as part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction for federal income tax purposes, or (iii) do not hold our common stock as a “capital asset” (generally, property held for investment). In addition, this summary does not consider the effects of any federal, state, local, foreign, or other tax laws other than the U.S. federal income tax laws.
If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the facultystatus of Duke University Medical Center, where shethe partner and the activities of the partnership. Entities or arrangements treated as a partnership for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences to them and their owners of a Reverse Stock Split.
This summary is currently a Consulting Professor of Medicine. Since 2015, Dr. Almenoff has been the Chair of RDD Pharma, a private, GI clinical stage biopharmaceutical company. Dr. Almenoff servesbased on the boardprovisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative rulings, and judicial authority, all as in effect as of the date of this information statement. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of a Reverse Stock Split. We have not sought and will not seek any ruling from the Internal Revenue Service (the “IRS”), or an opinion from counsel with respect to the U.S. federal income tax consequences discussed below. There can be no assurance that the tax consequences discussed below would be accepted by the IRS or a court. The tax treatment of a Reverse Stock Split to any U.S. holder may vary depending upon such holder’s particular facts and circumstances.
PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF A REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
A Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. Thus, a stockholder generally will not recognize gain or loss on an exchange of common shares for common shares in a
Reverse Stock Split, except for adjustments that may result from the treatment of fractional shares of common stock as described below. The aggregate tax basis of the shares received in the Reverse Stock Split will equal the aggregate tax basis of the pre-Reverse Stock Split shares exchanged therefore (increased by any income or gain recognized on receipt of a whole share in lieu of a fractional share). Except in the case of any portion of a share of common stock treated as a distribution or as to which a U.S. holder recognizes capital gain as a result of the treatment of fractional shares, discussed below, the U.S. holder’s holding period for the post-Reverse Stock Split shares of common stock should include the holding period of pre-Reverse Stock Split shares of common stock surrendered. U.S. holders of shares of common stock should consult their tax advisors regarding the applicable rules for allocating the tax basis and holding period of the surrendered pre-Reverse Stock Split shares of common stock to the post-Reverse Stock Split shares of common stock received in the Reverse Stock Split. U.S. holders of shares of common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
No gain or loss will be recognized by the Company as a result of a Reverse Stock Split.
The treatment of fractional shares of common stock being rounded up to the next whole share is uncertain. A U.S. holder that receives a whole share of common stock in the Reverse Stock Split in lieu of a fractional share of common stock might recognize income, which may be characterized either as capital gain or as a dividend to the extent of the portion of our accumulated earnings and profits (if we have any) attributable to the rounded share. Any such taxable income would be in an amount not to exceed the excess of the fair market value of such whole share over the fair market value of the fractional share to which the U.S. holder was otherwise entitled. U.S. holders should consult their tax advisors regarding the U.S. federal income tax and other tax consequences of fractional shares being rounded to the next whole share (including the holding period of a post-Reverse Stock Split share of common stock received in exchange for a fractional pre-Reverse Stock Split share of common stock).
Required Vote
Provided there is a quorum for the Annual Meeting, approval of the Reverse Stock Split Amendment requires the affirmative vote of a majority of the shares outstanding and entitled to vote on Proposal 2 as of the Record Date. Because the affirmative vote of at least a majority of the shares outstanding is required to approve this Proposal 2, abstentions will have the same effect as a vote against Proposal 2. Under applicable stock exchange rules, brokers are permitted to vote shares held for a customer on “routine” matters, such as this Proposal 2, without specific instructions from the customer. Therefore, we do not expect any broker non-votes on this Proposal 2.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” THE REVERSE STOCK SPLIT PROPOSAL.
PROPOSAL 3
APPROVAL OF THE 9 METERS BIOPHARMA, INC.
2022 STOCK INCENTIVE PLAN
On May 4, 2022, our Board of Directors adopted the 9 Meters Biopharma, Inc. 2022 Stock Incentive Plan, or the 2022 Plan, subject to stockholder approval. Pursuant to the 2022 Plan, we may grant shares of our common stock as long-term equity incentives in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, or other stock awards to employees, consultants, and directors of our Company, or collectively, participants. We believe that the pharmaceuticaleffective use of long-term equity incentives is essential to attract, motivate, and retain employees of our Company, to further align participants’ interests with those of our stockholders, and to provide participants incentive compensation opportunities that are competitive with those offered by other companies Ohr Pharmaceutical,in the same industry and locations as ours.
If approved at the Annual Meeting, our 2022 Plan will supersede and replace the 9 Meters Biopharma, Inc. 2012 Omnibus Incentive Plan, as amended (the “2012 Plan”), TiGenix and Brainstorm Cell Therapeutics Inc. She is an authorwhich expired by its terms on more than 50 publications. Dr. Almenoff earned a bachelor’s degree, cum laude, from Smith College. She graduated fromApril 30, 2022. No new awards will be granted under the M.D.-Ph.D. program at Mt. Sinai School2012 Plan after such expiration, but any awards outstanding under the 2012 Plan on that date will remain subject to the 2012 Plan. Upon approval of Medicine and completed a residency in internal medicine and a fellowship in infectious diseases at Stanford University Medical Center. She is a board-certified Fellowour 2022 Plan, any shares subject to outstanding awards under the 2012 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under our 2022 Plan.
In this Proposal 3, we are asking our stockholders to approve the 2022 Plan. The full text of the American College2022 Plan is attached as Annex B to this Proxy Statement.
As of Physicians with 10 yearsMay 4, 2022, approximately 20 employees, 30 consultants and five non-employee directors would be eligible to participate in the 2022 Plan. The closing price of clinical practice experience.our Company’s common stock on the Nasdaq Capital Market on May 4, 2022 was $0.44.
Required Vote
Approval of the appointment of the 2022 Plan requires the affirmative vote of the holders of a majority of the votes cast and entitled to be cast. Abstentions and broker non-votes will have no effect on the outcome of this Proposal 3.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” EACH NAMED NOMINEE.THE 2022 PLAN.
Summary of the 2022 Plan
Following is a summary of the principal features of the 2022 Plan, which assumes this Proposal 3 is approved by the Company’s stockholders.
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| Principal Features of the 2022 Plan | | Description |
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| Share Reserve: | | 12,000,000 shares of our Company’s common stock, plus the number of shares of common stock underlying any award granted under the 2012 Plan that expires, terminates, or is canceled or forfeited without such shares of common stock having been issued.
The reserved shares will be reduced (i) by one share for each share granted pursuant to awards awarded under the 2022 Plan, and (ii) to the extent cash is delivered in lieu of shares of common stock upon the exercise of a stock appreciation right, our Company will be deemed to have issued the number of shares of common stock which it was entitled to issue upon such exercise. |
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| Award Types: | | •Incentive and nonstatutory stock options •Stock appreciation rights (“SARs”) •Restricted stock awards •Restricted stock unit awards (“RSUs”) •Dividend equivalent rights |
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| Vesting: | | Determined by our Board of Directors or a committee designated by our Board. |
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| Repricing: | | Repricing of outstanding stock awards is not permitted without the approval of our Company’s stockholders, except for certain proportionate capitalization adjustments as set forth in the 2022 Plan. |
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| Termination Date: | | May 4, 2032 |
Administration
The 2022 Plan will be administered by our Board of Directors, or a committee designated by our Board. With respect to grants of awards to our officers or directors, the 2022 Plan will be administered by our Board or a designated committee in a manner that permits such grants and related transactions to be exempt from Section 16(b) of the Exchange Act. The plan administrator will have the full authority to select recipients of the grants, determine the extent of the grants, establish additional terms, conditions, rules, or procedures to accommodate rules or laws of applicable non-U.S. jurisdictions, adjust awards, and to take any other action deemed appropriate; however, no action may be taken that is inconsistent with the terms of the 2022 Plan.
Available Shares
Subject to adjustment upon certain corporate transactions or events, the maximum aggregate number of shares of common stock which may be issued pursuant to all awards is the sum of (i) 12,000,000 shares of common stock and (ii) the number of shares of common stock underlying any award granted under the 2012 Plan that expires, terminates, or is canceled or forfeited under the terms of the 2012 Plan without such shares of common stock having been issued. Any shares covered by an award that is forfeited, canceled, or expires will be deemed to have not been issued for purposes of determining the maximum aggregate number of shares which may be issued under the 2022
Plan. Shares that actually have been issued under the 2022 Plan pursuant to an award will not be returned to the 2022 Plan and will not become available for future issuance under the 2022 Plan, other than unvested shares that are forfeited or repurchased by our Company. In the event any option or other award granted under the 2022 Plan is exercised through the tendering of shares (either actually or through attestation), or in the event tax withholding obligations are satisfied by tendering or withholding shares, any shares so tendered or withheld are not again available for awards under the 2022 Plan. To the extent that cash is delivered in lieu of shares of common stock upon the exercise of a SAR, then we will be deemed, for purposes of applying the limitation on the number of shares, to have issued the number of shares of common stock which were otherwise issuable upon such exercise. Shares of common stock we reacquire on the open market or otherwise using cash proceeds from the exercise of options will not be available for awards under the 2022 Plan.
Dividends
No dividend or dividend equivalent will be paid on any unvested award, although the plan administrator may provide in an award agreement that dividends with respect to unvested portions of awards may accrue and be paid when and if the awards vest and shares are actually issued to the participant.
Eligibility and Types of Awards
The 2022 Plan will permit us to grant stock awards, including stock options, SARs, restricted stock, RSUs, and dividend equivalent rights to our employees, directors, and consultants.
Stock Options
A stock option may be an incentive stock option within the meaning of, and qualifying under, Section 422 of the Code, or a nonstatutory stock option. However, only our employees (or employees of our parent or subsidiaries, if any) may be granted incentive stock options. Incentive and nonstatutory stock options are granted pursuant to option agreements adopted by the plan administrator. The plan administrator will determine the exercise price for a stock option, within the terms and conditions of the 2022 Plan provided that the exercise price of a stock option cannot be less than 100% of the fair market value of our common stock on the date of grant (or 110% of the fair market value in the case of certain incentive stock options, as described below). Options granted under the 2022 Plan will become exercisable at the rate specified by the plan administrator.
The plan administrator will determine the term of the stock options granted under the 2022 Plan up to a maximum of 10 years, except in the case of certain incentive stock options, as described below. Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s relationship with us, or any of our affiliates, ceases for any reason other than disability or death, the optionholder may exercise any options otherwise exercisable as of the date of termination, but only during the post-termination exercise period designated in the optionholder’s stock option award agreement. The optionholder’s stock option award agreement may provide that upon the termination of the optionholder’s relationship with us for cause, the optionholder’s right to exercise his or her options will terminate concurrently with the termination of the relationship. If an optionholder’s service relationship with us, or any of our affiliates, ceases due to disability or death, or an optionholder dies within a certain period following cessation of service, the optionholder or his or her estate or person who acquired the right to exercise the award by bequest or inheritance may exercise any vested options for a period of 12 months. The option term may be extended in the event that exercise of the option within the applicable time periods is prohibited by applicable securities laws or such longer period as specified in the stock option award agreement but in no event beyond the expiration of its term.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (i) cash or check, (ii) a broker-assisted cashless exercise, (iii) the tender of common stock previously owned by the optionholder, (iv) a net exercise of the option, (v) past or future services rendered, and (vi) any combination of the foregoing methods of payment.
Unless the plan administrator provides otherwise, awards generally are not transferable, except by will or the laws of descent and distribution.
Incentive stock options may be granted only to our employees (or to employees of our parent company and subsidiaries, if any). To the extent that the aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to which incentive stock options are exercisable for the first time by an optionholder during any calendar year under any of our equity plans exceeds $100,000, such options will not qualify as incentive stock options. A stock option granted to any employee who, at the time of the grant, owns or is deemed to own stock representing more than 10% of the voting power of all classes of stock (or any of our affiliates) may not be an incentive stock option unless (i) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (ii) the term of the incentive stock option does not exceed five years from the date of grant.
Stock Appreciation Rights
SARs may be granted under the 2022 Plan either concurrently with the grant of an option or alone, without reference to any related stock option. The plan administrator will determine both the number of shares of common stock related to each SAR and the exercise price for a SAR, within the terms and conditions of the 2022 Plan, provided that the exercise price of a SAR cannot be less than 100% of the fair market value of the common stock subject thereto on the date of grant. In the case of a SAR granted concurrently with a stock option, the number of shares of common stock to which the SAR relates will be reduced in the same proportion that the holder of the stock option exercises the related option.
The plan administrator will determine whether to deliver cash in lieu of shares of common stock upon the exercise of a SAR. If common stock is issued, the number of shares of common stock that will be issued upon the exercise of a SAR is determined by dividing (i) the number of shares of common stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares, by (ii) the fair market value of a share of common stock on the exercise date.
If the plan administrator elects to pay the holder of the SAR cash in lieu of shares of common stock, the holder of the SAR will receive cash equal to the fair market value on the exercise date of any or all of the shares that would otherwise be issuable.
The exercise of a SAR related to a stock option is permissible only to the extent that the stock option is exercisable under the terms of the 2022 Plan on the date of surrender. Any incentive stock option surrendered will be deemed to have been converted into a nonstatutory stock option immediately prior to such surrender.
Restricted Stock
Restricted stock awards are awards of shares of our common stock that are subject to established terms and conditions. The plan administrator sets the terms of the restricted stock awards, including the size of the restricted stock award, the price (if any) to be paid by the recipient, and the vesting schedule and criteria (which may include continued service to us for a period of time or the achievement of performance criteria). If a participant’s service terminates before the restricted stock is fully vested, all of the unvested shares generally will be forfeited to, or repurchased by, us.
Restricted Stock Units
An RSU is a right to receive stock, cash equal to the value of a share of stock, or other securities, or a combination of these three elements, at the end of a set period or the attainment of performance criteria. No stock is issued at the time of grant. The plan administrator sets the terms of the RSU award, including the size of the RSU award, the consideration (if any) to be paid by the recipient, vesting schedule, and criteria and form (stock or cash) in which the award will be settled. If a participant’s service terminates before the RSU is fully vested, the unvested portion of the RSU award generally will be forfeited to us.
Dividend Equivalent Rights
Dividend equivalent rights entitle the recipient to compensation measured by dividends paid with respect to a specified number of shares of common stock.
Performance-Based Compensation
The 2022 Plan establishes procedures for our Company to grant performance-based awards, meaning awards structured so that they will vest only upon the achievement of performance criteria established by the plan administrator for a specified performance period. Performance criteria may be measured on an absolute (e.g., plan or budget) or relative basis, and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments, or may be established on an individual basis. Relative performance may be measured against a group of peer companies, a financial market index or other acceptable objective and quantifiable indices. The plan administrator will have the discretion to adjust the minimum level of achievement required for achievement of performance awards if the plan administrator determines that a change in our business, operations, corporate structure or capital structure, the manner in which we conduct our business, or other events or circumstances render the performance objectives unsuitable. The plan administrator will also have the discretion to adjust the performance objectives for other material events not originally contemplated when the performance objectives were established, such as extraordinary gains and losses, the effect of changes in accounting standards or principles, acquisitions or divestitures, changes in tax rules or regulations, capital transactions, restructuring, nonrecurring gains or losses or other unusual items.
The business measures that may be used to establish the performance criteria may include one of, or combination of, the following:
•Net earnings or net income (before or after taxes);
•Earnings per share
•Net sales growth;
•Net operating growth;
•Return measures (including, but not limited to, return on assets, capital, equity, or sales);
•Cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
•Cash flow per share;
•Earnings before or after taxes, interest, depreciation, and/or amortization;
•Gross or operating margins;
•Productivity ratios;
•Share price (including, but not limited to, growth measures and total stockholder return);
•Expense targets or ratios;
•Charge-off levels;
•Improvement in or attainment of revenue levels;
•Margins;
•Operating efficiency;
•Operating expenses;
•Economic value added;
•Improvement in or attainment of expense levels;
•Improvement in or attainment of working capital levels;
•Debt reduction;
•Capital targets;
•Consummation of acquisitions, dispositions, projects, or other specific events or transactions; or
•Other significant operational or business milestones
Corporate Transactions
Effective upon the consummation of a corporate transaction, all outstanding awards under the 2022 Plan will terminate unless they are assumed in connection with the corporate transaction.
The plan administrator has the authority to determine, before or at the time of any corporate transaction, the impact that the corporate transaction will have on outstanding awards under the 2022 Plan. For example, the plan administrator may determine that (i) awards will vest and become exercisable, or that other restrictions on such awards will lapse, (ii) awards will be assumed by the surviving corporation in the corporate transaction or replaced with awards that have substantially equivalent terms, (iii) participants will receive a payment in satisfaction of outstanding awards, and (iv) in the case of options and SARs, participants will receive a payment in an amount equal to the amount, if any, by which the fair market value of the shares subject to award exceeds the exercise price. The plan administrator is not required to treat all awards in the same way.
Amendment and Termination
Our Board of Directors generally may amend, suspend, or terminate the 2022 Plan. However, it may not amend the 2022 Plan without stockholder approval for certain actions, such as an increase in the number of shares reserved under the 2022 Plan, modifications to the provisions of the 2022 Plan regarding the grant of incentive stock options, modifications to the provisions of the 2022 Plan regarding the exercise prices at which shares may be offered pursuant to options, extension of the expiration date of the 2022 Plan, and certain modifications to awards, such as reducing the exercise price per share, canceling and regranting new awards with lower prices per share than the original prices per share of the cancelled awards, or canceling any awards in exchange for cash or the grant of replacement awards with an exercise price that is less than the exercise price of the original awards.
Tax Withholding
The plan administrator may require a participant to satisfy any federal, state, local, or foreign tax withholding obligation relating to a stock award by (i) causing the participant to tender a cash payment, (ii) withholding shares of common stock from the shares of common stock issued or otherwise issuable to the participant in connection with the award, (iii) delivering to our Company already-owned shares of common stock, (iv) selling shares of common stock from the shares of common stock issued or otherwise issuable to the participant in connection with the award, (v) withholding cash from an award settled in cash or other amounts payable to the participant, and/or (vi) any other means that the plan administrator determines both to comply with applicable laws and be consistent with the purposes of the 2022 Plan.
Summary of Federal Income Tax Consequences of the 2022 Plan
The following summary is intended only as a general guide to certain U.S. federal income tax consequences under current law of participation in the 2022 Plan and does not attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on any participant’s particular circumstances. The summary does not purport to be complete, and it does not address the tax consequences of the participant’s death, any tax laws of any municipality, state or foreign country in which a participant might reside, or any other laws other than U.S. federal income tax laws. Furthermore, the tax consequences are complex and subject to change, and a participant’s particular situation may be such that some variation of the described rules is applicable. Recipients of awards under the 2022 Plan should consult their own tax advisors to determine the tax consequences to them as a result of their particular circumstances.
Incentive Stock Options
A participant recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code.
If a participant holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the option was granted and more than one year after the date the option was exercised for those shares, any gain or loss on a disposition of those shares (a “qualifying disposition”) will be a long-term capital gain or loss. Upon such a qualifying disposition, we will not be entitled to any income tax deduction.
If a participant disposes of underlying shares within two years after the date of grant of the option or within one year after the date of exercise of the option (a “disqualifying disposition”), the difference between the fair market value of the shares on the option exercise date and the exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed to the participant as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. To the extent the participant recognizes ordinary income by reason of a disqualifying disposition, generally our Company will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax-reporting obligation) to a corresponding income tax deduction in the tax year in which the disqualifying disposition occurs.
The difference between the option exercise price and the fair market value of the shares on the exercise date of an incentive stock option is treated as an adjustment in computing the participant’s alternative minimum taxable income and may subject the participant to alternative minimum tax liability for the year of exercise. Special rules may apply after exercise for (i) sales of the shares in a disqualifying disposition, (ii) basis adjustments for computing alternative minimum taxable income on a subsequent sale of the shares, and (iii) tax credits that may be available to participants subject to the alternative minimum tax.
Nonstatutory Stock Options
Options not designated or qualifying as incentive stock options will be nonstatutory stock options having no special tax status. A participant generally recognizes no taxable income upon the grant of such an option so long as (i) the exercise price is no less than the fair market value of the stock on the date of grant, and (ii) the option (and not the underlying stock) at such time does not have a readily ascertainable fair market value (as defined in Treasury Regulations under the Code). Upon exercise of a nonstatutory stock option, the participant normally recognizes ordinary income in the amount of the difference between the option exercise price and the then-fair market value of the shares purchased, and withholding of income and employment taxes will apply if the participant is or was an employee. Generally, the Company will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax-reporting obligation) to an income tax deduction in the tax year in which such ordinary income is recognized by the participant.
Upon the disposition of stock acquired by the exercise of a nonstatutory stock option, any recognized gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss, which will be short-term or long-term gain or loss, depending on the holding period of the stock.
Stock Appreciation Rights
A participant will not normally recognize taxable income upon the receipt of a SAR. Upon the exercise of a SAR, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The Company generally
will be entitled to a deduction equal to the amount of ordinary income recognized by the participant in connection with the exercise of the SAR (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax-reporting obligation).
Restricted Stock
A participant acquiring restricted stock generally will recognize ordinary income equal to the difference between the fair market value of the shares on the “determination date” (as defined below) and their purchase price, if any. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The “determination date” is the date on which the participant acquires the shares unless they are subject to a substantial risk of forfeiture and are not transferable, in which case the determination date is the earliest of (i) the date the shares become transferable, (ii) the date the shares are no longer subject to a substantial risk of forfeiture, or (iii) the date the shares are acquired if the participant makes a timely election under Code Section 83(b). If the shares are subject to a substantial risk of forfeiture and not transferable when issued, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be the determination date by filing an election with the IRS, and other provisions, no later than 30 days after the date the shares are acquired. Upon the taxable disposition of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will generally be taxed as capital gain or loss; however, for any shares returned to our Company pursuant to a forfeiture provision, a participant’s loss may be computed based only on the purchase price (if any) of the shares and may not take into account any income recognized by reason of a Section 83(b) election. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year. Our Company generally will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the year in which the ordinary income from restricted stock is recognized by the participant.
Restricted Stock Units
A participant will not normally recognize taxable income upon receipt of an RSU award. In general, the participant will recognize ordinary income in the year in which the units vest and are settled in an amount equal to any cash received and/or the fair market value of any nonrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Our Company generally will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax reporting obligation) to an income tax deduction equal to the amount of ordinary income recognized by the participant.
Dividend Equivalent Rights
A recipient of dividend equivalent rights generally will recognize ordinary income at the time the dividend equivalent right is paid. If required, income and employment tax must be withheld on the income recognized by the participant. Our Company will generally be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax reporting obligation) to an income tax deduction equal to the amount of ordinary income recognized by the participant.
Other Awards
Our Company generally will be entitled to an income tax deduction in connection with an award under the 2022 Plan in an amount equal to the ordinary income realized by the participant at the time the participant recognizes such income (subject to the requirement of reasonableness, the provisions of Section 162(m) and other provisions of the Code limiting the deduction of compensation, and the satisfaction of a tax-reporting obligation). Participants
typically are subject to income (and employment) tax and recognize such tax at the time that an award is granted, exercised, vests, or becomes nonforfeitable, unless the award provides for a further deferral.
Section 409A
Section 409A of the Code (“Section 409A”) imposes certain requirements on nonqualified deferred compensation arrangements. Most awards granted under the 2022 Plan will be designed to qualify for an exception from the requirements of Section 409A. Certain awards under the 2022 Plan, however, may be subject to the requirements of Section 409A in form and in operation. Awards that are subject to Section 409A will generally be designed to meet the conditions under Section 409A for avoiding the adverse tax consequences resulting from a failure to comply with Section 409A. If an award under the 2022 Plan is subject to Section 409A and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be before the compensation is actually or constructively received.
Also, if an award that is subject to Section 409A fails to comply with the requirements of Section 409A, Section 409A imposes an additional 20% federal penalty tax on the participant’s compensation recognized as ordinary income, as well as interest on such deferred compensation.
Impact of Section 162(m) on Tax Deductibility of Awards Under the 2022 Plan
Section 162(m) of the Code limits the deductibility for federal income tax purposes of certain compensation paid to any of our covered employees in excess of $1 million. For purposes of Section 162(m), the term “covered employee” generally includes our chief executive officer, our chief financial officer, and our three other most highly compensated officers, and any individual who was a covered employee for any taxable year beginning after December 31, 2016. Compensation attributable to awards under the 2022 Plan either on its own or when combined with all other types of compensation received by a covered employee from the Company, may cause this limitation to be exceeded in any particular year.
Equity Compensation Plan Information
The following table provides aggregate information as of December 31, 2021, with respect to compensation plans under which shares of our common stock may be issued.
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| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuances under Equity Compensation Plans (excluding securities reflected in column (a)) |
| (a) | (b) | (c) |
Equity compensation plans approved by security holders (1) | 19,908,960 | | | $1.32 | | 5,478,787 | |
Equity compensation plans not approved by security holders (2) | 985,807 | | | $0.63 | | - | |
| Total | 20,894,767 | | | $1.29 | | 5,478,787 | |
(1) Consists of (i) 5,300,518 shares of common stock issuable upon exercise of outstanding options under the Private Innovate Plan and (ii) 14,608,442 shares of common stock issuable upon exercise of outstanding options under the Omnibus Plan. As of December 31, 2021, there were 5,478,787 shares remaining for future issuance under the Omnibus Plan. The shares reserved for issuance under the Omnibus Plan automatically increase on the first day of each calendar year beginning in 2019 and ending in 2022 by an amount equal to the lesser of (i) five percent of the number of shares of common stock outstanding as of December 31 of the immediately preceding calendar year or (ii) such lesser number of shares of common stock as determined by the Board (the “Evergreen Provision”). On January 1, 2022, the number of shares of common stock available under the Omnibus Plan automatically increased by 12,911,771 shares pursuant to the Evergreen Provision.
(2) Pursuant to the RDD Merger Agreement, upon consummation of the RDD Merger on April 30, 2020, the Company assumed outstanding option grant agreements that were awarded to RDD employees. There were 985,807 assumed RDD options outstanding as of December 31, 2021, with a weighted-average exercise price of $0.63 per share. See “Note 9-Share-Based Compensation” to the accompanying consolidated financial statements included in this Annual Report on Form 10-K for further discussion of the assumed RDD options.
PROPOSAL 4
ADVISORY (NONBINDING) VOTE ON
NAMED EXECUTIVE OFFICER COMPENSATION
As discussed under the “Executive Compensation” section, our compensation strategy focuses on providing a total compensation package that is designed to attract and retain high-caliber executives by incentivizing them to achieve Company performance goals and closely aligning these goals with stockholder interests. Our philosophy reflects our emphasis on pay for performance and on long-term value creation for our stockholders.
As required by Section 14A of the Exchange Act, we are providing stockholders with an advisory (nonbinding) vote on the compensation of our named executive officers, as described in this Proxy Statement. This Proposal 4, known as a “Say-on-Pay” proposal, is designed to give our stockholders the opportunity to endorse or not endorse our Company’s executive compensation program through the following resolution:
“Resolved, that the stockholders approve, on an advisory (nonbinding) basis, the compensation of our named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Executive Compensation section, the Summary Compensation Table for fiscal year 2021, and other related tables and disclosures)”.
When you cast your vote, we urge you to consider the description of our executive compensation program contained in the Executive Compensation section in this Proxy Statement and the accompanying tables and narrative disclosures.
Required Vote
The affirmative vote of a majority of the shares cast and entitled to be cast at the Annual Meeting is required for approval of Proposal 4. Abstentions and broker non-votes will have no effect on the outcome of this Proposal 4.
Because your vote is advisory, it will not be binding upon our Board of Directors, overrule any decision by our Board, or create or imply any additional fiduciary duties on our Board or any member of our Board. However, our Board and our compensation committee will take into account the outcome of the vote when considering future executive compensation arrangements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” PROPOSAL 4 ON OUR NAMED EXECUTIVE OFFICER COMPENSATION AS DESCRIBED IN THIS PROXY STATEMENT.
PROPOSAL 5
ADVISORY (NONBINDING) VOTE ON THE FREQUENCY OF
FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION
Under Section 14A of the Exchange Act, we are required to seek a nonbinding advisory stockholder vote regarding the frequency of submission to stockholders of a Say-on-Pay advisory vote such as Proposal 5. The law specifies that at least once every six years we give our stockholders the opportunity to vote on the preferred frequency of future votes on our named executive officer compensation either annually, every two years or every three years, referred to as a “Say-on-Frequency” proposal. Although this vote is advisory and nonbinding, our Board of Directors will review voting results and give serious consideration to the outcome of such voting. We plan to present this proposal to our stockholders at least once every six years.
You may cast your advisory vote on whether the advisory vote on named executive officer compensation will occur every one, two or three years, or you may abstain from voting on the matter.
Our Board of Directors recommends that stockholders vote in favor of holding an advisory vote on named executive officer compensation every year. In making this recommendation, our Board considered the relevant merits of each of the three frequency alternatives. Our Board believes that holding the advisory vote every year will allow stockholders to provide timely, direct input on our executive compensation philosophy, policies and practices as disclosed in the Proxy Statement each year and is therefore consistent with our efforts to engage in an ongoing dialogue with stockholders on executive compensation and corporate governance matters.
Required Vote
The option of one year, two years, or three years that receives the affirmative vote of a majority of the votes cast and entitled to be cast will be the frequency for the advisory vote on named executive officer compensation that has been selected by stockholders. Abstentions and broker non-votes will have no effect on the outcome of this Proposal 5.
Because your vote is advisory, it will not be binding upon our Board of Directors, overrule any decision by our Board, or create or imply any additional fiduciary duties on our Board or any member of our Board. However, our Board will take into account the outcome of the vote when making its decision regarding the frequency of future stockholder advisory votes on named executive officer compensation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” “ONE YEAR” (AS OPPOSED TO TWO YEARS OR THREE YEARS) FOR PROPOSAL 5, THE FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION.
PROPOSAL 6
RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit committee has selected Mayer Hoffman McCann P.C. (“MHM”) as our independent registered public accounting firm for the fiscal year ending December 31, 2022, and has further directed that we submit our audit committee’s selection of MHM as our independent registered public accounting firm for ratification by our stockholders at the Annual Meeting. MHM has served as the Company’s auditor since 2015. Representatives ofMHM are expected to be present at the Annual Meeting, either in person or by telephone, depending on the COVID-19 situation. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of MHM as the Company’s independent registered public accounting firm. However, we are submitting the selection of MHM to our stockholders for ratification as a matter of good corporate practice. If our stockholders fail to ratify the selection, our audit committee will reconsider the retention of MHM. Even if the selection is ratified, our audit committee in its discretion may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of 9 Meters and its stockholders.
Principal Accountant Fees and Services
Substantially all of MHM personnel, who work under the control of MHM shareholders, are employees of wholly-owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure. The following table represents aggregate fees billed to the Company by MHM, the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2021 | | 2020 |
| | (in thousands) |
Audit Fees (1) | | $ | 253 | | $ | 349 |
| Audit-related Fees | | | — | | | — |
| Tax Fees | | | — | | | — |
| All Other Fees | | | — | | | — |
| Total Fees | | $ | 253 | | $ | 349 |
(1) Audit fees consist of fees billed for the professional services rendered to the Company for the audit of the Company’s annual consolidated financial statements for the years ended December 31, 2021 and 2020, reviews of the quarterly financial statements during those periods, the issuance of consent and comfort letters in connection with registration statement filings, and all other services that are normally provided by the accounting firm in connection with statutory and regulatory filings and engagements.
All fees described above were approved by our audit committee.
Pre-Approval Policies and Procedures
Our audit committee has adopted policy and procedures for the pre-approval of audit and non-audit services rendered by the Company’s independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of our audit committee’s approval of the scope of the engagement of the independent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of our audit committee’s members, but the decision must be reported to the full audit committee at its next scheduled meeting.
Our audit committee has determined that the rendering of services other than audit services by MHM to date are compatible with maintaining the principal accountant’s independence.
Required Vote
Ratification of the appointment of MHM as the Company’s independent registered public accounting firm requires the affirmative vote of the holders of a majority of the votes cast and entitled to be cast. Abstentions will have no effect on the outcome of this Proposal 6. Under applicable stock exchange rules, brokers are permitted to vote shares held for a customer on “routine” matters, such as this Proposal 6, without specific instructions from the customer. Therefore, we do not expect any broker non-votes on this Proposal 6.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” PROPOSAL 6.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The principal purpose of the audit committee is to assist the Board of Directors in its oversight of the Company’s accounting and financial reporting processes and audits of 9 Meters’ consolidated financial statements. The Company’s audit committee is responsible for appointing, evaluating, retaining and, when necessary, terminating the Company’s independent registered public accounting firm and approving the audit and non-audit services to be provided by the independent registered public accounting firm.
Management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) to obtain reasonable assurance that the Company’s consolidated financial statements are free from material misstatement and expressing an opinion on the conformity of such financial statements with accounting principles generally accepted in the United States.
In this context, the audit committee has reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2021, with management and MHM. The audit committee has discussed with MHM the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The audit committee has also received the written disclosures and the letter from MHM required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence.
Based on its discussions with management and the independent registered public accounting firm, the audit committee in place in March 2022 recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed on March 23, 2022.
Submitted by the Audit Committee
Michael Constantino, Chairman
Lorin Johnson, Ph.D.
Mark Sirgo, Pharm.D.
The information contained in the following report of 9 Meters’ audit committee is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing by 9 Meters under the Exchange Act or the Securities Act of 1933 unless and only to the extent that 9 Meters specifically incorporates it by reference.
CORPORATE GOVERNANCE MATTERS
Board Leadership Structure
Our boardBoard of directorsDirectors does not have a written policy regarding the separation of the roles of chief executive officer and chairman of the board.Board. Our board of directorsBoard believes that it is in the best interests of our organizationcompany to make that determination from time to time based on the position and the direction of our organizationcompany and the membership of our board of directors. The board’s current leadership structure has both an executive chairman of the board of directors and a chief executive officer whoBoard. Currently, these roles are held separately. Mr. Temperato serves as a director (Dr. LaumasChief Executive Officer and Dr. Prior, respectively). Our boardSirgo serves as the Board Chair. While the Board believes that separation of directors viewsthese positions serves our company well, and intends to maintain this arrangementseparation where appropriate and practicable, the Board does not believe that it is appropriate to prohibit one person from serving as also providing an efficient connection between our managementboth Board Chairman and board of directors, enabling our board to obtain information pertaining to operational matters expeditiously and enabling our executive chairman and our chief executive officer to bring areas of concern before the board in a timely manner.Chief Executive Officer.
Role of the Board in Risk Oversight
The audit committee of our boardBoard of directorsDirectors is primarily responsible for overseeing our risk management on behalf of our board.Board. The audit committee receives reports from management on a regular basis regarding our assessment of risks. In addition, the audit committee reports regularly to our board,Board, which also considers our risk profile. The audit committee and our board of directorsBoard focus on the most significant risks we face and our general risk-management strategies.strategies, including cybersecurity risks. While our board,Board, through our audit committee, oversees our risk management, management is responsible for day-to-day risk-management processes.
Each committee of our boardBoard of directorsDirectors meets in executive session with key management personnel and representatives of outside advisors to oversee risks associated with their respective principal areas of focus. Our audit committee oversees management of financial risks. Our compensation committee oversees the management of risks related to our executive compensation plans and arrangements. Our nominating and corporate governance committee manages risks associated with the independence of our boardBoard and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire boardBoard is regularly informed through committee reports about such risks.
Independence of Directors
Our common stock is listed on The Nasdaq Capital Market. Under Nasdaq rules, independent directors must comprise a majority of our boardthe Board of directors,Directors, and each member of our audit committee, compensation committee and nominating and corporate governance committee must be independent. Under Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with thesuch person’s exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. To be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of a company’s audit committee, the company’s board of directors or any other board committee, (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or (ii) be an affiliated person of the listed company or any of its subsidiaries.
Our boardBoard of directorsDirectors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directorsthe Board has determined that eachnone of Lorin K.Messrs. Constantino and Rice, Drs. Johnson Ph.D., Anthony E. Maida, III, Ph.D., M.A., M.B.A. Roy Proujansky, M.D. and Saira Ramasastry, M.S., M. Phil., does not haveSirgo and Ms. Ventimiglia had a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under applicable Nasdaq rules. In making these determinations, our board of directorsthe Board considered the current and prior relationships that each non-employee director has with us and all other facts and circumstances our board of directorsthe Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
Board Meetings and Attendance
Our boardBoard of Directors meets throughout the year on a set schedule and also holds special meetings and acts by written consent from time to time. During 2021, the Board held seven meetings and each director attended at least 75% of the aggregate total number of meetings held by the Board and each committee on which he or she served
during the period each director was appointed during 2021. Additionally, Drs. Sirgo and Johnson and Messrs. Constantino, Rice and Temperato attended the Annual Meeting of Stockholders held on June 22, 2021. We do not have a stated policy regarding director attendance at annual stockholder meetings, but strongly encourage our directors also determined thatto attend each of Anthony E. Maida, III, Ph.D., M.A., M.B.A., Lorin K. Johnson, Ph.D. and Saira Ramasastry, M.S., M. Phil., the three members of our audit committee, satisfies the independence standards for the audit committee established by applicable Nasdaq rules and SEC Rule 10A-3.such meeting.
Our board of directors has determined that each of Saira Ramasastry, M.S., M. Phil., Lorin K. Johnson, Ph.D. and Anthony E. Maida III, Ph.D., M.A., M.B.A., the three current members of each of our compensation committee and our nominating and corporate governance committee, is independent within the meaning of applicable Nasdaq rules.
Board Committees
As described above, our boardBoard of directorsDirectors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directorsBoard may establish other committees to facilitate the management of our business. The composition and functions of each of our audit, compensation and nominating and corporate governance committees are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.Board. Each of these committees is governed by a formal written charter approved by our board,Board, and a copy of each such charter is available on the Investors – Resources - Corporate Governance section of our website at: http://ir.innovatebiopharma.com/corporate-governance/highlights.at www.9meters.com. However, the reference to our website does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider it to be a part of this proxy statement.Proxy Statement.
The following table provides membership information of our non-employee directors on each committee of our Board of Directors as of May 4, 2022.
| | | | | | | | | | | | | | | | | |
| Audit Committee | | Compensation Committee | | Nominating and Corporate Governance Committee |
| Michael Constantino | µ | | | | þ |
| Lorin K. Johnson, Ph.D. | þ | | µ | | þ |
| Michael Rice | | | þ | | µ |
| Mark Sirgo, Pharm.D. | þ | | þ | | þ |
| Samantha Ventimiglia | | | | | þ |
µ = Committee Chair
þ = Member
Audit Committee
Our audit committee consists of Anthony E. Maida, III, Ph.D., M.A., M.B.A., Lorin K.Mr. Constantino (Chair) and Drs. Johnson Ph.D., and Saira Ramasastry, M.A., M. Phil.Sirgo. Each of Mr. Constantino and Drs. Johnson and Sirgo satisfy the independence requirements of Rules 5605(a)(2) and 5605(c)(2) of the Nasdaq Stock Market listing rules and Section 10A(m)(3) of the Exchange Act. The chair of our audit committee is Dr. Maida.met five times during 2021. Our boardBoard of directorsDirectors has determined that Dr. MaidaMr. Constantino is an “audit committee financial expert,” as that term is defined by the SEC rules implementing Section 407 of the Sarbanes-Oxley Act, and possesses financial sophistication, as defined under applicable Nasdaq rules. Our board of directorsBoard has also determined that each member of our audit committee can read and understand fundamental financial statements in accordance with applicable SEC and Nasdaq rules. To arrive at these determinations, our board of directorsBoard has examined each audit committee member’s scope of experience and the nature of his or her experience in the corporate finance sector.
The responsibilities of our audit committee include:
•selecting and retaining, compensating, overseeing and, if necessary, terminating the Company’s independent registered public accounting firm with respect to its performance of audit services and any permissible non-audit services;
•selecting and retaining, compensating, overseeing and, if necessary, terminating any other registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;
•pre-approving all audit and permitted non-audit and tax services provided by any independent registered public accounting firm;
•reviewing and discussing with the independent registered public accounting firm critical accounting policies and practices, alternative treatments of financial information and other material written communications;
•evaluating the qualifications, performance and independence of the Company’s independent registered public accounting firm;
•reviewing and discussing with the independent registered public accounting firm and management our annual financial statements and, following completion of the audit, reviewing separately with the independent registered public accounting firm and management any problems or difficulties encountered during the audit;
•recommending that the audited financial statements be included in our FormForms 10-K and producing the Audit Committee Report required to be included in our proxy statement;statements;
•reviewing any other relevant reports or other financial information prepared by management and directing the independent registered public accounting firm to use its best efforts to perform alla review of interim financial information prior to our disclosure of such financial information;
•discussing policies and procedures concerning press releases and reviewing the information to be included in earnings press releases, as well as financial information and earnings guidance provided to analysts;
22
•coordinating our boardBoard of directors’Directors’ oversight of our internal control over financial reporting and disclosure controls and procedures;
•discussing our policies with respect to risk assessment and risk management, including risk for fraud, and discussing the guidelines and policies tothat govern the process by which our exposure to risk is handled;
•establishing procedures for the receipt, retention and treatment of complaints received by us regarding (i) accounting, internal accounting controls or auditing matters and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
•reviewing and approving, or making recommendations to our boardBoard of directorsDirectors regarding, our policies and procedures for reviewing and approving or ratifying related person transactions, and reviewing, approving and overseeing any related person transactions;
•monitoring compliance with our Code of Ethics and Business Conduct;Conduct (the “Code”), investigating any alleged breach or violation of the Code, enforcing the provisions of the Code, and reviewing the Code periodically and recommending any changes to the Board;
•periodically reviewing our Investment Policy and recommending any changes to the Board;
•performing an annual review and evaluation of the performance of the audit committee and an annual review of its charter.charter; and
•performing any other activities consistent with the Company’s governing documents or that the audit committee or Board of Directors deems necessary or appropriate.
Equity Compensation CommitteePlan Information
Our
The following table provides aggregate information as of December 31, 2021, with respect to compensation committee consists of Saira Ramasastry, M.S., M. Phil., Anthony E. Maida, III, Ph.D., M.A., M.B.A. and Lorin K. Johnson, Ph.D. The chairplans under which shares of our compensation committee is Ms. Ramasastry.common stock may be issued.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuances under Equity Compensation Plans (excluding securities reflected in column (a)) |
| (a) | (b) | (c) |
Equity compensation plans approved by security holders (1) | 19,908,960 | | | $1.32 | | 5,478,787 | |
Equity compensation plans not approved by security holders (2) | 985,807 | | | $0.63 | | - | |
| Total | 20,894,767 | | | $1.29 | | 5,478,787 | |
(1) Consists of (i) 5,300,518 shares of common stock issuable upon exercise of outstanding options under the Private Innovate Plan and (ii) 14,608,442 shares of common stock issuable upon exercise of outstanding options under the Omnibus Plan. As of December 31, 2021, there were 5,478,787 shares remaining for future issuance under the Omnibus Plan. The responsibilitiesshares reserved for issuance under the Omnibus Plan automatically increase on the first day of each calendar year beginning in 2019 and ending in 2022 by an amount equal to the lesser of (i) five percent of the number of shares of common stock outstanding as of December 31 of the immediately preceding calendar year or (ii) such lesser number of shares of common stock as determined by the Board (the “Evergreen Provision”). On January 1, 2022, the number of shares of common stock available under the Omnibus Plan automatically increased by 12,911,771 shares pursuant to the Evergreen Provision.
(2) Pursuant to the RDD Merger Agreement, upon consummation of the RDD Merger on April 30, 2020, the Company assumed outstanding option grant agreements that were awarded to RDD employees. There were 985,807 assumed RDD options outstanding as of December 31, 2021, with a weighted-average exercise price of $0.63 per share. See “Note 9-Share-Based Compensation” to the accompanying consolidated financial statements included in this Annual Report on Form 10-K for further discussion of the assumed RDD options.
PROPOSAL 4
ADVISORY (NONBINDING) VOTE ON
NAMED EXECUTIVE OFFICER COMPENSATION
As discussed under the “Executive Compensation” section, our compensation committee include:strategy focuses on providing a total compensation package that is designed to attract and retain high-caliber executives by incentivizing them to achieve Company performance goals and closely aligning these goals with stockholder interests. Our philosophy reflects our emphasis on pay for performance and on long-term value creation for our stockholders.
reviewing and approving, or recommending that our boardAs required by Section 14A of directors approve,the Exchange Act, we are providing stockholders with an advisory (nonbinding) vote on the compensation of our named executive officers, as described in this Proxy Statement. This Proposal 4, known as a “Say-on-Pay” proposal, is designed to give our stockholders the opportunity to endorse or not endorse our Company’s executive compensation program through the following resolution:
“Resolved, that the stockholders approve, on an advisory (nonbinding) basis, the compensation of our named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Executive Compensation section, the Summary Compensation Table for fiscal year 2021, and other related tables and disclosures)”.
When you cast your vote, we urge you to consider the description of our executive compensation program contained in the Executive Compensation section in this Proxy Statement and the accompanying tables and narrative disclosures.
Required Vote
The affirmative vote of a majority of the shares cast and entitled to be cast at the Annual Meeting is required for approval of Proposal 4. Abstentions and broker non-votes will have no effect on the outcome of this Proposal 4.
Because your vote is advisory, it will not be binding upon our Board of Directors, overrule any decision by our Board, or create or imply any additional fiduciary duties on our Board or any member of our Board. However, our Board and our compensation committee will take into account the outcome of the vote when considering future executive compensation arrangements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” PROPOSAL 4 ON OUR NAMED EXECUTIVE OFFICER COMPENSATION AS DESCRIBED IN THIS PROXY STATEMENT.
PROPOSAL 5
ADVISORY (NONBINDING) VOTE ON THE FREQUENCY OF
FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION
Under Section 14A of the Exchange Act, we are required to seek a nonbinding advisory stockholder vote regarding the frequency of submission to stockholders of a Say-on-Pay advisory vote such as Proposal 5. The law specifies that at least once every six years we give our stockholders the opportunity to vote on the preferred frequency of future votes on our named executive officer compensation either annually, every two years or every three years, referred to as a “Say-on-Frequency” proposal. Although this vote is advisory and nonbinding, our Board of Directors will review voting results and give serious consideration to the outcome of such voting. We plan to present this proposal to our stockholders at least once every six years.
You may cast your advisory vote on whether the advisory vote on named executive officer compensation will occur every one, two or three years, or you may abstain from voting on the matter.
Our Board of Directors recommends that stockholders vote in favor of holding an advisory vote on named executive officer compensation every year. In making this recommendation, our Board considered the relevant merits of each of the three frequency alternatives. Our Board believes that holding the advisory vote every year will allow stockholders to provide timely, direct input on our executive compensation philosophy, policies and practices as disclosed in the Proxy Statement each year and is therefore consistent with our efforts to engage in an ongoing dialogue with stockholders on executive compensation and corporate governance matters.
Required Vote
The option of one year, two years, or three years that receives the affirmative vote of a majority of the votes cast and entitled to be cast will be the frequency for the advisory vote on named executive officer compensation that has been selected by stockholders. Abstentions and broker non-votes will have no effect on the outcome of this Proposal 5.
Because your vote is advisory, it will not be binding upon our Board of Directors, overrule any decision by our Board, or create or imply any additional fiduciary duties on our Board or any member of our Board. However, our Board will take into account the outcome of the vote when making its decision regarding the frequency of future stockholder advisory votes on named executive officer compensation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” “ONE YEAR” (AS OPPOSED TO TWO YEARS OR THREE YEARS) FOR PROPOSAL 5, THE FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION.
PROPOSAL 6
RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit committee has selected Mayer Hoffman McCann P.C. (“MHM”) as our independent registered public accounting firm for the fiscal year ending December 31, 2022, and has further directed that we submit our audit committee’s selection of MHM as our independent registered public accounting firm for ratification by our stockholders at the Annual Meeting. MHM has served as the Company’s auditor since 2015. Representatives ofMHM are expected to be present at the Annual Meeting, either in person or by telephone, depending on the COVID-19 situation. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of MHM as the Company’s independent registered public accounting firm. However, we are submitting the selection of MHM to our stockholders for ratification as a matter of good corporate practice. If our stockholders fail to ratify the selection, our audit committee will reconsider the retention of MHM. Even if the selection is ratified, our audit committee in its discretion may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of 9 Meters and its stockholders.
Principal Accountant Fees and Services
Substantially all of MHM personnel, who work under the control of MHM shareholders, are employees of wholly-owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure. The following table represents aggregate fees billed to the Company by MHM, the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2021 | | 2020 |
| | (in thousands) |
Audit Fees (1) | | $ | 253 | | $ | 349 |
| Audit-related Fees | | | — | | | — |
| Tax Fees | | | — | | | — |
| All Other Fees | | | — | | | — |
| Total Fees | | $ | 253 | | $ | 349 |
(1) Audit fees consist of fees billed for the professional services rendered to the Company for the audit of the Company’s annual consolidated financial statements for the years ended December 31, 2021 and 2020, reviews of the quarterly financial statements during those periods, the issuance of consent and comfort letters in connection with registration statement filings, and all other services that are normally provided by the accounting firm in connection with statutory and regulatory filings and engagements.
All fees described above were approved by our audit committee.
Pre-Approval Policies and Procedures
Our audit committee has adopted policy and procedures for the pre-approval of audit and non-audit services rendered by the Company’s independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of our audit committee’s approval of the scope of the engagement of the independent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of our audit committee’s members, but the decision must be reported to the full audit committee at its next scheduled meeting.
Our audit committee has determined that the rendering of services other than audit services by MHM to date are compatible with maintaining the principal accountant’s independence.
Required Vote
Ratification of the appointment of MHM as the Company’s independent registered public accounting firm requires the affirmative vote of the holders of a majority of the votes cast and entitled to be cast. Abstentions will have no effect on the outcome of this Proposal 6. Under applicable stock exchange rules, brokers are permitted to vote shares held for a customer on “routine” matters, such as this Proposal 6, without specific instructions from the customer. Therefore, we do not expect any broker non-votes on this Proposal 6.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” PROPOSAL 6.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The principal purpose of the audit committee is to assist the Board of Directors in its oversight of the Company’s accounting and financial reporting processes and audits of 9 Meters’ consolidated financial statements. The Company’s audit committee is responsible for appointing, evaluating, retaining and, when necessary, terminating the Company’s independent registered public accounting firm and approving the audit and non-audit services to be provided by the independent registered public accounting firm.
Management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) to obtain reasonable assurance that the Company’s consolidated financial statements are free from material misstatement and expressing an opinion on the conformity of such financial statements with accounting principles generally accepted in the United States.
In this context, the audit committee has reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2021, with management and MHM. The audit committee has discussed with MHM the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The audit committee has also received the written disclosures and the letter from MHM required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence.
Based on its discussions with management and the independent registered public accounting firm, the audit committee in place in March 2022 recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed on March 23, 2022.
Submitted by the Audit Committee
Michael Constantino, Chairman
Lorin Johnson, Ph.D.
Mark Sirgo, Pharm.D.
The information contained in the following report of 9 Meters’ audit committee is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing by 9 Meters under the Exchange Act or the Securities Act of 1933 unless and only to the extent that 9 Meters specifically incorporates it by reference.
CORPORATE GOVERNANCE MATTERS
Board Leadership Structure
Our Board of Directors does not have a written policy regarding the separation of the roles of chief executive officer and all other executive officers;chairman of the Board. Our Board believes that it is in the best interests of our company to make that determination from time to time based on the position and the direction of our company and the membership of our Board. Currently, these roles are held separately. Mr. Temperato serves as Chief Executive Officer and Dr. Sirgo serves as the Board Chair. While the Board believes that separation of these positions serves our company well, and intends to maintain this separation where appropriate and practicable, the Board does not believe that it is appropriate to prohibit one person from serving as both Board Chairman and Chief Executive Officer.
periodically reviewing and making recommendations
Role of the Board in Risk Oversight
The audit committee of our Board of Directors is primarily responsible for overseeing our risk management on behalf of our Board. The audit committee receives reports from management on a regular basis regarding our assessment of risks. In addition, the audit committee reports regularly to our boardBoard, which also considers our risk profile. The audit committee and our Board focus on the most significant risks we face and our general risk-management strategies, including cybersecurity risks. While our Board, through our audit committee, oversees our risk management, management is responsible for day-to-day risk-management processes.
Each committee of directorsour Board of Directors meets in executive session with respectkey management personnel and representatives of outside advisors to director compensation;
reviewing and approving, or recommending that our boardoversee risks associated with their respective principal areas of directors approve, incentivefocus. Our audit committee oversees management of financial risks. Our compensation plans and equity-based plans;
if required, reviewing and discussing with management our “Compensation Discussion and Analysis,” recommending that such disclosure be included in our Form 10-K or proxy statement and producing the Compensation Committee Report on executive officer compensation to be included in our Form 10-K or proxy statement;
reviewing and approving, or making recommendations to our board of directors regarding, any employment agreements and any severance arrangements or plans, including any benefits to be provided in connection with a change in control, for our chief executive officer and other executive officers;
overseeingcommittee oversees the management of risks relatingrelated to our executive compensation plans and arrangements; and
performing an annual review and evaluation of the performance of the compensation committee and an annual review of its charter.
Our compensation committee reviews and approves, or recommends for our board’s approval, the compensation of our chief executive officer and our other executive officers. Our compensation committee meets without the presence of executive officers when approving or deliberating on the compensation of our chief executive officer but may, in its discretion, invite our chief executive officer to be present during the approval of, or deliberations with respect to, compensation for our other executive officers. Our compensation committee also periodically reviews and makes
recommendations to our board of directors regarding the compensation of our directors. Our compensation committee may form and delegate authority to one or more subcommittees as it deems appropriate from time to time.
Our compensation committee has the authority, in its sole discretion, to retain or obtain the advice of such compensation consultants, legal counsel or other advisors as it deems necessary or appropriate. Our compensation committee has not engaged any external compensation consultants.
Nominating and Corporate Governance Committee
arrangements. Our nominating and corporate governance committee consistsmanages risks associated with the independence of Lorin K. Johnson, Ph.D., Anthony E. Maida, III, Ph.D, M.A., M.B.Aour Board and Saira Ramasastry, M.S., M. Phil..potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks.
Independence of Directors
Our common stock is listed on The chairNasdaq Capital Market. Under Nasdaq rules, independent directors must comprise a majority of the Board of Directors, and each member of our audit committee, compensation committee and nominating and corporate governance committee is Dr. Johnson.
The responsibilitiesmust be independent. Under Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of our nominating and corporate governance committee include:
identifying and screening individuals qualified to become members of our board of directors;
recommending the number of members that shall serve on our board of directors;
evaluating and reviewing the qualifications and independence of existing and prospective directors;
selecting and approving the director nominees to be submitted to a stockholder vote at our Annual Meeting of stockholders;
developing and recommending to ourcompany’s board of directors, corporate governance guidelines;that person does not have a relationship that would interfere with such person’s exercise of independent judgment in carrying out the responsibilities of a director.
periodically reviewing our board
Our Board of directors’ leadership structure;
overseeing the review by our board of directors, from time to time, of succession planning for senior executives;
overseeing the evaluation of our board of directors and its committees; and
performing an annual review and evaluation of the performance of our nominating and corporate governance committee and an annualDirectors has undertaken a review of its charter.
Our nominatingcomposition, the composition of its committees and corporate governance committee identifies persons as candidates to serve on the boardindependence of directorseach director. Based upon information requested from and selects,provided by each director concerning his or recommendsher background, employment and affiliations, including family relationships, the Board has determined that our boardnone of directors select, the nominees for all directorships to be filled by our board of directors or by our stockholders at an annual or special meeting. In evaluating the suitability of individual candidates, our nominatingMessrs. Constantino and corporate governance committee may take into account many factors, including, among others, personalRice, Drs. Johnson and professional integrity, ethicsSirgo and values, experience in corporate management, strong finance experience, practical and mature business judgment, experience relevant to our industry, experience asMs. Ventimiglia had a board member or executive officer of another publicly held company, relevant academic expertise or other proficiency in an area of our operations, diversity of expertise and experience in substantive matters pertaining to our business relative to other board members and diversity of background and perspective, including, but not limited to,relationship that would interfere with respect to age, gender, race, place of residence and specialized experience. Neither our board of directors nor our nominating and corporate governance committee has developed a policy with respect to diversity in identifying nominees for director, other than to consider diversity when assessing nominees. Our nominating and corporate governance committee evaluates each person in the context of our board of directors as a whole, with the objective of assembling a group that can best perpetuate the success of our business and represent stockholder interests through the exercise of soundindependent judgment using its diversityin carrying out the responsibilities of experience ina director and that each of these various areas.
Our nominatingdirectors is “independent” as that term is defined under applicable Nasdaq rules. In making these determinations, the Board considered the current and corporate governance committee will consider stockholder recommendations of candidates on the same basis as it considersprior relationships that each non-employee director has with us and all other candidates. Stockholder recommendations should be submitted to us underfacts and circumstances the procedures discussedBoard deemed relevant in “Stockholder Communications withdetermining their independence, including the Board,” and should include the full namebeneficial ownership of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information and a description of the proposed nominee’s qualifications as aour capital stock by each non-employee director. Any such
submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.
Board and Committee Meetings and Attendance
Our boardBoard of directors and its committees meetDirectors meets throughout the year on a set schedule and also holdholds special meetings and actacts by written consent from time to time. During 2017,2021, the Monster board of directorsBoard held seven meetings and its auditeach director attended at least 75% of the aggregate total number of meetings held by the Board and each committee held two meetings. Each of our incumbent directorson which he or she served
during the period each director was appointed to our board of directors in connection withduring 2021. Additionally, Drs. Sirgo and Johnson and Messrs. Constantino, Rice and Temperato attended the closing of the Merger, except for Ms. Ramasastry, who was appointed to our board of directors in June 2018. Accordingly, none of our incumbent directors was serving as a director during 2017 or attended our board or committee meetings during 2017. Additionally, Monster did not hold an Annual Meeting of stockholders in 2017.Stockholders held on June 22, 2021. We do not have a stated policy regarding director attendance at annual stockholder meetings, but strongly encourage our directors to attend each such meeting.
Stockholder Communications with the Board Committees
Stockholders
who wishAs described above, our Board of Directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our Board may establish other committees to communicate withfacilitate the management of our boardbusiness. The composition and functions of directors may do soeach of our audit, compensation and nominating and corporate governance committees are described below. Members serve on these committees until their resignation or until otherwise determined by sendingour Board. Each of these committees is governed by a formal written communications tocharter approved by our Corporate Secretary addressed as follows: Innovate Biopharmaceuticals, Inc., Attn: Corporate Secretary, 8480 Honeycutt Road, Suite 120, Raleigh, NC 27615. The communications will be reviewed by the Corporate Secretary. Our Corporate Secretary will forwardBoard, and a copy of each such communication to the board or to any individual director to whom the communication is addressed unless the communication is unduly frivolous, hostile, threatening or similarly inappropriate, in which case our Corporate Secretary shall discard the communication.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct that applies to our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and other employees. Our Code of Ethics and Business Conductcharter is available on the “Corporate Governance” page of the “Investors” Investors – Resources - Corporate Governance section of our website which may be accessed by navigating to http://ir.innovatebiopharma.com/corporate-governance/highlights.” We intend to post on our website and (if required) file on Form 8-K all disclosures that are required by applicable law, the rules of the SEC or the Nasdaq listing standard, concerning any amendment to, or waiver from, our Code of Ethics and Business Conduct.at www.9meters.com. However, the reference to our website does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider it to be a part of this proxy statement.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE PLAN
General
Our board of directors believes that our continued growth and performance in meeting our short- and long-term milestones and objectives depends on our ability to attract, motivate and recruit high-caliber talent in a highly competitive industry. Equity-based compensation incentives are a very important component in doing so by helping to align the interests of our key talent with those of our stockholders. However, because there remained only 4,505 shares available for future awards under Monster’s 2012 Omnibus Incentive Plan (such plan, to be renamed the “Innovate Biopharmaceuticals, Inc. 2012 Omnibus Incentive Plan” if this Proposal 2 is approved, the “Plan”) immediately following completion of the Merger, without an amendment to the Plan we will be unable to make sufficient equity awards to our directors, executive officers, employees and consultants.Proxy Statement.
We are therefore requesting that stockholders approve the proposed amendment to the Plan to (i) increase the aggregate number of shares that may be issued under the Plan by 3,000,000 shares, from 4,505 shares available for future awards under the Plan as of September 30, 2018 to a total of 3,004,505 shares available for future awards under the Plan following the approval of the amendment, and (ii) implement an “evergreen” provision to automatically increase the total number of shares of common stock available under the Plan on the first day of each calendar year beginning in 2019 and ending in 2022 by an amount equal to the lesser of (i) five percent (5%) of the number of shares of common stock outstanding as of December 31st of the immediately preceding calendar year or (ii) such lesser number of shares of common stock as is determined by our board of directors. The “evergreen” provision, if approved, will provide the Company with a minimum number of available shares for grant to key personnel in future years, without needing to amend the Plan to increase the number of shares reserved for issuance thereunder and to seek stockholder approval for such amendment.
The amendment was approved unanimously by our board of directors in September 2018, and will become effective only upon stockholder approval. As more fully described below under “Plan Awards,” approximately 42% of the additional 3,000,000 shares that would be added to the Plan, if this Proposal 2 is approved, have already been committed to making awards to (i) our non-employee directors in accordance with our non-employee director compensation policy, including contingent awards that have already been made under that policy, (ii) June Almenoff, who recently was appointed as our Chief Operating Officer and Chief Medical Officer and has received a contingent grant of stock options, and (iii) certain other employees and consultants. It is therefore critical that this amendment to the Plan be approved to enable the Company to utilize equity compensation to attract and retain the talent that it needs to succeed.
For the reasons discussed in this section, our board of directors believes that approval of this Proposal 2 is in the best interests of the Company and its stockholders and unanimously recommends a vote “FOR” this proposal.
In connection with the Merger, we assumed the stock incentive plan of Private Innovate and the outstanding awards thereunder but do not intend to make additional grants under that plan. The Plan is currently the only equity compensation plan under which we anticipate making future awards of share-based compensation to employees, consultants and outside directors, including stock options and restricted stock units.
If approved, the amendment would revise Section 4.01 of the Plan and a copy of the Plan as revised is set forth in Appendix B. The Plan is filed as Exhibit 10.1 to our Registration Statement on Form S-1 (File No. 333-207938) filed with the SEC on November 10, 2015, which is available online through the SEC’s EDGAR System. You may also request a copy of the Plan, as currently in effect, by sending a written request to Innovate Biopharmaceuticals, Inc., Attn: Corporate Secretary, 8480 Honeycutt Road, Suite 120, Raleigh, NC 27615.
As of September 30, 2018, there were a total of 1,683 shares subject to outstanding option awards under the Plan (with a weighted average exercise price of $45.00 and a weighted average remaining term of 8.5 years). These 1,683 outstanding option awards, when combined with 3,004,505 shares available for future awards (assuming the amendment is approved by our stockholders), would result in a total of 3,006,188 common shares reserved under the Plan. For additionalfollowing table provides membership information regarding outstanding awards under our equity compensation plan, please refer to the section below entitled “Equity Compensation Plan Information.”
Prior to recommending that the board approve the proposed amendment to the Plan, our compensation committee considered the overall number of shares needed under the Plan for executive, director and employee equity awards, as well as levels of potential stockholder dilution from equity awards.
We believe the Plan, as proposed to be amended, is essential to our future success and encourage stockholders to vote in favor of approval of the amendment to the Plan. There are a number of reasons why we believe approving this amendment is important:
The amendment will allow us to continue to grant equity awards, a very important incentive tool for creating stockholder value. The use of equity compensation as a component of our compensation program is critical to our present and future success. Equity awards create an ownership culture that aligns the interests of our non-employee directors employees and consultants with our stockholders. Equity compensation also focuses our non-employee directors’, employees’ and consultants’ attention on creating long-term value appreciation and return on investment.
Equity awards are critical as a retention and motivational tool. Our growth as a company and our ability to meet our short- and long-term milestones and objectives are dependent on retaining and motivating talented employees. A significant portioneach committee of our employees’ and other service providers’ compensation is tied to our performance, including long-term stockholder value creation, through the useBoard of equity awards with multi-year vesting schedules (as wellDirectors as performance-based vesting milestones where appropriate).This encourages and motivates employees and other service providers to pair a short-term view of performance (achieved through annual cash bonuses) with a long-term view of performance (achieved through equity award long-term value appreciation), which provides sustained motivation for ongoing innovation.May 4, 2022.
Equity awards are critical as a recruiting tool. Our future growth depends on our ability to attract top industry talent. We believe that a competitive compensation program that includes equity awards is essential for attracting such employees. Equity compensation is utilized routinely by companies in our industry, with whom we compete for talent. A failure to competitively utilize equity compensation would put us at a significant competitive disadvantage when recruiting for critical talent such as executives and other key personnel.
The Plan includes certain features designed to protect stockholder interests:
| |
o | Awards under the Plan are administered by our compensation committee, which consists entirely of independent directors; |
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o | Awards are not automatically accelerated upon a change in control; and |
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o | Material amendments to the Plan require stockholder approval. |
If the amendment is not approved, we would experience a serious disruption of our compensation programs, and we could be compelled to increase the cash component of our compensation. Given that the Plan is almost depleted, if the amendment is not approved, our ability to make grants under the Plan will be severely curtailed. Therefore, in order to provide competitive compensation opportunities to attract, motivate and retain employees and other service providers without equity compensation, we would likely need to employ cash or other non-equity rewards to replace the compensation previously delivered as equity awards. We believe these alternative forms of compensation would not align employee and other service provider interests with those of stockholders as efficiently as stock-based awards and would limit the cash we have available to advance our strategic objectives. We believe it is important to provide compensation which continues to most effectively align employees and other service providers with our stockholders.
Description of the Plan
The following is a description of the Plan as proposed to be amended. This description is merely a summary of material provisions of the Plan and is qualified by the full text of the Plan as proposed to be amended and restated as set forth in Appendix B to this proxy statement.
The Plan is currently administered by our compensation committee. The Plan administrator has the authority to determine, within the limits of the express provisions of the Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards. Our board of directors may at any time amend or terminate the Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the Plan without the consent of the recipient. No awards may be made under the Plan after the tenth anniversary of its April 30, 2012 effective date.
Awards under the Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock (“restricted shares”), restricted stock units (“RSUs”), performance share or unit awards, other stock-based awards and cash-based incentive awards.
Stock Options. The Plan administrator may grant to a participant options to purchase our common stock that qualify as incentive stock options for purposes of Section 422 of the Internal Revenue Code (“ISOs”), non-qualified stock options (“NSOs”) that do not qualify as incentive stock options, or a combination thereof. The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other conditions on exercise will be determined by the Plan administrator and set forth in an applicable award agreement. The exercise price for stock options will be determined by the Plan administrator in its discretion, but may not be less than 100% of the fair market value (“FMV”) of one share of our company’s common stock on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant (“10% Stockholder”), the exercise price may not be less than 110% of the FMV of one share of common stock on the date the stock option is granted. Stock options must be exercised within a period fixed by the Plan administrator that may not exceed ten years from the date of grant, except that in the case of incentive stock options granted to a 10% Stockholder, the exercise period may not exceed five years. At the Plan administrator’s discretion, payment for shares of common stock on the exercise of stock options may be made in cash, shares of our common stock held by the participant or in any other form of consideration acceptable to the Plan administrator (including one or more forms of “cashless exercise” or “net exercise”).
Stock Appreciation Rights. The Plan administrator may grant to a participant an award of SARs, which entitles the participant to receive, upon its exercise, a payment (either in shares or cash or a combination thereof) equal to (i) the excess of the FMV of a share of common stock on the exercise date over the SAR exercise price, times (ii) the number of shares of common stock with respect to which the SAR is exercised. The exercise price for a SAR will be determined by the Plan administrator in its discretion; provided, however, that in no event shall the exercise price be less than the FMV of our common stock on the date of grant.
Restricted Shares and Restricted Stock Units. The Plan administrator may award to a participant shares of common stock subject to specified restrictions. Restricted shares are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified forfeiture period and/or the attainment of specified performance targets over the forfeiture period. The Plan administrator also may award to a participant restricted stock units or RSUs representing the right to receive shares of common stock in the future subject to the achievement of one or more goals relating to the completion of service by the participant and/or the achievement of performance or other objectives. The terms and conditions of restricted share and RSU awards are determined by the Plan administrator and set forth in an applicable award agreement.
Performance Awards. The Plan administrator may grant performance awards to participants under such terms and conditions as the Plan administrator deems appropriate. A performance award entitles a participant to receive a payment from us, the amount of which is based upon the attainment of predetermined performance targets over a specified award period. Performance awards may be paid in cash, shares of common stock or a combination thereof, as determined by the Plan administrator.
Other Stock-Based Awards. The Plan administrator may grant equity-based or equity-related awards, including stock purchase rights, referred to as “other stock-based awards,” other than options, SARs, restricted shares, restricted units, or performance awards. The terms and conditions of each other stock-based award will be determined by the
Plan administrator and set forth in an applicable award agreement. Payment under any other stock-based awards will be made in common stock or cash, as determined by the Plan administrator.
Cash-Based Awards. The Plan administrator may grant cash-based incentive compensation awards, which would include performance-based annual cash incentive compensation to be paid to covered employees subject to Section 162(m) of the Code where applicable. The terms and conditions of each cash-based award will be determined by the Plan administrator.
Dividend Equivalents. The Plan administrator may provide for the payment of dividends or dividend equivalents with respect to any shares of common stock subject to an award under the Plan.
Certain Federal Income Tax Consequences for Participants Subject to U.S. Tax Law
The following is intended only as a brief summary of the federal income tax rules relevant to the primary types of awards available for issuance under the Plan and is based on the terms of the Code as currently in effect. The applicable statutory provisions are highly technical and subject to change in the future (possibly with retroactive effect), as are their interpretations and applications. Because federal income tax consequences may vary as a result of individual circumstances, participants are encouraged to consult their personal tax advisors with respect to their tax consequences. The following summary is limited to U.S. federal income tax treatment. It does not address state, local, gift, estate, social security or foreign tax consequences, which may be substantially different.
NSOs. A participant generally is not taxed upon the grant of an NSO, unless the NSO has a readily ascertainable FMV (usually meaning that the NSO is traded on a securities market). Upon exercise of an NSO, a participant is subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option exercise price and the FMV of the shares at the time of exercise. This income is subject to withholding for federal income and employment tax purposes. We are generally entitled to an income tax deduction in the amount of the ordinary income recognized by the participant in our tax year during which the participant recognizes ordinary income, subject to possible limitations imposed by Section 162(m) of the Code and so long as the Company withholds the appropriate taxes with respect to such income (if required) and the participant’s total compensation is deemed reasonable in amount. Any gain or loss on the participant’s subsequent disposition of the shares of common stock will receive long or short-term capital gain or loss treatment, depending on whether the shares are held for more than one year following exercise. The Company does not receive a tax deduction for any such gain.
ISOs. The grant of an ISO under the Plan will not result in any federal income tax consequences to the participant or us. A participant recognizes no federal taxable income upon exercising an ISO (subject to the alternative minimum tax (“AMT”) rules discussed below), and we receive no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an ISO, the tax consequences depend upon how long the participant has held the shares of common stock. If the participant does not dispose of the shares within two years after the ISO was granted, or within one year after the ISO was exercised, the participant will generally recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. The Company is not entitled to any deduction under these circumstances.
If the participant fails to satisfy either of the foregoing holding periods in disposing of the shares acquired upon exercise of an ISO (referred to as a “disqualifying disposition”), the participant must recognize ordinary income in the year of the disposition. The amount of ordinary income generally is the lesser of (i) the difference between the amount realized on the disposition and the ISO exercise price or (ii) the difference between the FMV of the stock at the time of exercise and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the stock was held for more than one year. For the year of the disqualifying disposition, we will be entitled to a deduction equal to the amount of ordinary income recognized by the participant, subject to possible limitations imposed by Section 162(m) of the Code and so long as the participant’s total compensation is deemed reasonable in amount.
The “spread” under an ISO—i.e., the difference between the FMV of the shares at exercise and the exercise price—is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax or AMT. If a participant’s AMT liability exceeds such participant’s regular income tax liability, the participant will owe the larger amount of taxes. In order to avoid the application of AMT with respect to exercised ISOs, the participant
must sell the shares within the calendar year in which the ISO are exercised. However, such a sale of shares within the year of exercise will constitute a disqualifying disposition, as described above.
In order for an option to qualify as an ISO for federal income tax purposes, the grant of the option must satisfy various other conditions specified in the Code. In the event an option intended to be an ISO fails to qualify as an ISO, it will be taxed as an NSO as described above.
SARs. Recipients of SARs generally should not recognize income until the SAR is exercised (assuming there is no ceiling on the value of the right). Upon exercise, the recipient will normally recognize taxable ordinary income for federal income tax purposes equal to the amount of cash and FMV of the shares, if any, received upon such exercise. Recipients who are employees will be subject to withholding for federal income and employment tax purposes with respect to income recognized upon exercise of a SAR. Recipients will recognize gain upon the disposition of any shares received on exercise of a SAR equal to the excess of (i) the amount realized on such disposition over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long or short-term capital gain depending on whether the shares were held for more than one year. We will be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the recipient, subject to possible limitations imposed by Section 162(m) of the Code and so long as the appropriate taxes are withheld with respect to such income (if required) and the recipient’s total compensation is deemed reasonable in amount.
Restricted Share Awards. A participant generally will recognize taxable ordinary income upon the receipt of a restricted share award if the shares are not subject to a substantial risk of forfeiture. The income recognized will be equal to the FMV of the shares at the time of receipt less any purchase price paid for the shares. If the shares are subject to a substantial risk of forfeiture, the participant generally will recognize taxable ordinary income when the substantial risk of forfeiture lapses. If the substantial risk of forfeiture lapses in increments over several years, the participant will recognize income in each year in which the substantial risk of forfeiture lapses as to an increment. If the participant cannot sell the shares without being subject to suit under Section 16(b) of the Exchange Act (the short swing profits rule), the shares will be treated as subject to a substantial risk of forfeiture. The income recognized upon lapse of a substantial risk of forfeiture will be equal to the FMV of the shares determined as of the time that the substantial risk of forfeiture lapses less any purchase price paid for the shares. We generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant.
Alternatively, if the shares are subject to a substantial risk of forfeiture, the participant may make a timely election under Section 83(b) to recognize ordinary income for the taxable year in which the participant received the shares in an amount equal to the FMV of the shares at that time. That income will be taxable at ordinary income tax rates. If a participant makes a timely Section 83(b) election, the participant will not recognize income at the time the substantial risk of forfeiture lapses with respect to the shares. At the time of disposition of the shares, a participant who has made a timely Section 83(b) election will recognize gain in an amount equal to the difference between the purchase price, if any, and the amount received on the disposition of the shares. The gain will be taxable at the applicable capital gains rate. If the participant forfeits the shares after making a Section 83(b) election, the participant is not entitled to a deduction with respect to the income recognized as a result of the election. To be timely, the Section 83(b) election must be made within 30 days after the participant receives the shares. We will generally be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant at the time of the election.
RSUs. A participant is not taxed upon the grant of an RSU. Generally, if an RSU is designed to be paid on or shortly after the RSU is no longer subject to a substantial risk of forfeiture, then the participant will recognize ordinary income equal to the amount of cash and the FMV of the shares received by the participant, and we will be entitled to an income tax deduction for the same amount. However, if an RSU is not designed to be paid on or shortly after the RSU is no longer subject to a substantial risk of forfeiture, the RSU may be deemed a nonqualified deferred compensation plan under Section 409A. In that case, if the RSU is designed to meet the requirements of Section 409A, then the participant will recognize ordinary income equal to the amount of cash and the FMV of the shares received by the participant, and we will be entitled to an income tax deduction for the same amount. However, if the RSU is not designed to meet the requirements of Section 409A, the participant will be subject to ordinary income when the substantial risk of forfeiture lapses as well as an additional 20% excise tax, and additional tax could be imposed each following year.
Golden Parachute Payments. The terms of the agreement evidencing an award under the Plan may provide for accelerated vesting or accelerated payout of the award in connection with a change in ownership or control of Innovate. In such event, certain amounts with respect to the award may be characterized as “parachute payments” under the
golden parachute provisions of the Code. Under Section 280G of the Code, no federal income tax deduction is allowed to Innovate for “excess parachute payments” made to “disqualified individuals,” and receipt of such payments subjects the recipient to a 20% excise tax under Section 4999 of the Code.
Plan Awards
The following table sets forth with respect to each individual and group listed below the number of shares of common stock issued or issuable pursuant to awards granted under the Plan since the Plan’s effectiveness through September 30, 2018. If the amendment to the Plan is approved, we expect to make annual awards to our non-employee directors in accordance with our non-employee director compensation policy. In addition, in September 2018 we made a contingent grant to June S. Almenoff in connection with her appointment as our Chief Operating Officer and Chief Medical Officer, a contingent grant to each of Dr. Proujansky and Ms. Ramasastry and contingent grants to certain other employees and consultants. Each of these grants is contingent on approval of the amendment to the Plan. The awards that we have committed to make under our non-employee director compensation policy in connection with the Annual Meeting and the contingent awards that we made during September 2018 are reflected in the table below. The table does not include grants made under any of our other compensation plans, including the Private Innovate plan. In addition, we also expect to make additional awards to employees and consultants in the future that are not reflected in the table below. Amounts reported are the gross number of shares underlying grants.
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Name | Audit Committee | | Compensation Committee | | Nominating and Position | | Number of Shares Currently Underlying Awards under the Plan | | Number of Shares Underlying Awards Expected to be Granted Following Plan ApprovalCorporate Governance Committee |
David H. Clarke, former Chief Executive Officer and Chairman of the BoardMichael Constantino | µ | — |
| | — |
þ |
David Olert, former Chief Financial OfficerLorin K. Johnson, Ph.D. | þ | 1,683 |
µ | | — |
þ |
Stephen R. Brownsell, former Executive Vice PresidentMichael Rice | | — |
þ | | — |
µ |
Jonathan Clark, former Interim President and DirectorMark Sirgo, Pharm.D. | þ | — |
þ | | — |
þ |
Sandeep Laumas, M.D., Executive ChairmanSamantha Ventimiglia | | — |
| | — |
|
Christopher Prior, Ph.D., Chief Executive Officer | | — |
| | — |
|
Jay P. Madan, President, Chief Business Officer, Interim Principal Financial Officer, Interim Principal Accounting Officer | | — |
| | — |
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All current executive officers, as a group | | — |
| | 700,000 (1) |
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All current directors who are not executive officers, as a group | | — |
| | 200,000 (2) |
|
All associates of directors, executive officers or nominees | | — |
| | — |
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All other persons who received or are to receive 5% of plan awards | | — |
| | — |
|
All non-employees who are not directors, as a group | | — |
| | 311,843 (3) |
|
All employees, including all current officers who are not executive officers, as a group | | — |
| | 61,000 (3) |
þ |
(1) In connection with her appointment toµ = Committee Chair
þ = Member
Audit Committee
Our audit committee consists of Mr. Constantino (Chair) and Drs. Johnson and Sirgo. Each of Mr. Constantino and Drs. Johnson and Sirgo satisfy the positionindependence requirements of Chief Operating OfficerRules 5605(a)(2) and Chief Medical Officer, we made a grant5605(c)(2) of options to purchase up to 700,000 sharesthe Nasdaq Stock Market listing rules and Section 10A(m)(3) of the Exchange Act. The audit committee met five times during 2021. Our Board of Directors has determined that Mr. Constantino is an “audit committee financial expert,” as that term is defined by the SEC rules implementing Section 407 of the Sarbanes-Oxley Act, and possesses financial sophistication, as defined under applicable Nasdaq rules. Our Board has also determined that each member of our common stock to Dr. Almenoff, which award is contingent upon receipt of stockholder approval for the amendment to the Plan.
(2) Represents grants of options to purchase up to 50,000 shares of our common stock to each of Dr. Proujanskyaudit committee can read and Ms. Ramasastryunderstand fundamental financial statements in accordance with applicable SEC and Nasdaq rules. To arrive at these determinations, our non-employee director compensation policy for initial awards, which are contingent upon receiptBoard has examined each audit committee member’s scope of stockholder approvalexperience and the nature of his experience in the corporate finance sector.
The responsibilities of our audit committee include:
•selecting and retaining, compensating, overseeing and, if necessary, terminating the Company’s independent registered public accounting firm with respect to its performance of audit services and any permissible non-audit services;
•selecting and retaining, compensating, overseeing and, if necessary, terminating any other registered public accounting firm engaged for the amendmentpurpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;
•pre-approving all audit and permitted non-audit and tax services provided by any independent registered public accounting firm;
•reviewing and discussing with the independent registered public accounting firm critical accounting policies and practices, alternative treatments of financial information and other material written communications;
•evaluating the qualifications, performance and independence of the Company’s independent registered public accounting firm;
•reviewing and discussing with the independent registered public accounting firm and management our annual financial statements and, following completion of the audit, reviewing separately with the independent registered public accounting firm and management any problems or difficulties encountered during the audit;
•recommending that the audited financial statements be included in our Forms 10-K and producing the Audit Committee Report required to be included in our proxy statements;
•reviewing any other relevant reports or other financial information prepared by management and directing the independent registered public accounting firm to use its best efforts to perform a review of interim financial information prior to our disclosure of such financial information;
•discussing policies and procedures concerning press releases and reviewing the information to be included in earnings press releases, as well as financial information and earnings guidance provided to analysts;
•coordinating our Board of Directors’ oversight of our internal control over financial reporting and disclosure controls and procedures;
•discussing our policies with respect to risk assessment and risk management, including risk for fraud, and discussing the guidelines and policies that govern the process by which our exposure to risk is handled;
•establishing procedures for the receipt, retention and treatment of complaints received by us regarding (i) accounting, internal accounting controls or auditing matters and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
•reviewing and approving, or making recommendations to our Board of Directors regarding, our policies and procedures for reviewing and approving or ratifying related person transactions, and reviewing, approving and overseeing any related person transactions;
•monitoring compliance with our Code of Ethics and Business Conduct (the “Code”), investigating any alleged breach or violation of the Code, enforcing the provisions of the Code, and reviewing the Code periodically and recommending any changes to the Plan. In addition, we expectBoard;
•periodically reviewing our Investment Policy and recommending any changes to grant options to purchase up to 25,000 sharesthe Board;
•performing an annual review and evaluation of our common stock to each non-employee director in accordance with our non-employee director compensation policy forthe performance of the audit committee and an annual awards beginningreview of its charter; and
•performing any other activities consistent with the Annual Meeting. At their option,Company’s governing documents or that the directors may elect to receive the annual awards partiallyaudit committee or wholly in restricted stock units in accordance with the termsBoard of our non-employee director compensation policy.Directors deems necessary or appropriate.
(3) Represents awards to certain employees and consultants that are contingent upon receipt of stockholder approval for the amendment to the Plan.
Registration with the SEC
We intend to file a Registration Statement on Form S-8 relating to the issuance of shares of common stock under the Plan with the SEC pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the amendment to the Plan by our stockholders.
Equity Compensation Plan Information
The following table sets forth certainprovides aggregate information as of December 31, 2017 about2021, with respect to compensation plans under which shares of our common stock may be issued.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuances under Equity Compensation Plans (excluding securities reflected in column (a)) |
| (a) | (b) | (c) |
Equity compensation plans approved by security holders (1) | 19,908,960 | | | $1.32 | | 5,478,787 | |
Equity compensation plans not approved by security holders (2) | 985,807 | | | $0.63 | | - | |
| Total | 20,894,767 | | | $1.29 | | 5,478,787 | |
(1) Consists of (i) 5,300,518 shares of common stock issuable upon exercise of outstanding options under the Private Innovate Plan and (ii) 14,608,442 shares of common stock issuable upon exercise of outstanding options under the Omnibus Plan. As of December 31, 2021, there were 5,478,787 shares remaining for future issuance under the Omnibus Plan. The shares reserved for issuance under the Omnibus Plan automatically increase on the first day of each calendar year beginning in 2019 and ending in 2022 by an amount equal to the lesser of (i) five percent of the number of shares of common stock outstanding andas of December 31 of the immediately preceding calendar year or (ii) such lesser number of shares of common stock as determined by the Board (the “Evergreen Provision”). On January 1, 2022, the number of shares of common stock available for issuance under the Plan.
|
| | | | | | | | |
| | Number of Securities
to be issued upon
exercise of
outstanding options
and restricted stock | | Weighted average
exercise price of
outstanding options | | Number of Securities
remaining available
under equity
compensation plans |
| Equity compensation plans approved by stockholders | 1,683 |
| | $45.00 | | 4,505 |
|
| Equity compensation plans not approved by stockholders | — |
| | — |
| | — |
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDSOmnibus Plan automatically increased by 12,911,771 shares pursuant to the Evergreen Provision.
A VOTE “FOR” PROPOSAL 2.
INTRODUCTORY NOTE TO PROPOSALS 3 TO 9
RELATING TO RESTATED CERTIFICATE
Following completion(2) Pursuant to the RDD Merger Agreement, upon consummation of the RDD Merger on April 30, 2020, the Company assumed outstanding option grant agreements that were awarded to RDD employees. There were 985,807 assumed RDD options outstanding as of December 31, 2021, with a weighted-average exercise price of $0.63 per share. See “Note 9-Share-Based Compensation” to the accompanying consolidated financial statements included in this Annual Report on Form 10-K for further discussion of the assumed RDD options.
PROPOSAL 4
ADVISORY (NONBINDING) VOTE ON
NAMED EXECUTIVE OFFICER COMPENSATION
As discussed under the “Executive Compensation” section, our newly appointed board of directors reviewedcompensation strategy focuses on providing a total compensation package that is designed to attract and retain high-caliber executives by incentivizing them to achieve Company performance goals and closely aligning these goals with stockholder interests. Our philosophy reflects our Certificate of Incorporation, including against newly public biotechnology companies,emphasis on pay for performance and determined that it was not adequateon long-term value creation for our combined company,stockholders.
As required by Section 14A of the Exchange Act, we are providing stockholders with an advisory (nonbinding) vote on the compensation of our named executive officers, as described in this Proxy Statement. This Proposal 4, known as a “Say-on-Pay” proposal, is designed to give our stockholders the opportunity to endorse or not endorse our Company’s executive compensation program through the following resolution:
“Resolved, that it did not include certain governancethe stockholders approve, on an advisory (nonbinding) basis, the compensation of our named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Executive Compensation section, the Summary Compensation Table for fiscal year 2021, and other provisions thatrelated tables and disclosures)”.
When you cast your vote, we urge you to consider the description of our board of directors believes areexecutive compensation program contained in the best interests ofExecutive Compensation section in this Proxy Statement and the Companyaccompanying tables and its stockholders narrative disclosures.
Required Vote
and are customary for newly public companies in our industry. Specifically, we believe that the flexibility of our board of directors to negotiate with third parties seeking control of the Company should be preserved, so the board can deal with attempts to acquire the Company for an inadequate price and with other abusive practices that do not treat all stockholders equally. If approved, the proposed amendments will enable our board of directors to respond in an orderly manner to unsolicited bids, by providing sufficient time to carefully evaluate the fairness of an unsolicited offer and credibility of the bidder, and give the board the necessary flexibility to explore alternative strategies for maximizing stockholder value. Accordingly, our board of directors unanimously approved the Restated Certificate and unanimously recommends that our stockholders approve the Restated Certificate through the adoption of Proposals 3 through 9. We are not aware of any present or threatened third-party plans to gain control of the Company, and none of these proposals is being recommended by our board of directors in response to any such plan or threat.
The specific amendments necessary to make the changes described in Proposals 3 through 9 are reflected in the Restated Certificate attached to this proxy statement as Appendix A and incorporated by reference herein. Proposals 3 through 9 include summaries of our Restated Certificate, which are qualified by reference to the full text of the Restated Certificate.
Although they all relate to the Restated Certificate, as required by SEC rules and guidance issued by the SEC thereunder, each of Proposals 3 through 9 is separate. You can vote “For” or “Against” (or abstain from voting on) any of these proposals. Your vote on any one of these proposals will not affect your vote on any of the other proposals, except that approval of Proposal 6 (to approve the Restated Certificate to prohibit director removal without cause and to allow removal with cause by the vote of our stockholders of at least two-thirds of all then-outstanding shares of our common stock) is contingent on approval of Proposal 3 (to approve the Restated Certificate to provide for a classified board of directors). Accordingly, if Proposal 3 is not approved, we will not implement the amendment contemplated in Proposal 6, even if approved by our stockholders.
For the reasons discussed below in each proposal, our board of directors believes that approval of these proposals is in the best interests of the Company and of our stockholders and unanimously recommends a vote “FOR” each of the proposals related to the Restated Certificate.
We intend to file the Restated Certificate with the Secretary of State of the State of Delaware reflecting those proposals that are approved by our stockholders promptly after stockholder approval is obtained. Our board of directors may abandon the amendments reflected in the Restated Certificate, or any of them, before or after adoption and approval by our stockholders at any time prior to the effectiveness of the Restated Certificate.
PROPOSAL 3
TO APPROVE THE RESTATED CERTIFICATE TO PROVIDE FOR THE ELECTION OF A CLASSIFIED BOARD
Our board of directors has unanimously approved and recommends that our stockholders approve the Restated Certificate in the form attached to this proxy as Appendix A that provides for the establishment of a classified board structure. Our board of directors currently consists of seven members elected to one-year terms at each Annual Meeting of stockholders. The proposed amendment divides our board of directors into three classes, with each class having a three-year term expiring in a different year.
Classified Board of Directors
Delaware law provides that, unless otherwise provided in a company’s certificate of incorporation or bylaws, directors are elected for a one-year term at the Annual Meeting of stockholders. If adopted, Proposal 3 would amend our Certificate of Incorporation to provide that our board of directors be divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of our board of directors would be elected each year. Initially, during the implementation of the classified board structure, seven directors would serve between one- to three-year terms. The two directors elected to Class I would serve for approximately one year, the two directors elected to Class II would serve for approximately two years, and the three directors elected to Class III would serve for approximately three years. After this transition, each of our directors would serve for three-year terms, with one class being elected each year. If this Proposal 3 is approved, the Restated Certificate authorizes our board of directors to assign directors then in office to classes upon the filing with the Secretary of State of the State of Delaware of the Restated Certificate providing for classification of the board of directors, and our board of directors will be responsible for assigning new directors to classes upon their appointment or election to the board. For additional information about the classes in which our nominees are expected to serve if Proposal 3 is approved, please see Proposal 1 regarding director elections, above.
Consistent with its authority to assign directors to classes of the board, under the Restated Certificate, vacancies on the board of directors may only be filled by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any such newly appointed directorshares cast and entitled to be cast at the Annual Meeting is required for approval of Proposal 4. Abstentions and broker non-votes will hold office untilhave no effect on the next electionoutcome of the class for which such director has been chosen, subject to the election and qualification of a successor and to such director’s earlier death, resignation or removal. A similar provision providing that our board of directors may fill vacancies is already included in our Bylaws. If this Proposal 34.
Because your vote is approved, the provisions related to filling vacanciesadvisory, it will not be reflected in the Restated Certificate, which will also specifically provide thatbinding upon our stockholders may not fill any vacancies.
Advantages of a Classified Board of Directors, with Vacancies Filledoverrule any decision by our Board, or create or imply any additional fiduciary duties on our Board or any member of our Board. However, our Board and our compensation committee will take into account the Board
Our board of directors believes that a classified board of directors with three-year terms and the election of approximately one-thirdoutcome of the directors each year with all vacancies filled by our board of directors will help to assure the continuity and stability of our long-term policies in thevote when considering future and to reduce the Company’s vulnerability to hostile and potentially abusive takeover tactics that could be adverse to the best interests of the Company’s stockholders. Our board of directors believes that, by encouraging potential acquirers to negotiate directly with our board of directors, thereby giving the board added leverage in such negotiations, a classified board structure will increase the likelihood of bona fide offers for the Company by serious acquirers. A classified board would not preclude unsolicited acquisition proposals but, by eliminating the threat of imminent removal, would put our board in a position to act to maximize value for all stockholders. A longer term in office also would allow our directors to stay focused on long-term value creation, without undue pressure that may come from special interest groups intent on pursuing their own agenda at the expense of the interests of the Company and its other stockholders. Further, it would enable the Company to benefit more effectively from directors’ (particularly non-management directors’) experience, knowledge of the Company and wisdom, while helping the Company to attract and retain highly qualified individuals willing to commit the time and dedication necessary to understand the Company, its operations and its competitive environment.
executive compensation arrangements.
Disadvantages of a Classified Board of Directors with Vacancies Filled by the Board
While a classified board of directors with all vacancies filled by our board of directors may have the beneficial effects discussed immediately above, it may also discourage some takeover bids, including some that would otherwise allow stockholders the opportunity to realize a premium over the market price of their stock or that a majority of our stockholders otherwise believes may be in their best interests to accept or where the reason for the desired change is inadequate performance of our directors or management. Because of the additional time required to change control of our board of directors, a classified board may also make it more difficult and more expensive for a potential acquirer to gain control of our board of directors and our Company. Currently, a change in control of our board of directors can be made by stockholders holding a plurality of the votes cast at a single Annual Meeting. If we establish a classified board of directors, it will take at least two annual meetings for a potential acquirer to effect a change in control of our board of directors, even if the potential acquirer were to acquire a majority of our outstanding common stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” PROPOSAL 3.4 ON OUR NAMED EXECUTIVE OFFICER COMPENSATION AS DESCRIBED IN THIS PROXY STATEMENT.
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