PROPOSAL 1
ELECTION OF DIRECTORS1: REVERSE STOCK SPLIT PROPOSAL
CLASSIFIED BOARD
Flex Pharma’sGeneral
Our Board has unanimously approved and is recommending that our stockholders approve a proposed amendment to our Amended and Restated Certificate of Directors is divided into three classes. Each class consists,Incorporation, as nearlyamended, in substantially the form attached hereto as possible,Annex A (the “Certificate of one-thirdAmendment”), to effect a reverse stock split of all of our outstanding shares of common stock by one of several fixed ratios between 1-for-4 and 1-for-8 (the “Reverse Stock Split”), with the final decision of whether to proceed with the Reverse Stock Split, the effective time of the total number of directors,Reverse Stock Split, and each class has a three-year term. Vacancies on the Board may be filled only by persons elected by a majorityexact ratio of the remaining directors. A director electedReverse Stock Split to be determined by our Board, in its sole discretion and without further action by the Company’s stockholders; provided, our Board will not select a reverse split ratio that will result in us having fewer than 500,000 publicly held shares under Nasdaq continued listing standards. The following table contains approximate information relating to our common stock immediately following the reverse stock split under certain possible exchange ratios, based on share information as of March 12, 2024 (all share numbers are rounded down to the nearest whole share):
| | | | | | | | | | | | | | | | | | | | |
| | Giving Effect to Reverse Stock Split at Ratio of: |
| Prior to Reverse Stock Split | 1-for-4 | 1-for-5 | 1-for-6 | 1-for-7 | 1-for-8 |
| Authorized shares of Common Stock | 100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 |
| Outstanding shares of Common Stock | 4,314,433 | 1,078,608 | 862,887 | 719,072 | 616,348 | 539,304 |
| Shares of common stock issuable upon exercise of outstanding options and warrants | 10,700,707 | 2,675,177 | 2,140,141 | 1,783,451 | 1,528,672 | 1,337,588 |
| Shares of common stock reserved for issuance under the Company’s Equity Incentive Plan and Employee Stock Purchase Plan | 297,380 | 74,345 | 59,476 | 49,563 | 42,483 | 37,173 |
By approving the Reverse Stock Split, stockholders will be approving the Reverse Stock Split at a specific ratio within the range described above as determined by the Board, as it determines to fill a vacancy in a class, including vacancies created by an increasebe in the number of directors, shall serve for the remainderbest interest of the full term of that class and until the director’s successor is duly elected and qualified.
Company’s stockholders. The Board of Directors presently has ninemembers. There are three directors in the class whose term of office expires in 2016. If elected at the annual meeting, each of these nominees would serve until the 2019 annual meeting and until his or her successor has been duly elected and qualified, or, if sooner, until the director’s death, resignation or removal. The Company does not have a formal policy relating to director attendance at Annual Meetings but all directors and nominees are invited to attend the Annual Meeting.
Directors are elected by a pluralitybelieves that stockholder approval of the votesrange of the holders of shares present in person or represented by proxy and entitledreverse stock split ratios (as opposed to vote on the election of directors. Accordingly, the three nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the three nominees named below. If any nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee will instead will be voted for the electionapproval of a substitute nominee proposed by Flex Pharma. Each person nominated for election has agreed to serve if elected. The Company’s management has no reason to believe that any nominee will be unable to serve.
The following is a brief biography of each nominee and each director whose term will continue after the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2019 ANNUAL MEETING
Marc Kozin
Marc Kozin, age 54, has served as a member ofsingle reverse stock split ratio) provides the Board of Directors since October 2014. Mr. Kozin has been a Senior Advisor to L.E.K. Consulting, a global strategy consulting firm, since July 2011. Prior to that, Mr. Kozin served as president of L.E.K.'s North American practice for 15 years. Mr. Kozin currently serves as a member of the Board of Directors of UFP Technologies, Inc., Endocyte, Inc., OvaScience, Inc. and two privately-held companies, and he previously served on the Board of Directors of DYAX Corp. He also serves on the strategic advisory board for Healthcare Royalty Partners. Mr. Kozin holds a B.A., with distinction, in Economics from Duke University and an M.B.A., with distinction, from The Wharton School, University of Pennsylvania. We believe that Mr. Kozin is qualified to serve on the Board of Directors due to his nearly 30 years of experience in corporate and business unit strategy consulting, merger and acquisition advisory services, and value management both domestically and internationally.
Roderick MacKinnon
Roderick MacKinnon, M.D., age 60, has served as a member of the Board of Directors since February 2015. Dr. MacKinnon is currently the Co-Chair of our Scientific Advisory Board and the Investigator at Howard Hughes Medical Institute and the John D. Rockefeller Jr. Professor, Laboratory of Molecular Neurobiology and Biophysics at the Rockefeller University. Dr. MacKinnon was a faculty member at Harvard Medical School before moving to Rockefeller in 1996. Dr. MacKinnon is a member of the National Academy of Sciences and is the recipient of numerous scientific awards, including the 2003 Nobel Prize in Chemistry, the 2003 Louisa Gross Horwitz Prize, the 2001 Gairdner Foundation International Award, the 2001 Perl-UNC Neuroscience Prize, the 2000 Lewis S. Rosenstiel Award for Distinguished Work in Basic Medical Science and the 1999 Albert Lasker Basic Medical Research Award. Dr. MacKinnon received his B.A. in biochemistry from Brandeis University and his M.D. from Tufts University School of Medicine. He completed his medical residency at Beth Israel Hospital, Harvard Medical School, and postdoctoral work at Brandeis. We believe that Dr. MacKinnon is qualified to serve on the Board of Directors due to his deep scientific experience and his scientific leadership of the Company.
Michelle Stacy
Michelle Stacy, age 60,has served as a member of the Board of Directors since March 2016. As the former president of Keurig, Inc. and former vice president and general manager with Gillette/P&G, Ms. Stacy brings to the Board of Directors a wealth of experience leading consumer businesses and building global brands. During her five-year tenure at Keurig Inc., a division of Keurig Green Mountain, the company's revenue grew from $493 million in FY2008 to $4.3 billion for FY2013. Ms. Stacy sits on the Board of Directors of iRobot Corporation, Coravin Inc., Young Innovations Inc. and the nonprofit French Cultural Center. Ms Stacy is also a Director Advisor to The Cambridge Group (an AC Nielson Company) and is a professional speaker on leadership, innovation and growth. She received a M.S. in Management from J. L. Kellogg Graduate School of Management - Northwestern University, and a B.S. from Dartmouth College. We believe that Ms. Stacy is qualified to serve on the Board of Directors given her broad marketing, senior management and leadership roles in consumer companies.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2017 ANNUAL MEETING
Robert Perez
Robert Perez, age 51, has served as member of the Board of Directors since September 2015. Mr. Perez is currently the Managing Partner of Vineyard Sound Advisors, LLC, a biopharmaceutical consulting firm. Mr. Perez was a member of the Board of Directors of Cubist Pharmaceuticals, Inc., or Cubist, from April 2014 until its purchase by Merck & Co., Inc. in January 2015. He was appointed Chief Executive Officer of Cubist on January 1, 2015 after having served in several senior positions at Cubist. Mr. Perez joined Cubist in August 2003 as Senior Vice President, Sales and Marketing, and led the launch of Cubicin (daptomycin for injection). He served as Executive Vice President and Chief Operating Officer from August 2007 to July 2012 and President and Chief Operating Officer from July 2012 to December 2014. Prior to joining Cubist, he served as Vice President of Biogen, Inc.'s CNS business unit from 2001 to 2003, where he was responsible for commercial leadership of an $800 million neurology business unit, and from 1995 to 2001 he held positions of increasing responsibility within Biogen's CNS commercial organization. From 1987 to 1995, Mr. Perez held various sales and marketing positions at Zeneca Pharmaceuticals. He currently serves on the Board of Directors of AMAG Pharmaceuticals, Inc., Zafgen, Inc, and Cidara Therapeutics, Inc., public biopharmaceutical companies. He previously served as a member of the Board of Directors of Epix Pharmaceuticals, Inc. Mr. Perez is a member of the Board of Directors of the Biomedical Science Careers Program, a member of the Board of Trustees at the Dana-Farber Cancer Institute, Inc., a member of the Board of College Bound Dorchester, and a member of the Board of Advisors of the Citizen School of Massachusetts. Mr. Perez received a B.S. from California State University, Los Angeles and an M.B.A. from the Anderson Graduate School of Management at the University of California, Los Angeles. The Board of Directors believes that Mr. Perez's twenty plus years of sales and marketing experience within the pharmaceutical and biotechnology industries has provided him with valuable commercial and operational experience, as well as leadership skills that are important to the Board of Directors.
Stuart Randle
Stuart Randle, age 56, has served as a member of the Board of Directors since October 2014. Mr. Randle has served as the Chief Executive Officer of Ivenix, Inc. since January 2016. Previously, Mr. Randle served as the Chief Executive Officer of GI Dynamics Inc. from 2004 through September 2014. Prior to GI Dynamics, Mr. Randle served as the President and Chief Executive Officer of ACT Medical, Inc. from 1998 to 2001. Prior to 1998, Mr. Randle was Corporate Vice President and responsible for the northeastern region of the United States for Allegiance Healthcare Corporation. Mr. Randle previously worked for Baxter Healthcare Corporation in various roles including President, New England region, General Manager of anesthesia, and various sales and marketing roles. Mr. Randle has also held various sales and engineering roles with Ingersoll-Rand Corporation. Mr. Randle is a member of the Board of Directors of Teleflex, Inc. and Beacon Roofing Supply, Inc. and previously served as a member of the Board of Directors of GI Dynamics Inc. from 2003 until November 2014. Mr. Randle earned an M.B.A. from The Kellogg Graduate School of Management at Northwestern University and a B.S. degree in Mechanical Engineering from Cornell University. We believe that Mr. Randle is qualified to serve on the Board of Directors due to his over 20 years' experience in the life sciences industry in engineering, sales, marketing, senior management and leadership roles in developing companies and also divisions of major medical corporations, which enables him to provide valuable insights to the Board of Directors regarding a variety of business, management and technical issues.
John Sculley
John Sculley, age 77, has served as a member of the Board of Directors since August 2014. Between 1983 and 1993, Mr. Sculley served as the Chief Executive Officer of Apple Computer, Inc. From 1978 to 1983, Mr. Sculley served as Chief Executive Officer of Pepsi-Cola Company. Since leaving Apple, Mr. Sculley has focused on investing in early stage companies as a venture capitalist and co-founder of several companies. Mr. Sculley currently serves on the Board of Directors of Pivot Technology Solutions. Mr. Sculley earned an M.B.A. degree from the Wharton School at the University of Pennsylvania and is a graduate of Brown University. The Board of Directors believes that Mr. Sculley is qualified to serve on the Board of Directors due to his experience developing consumer brands and expertise in corporate leadership.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2018 ANNUAL MEETING
Jeffrey Capello
Jeffrey Capello, age 51, has been a member of the Board of Directors since April 2015. Mr Capello is currently the founder and Chief Executive Officer of Monomoy Advisors which focuses on helping companies drive shareholder value. From July 2014 until June 2015, Mr. Capello served as the Executive Vice President and Chief Financial Officer of Ortho-Clinical Diagnostics, which was acquired by the Carlyle Group from Johnson & Johnson, with responsibility for global finance and business development. Prior to his role at Ortho-Clinical Diagnostics, Mr. Capello served as Chief Financial Officer and Executive Vice President of Boston Scientific from March 2010 to December 2013. At Boston Scientific, Mr. Capello was responsible for the worldwide management of Boston Scientific's finance, information systems, business development and corporate strategy functions. Mr. Capello joined Boston Scientific in June 2008 and served as Senior Vice President and Chief Accounting Officer until March 2010. Prior to joining Boston Scientific, he was the Senior Vice President and Chief Financial Officer with responsibilities for global finance and business development at PerkinElmer, Inc. from 2006 to 2008. Previously, he served as PerkinElmer's Vice President of Finance, Corporate Controller, Treasurer and Chief Accounting Officer from 2001 to 2006. Prior to his tenure at PerkinElmer, Mr. Capello was a Partner at PricewaterhouseCoopers LLP, both in the United States and in the Netherlands. Mr. Capello is a board member of Ovascience, Inc. Previously, Mr. Capello was a member of the Board of Directors of Sirtris Pharmaceuticals, Inc., which was acquired by GlaxoSmithKline in 2008, and served as the Chair of its audit committee. Mr. Capello holds a B.S. degree in Business Administration from the University of Vermont and an M.B.A. degree from Harvard Business School. Mr. Capello is also a certified public accountant. We believe that Mr. Capello is qualified to serve on the Board of Directors due to his experience in the medical device and healthcare technology industries, his accounting background and his service on the boards of directors of other life sciences companies.
Peter Barton Hutt
Peter Barton Hutt, L.L.B., L.L.M., age 81, has been a member of the Board of Directors since March 2014. Mr. Hutt is a senior counsel at the law firm of Covington & Burling LLP and has been an attorney with that firm since 1960. He served as Chief Counsel for the U.S. Food and Drug Administration from 1971 through 1975. Mr. Hutt is a member of the National Academy of Medicine of the National Academy of Sciences and teaches a course on Food and Drug Law each winter term at Harvard Law School. He co-authored the casebook used to teach Food and Drug Law and has published numerous papers on the subject. Mr. Hutt is a member of the Board of Directors of Q Therapeutics, Xoma Ltd., BIND Therapeutics, Inc., Seres Therapeutics, Inc. Concert Pharmaceuticals Inc., and several privately-held life sciences companies. During the last five years, Mr. Hutt also served as a member of the Board of Directors of Celera Genomics, DBV Technologies, Momenta Pharmaceuticals, Inc. and Ista Pharmaceuticals, Inc. Mr. Hutt received his B.A., magna cum laude, from Yale University, his L.L.B. from Harvard University and his L.L.M. from New York University. Mr. Hutt's qualifications to sit on the Board of Directors include his 50 years of experience and expertise in food and drug regulation, including his service at the U.S. Food and Drug Administration and at Covington & Burling LLP, and his experience serving on other boards of directors in the biotechnology industry.
Christoph Westphal
Christoph Westphal, M.D., Ph.D., age 48, has served as the Chairman of the Board of Directors since co-founding the Company in February 2014. Dr. Westphal has served as our President and Chief Executive Officer since April 2014. Dr. Westphal has been a partner of Longwood Fund, LP, a venture capital investment fund, since 2010. Dr. Westphal served as the Chief Executive Officer of Verastem, Inc. from September 2011 to July 2013 and as its President from September 2011 until January 2013. Dr. Westphal has served on Verastem's board since March
2011, including as its Executive Chairman from July 2013 until January 2015. Dr. Westphal served on the board of OvaScience, Inc. from 2011 to 2014. Dr. Westphal served as the President of SR One, the corporate venture capital arm of GlaxoSmithKline, from 2010 until 2011. Dr. Westphal has previously been involved in founding a number of biotechnology companies. Dr. Westphal co-founded Sirtris Pharmaceuticals, Inc., which was acquired by GlaxoSmithKline plc in 2008, and served as its Chief Executive Officer from 2004 to 2010. He also co-founded Alnara Pharmaceuticals, Inc., Concert Pharmaceuticals, Inc., Acceleron Pharma, Inc., serving as its Chief Executive Officer in 2003, Alnylam Pharmaceuticals, Inc., serving as its Chief Executive Officer in 2002, and Momenta Pharmaceuticals, Inc., serving as its Chief Executive Officer in 2001. Dr. Westphal serves on the Board of Fellows of Harvard Medical School and the Board of Overseers for the Boston Symphony Orchestra, is a member of the Research Advisory Council at the Massachusetts General Hospital and is a member of the Biotechnology Industry Organization (BIO) Emerging Companies Section Governing Board. He earned his M.D. from Harvard Medical School, his Ph.D. in Genetics from Harvard University and his B.A. from Columbia University. The Board of Directors believes that Dr. Westphal's qualifications to sit on the Board of Directors include his experience as a senior executive, entrepreneur and venture capitalist and his service on the boards of directors of other life sciences companies.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
INDEPENDENCE OF THE BOARD OF DIRECTORS
As required under the Nasdaq Listing Rules, a majority of the members of a listed company's board of directors must qualify as "independent" as affirmatively determined by its board of directors. The Board of Directors consults with the Company's counsel to ensure that the Board of Directors' determinations are consistent with relevant securities and other laws and regulations regarding the definition of "independent," including those set forth in pertinent listing standards of Nasdaq, as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent auditors, the Board of Directors has affirmatively determined that, with the exception of Drs. MacKinnon and Westphal, all of our directors are independent directors within the meaning of the applicable Nasdaq Listing Rules. In making this determination, the Board of Directors found that none of these directors had a material or other disqualifying relationship with the Company.
BOARD LEADERSHIP STRUCTURE
The Board of Directors is currently chaired by the President and Chief Executive Officer of the Company, Dr. Westphal. The Board has also appointed Mr. Randle as lead independent director.
The Company believes that combining the positions of Chief Executive Officer and Board Chair helps to ensure that the Board and management act with a common purpose. In the Company’s view, separating the positions of Chief Executive Officer and Board Chair has the potential to give rise to divided leadership, which could interfere with good decision-making or weaken the Company’s ability to develop and implement strategy. Instead, the Company believes that combining the positions of Chief Executive Officer and Board Chair provides a single, clear chain of command to execute the Company’s strategic initiatives and business plans. The Company also believes that it is advantageous to have a Board Chair with an extensive knowledge of the Company (as is the case with the Company’s Chief Executive Officer) as compared to a relatively less informed independent Board Chair.
As lead independent director, Mr. Randle presides over periodic meetings of our independent directors and performs such additional duties as the Board of Directors may otherwise determine and delegate. The Company believes that the lead independent director can help ensure the effective independent functioning of the Board in its oversight responsibilities. In addition, the Company believes that the lead independent director can serve as a conduit between the other independent directors and the Board Chair, for example, by facilitating the inclusion on meeting agendas of matters of concern to the independent directors. In light of the Chief Executive Officer’s extensive history with and knowledge of the Company, and because the Board’s lead independent director is empowered to play a significant role in the Board’s leadership and in reinforcing the independence of the Board, the Company believes that it is advantageous for the Company to combine the positions of Chief Executive Officer and Board Chair.
ROLE OF THE BOARD IN RISK OVERSIGHT
One of the key functions of the Board of Directors is informed oversight of our risk management process. The Board of Directors does not have a standing risk management committee, but rather administers this oversight function
directly through the Board of Directors as a whole, as well as through various standing committees of the Board of Directors that address risks inherent in their respective areas of oversight. In particular, the Board of Directors is responsible for monitoring and assessing strategic risk exposure and the Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and certain regulatory requirements. The Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper liability-creating conduct. The Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met four times during 2015. Each director attended 75% or more of the aggregate number of meetings of the Board of Directors and of the committees on which he or she served held during the portion of the last fiscal year for which he or she was a director or committee member.
INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three committees:an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
|
| | | |
| Name | Audit | Compensation | Nominating and Corporate Governance |
Jeffrey Capello(1) | X* | | |
| Peter Barton Hutt | X(6) | X | X* |
| Marc Kozin | X | | |
Steve Kraus(2) | X | | |
Roderick MacKinnon, M.D.(3) | | | |
Robert Perez(4) | | X(7) | |
| Stuart Randle | X | X* | |
| John Sculley | | | X |
Michelle Stacy(5) | | | |
| Christoph Westphal, M.D., Ph.D. | | | X(8) |
| Total meetings in fiscal 2015 | 8 | 5 | - |
* Committee Chairperson
|
| | | | | |
(1) | Mr. Capello joined the Board of Directors and the Audit Committee on April 1, 2015. |
(2) | Mr. Kraus resigned from the Board of Directors and the Audit Committee on January 27, 2015. |
(3) | Dr. MacKinnon joined the Board of Directors on February 23, 2015. |
(4) | Mr. Perez joined the Board of Directors on September 2, 2015. |
(5) | Ms. Stacy joined the Board of Directors on March 5, 2016. |
(6) | Mr. Hutt stepped down from the Audit Committee on April 1, 2015. |
(7) | Mr. Perez joined the Compensation Committee on December 22, 2015. |
(8) | Dr. Westphal resigned from the Nominating and Corporate Governance Committee on November 11, 2015. |
Below is a description of each committee of the Board of Directors.
Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems appropriate to carry out its responsibilities. The Board of Directors has determined that each member of each committee meets the applicable Nasdaq rules and regulations regarding "independence" and each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to the Company.
Audit Committee
The Audit Committee consists of Messrs. Capello, Kozin and Randle, and is governed by an audit committee charter. The Board of Directors has determined that each of the members of the Audit Committee satisfies the Nasdaq Stock Market and SEC independence requirements. Mr. Capello serves as the chair of the Audit Committee. The functions of this committee include, among other things:
evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors;
reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;
monitoring the rotation of partners of our independent auditors on our engagement team as required by law;
prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships that may reasonably be thought to bear on their independence, and assessing and otherwise taking the appropriate action to oversee the independence of our independent auditor;
reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and discussing the statements and reports with our independent auditors and management;
reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy and effectiveness of our financial controls;
reviewing with management and our auditors any earnings announcements and other public announcements regarding material developments;
establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters and other matters;
preparing the report that the SEC requires in our annual proxy statement;
reviewing and providing oversight of any related-person transactions in accordance with our related person transaction policy and reviewing and monitoring compliance with legal and regulatory responsibilities, including our code of business conduct and ethics;
reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management is implemented;
reviewing on a periodic basis our investment policy; and
reviewing and evaluating on an annual basis the performance of the Audit Committee, including compliance of the Audit Committee with its charter.
The Board of Directors has determined that Mr. Capello qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq Listing Rules. In making this determination, the Board of Directors has considered Mr. Capello's business background and previous experience. Both our independent registered public accounting firm and management periodically meet privately with the Audit Committee.
Report of the Audit Committee of the Board of Directors
The material in this report is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2015 with management of the Company. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16,
Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence. Based on the foregoing, the Audit Committee has 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, 2015.
Mr. Jeff Capello
Mr. Marc Kozin
Mr. Stuart Randle
Compensation Committee
The Compensation Committee consists of Messrs. Perez, Hutt and Randle, and is governed by a compensation committee charter. Mr. Randle serves as the chair of the Compensation Committee. The Board of Directors has determined that each of the members of the Compensation Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or Exchange Act, is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and satisfies the Nasdaq Stock Market independence requirements. The functions of this committee include, among other things:
reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full Board of Directors regarding) our overall compensation strategy and policies;
reviewing and approving the compensation and other terms of employment of our executive officers;
reviewing and approving performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives;
reviewing and approving (or if it deems it appropriate, making recommendations to the full Board of Directors regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs;
evaluating risks associated with our compensation policies and practices and assessing whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us;
reviewing and approving (or if it deems it appropriate, making recommendations to the full Board of Directors regarding) the type and amount of compensation to be paid or awarded to our non-employee board members;
establishing policies with respect to votes by our stockholders to approve executive compensation as required by Section 14A of the Exchange Act and determining our recommendations regarding the frequency of advisory votes on executive compensation;
reviewing and assessing the independence of compensation consultants, legal counsel and other advisors as required by Section 10C of the Exchange Act;
administering our equity incentive plans;
establishing policies with respect to equity compensation arrangements;
reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us;
reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers;
reviewing the adequacy of its charter on a periodic basis;
reviewing with management and approving our disclosures under the caption "Compensation Discussion and Analysis" in our periodic reports or proxy statements to be filed with the SEC;
preparing the report that the SEC requires in our annual proxy statement; and
reviewing and assessing on an annual basis the performance of the Compensation Committee.
Compensation Committee Processes and Procedures
Typically, the Compensation Committee meets quarterly and with greater frequency if necessary, and meets regularly in executive session. The Chief Executive Officer does not participate in, and is not present during, any deliberations or determinations of the Compensation Committee regarding his compensation or his individual performance. The charter of the Compensation Committee grants the Compensation Committee full access to our books, records, facilities and personnel, as well as authority to obtain, at the Company's expense, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties. Under its charter, the Compensation Committee may form, and delegate authority to, subcommittees as it deems appropriate.
Historically, the Compensation Committee has met at one or more meetings held during the first and fourth quarters of the year to discuss and, if appropriate, make recommendations to the Board of Directors regarding, annual compensation adjustments, annual bonuses, annual equity awards, and new performance objectives. For all executives, as part of its deliberations, the Compensation Committee may review and consider, as appropriate, materials such as financial reports and projections, operational data, executive stock ownership information, company stock performance data, analyses of historical executive compensation levels and current company-wide compensation levels, compensation surveys, and recommendations of any compensation consultant, if applicable.
Generally, the Compensation Committee has designed our overall executive compensation programmaximum flexibility to achieve the following objectives:
attempt to attract and retain talented and experienced executives;
motivate and reward executives whose knowledge, skills and performance are critical to our success;
provide a competitive compensation package that aligns the interests of our executive officers and stockholders by including a significant variable component which is weighted toward performance-based rewards;
ensure fairness among executive officers by recognizing the contributions each executive makes to our success; and
foster a shared commitment among executives by aligning their individual goals with our corporate goals and the creation of stockholder value.
The Compensation Committee retained an independent compensation consultant, Pearl Meyer & Partners, or Pearl Meyer, in 2015 to assist the Compensation Committee in developing our overall executive and director compensation programs for 2015, including base pay, bonus percentage, severance and equity awards. To assist in determining executive compensation in 2015, Pearl Meyer and the Compensation Committee reviewed a peer group of publicly traded companies in the biotechnology industry at a stage of development, market capitalization and size comparable to ours, which companies the Compensation Committee believed were generally comparable to our company and against which the Compensation Committee believed we competed for executive talent. In addition, with respect to Marina Hahn's compensation, Pearl Meyer and the Compensation Committee reviewed publicly traded consumer companies with a profile comparable to ours. Pearl Meyer did not provide any services to the Company other than acting as a compensation consultant to the Compensation Committee.
The specific determinations of the Compensation Committee with respect to executive compensation for fiscal 2015 are described in greater detail in the Executive Compensation section of this proxy statement.
Compensation Committee Interlocks and Insider Participation
We have established a Compensation Committee which has and will make decisions relating to compensation of our executive officers. The Board of Directors has appointed Messrs. Randle, Hutt and Perez to serve on the Compensation Committee. Neither of these individuals has ever been an executive officer or employee of the Company. None of our executive officers currently serves, or has served during the last completed fiscal year, on the Compensation Committee or Board of Directors of any other entity that has one or more executive officers serving as a member of the Board of Directors or Compensation Committee.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists of Messrs. Hutt and Sculley and is governed by a nominating and corporate governance committee charter. The Board of Directors has determined that each member of this committee satisfies the Nasdaq Stock Market independence requirements. Mr. Hutt serves as the chair of the Nominating and Corporate Governance Committee. The functions of this committee include, among other things:
identifying, reviewing and evaluating candidates to serve on the Board of Directors consistent with criteria approved by the Board of Directors;
determining the minimum qualifications for service on the Board of Directors;
evaluating director performance on the Board of Directors and applicable committees of the Board of Directors and determining whether continued service on the Board of Directors is appropriate;
evaluating, nominating and recommending individuals for membership on the Board of Directors;
evaluating nominations by stockholders of candidates for election to the Board of Directors;
considering and assessing the independence of members of the Board of Directors;
developing a set of corporate governance policies and principles, including a code of business conduct and ethics, periodically reviewing and assessing these policies and principles and their application and recommending to the Board of Directors any changes to such policies and principles;
considering questions of possible conflicts of interest of directors as such questions arise;
reviewing the adequacy of its charter on an annual basis; and
annually evaluating the performance of the Nominating and Corporate Governance Committee.
The Board of Directors believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. In considering candidates recommended by the Nominating and Corporate Governance Committee, the Board of Directors will consider such factors as the candidate possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our stockholders. The Board of Directors reviews candidates for director nomination in the context of the current composition of the Board of Directors, the operating requirements of the Company and the long-term interests of our stockholders. In conducting this assessment, the Board of Directors considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the Board of Directors and the Company to maintain a balance of knowledge, experience and capability.
The Nominating and Corporate Governance Committee is responsible for identifying, reviewing, evaluating and recommending to the Board of Directors candidates to serve as directors of the Company. The Board of Directors is responsible for nominating members for election to the Board of Directors by the Company's stockholders. In 2015, the Company engaged a consultant to assist in the Company's search for additional directors for its Board of Directors. The Nominating and Corporate Governance Committee has not adopted a formal policy regarding whether it will consider any director candidates recommended by stockholders but the Board of Directors does not believe that such a policy is currently necessary because the Nominating and Corporate Governance Committee will consider candidates recommended by stockholders in the same manner as other candidates.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Historically, the Company has not provided a formal process related to shareholder communications with the Board. Nevertheless, every effort has been made to ensure that the views of shareholders are heard by the Board or individual directors, as applicable, and that appropriate responses are provided to shareholders in a timely manner. During the upcoming year, the Company believes the Nominating and Corporate Governance Committee will consider the adoptionpurpose of a formal process for shareholder communications with the Boardreverse stock split, as discussed below, and if adopted, publish it promptly and post it to the Company’s website.
CODE OF ETHICS
We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Our code of business conduct and ethicstherefore is available on our website at www.flex-pharma.com. We intend to disclose any amendments to the code, or any waivers of its requirements, on our website.
CORPORATE GOVERNANCE GUIDELINES
In January 2015, the Board of Directors adopted the Company's Corporate Governance Guidelines to assure that the Board of Directors will have the necessary authority and practices in place to review and evaluate the Company’s business operations as needed and to make decisions that are independent of the Company’s management. The guidelines are also intended to align the interests of directors and management with those of the Company’s shareholders. The Corporate Governance Guidelines set forth the practices the Board intends to follow with respect to board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning, and board committees and compensation. The Corporate Governance Guidelines, as well as the charters for each committee of the Board, may be viewed at wwwflex-pharma.com.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016 and has further directed that management submit the selection of its independent registered public accounting firm for ratification by the shareholders at the annual meeting. Ernst & Young LLP has audited the Company’s financial statements since its inception in 2014. Representatives ofErnst & Young LLP are not expected to be present at the Annual Meeting.
Neither the Company’s Bylaws nor other governing documents or law require shareholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm. However, the Audit Committee of the Board is submitting the selection of Accounting Firm to the shareholders for ratification as a matter of good corporate practice. If the shareholders fail to ratify the selection, the Audit Committee of the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee of the Board in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and its shareholders.stockholders.
If the stockholders approve the Reverse Stock Split, and our Board decides to implement it, the Reverse Stock Split will become effective as of a date and time to be determined by the Board that will be specified in the Certificate of
Amendment (the “Effective Time”). If the Board does not decide to implement the Reverse Stock Split within twelve months from the date of the Special Meeting, the authority granted in this proposal to implement the Reverse Stock Split will terminate.
The Reverse Stock Split will be realized simultaneously for all outstanding common stock. The Reverse Stock Split will affect all holders of common stock uniformly and each stockholder will hold the same percentage of common stock outstanding immediately following the Reverse Stock Split as that stockholder held immediately prior to the Reverse Stock Split, except for immaterial adjustments that may result from the treatment of fractional shares as further described below. The Reverse Stock Split will not change the par value of our common stock or the number of authorized shares of common stock. The Reverse Stock Split will also affect outstanding stock options and other stock-based awards, as described in “Principal Effects of Reverse Stock Split on Stock Plans and Equity Awards Thereunder” below.
Reasons for the Reverse Stock Split
Our Board is seeking stockholder approval of the Reverse Stock Split with the primary intent of increasing the price of our common stock in order to meet the Nasdaq’s minimum price per share criteria for continued listing on that exchange. Our common stock currently is publicly traded and listed on the Nasdaq Capital Market under the symbol “SLRX.” On September 5, 2023, we received a letter from the Nasdaq Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price per share for our common stock had closed below $1.00 for the previous 30 consecutive business days (the “Bid Price Rule”). We were given until March 4, 2024 to regain compliance with the Bid Price Rule. On March 5, 2024, we received notice (the “Approval”) from Nasdaq that we had been granted an additional 180-day grace period, or until September 3, 2024, to regain compliance with the Bid Price Rule. To regain compliance with the Bid Price Rule and qualify for continued listing on the Nasdaq Capital Market, the minimum bid price per share of our common stock must be at least $1.00 for at least 10 consecutive business days on or prior to September 3, 2024. If we fail to regain compliance during the additional compliance period, then Nasdaq will notify us of its determination to delist our common stock, at which point we would have an opportunity to appeal the delisting determination to a Nasdaq Listing Qualifications Panel (the “Panel”), but there can be no assurance that the Panel would grant our request for continued listing. As a condition of the Approval imposed by Nasdaq Listing Rule 5810(c)(3)(a), we notified Nasdaq that we would seek to implement a reverse stock split, if necessary, to regain compliance with the Bid Price Rule.
If we are delisted from the Nasdaq Capital Market and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the “pink sheets.” As a result, we could face significant adverse consequences including, among others:
•a limited availability of market quotations for our securities;
•a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
•a limited amount of news and no analyst coverage for us;
•we would no longer qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws; and
•a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.
Our Board believes that the proposed reverse stock split is a potentially effective means for us to maintain compliance with the Nasdaq listing rules and to avoid, or at least mitigate, the likely adverse consequences of our common stock being delisted from the Nasdaq Capital Market by producing the immediate effect of increasing the bid price of our common stock.
Determination of Reverse Stock Split Ratio
Our Board believes that stockholder adoption of several fixed reverse stock split ratios, as opposed to adoption of a single reverse stock split ratio, provides maximum flexibility to achieve the purposes of the Reverse Stock Split and, therefore, is in the best interests of the Company and its stockholders. In determining which of the approved fixed ratios to implement following the receipt of stockholder approval, the Board (or any authorized committee of the Board) may consider, among other things, factors such as:
•our ability to maintain the listing of our common stock on the Nasdaq Capital Market;
•the historical trading price and trading volume of our common stock;
•the number of shares of our common stock outstanding;
•the then-prevailing trading price and trading volume of our common stock and the anticipated impact of the Reverse Stock Split on the trading market for our common stock;
•the continued listing requirements of the Nasdaq Stock Market; and
•prevailing general market and economic conditions.
The affirmative voteBoard reserves the right to elect to abandon the Reverse Stock Split (including all of the fixed reverse stock split ratios), notwithstanding stockholder approval thereof, if our Board determines, in its sole discretion, that the Reverse Stock Split is no longer in the best interests of the Company and its stockholders. In making such determination, our Board will take into account certain factors including the expected trading prices for our common stock, actual or forecasted results of operations and the likely effect of such results on the market price of our common stock, as well as the factors described in the above paragraph.
Principal Effects of the Reverse Stock Split
By approving this proposal, stockholders will approve the Reverse Stock Split which would combine a specific number of shares of common stock into one share. The Certificate of Amendment to be filed with the Secretary of State of the State of Delaware would include only that number determined by the Board to be in the best interests of
the Company and its stockholders. In accordance with these resolutions, the Board will not implement any amendment providing for a different reverse stock split ratio than those specified in this proposal.
As explained above, the Reverse Stock Split will be effected simultaneously for all issued and outstanding shares of common stock and the exchange ratio will be the same for all issued and outstanding shares of common stock. The Reverse Stock Split will affect all of our stockholders uniformly and will not affect any stockholder’s percentage ownership interests in the Company, except to the extent that the Reverse Stock Split results in any of our stockholders receiving a cash payment in lieu of owning a fractional share, as further described in the section titled “Fractional Shares” below. Common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The Reverse Stock Split will not affect the Company’s continuing obligations under the periodic reporting requirements of the Exchange Act. Following the Reverse Stock Split, our common stock will continue to be listed on the Nasdaq Capital Market under the ticker symbol “SLRX,” although it would receive a new CUSIP number.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the Reverse Stock Split is approved by the Company’s stockholders, and if at such time the Board still believes that a reverse stock split is in the best interests of the Company and its stockholders, the Board will determine the ratio of the Reverse Stock Split to be implemented. The Reverse Stock Split will become effective as of the Effective Time. The Board will determine the exact timing of the filing of the Certificate of Amendment based on its evaluation as to when the filing would be the most advantageous to the Company and its stockholders. If the Board does not decide to implement the Reverse Stock Split within twelve months from the date of the Special Meeting, the authority granted in this proposal to implement the Reverse Stock Split will terminate.
Except as described below under the sections titled “Fractional Shares” and “Principal Effects of Reverse Stock Split on Stock Plans and Equity Awards Thereunder,” at the Effective Time, each whole number of issued and outstanding pre-Reverse Stock Split shares that the Board has determined will be combined into one post-Reverse Stock Split share (based on the Board’s final selection of the fixed ratio to be applied) will, automatically and without any further action on the part of our stockholders, be combined into and become one share of common stock, and each certificate which, immediately prior to the Effective Time represented pre-Reverse Stock Split shares, will be deemed for all corporate purposes to evidence ownership of post-Reverse Stock Split shares.
Fractional Shares
No fractional shares will be issued in connection with the Reverse Stock Split. Stockholders of record at the Effective Time of the Reverse Stock Split who otherwise would be entitled to receive fractional shares because they hold a number of pre-Reverse Stock Split shares not evenly divisible by the number of pre-Reverse Stock Split shares for which each post-Reverse Stock Split share is to be exchanged, will, in lieu of a fractional share, be entitled, upon surrender to the exchange agent of certificate(s) representing such pre-Reverse Stock Split shares (except as described below under “—Book-Entry Shares”), to a cash payment, without interest, in lieu thereof, as set forth in the Certificate of Amendment.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, sums due for fractional interests that are not timely claimed after the Effective Time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid. Stockholders will not be entitled to receive interest for the period of time between the Effective Time and the date payment is received.
Book-Entry Shares
If the Reverse Stock Split is effected, stockholders who hold uncertificated shares (i.e., shares held in book-entry form and not represented by a physical stock certificate), either as direct or beneficial owners, will have their holdings electronically adjusted automatically by our transfer agent (and, for beneficial owners, by their brokers or banks that hold in “street name” for their benefit, as the case may be) to give effect to the Reverse Stock Split. Stockholders who hold uncertificated shares as direct owners will be sent a statement of holding from our transfer agent that indicates the number of post-Reverse Stock Split shares of our common stock owned in book-entry form.
Certificated Shares
As soon as practicable after the Effective Time of the Reverse Stock Split, stockholders will be notified that the Reverse Stock Split has been effected. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-Reverse Stock Split shares will be asked to surrender to the exchange agent certificates representing pre-Reverse Stock Split shares in exchange for certificates representing post-Reverse Stock Split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by us or our exchange agent. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-Reverse Stock Split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-Reverse Stock Split shares. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Anti-Takeover and Dilutive Effects
The number of authorized shares of our common stock will not be diluted as a result of the reverse stock split. The common stock and preferred stock that is authorized but unissued provide the Board with flexibility to effect, among other transactions, public or private financings, acquisitions, stock dividends, stock splits and the granting of equity incentive awards. However, these authorized but unissued shares may also be used by the Board, consistent with and subject to its fiduciary duties, to deter future attempts to gain control of us or make such actions more expensive and less desirable. The Certificate of Amendment would continue to give our Board authority to issue additional shares from time to time without delay or further action by the stockholders except as may be required by applicable law or regulations. The Certificate of Amendment is not being recommended in response to any specific effort of which we are aware to obtain control of us, nor does our Board have any present intent to use the authorized but unissued common stock or preferred stock to impede a takeover attempt.
Except for the Company’s obligation to issue common stock upon the exercise of outstanding options and warrants, we have no specific plan, commitment, arrangement, understanding or agreement, either oral or written, regarding
the issuance of common stock subsequent to the reverse stock split at this time, and we have not allocated any specific portion of the authorized number of shares to any particular purpose.
Certain Risks Associated with the Reverse Stock Split
We cannot predict whether the Reverse Stock Split will increase the market price per share of our common stock proportionately with the ratio of the combination. The market price of our common stock may also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. Further, there are a number of risks associated with the Reverse Stock Split, including:
•The liquidity of our common stock may be harmed by the Reverse Stock Split given the reduced number of shares of common stock that would be outstanding after the Reverse Stock Split, particularly if the stock price does not proportionately increase as a result of the Reverse Stock Split.
•The Reverse Stock Split could be viewed negatively by the market and other factors, such as those described above, may adversely affect the market price of the shares of our common stock. Consequently, the market price per post-Reverse Stock Split share may not increase in proportion to the reduction of the number of shares of our common stock outstanding before the implementation of the Reverse Stock Split. Accordingly, the total market capitalization of our shares of common stock following the Reverse Stock Split could be lower than the total market capitalization before the Reverse Stock Split.
•A reverse stock split would increase our number of authorized but unissued shares of stock. We could use the shares that are available for future issuance in dilutive equity financing transactions, or to oppose a hostile takeover attempt or delay or prevent changes in control or changes in or removal of management, including transactions that are favored by a majority of the stockholders or in which the stockholders might otherwise receive a premium for their shares over then-current market prices or benefit in some other manner.
•The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of our common stock on a post-split basis. These odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “round lots” of even multiples of 100 shares.
Principal Effects of Reverse Stock Split on Stock Plans and Equity Awards Thereunder
Pursuant to the terms of the Company’s 2015 Equity Incentive Plan and Employee Stock Purchase Plan and the agreements governing equity awards thereunder, the Board or a committee thereof, as applicable, will adjust the number of shares of common stock available for future grant, the number of shares of common stock underlying outstanding awards, the exercise price per share of outstanding stock options, and other terms of outstanding awards issued pursuant to the stock plans to equitably reflect the effects of the Reverse Stock Split. With respect to any such
outstanding equity awards, the contemplated equitable adjustments will result in approximately the same aggregate exercise price being required to be paid under such stock options, and approximately the same value of shares of common stock being delivered upon exercise, vesting or settlement of such awards immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. Any fractional shares that would otherwise result from the Reverse Stock Split adjustments described above with respect to outstanding equity awards will be eliminated through rounding or as otherwise determined by the Board or a committee thereof in accordance with the terms of such Stock Plans and award agreements thereunder.
Accounting Matters
The Reverse Stock Split will not affect the common stock capital account on our balance sheet. However, because the par value of our common stock will remain unchanged at the Effective Time of the split, the components that make up the common stock capital account will change by offsetting amounts. Depending on the size of the Reverse Stock Split that the Board decides to implement, the stated capital component will be reduced proportionately based upon the Reverse Stock Split and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. Immediately after the Reverse Stock Split, the per share net income or loss and net book value of our common stock will be increased because there will be fewer shares of common stock outstanding. All historic share and per share amounts in our financial statements and related footnotes will be adjusted accordingly for the Reverse Stock Split.
Effect on Par Value
The amendment to our Certificate of Incorporation will not affect the par value of our common stock, which will remain at $0.0001 per share.
Dividends
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the operation, development and growth of our business. While the timing, declaration and payment of any future dividends to holders of our common stock fall within the discretion of our Board and will depend on our operating results, earnings, financial condition, the capital requirements of our business and other factors, our Board expects that the amount of future dividends, if any, would be adjusted accordingly to reflect the Reverse Stock Split.
No Going Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the Reverse Stock Split, our Board does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.
No Dissenters’ Appraisal Rights
Under the Delaware General Corporation Law, our stockholders do not have a right to dissent and are not entitled to appraisal rights with respect to the proposed Certificate of Amendment to effect the reverse stock split, and we will not independently provide our stockholders with any such rights.
Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of important tax considerations of the reverse stock split. It addresses only stockholders who hold our common stock as capital assets. It does not purport to be complete and does not address stockholders subject to special rules, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities, foreign stockholders, stockholders who hold their pre-reverse stock split shares as part of a straddle, hedge or conversion transaction, and stockholders who acquired their pre-reverse stock split shares pursuant to the exercise of employee stock options or otherwise as compensation. This summary is based upon current law, which may change, possibly even retroactively. It does not address tax considerations under state, local, foreign and other laws. The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of such stockholder. Each stockholder is urged to consult with such stockholder’s own tax advisor with respect to the tax consequences of the reverse stock split.
The reverse stock split is intended to constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended. Assuming the reverse stock split qualifies as reorganization, a stockholder generally will not recognize gain or loss on the reverse stock split, except to the extent of cash, if any, received in lieu of a fractional share interest. The aggregate tax basis of the post-reverse stock split shares received will be equal to the aggregate tax basis of the pre-reverse stock split shares exchanged therefor (excluding any portion of the holder’s basis allocated to fractional shares), and the holding period of the post-reverse stock split shares received will include the holding period of the pre-reverse stock split shares exchanged.
A holder of the pre-reverse stock split shares who receives cash will generally be treated as having exchanged a fractional share interest for cash in a redemption by us. The amount of any gain or loss will be equal to the difference between the portion of the tax basis of the pre-reverse stock split shares allocated to the fractional share interest and the cash received and generally should be capital gain or loss and generally would be a long-term gain or loss to the extent that the holder’s holding period exceeds 12 months.
The foregoing views are not binding on the Internal Revenue Service or the courts. Accordingly, each stockholder should consult with their own tax advisor with respect to all of the potential tax consequences to them of the reverse stock split.
Interests of Directors and Executive Officers
Our directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in this proposal except to the extent of their ownership of shares of our common stock and equity awards granted to them pursuant to the stock plans.
Reservation of Right to Abandon Reverse Stock Split
We reserve the right to not file the Certificate of Amendment and to abandon any Reverse Stock Split (including all of the fixed reverse stock split ratios) without further action by our stockholders at any time before the effectiveness of the filing with the Secretary of the State of Delaware of the Certificate of Amendment, even if the authority to effect these amendments is approved by our stockholders at the Special Meeting. By voting in favor of the Reverse Stock Split (including each of the fixed reverse stock split ratios), you are expressly also authorizing the Board to delay, not proceed with, and abandon, the Reverse Stock Split (including all of the fixed reverse stock split ratios) and the Certificate of Amendment if it should so decide, in its sole discretion, that such actions are in the best interests of our stockholders.
Vote Required
The Reverse Stock Split Proposal requires that the votes cast for the Reverse Stock Split Proposal exceed the votes cast against the Reverse Stock Split Proposal. Broker non-votes will not occur in connection with this proposal because brokers, banks, trustees and other nominees have discretionary voting authority to vote shares on this proposal under stock exchange rules without specific instructions from the beneficial owner of such shares. Abstentions will have no effect on the outcome of this proposal.
Recommendation of the Board
The Board recommends that the stockholders vote “FOR” the Reverse Stock Split Proposal.
PROPOSAL 2: ADJOURNMENT PROPOSAL
General
Our stockholders are being asked to consider and vote upon an adjournment of the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies if there are insufficient votes in favor of approval of the Reverse Stock Split Proposal.
For the avoidance of doubt, any proxy authorizing the adjournment of the Special Meeting shall also authorize successive adjournments thereof, at any meeting so adjourned, to the extent necessary for us to solicit additional proxies in favor of the adoption of such proposal.
Required Vote
The Adjournment Proposal requires the affirmative vote of a majority of the sharesvoting power of the capital stock entitled to vote and present in person or represented by proxy at the Special Meeting. Broker non-votes will not occur in connection with this proposal because brokers, banks, trustees and entitledother nominees have discretionary voting authority to vote shares on this proposal under stock exchange rules without specific instructions from the matter atbeneficial owner of such shares. Abstentions will have the annual meeting will be required to ratify the selectioneffect of Ernst & Young LLP.an “AGAINST” on this proposal.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table summarizes the fees of Ernst & Young LLP, our independent registered public accounting firm, incurred for the year ended December 31, 2015, and for the period from February 26, 2014 (inception) to December 31, 2014.
|
| | | | | | | |
| | Year Ended December 31, 2015 | | Period from February 26, 2014 (Inception) to December, 31, 2014 |
Audit fees(1) | $ | 251,003 |
| | $ | 733,110 |
|
Tax fees(2) | 17,000 |
| | — |
|
All other fees(3) | 1,995 |
| | — |
|
| Total Fees | $ | 269,998 |
| | $ | 733,110 |
|
| |
(1) | Audit fees consist of fees for our quarterly reviews and audit of our annual financial statements and fees related to the Company's initial public offering. |
| |
(2) | Tax fees are related to tax advisory services. |
| |
(3) | All other fees are related to licensing fees paid to Ernst & Young LLP for access to its proprietary accounting research database. |
All such accountant services and fees were pre-approved by the Audit Committee in accordance with the “Pre-Approval Policies and Procedures” described below.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to oneRecommendation of the pre-approval procedures described below.
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.
THE BOARD OF DIRECTORS RECOMMENDSBoard
A VOTE IN FAVORThe Board recommends that the stockholders vote “FOR” the Adjournment Proposal.
SECURITY OWNERSHIP OF PROPOSAL 2.
EXECUTIVE OFFICERSCERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning our executive officers.
|
| | |
Name | | Position(s) |
Christoph Westphal, M.D., Ph.D. | | President, Chief Executive Officer and Chairman of the Board |
Robert Hadfield | | General Counsel and Secretary |
Marina Hahn | | President, Consumer |
Katharine Lindemann | | Chief Operating Officer |
John McCabe | | Vice President, Finance and Treasurer |
Thomas Wessel, M.D., Ph.D. | | Chief Medical Officer |
Elizabeth Woo | | Senior Vice President, Investor Relations and Corporate Communications |
| | |
Biographical information for Dr. Westphal is included above withas of March 12, 2024 regarding the director biographies under the caption "Directors Continuing in Office Until the 2018 Annual Meeting."
Robert Hadfield, age 38, has served as our General Counsel and Secretary since April 2014. Mr. Hadfield joined us from Cooley LLP, where he was an attorney in the firm's business department from August 2007 to August 2011 and then from April 2012 to April 2014. From August 2011 to April 2012, Mr. Hadfield served as the Corporate Counsel at Kiva Systems, Inc. prior to its acquisition by Amazon.com, Inc. Mr. Hadfield also worked as an attorney at Goulston & Storrs PC and began his career as a financial analyst in the health care investment banking groupnumber of SG Cowen Securities Corporation. Mr. Hadfield holds a B.S. degree in Finance from Providence College and a J.D. from the Georgetown University Law Center.
Marina Hahn, age 58, has served as our President, Consumer since September 2014. Ms. Hahn joined us from Quirky Inc., where she served as Chief Strategy Officer/Chief Marketing Officer from September 2012 to December 2013. From 2003 to 2012, Ms. Hahn served as Chief Marketing Officershares of Spirits Marque One LLC, makers of SVEDKA vodka and a division of Constellation Brands. From 1998 to 2001, Ms. Hahn served as Executive Vice President of J. Walter Thompson Company. Previously, Ms. Hahn was employed in various capacities by the William Morris Agency, Inc., Sony Electronics, Inc., Pepsi-Cola Company and DDB Needham Worldwide, Inc. From May 2000 until November 2014, Ms. Hahn served on the Board of Directors of The Hain Celestial Group, Inc. Ms. Hahn holds a B.A. degree in French Literature and Political Science from Wellesley College.
Katharine Lindemann, age 54, has served as our Chief Operating Officer since August 2015. Prior to joining us, Ms. Lindemann served as the Chief Operating Officer at DAVIDsTea Inc. from May 2012 until September 2014. Prior to DAVIDsTea Inc., Ms. Lindemann served as Principal of KGL Consulting from May 2011 to May 2012, and as Senior Vice President, Store Operations at Savers, Inc. (Value Village) from May 2009 to May 2011. In addition, Ms. Lindemann spent 19 years at Starbucks Corporation in a variety of roles, most recently as the Senior Vice President, Starbucks Foodservice. Ms. Lindemann currently serves on the Board of Directors of Cambia Health Solutions. Ms. Lindemann holds a B.S. degree from Santa Clara University.
John McCabe, age 46, has served as our Vice President, Finance since May 2014. Mr. McCabe joined us from ARIAD Pharmaceuticals, Inc. where he was Vice President and Chief Accounting Officer from May 2013 to May 2014. Previously, Mr. McCabe served as Vice President and Corporate Controller at Charles River Associates from June 2009 to May 2013. Previously, Mr. McCabe was the Director, Strategic Business Unit Controller at Biogen Inc. from 2007 until 2009. Mr. McCabe has also held positions at Performance Technologies, Inc., IP.com Inc. and Arthur Andersen LLP. Mr. McCabe earned an M.B.A. from the University of Massachusetts at Amherst and B.S. degrees in Accounting and Management Information Systems from Babson College.
Thomas Wessel, M.D., Ph.D., age 60, has served as our Chief Medical Officer since December 2014. Prior to joining us, Dr. Wessel was an independent consultant to several biotechnology and large pharmaceutical companies, including Concert Pharmaceuticals, Inc., Alkermes plc, Sanofi SA and Novartis AG. Previously, Dr. Wessel was the Chief Medical Officer of Acorda Therapeutics, Inc. from November 2008 until September 2011. Between March 2002 and October 2008, Dr. Wessel was employed in various leadership positions at
Sepracor, Inc., including Senior Vice President of Clinical Research. Before joining Sepracor, Dr. Wessel worked on several CNS projects at Janssen Pharmaceuticals in Europecommon stock and the U.S. Before working in the pharmaceutical industry, Dr. Wessel held several academic and research positions. Dr. Wessel received his M.D. from the Universitypercentage of Munich School of Medicine and completed his Ph.D. in experimental neurobiology at the Max-Planck-Institute for Psychiatry in Martinsried, Germany. He completed his residency in neurology at New York Hospital and Memorial Sloan-Kettering Cancer Center (Cornell University Medical Center).
Elizabeth Woo, age 49, served as our Vice President, Investors Relations and Corporate Communications from October 2014 until March 2015, when she became Senior Vice President, Investor Relations and Corporate Communications. Ms. Woo previously served an investor relations consultant to Cubist Pharmaceuticals, Inc. from August 2013 to December 2013 and as an investor relations consultant to Ironwood Pharmaceuticals, Inc. from February 2011 to June 2012. Ms. Woo also served as Vice President, Investor Relations at Biogen Idec Inc. from 1998 to 2010. Ms. Woo earned an M.B.A. from The Kellogg Graduate School of Management, and graduated summa cum laude and Phi Beta Kappa with bachelor degrees in Biochemistry and History from the University of California, Berkeley.
SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of our common stock, as of April 11, 2016beneficially owned by:
•each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;
•each of our directors;
•each of our named executive officers; and
•all of our current executive officers and directors as a group.
Information with respect to beneficialThe percentage ownership has been furnished by each director, officer or beneficial owneris based on 4,314,433 shares of more than 5% of our common stock. stock outstanding on March 12, 2024.We have determined beneficial ownership in accordance with the rules of the SEC.These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities.In addition, the rules include shares of our common stock issuable pursuant to the exercise of stock options or warrants or other securities that are either immediately exercisable or exercisable on or before June 10, 2016, which isvest within 60 days after April 11, 2016. of March 12, 2024.These shares are deemed to be outstanding and beneficially owned by the person holding those options, warrants, or warrantssecurities for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
Percentage of beneficial ownership is based on 17,967,891 shares of common stock outstanding as of April 11, 2016. Except as otherwise noted below, the address for each person or entity listed in the table is c/o Flex Pharma,Salarius Pharmaceuticals, Inc., 800 Boylston Street, 24th Floor, Boston, MA 02199.2450 Holcombe Blvd., Suite X, Houston, TX 77021.
| | | | | | | | |
| Shares of Common Stock Beneficially Owned | Percent of Total (%) |
| 5% or Greater Stockholders | | |
| | |
| Armistice Capital, LLC(1) | 427,350 | 9.9% |
| | |
| Named Executive Officers and Directors: | | |
| | |
| David J. Arthur (2) | 86,202 | 2.0% |
| Mark J. Rosenblum (3) | 32,917 | * |
| Tess Burleson(4) | 5,656 | * |
| Arnold C. Hanish(5) | 6,228 | * |
| Jonathan Lieber(6) | 5,460 | * |
| Paul Lammers(7) | 4,478 | * |
| Bruce J. McCreedy(8) | 4,896 | * |
| | | | | | | | |
| William K McVicar(9) | 5,958 | * |
| All current executive officers and directors as a group (8 persons) (10) | 151,795 | 3.5% |
| | |
|
| | | | | |
| Name of beneficial owner | Number of shares beneficially owned | | Percentage of shares beneficially owned |
| |
| 5% or greater stockholders | | | |
Longwood Funds(1) | 2,960,518 |
| | 16.48 | % |
| Directors and executive officers | | | |
Jeffrey Capello(2) | 16,943 |
| | * |
|
Peter Barton Hutt(3) | 39,812 |
| | * |
|
Marc Kozin(4) | 27,530 |
| | * |
|
Roderick MacKinnon, M.D.(5) | 463,014 |
| | 2.57 | % |
Robert Perez(6) | 5,000 |
| | * |
|
Stuart Randle(7) | 23,030 |
| | * |
|
John Sculley(8) | 81,421 |
| | * |
|
Michelle Stacy(9) | 4,251 |
| | * |
|
Christoph Westphal, M.D., Ph.D.(10) | 3,925,248 |
| | 21.85 | % |
Marina Hahn(11) | 202,616 |
| | 1.12 | % |
Thomas Wessel, M.D., Ph.D.(12) | 164,604 |
| | * |
|
All directors and executive officers as a group (total of 15 persons)(13) | 8,049,535 |
| | 43.35 | % |
* Represents beneficial ownership of less than one percent.
| |
(1) | Includes 2,697,264 shares of common stock held by Longwood Fund II, L.P and 263,254 shares of common stock held by Longwood Fund III, L.P. Longwood Fund II GP, LLC (the "Fund II General Partner") is the general partner of Longwood Fund II, L.P. and exercises voting and investment power with respect to securities owned directly by Longwood Fund II, L.P. Longwood Fund III GP, LLC (the "Fund III General Partner") is the general partner of Longwood Fund III, L.P. and exercises voting and investment power with respect to securities owned directly by Longwood Fund III, L.P. Richard Aldrich, Michelle Dipp, M.D., Ph.D. and Christoph Westphal, M.D., |
1%.
Ph.D. are(1) This information has been obtained from a Schedule 13G filed on February 14, 2024 by Armistice Capital, LLC (“Armistice Capital”). Armistice Capital is the managersinvestment manager of Armistice Capital Master Fund Ltd. (the “Master Fund”), the direct holder of the Fund II General Partnershares, and Fund III General Partner and sharepursuant to an Investment Management Agreement, Armistice Capital exercises voting and dispositiveinvestment power with respect toover the securities of the Company held by Longwoodthe Master Fund II, L.P and Longwoodthus may be deemed to beneficially own the securities of the Company held by the Master Fund. Mr. Steven Boyd, as the managing member of Armistice Capital, may be deemed to beneficially own the securities of the Issuer held by the Master Fund. The Master Fund III, L.P. (collectively, the "Longwood Funds"), each of whomspecifically disclaims beneficial ownership of the shares held by the Longwood Funds except to the extent of his or her pecuniary interest therein. The address for the Longwood Funds is 800 Boylston Street, Suite 1555, Boston, MA 02199.
| |
(2) | Represents shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(3) | Includes 11,675 shares of common stock and 28,137 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(4) | Includes 4,500 shares of common stock and 23,030 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(5) | Includes 431,277 shares of common stock and 31,737 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(6) | Represents shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(7) | Represents shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(8) | Includes 54,402 shares of common stock held by John and Diane Sculley, Tenants in the Entirety and 27,019 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(9) | Includes 2,585 shares of common stock and 1,666 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(10) | Represents shares of common stock held by Christoph Westphal, M.D., Ph.D. This number does not include 2,697,264 shares of common stock held by Longwood Fund II, L.P. and 263,254 shares held by Longwood Fund III, L.P. The ultimate general partner of Longwood Fund II, L.P. is the Fund II General Partner and the ultimate general partner of Longwood Fund III, L.P. is the Fund III General Partner. Voting and investment power with respect to the shares held by the Longwood Funds are vested in Richard Aldrich, Michelle Dipp, M.D., Ph.D. and Christoph Westphal, M.D., Ph.D., the managers of the Fund II General Partner and the Fund III General Partner, each of whom disclaims beneficial ownership of the shares held by the Longwood Funds except to the extent of any pecuniary interest therein. |
| |
(11) | Represents shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(12) | Includes 57,064 shares of common stock and 107,540 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 11, 2016. |
| |
(13) | Includes (a) 4,486,751 shares held by all current executive officers and directors as a group, (b) 602,266 shares that all current executive officers and directors as a group have the right to acquire from us within 60 days of April 11, 2016 pursuant to the exercise of stock options, and (c) shares of common stock held by the Longwood Funds, which are deemed to be beneficially owned by Dr. Westphal. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are requiredCompany directly held by SEC regulationit by virtue of its inability to furnish us with copies of all Section 16(a) forms they file.
To the best of our knowledge, based solely on a review of the copiesvote or dispose of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2015, all of our officers, directors and greater than ten percent beneficial owners complied with all Section 16(a) filing requirements applicable to them, except for Marina Hahn, Katharine Lindemann and Robert Perez, each of whom filed one Form 4 five business days after the applicable deadline.
EXECUTIVE AND DIRECTOR COMPENSATION
Our named executive officers for the period ending December 31, 2015, which consist of our principal executive officer and the two other most highly compensated executive officers who were serving as executive officers as of December 31, 2015, are:
Christoph Westphal, M.D., Ph.D., our President, Chief Executive Officer and Chairman of the Board;
Marina Hahn, our President, Consumer; and
Thomas Wessel, M.D., Ph.D., our Chief Medical Officer.
Summary Compensation Table
The following table provides information regarding the compensation provided during the year ending December 31, 2015 and during the period from February 26, 2014 (inception) to December 31, 2014 to our named executive officers:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | Salary ($) | | Bonus ($)(1) | | Option Awards ($)(2) | | Stock Awards ($)(3) | | Non-Equity Incentive Plan Compensation ($)(4) | | All Other Compensation ($) | | Total ($) |
Christoph Westphal, M.D., Ph.D., President, Chief Executive Officer, Chairman of the Board(5) | | 2015 | $ | 459,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 218,025 |
| | $ | 19,832 |
| (8) | $ | 696,857 |
|
| | 2014 | $ | 337,500 |
| | $ | — |
| | $ | — |
| | $ | 375,804 |
| | $ | 172,603 |
| | $ | — |
| | $ | 885,907 |
|
Marina Hahn(6) President, Consumer | | 2015 | $ | 340,500 |
| | $ | — |
| | $ | 1,096,170 |
| | $ | — |
| | $ | 154,470 |
| | $ | 10,602 |
| (9) | $ | 1,601,742 |
|
| | 2014 | $ | 76,154 |
| | $ | 100,000 |
| | $ | 703,379 |
| | $ | — |
| | $ | 34,027 |
| | $ | — |
| | $ | 913,560 |
|
Thomas Wessel, M.D., Ph.D. Chief Medical Officer(7) | | 2015 | $ | 395,000 |
| | $ | — |
| | $ | 1,158,266 |
| | $ | — |
| | $ | 150,100 |
| | $ | 10,432 |
| (10) | $ | 1,713,798 |
|
| | 2014 | $ | 4,558 |
| | $ | 55,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 59,558 |
|
| |
(1) | Amounts shown represent a $100,000 signing bonus paid to Ms. Hahn and a $55,000 signing bonus paid to Mr. Wessel under the terms of their offer letters. |
| |
(2) | In accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards granted during the respective fiscal years computed in accordance with ASC 718. Assumptions used in the calculation of these amounts are included in Note 11 to our consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC. |
| |
(3) | In accordance with SEC rules, this column reflects the aggregate grant date fair value of the restricted common stock awards granted during the respective fiscal years. Discussion of restricted common stock is included in Note 10 to our consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC. |
| |
(4) | Amounts shown represent annual performance‑based bonuses for 2014 and 2015. For more information see “Annual Performance‑Based Bonus Opportunity” below. |
| |
(5) | Dr. Westphal joined us as our President and Chief Executive Officer on April 9, 2014 at an annual salary of $450,000. Amounts shown for the period beginning on February 26, 2014 (inception) and ending on December 31, 2014 represent the compensation earned by Dr. Westphal from his April 9, 2014 start date through December 31, 2014. |
| |
(6) | Ms. Hahn joined us as our President, Consumer on September 30, 2014 at an annual salary of $300,000. Amounts shown for the period beginning on February 26, 2014 (inception) and ending on December 31, 2014 represent the compensation earned by Ms. Hahn from her September 30, 2014 start date through December 31, 2014. |
| |
(7) | Dr. Wessel joined us as our Chief Medical Officer on December 29, 2014 at an annual salary of $395,000. Amounts shown for the period beginning on February 26, 2014 (inception) and ending on December 31, 2014 represent the compensation earned by Dr. Wessel from his December 29, 2014 start date through December 31, 2014. |
| |
(8) | Amounts consist of: (i) $700 for long-term disability premiums and a $582 related tax gross up, (ii) $7,950 of matching contributions defined in our 401(k) plan and (iii) $10,600 for reimbursement of monthly telecommunications charges. For more information regarding these benefits, see below under "Perquisites, Health, Welfare and Retirement Benefits." |
| |
(9) | Amounts consist of: (i) $700 for long-term disability premiums and a $752 related tax gross up, (ii) $7,950 of matching contributions defined in our 401(k) plan and (iii) $1,200 paid as an allowance for cell phone costs. For more information regarding these benefits, see below under "Perquisites, Health, Welfare and Retirement Benefits." |
| |
(10) | Amounts consist of: (i) $700 for long-term disability premiums and a $582 related tax gross up, (ii) $7,950 of matching contributions defined in our 401(k) plan and (iii) $1,200 paid as an allowance for cell phone costs. For more information regarding these benefits, see below under "Perquisites, Health, Welfare and Retirement Benefits." |
Annual Base Salary
Base salaries are intended to provide a fixed level of compensation for our executive officers that is commensurate with their responsibilities and competitive market conditions. When considered in combination with other elements of our executive compensation, we believe our base salaries are sufficient to attract and retain an effective management team.
The compensation of our named executive officers is generally determined and approved by the Board of Directors or the Compensation Committee. The Compensation Committee approved the following 2015 base salaries for our named executive officers, which became effective on January 1, 2015:
|
| | | |
| Name | 2015 Base Salary |
| Christoph Westphal, M.D., Ph.D. | $ | 459,000 |
|
| Marina Hahn | $ | 306,000 |
|
| Thomas Wessel, M.D., Ph.D. | $ | 395,000 |
|
In July 2015, we entered into an amendment to Ms. Hahn's offer letter increasing her base salary to $375,000. In December 2015, following the recommendation of the Compensation Committee, the Board of Directors approved a 3% increase to the base salaries of eligible employees, including our named executive officers. This salary increase became effective on January 1, 2016.
Annual Performance-Based Bonus Opportunity
In addition to base salaries, our named executive officers are eligible to receive annual performance-based cash bonuses, which are designed to provide appropriate incentives to our executives to achieve defined annual corporate goals and to reward our executives for individual achievement towards these goals. The annual performance-based bonus that each executive officer is eligible to receive is set out in the individual's offer letter and will be based on the individual's target bonus, as a percentage of base salary, or target bonus percentage, and the extent to which we achieve the corporate goals and the executive achieves his or her personal goals, if any, established for each year. The actual performance-based bonus paid to each executive, if any, is calculated by multiplying the executive's annual base salary, target bonus percentage, and the percentage attainment of the corporate goals and personal goals, if any, established for such year with respect to the executive and is prorated for the duration of employment for that year. There is no minimum bonus percentage or amount established for the named executive officers and,securities as a result of its Investment Management Agreement with Armistice Capital. The principal business address for Armistice Capital, LLC is 510 Madison Avenue, 7th Floor, New York, New York 10022, United States of America. The principal business address for Mr. Boyd is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, New York 10022, United States of America. The amounts in the bonus amounts vary from year to year based on corporatetable excluded pre-funded warrants, Series A-1 warrants and individual performance as well as the Compensation Committee's evaluation of other factors it deems relevant in determining annual bonuses.
The corporate goals are determined by the Compensation Committee, reviewed by the Board of Directors and comprised of our most important annual corporate goals and various business accomplishments, which vary from time to time depending on our overall strategic objectives. At the end of the year or the beginning of the following year, the Compensation Committee reviews our performance against each corporate goal and approves the extent to which we achieved each such goal. The Compensation Committee may award a bonus in an amount above or below the amount that would otherwise be associated with the degree of goal achievement, based on factors the Compensation Committee determines are material to our corporate performance and provide appropriate incentives to our executives, including events or circumstances that arise after the original corporate goals are set.
For 2015, each of our named executive officer's bonuses were entirely dependent upon our achievement of our corporate goals. Our corporate objectives for 2015 were related to identifying an initial drug product candidate, initiating and completing certain clinical studies, developing our first consumer product, establishing marketing plans and commercialization plans for our consumer product launch and ensuring our financial stability. Each named
executive officer was eligible to receive up to 150% of their target bonus. The Compensation Committee concluded that 95% of our 2015 corporate objectives had been achieved and, in January 2016, we paid each of our named executive officers 95% of their target bonus. In determining that we had achieved 95% of the 2015 corporate goals for purposes of the 2015 annual performance-based bonuses, the Compensation Committee considered the substantial progress made by our research and development group identifying a lead drug product candidate and completing certain clinical studies, the efforts of our consumer group preparing for the launch of our consumer product, and the success of our capital-raising and financial discipline efforts during 2015.
Each named executive officer's 2015 target bonus percentage and actual bonus amount paid are set forth below:
|
| | | | | | |
| Name | Target bonus
(% of base
salary) | | 2015 Bonus Amount |
| Christoph Westphal, M.D., Ph.D. | 50 | % | | $ | 218,025 |
|
| Marina Hahn | 50 | % | | $ | 154,470 |
|
| Thomas Wessel, M.D., Ph.D. | 40 | % | | $ | 150,100 |
|
Equity-Based Incentive Awards
Our equity-based incentive awards are designed to align our longer-term interests and the longer-term interests of our shareholders with those of our employees and consultants, including our named executive officers. The Board of Directors, following the recommendation of the Compensation Committee, is responsible for approving equity grants. We have generally granted stock options to our named executive officers and employees as incentive compensation because we believe in using equity compensation to reward our named executive officers and other employees for stock price appreciation; however, we entered into a restricted stock purchase agreement and a restricted stock award agreement with Dr. Westphal in connection with and shortly after our formation. Vesting of equity awards is generally tied to continuous service with us and serves as an additional retention measure. We anticipate awarding to our executives an initial equity grant upon commencement of employment. Additional grants may occur periodically in order to specifically incent executives with respect to achieving certain corporate goals or to reward executives for exceptional performance.
During 2015, we did not grant Dr. Westphal any equity-based incentive awards.
On November 11, 2015, the Board of Directors granted Ms. Hahn an optionSeries A-2 warrants to purchase 150,000 shares of common stock at an exercise price of $11.05 per share. Vesting of the shares subject to this option are based on performance criteria for which the SEC has afforded confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. For additional information, see the section below titled “- Potential Payments Upon Termination or Change of Control.”
On January 7, 2015, in connection with the commencement of Dr. Wessel's employment, the Board of Directors granted Dr. Wessel an option to purchase 163,136 shares of common stock at an exercise price of $10.79 per share. Dr. Wessel's options are subject to a four year vesting schedule subject to his continued service and also include an early exercise provision pursuant to which Dr. Wessel may exercise a portion of his options in advance of their vesting. For additional information, see the section below titled "- Potential Payments Upon Termination or Change of Control."
Agreements with our Executive Officers
Below are written descriptions of our offer letters with our named executive officers.
Christoph Westphal, M.D., Ph.D. We entered into an Executive Employment Agreement with Dr. Westphal in May 2015, which replaced Dr. Westphal's offer letter. Pursuant to his employment agreement, Dr. Westphal will receive an annual base salary of $459,000, subject to increase by the Board of Directors, and is eligible for an annual bonus that targets 50% of his annualized base salary based upon an assessment of Dr. Westphal's performance and the attainment of targeted goals established by the Board of Directors. The assessment of Dr. Westphal's performance and the achievement of goals will be determined in the sole discretion of the Board of Directors. In the event that he is terminated without cause or resigns for good reason, Dr. Westphal is entitled to certain additional severance and change of control benefits pursuant to his restricted stock agreements and his
employment agreement, the terms of which are described below under "— Potential Payments Upon Termination or Change of Control."
Marina Hahn. We entered into an offer letter with Ms. Hahn in September 2014, which was amended in May 2015 and further amended in July 2015. The offer letter provides for an annual base salary of $375,000, subject to increase by the Board of Directors, and that Ms. Hahn is eligible for an annual bonus based on company and individual performance. The target amount of Ms. Hahn's annual performance bonus equals 50% of her annual base salary and will be based on parameters determined by the Board of Directors after consultation with Ms. Hahn. Pursuant to the July 2015 amendment, Ms. Hahn was granted an option to purchase 150,000 sharesshare of our common stock on November 11, 2015, which vests based on performance criteria for which the SEC has afforded confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Under Ms. Hahn's offer letter, if Ms. Hahn is terminated without cause or resigns for good reason, Ms. Hahn will be entitled to severance benefits and payments upon a change of control, the terms of which are described below under "— Potential Payments Upon Termination or Change of Control."
Thomas Wessel, M.D., Ph.D. We entered into an offer letter with Dr. Wessel in December 2014, which was amended in May 2015. The offer letter provides for an annual base salary of $395,000, subject to increase by the Board of Directors, and that Dr. Wessel is eligible for an annual bonus based on company and individual performance. The target amount of Dr. Wessel's annual performance bonus equals 40% of his annual base salary and will be based on parameters determined by the Board of Directors. Pursuant to his offer letter, Dr. Wessel was granted an option to purchase 163,136 shares of our common stock, which vests over a four year period, with 25% vesting on December 29, 2015 and the remaining shares vesting ratably each month thereafter. Under Dr. Wessel's offer letter, if Dr. Wessel is terminated without cause or resigns for good reason, Dr. Wessel will be entitled to severance benefits and payments upon a change of control, the terms of which are described below under "— Potential Payments Upon Termination or Change of Control."
Restrictive Covenant Agreements. In connection with entering into offer letters with the Company, each of our named executive officers entered into an Employee Non‑Solicitation, Non‑Competition, Confidential Information and Inventions Assignment Agreement with us, or the Restrictive Covenant Agreement, each of which became effective upon signing. Under the Restrictive Covenant Agreement, the named executive officer generally is subject to: (1) a perpetual covenant not to disclose or use any of our or third‑party confidential information (except under limited circumstances); (2) an invention disclosure and assignment provision pursuant to which he or she agrees to assign to us (and will cooperate with us to enforce) all his or her rights, title, and interest in and to any and all inventions (and intellectual property rights with respect thereto) made, conceived, reduced to practice or learned by him or her, either alone or with others, during his or her employment with us; (3) a non‑competition provision pursuant to which he or she has agreed not to compete with the Company during employment and for 12 months thereafter; (4) a non‑solicitation provision pursuant to which he or she has agreed not to solicit any of our employees, independent contractors or consultants to terminate his, her or its relationship with us during employment and for 12 months thereafter; and (5) a covenant to return all company property to us upon any termination employment or upon our request. In addition, each named executive officer has agreed to indemnify us and certain other parties, for all verdicts, judgments, settlements and other losses incurred by us in the event we are the subject of any legal action resulting from the breach of any of the named executive officer’s obligations under the Restrictive Covenant Agreement, as well as any reasonable attorneys’ fees and costs if the plaintiff is the prevailing party in any such action.
Potential Payments Upon Termination or Change of Control
Regardless of the manner in which a named executive officer’s service terminates, the named executive officer is entitled to receive amounts earned during his or her term of service, including salary and unused vacation pay.
Under his employment agreement, in the event that he is terminated without cause or resigns for good reason prior to a change in control (each as defined in his employment agreement), Dr. Westphal will be entitled to severance in the form of salary continuation for twelve months at his then-current base salary. In the event that he is terminated without cause or resigns for good reason during the period beginning 30 days prior to and ending twelve (12) months following a change in control, Dr. Westphal will be entitled to severance in the form of salary continuation for twelve months at his then-current base salary and the target bonus payment for the year in which the termination occurs.
Under Dr. Westphal's restricted stock purchase agreements, we may only exercise our repurchase rights with respect to unvested shares of common stock if Dr. Westphal's employment is terminated by us for cause or Dr. Westphal terminates his employment for any reason (each as defined in his restricted stock purchase agreements), in each case,
within 90 days of such termination. In addition, Dr. Westphal's shares shall vest with respect to all of the shares held by Dr. Westphal inentities affiliated with Armistice Capital because such warrants prohibits the event he is terminated by us without cause or due to his death or disability, or uponinvestor from exercising the occurrence of a corporate transaction (as defined in his restricted stock purchase agreements).
Under Ms. Hahn's offer letter, if Ms. Hahn is terminated without cause or resigns for good reason (each as defined in her offer letter), Ms. Hahn will be entitled to severance in the form of salary continuation for nine months at her then-current base salary and we will pay, for up to nine months, that portion of the COBRA premiums that we paid prior to such termination. Additionally, if during the period beginning 30 days prior to and ending 12 months following a change of control (as defined in her offer letter), we terminate Ms. Hahn's employment other than for cause or Ms. Hahn terminates her employment for good reason, then 100% of the shares of common stock subject to Ms. Hahn's stock options shall automatically vest except for any options that were forfeited priorwarrants to the change of control.
Under Dr. Wessel's offer letter, if Dr. Wessel is terminated withoutextent such exercise would cause or resigns for good reason (each as defined in his offer letter), Dr. Wessel will be entitledsuch investor, together with its affiliates and attribution parties, to severance in the form of salary continuation for nine months at his then-current base salary and we will pay, for up to nine months, that portion of the COBRA premiums that we paid prior to such termination. Additionally, uponbeneficially own a change of control (as defined in his offer letter), 50% of the shares of common stock subject to Dr. Wessel's stock options shall automatically vest. Further, if during the period beginning 30 days prior to and ending 12 months following a change of control, we terminate Dr. Wessel's employment other than for cause or Dr. Wessel terminates his employment for good reason, then 100% of the shares of common stock subject to Dr. Wessel's options shall automatically vest.
Outstanding Equity Awards at December 31, 2015
The following table sets forth certain information regarding outstanding equity awards granted to our named executive officers that remain outstanding as of December 31, 2015.
|
| | | | | | | | | | | | | | | | | |
| | | Option Awards(1)
| | Stock Awards | | Equity Incentive
Plan Awards
|
Name | Grant Date | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
| | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
| | Option
Exercise
Price Per
Share(2)
| | Option
Expiration
Date
| | Number of
shares or
units of
stock
that have not
vested (#)
| | Market value
of shares
or units
of stock
that have not
vested ($)
| | Number of
unearned
shares that
have not
vested (#)
| | Market value
of unearned
shares that
have not
vested ($)
|
Christoph Westphal, M.D., Ph.D. | 3/5/2014 | | — | | — | | — | | — | | 1,331,879(3)
| | 16,581,894(4)
| | | | |
4/9/2014 | | — | | — | | — | | — | | | | | | 253,697(3)
| | 3,158,528(4)
|
Marina Hahn | 10/15/2014 | | 179,497(5)
| | 69,358(5)
| | $4.28 | | 10/15/2024 | | | | | | | | |
11/11/2015 | | - | | 150,000(6)
| | $11.05 | | 11/11/2025 | | | | | | | | |
Thomas Wessel, M.D., Ph.D. | 1/7/2015 | | 98,274(7)
| | 27,798(7)
| | $10.79 | | 1/7/2025 | | | | | | | | |
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(1) | All of the option awards listed in the table above were granted under the 2014 Plan or the 2015 Plan, the terms of which are described below under "— Equity Benefit Plans." Except as otherwise indicated, each option award becomes exercisable as it becomes vested and all vesting is subject to the executive's continuous service with us through the vesting dates. |
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(2) | All of the option awards listed in the table above were granted with a per share exercise price equal to the fair market value of one share of our common stock on the date of grant, as determined in good faith by the Board of Directors. |
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(3) | The shares vest at the rate of 1/4th of the total number of shares on the date of issuance, with 1/48th of the shares vesting monthly over four years measured from February 26, 2014, and subject to vesting acceleration as described above under "— Potential Payments Upon Termination or Change of Control."
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(4) | Computed based on the fair market value of a share of our common stock as of December 31, 2015, which was $12.45. |
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(5) | The option vests at the rate of 1/4th of the total number of shares subject to the option one year after September 30, 2014, with 1/48th of the shares vesting monthly thereafter over the next three years. The option is subject to vesting acceleration as described above under “- Potential Payments Upon Termination or Change of Control.” Notwithstanding the vesting schedule of Ms. Hahn’s option, Ms. Hahn’s Stock Option Grant Notice provides that 156,378 shares were exercisable as of the date of grant and an additional 23,119 shares are exercisable on January 1 of each year beginning in 2015 and ending in 2018.
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(6) | The option vests based on performance criteria for which the SEC has afforded confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |
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(7) | The option vests at the rate of 1/4th of the total number of shares subject to the option one year after December 29, 2014, with 1/48th of the shares vesting monthly thereafter over the next three years. Notwithstanding the vesting schedule of Dr. Wessel's option, Dr. Wessel's Stock Option Grant Notice provides that 135,338 shares were exercisable as of the date of grant and an additional 9,266 shares are exercisable on January 1 of each year beginning in 2016 and ending in 2018. On January 15, 2015, Dr. Wessel exercised 37,064 options.
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Perquisites, Health, Welfare and Retirement Benefits
Our named executive officers are eligible to participate in our employee benefit plans, including our medical and dental insurance plans, in each case on the same basis as all of our other employees. We provide a 401(k) plan to our employees, including our named executive officers, as discussed in the section below entitled "— 401(k) Plan."
We generally do not provide perquisites or personal benefits to our named executive officers, except in certain limited circumstances. We do, however, pay the premiums for group term life insurance and long-term disability benefits (and, with respect to life insurance and long-term disability benefits, we provide a tax gross up relating to such payment) for all of our employees, including our named executive officers. We also reimburse our employees, including our named executive officers, for approximately 90% of their health and dental premiums, pay each of our employees, other than Dr. Westphal, a $100 monthly allowance for cell phone costs, and, with respect to Dr. Westphal, reimburse his monthly telecommunications charges.
401(k) Plan
We maintain a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation up to certain Code limits, which are updated annually. In January 2015, we began making matching contributions equal to 100% of the first 3% of the eligible compensation that an employee contributes to the 401(k) Plan, up to the maximum amount allowed by the Code. Pre-tax contributions by employees and any employer contributions that we make to the 401(k) Plan and the income earned on those contributions are generally not taxable to employees until withdrawn. Employee contributions are allocated to each participant's individual account and are then invested in selected investment alternatives according to the participants' directions. Employees are immediately and fully vested in their own contributions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings on those amounts are not taxable to the employees until withdrawn or distributed from the 401(k) plan.
Non-qualified Deferred Compensation
None of our named executive officers participate in or have account balances in non-qualified defined contribution plans or other non-qualified deferred compensation plans maintained by us. The Board of Directors may elect to provide our officers and other employees with non-qualified defined contribution or other non-qualified deferred compensation benefits in the future if it determines that doing so is in our best interests.
Equity Benefit Plans
2015 Equity Incentive Plan
The Board of Directors adopted the 2015 Equity Incentive Plan, or 2015 Plan, in January 2015, and our stockholders approved the 2015 plan in January 2015. The 2015 plan became effective as of January 28, 2015, the date of the final prospectus for our initial public offering.
Awards. The 2015 plan provides for the grant of incentive stock options, or ISOs, non‑statutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance based stock awards, and other forms of equity compensation, collectively stock awards. Additionally, the 2015 plan provides for the grant of performance cash awards. ISOs may be granted only to employees of us and our affiliates. All other awards may be granted to employees, including officers, and to non‑employee directors and consultants of us and our affiliates.
Share Reserve. The aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2015 plan is the sum of (i) 1,711,965, plus (iii) any shares subject to outstanding stock options or other stock awards thatwhich would have otherwise returned to our 2014 plan (such as upon the expiration or termination of a stock award prior to vesting). Additionally, the number of sharesexceed 9.99% of our then outstanding common stock reserved for issuance under our 2015 plan will automatically increase on January 1 of each year, through and including January 1, 2025, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendarfollowing such exercise.
year, or a lesser number of shares determined by the Board of Directors. The maximum number of shares that may be issued upon the exercise of ISOs under our 2015 plan is 5,919,390 shares.
No person may be granted stock awards covering more than 934,033 shares of our common stock under our 2015 plan during any calendar year pursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the fair market value on the date the stock award is granted. Additionally, no person may be granted in a calendar year a performance stock award covering more than 350,262 shares or a performance cash award having a maximum value in excess of $3,000,000. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to any covered executive officer imposed by Section 162(m) of the Code.
In addition, the maximum number of shares subject to awards granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, shall not exceed $350,000 in total value (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any award granted in a previous fiscal year).
If a stock award granted under the 2015 plan expires or otherwise terminates without being exercised in full, or is settled in cash, the shares of our common stock not acquired pursuant to the stock award again will become available for subsequent issuance under the 2015 plan. In addition, the following types of shares under the 2015 plan may become available for the grant of new stock awards under the 2015 plan: (1) shares that are forfeited to or repurchased by us prior to becoming fully vested; (2) shares withheld to satisfy income or employment withholding taxes; or (3) shares used to pay the exercise or purchase price of a stock award. Shares issued under the 2015 plan may be previously unissued shares or reacquired shares bought by us on the open market. As of March 4, 2016, stock awards covering a total of 1,331,799 shares of our common stock have been issued under the 2015 plan.
Administration. The Board of Directors, or a duly authorized committee thereof, has the authority to administer the 2015 plan. The Board of Directors may also delegate to one or more of our officers the authority to (1) designate employees who are not officers (other than himself or herself) to be recipients of certain stock awards, and (2) determine the number ofRepresents (i) 49,135 shares of common stock, to be subject to such stock awards. Subject to the terms of the 2015 plan, the Board of Directors or the authorized committee, referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting schedule applicable to a stock award. Subject to the limitations set forth below, the plan administrator will also determine the exercise price, strike price or purchase price of awards granted and the types of consideration to be paid for the award.
The plan administrator has the authority to modify outstanding awards under our 2015 plan. Subject to the terms of our 2015 plan, the plan administrator has the authority to reduce the exercise, purchase or strike price of any outstanding stock award, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Stock Options. Incentive and non-statutory stock options are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2015 plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2015 plan vest at the rate specified by the plan administrator.
The plan administrator determines the term of stock options granted under the 2015 plan, up to a maximum of 10 years. Unless the terms of an option holder's stock option agreement provide otherwise, if an option holder's service relationship with us, or any of our affiliates, ceases for any reason other than disability, death or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service. The option term may be extended in the event that the issuance of shares of our common stock upon the exercise of the option or the same of such shares following such a termination of service is prohibited by applicable securities laws or our insider trading policy. 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 a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, options generally terminate
immediately upon the termination of the individual for cause. In no event may an option be exercised 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 (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise of the option if it is an NSO, and (5) other legal consideration approved by the plan administrator.
Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder's death.
Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreements or restricted stock purchase agreements adopted by the plan administrator. Restricted stock awards may be granted in consideration for (1) cash, check, bank draft or money order, (2) services rendered to us or our affiliates, or (3) any other form of legal consideration. Common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested will be forfeited upon the participant's cessation of continuous service for any reason.
Tax Limitations On Incentive Stock Options. The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) 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 (2) the term of the ISO does not exceed five years from the date of grant.
Restricted Stock Unit Awards. Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested will be forfeited upon the participant's cessation of continuous service for any reason.
Stock Appreciation Rights. Stock appreciation rights are granted pursuant to stock appreciation grant agreements adopted by the plan administrator. The plan administrator determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (1) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (2) the number of(ii) 36,980 shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2015 plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.
The plan administrator determines the term of stock appreciation rights granted under the 2015 plan, up to a maximum of ten years. Unless the terms of a participant's stock appreciation right agreement provides otherwise, if a participant's service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws. If a participant's service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term.
Performance Awards. The 2015 plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibilityoptions that are exercisable within 60 days of compensation paidMarch 12, 2024 and (iii) 87 warrants to a covered executive officer imposed by Section 162(m) of the Code. To help assure that the compensation attributable to performance-based awards will so qualify, the Compensation Committee can structure such awards so that stock or cash will be issued or paid pursuant to such award only after the achievement of certain pre-established performance goals during a designated performance period.
The performance goals that may be selected include one or more of the following: (1) earnings (including earnings per share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) earnings before interest, taxes, depreciation, amortization and legal settlements; (5) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (6) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (7) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (8) total stockholder return; (9) return on equity or average stockholder's equity; (10) return on assets, investment or capital employed; (11) stock price; (12) margin (including gross margin); (13) income (before or after taxes); (14) operating income; (15) operating income after taxes; (16) pre-tax profit; (17) operating cash flow; (18) sales or revenue targets; (19) increases in revenue or product revenue; (20) expenses and cost reduction goals; (21) improvement in or attainment of working capital levels; (22) economic value added (or an equivalent metric); (23) market share; (24) cash flow; (25) cash flow per share; (26) share price performance; (27) debt reduction; (28) implementation or completion of projects or processes (including, without limitation, clinical trial initiation, clinical trial enrollment, clinical trial results, new and supplemental indications for existing products, regulatory filing submissions, regulatory filing acceptances, regulatory or advisory committee interactions, regulatory approvals and product supply); (29) user satisfaction; (30) stockholders' equity; (31) capital expenditures; (32) debt levels; (33) operating profit or net operating profit; (34) workforce diversity; (35) growth of net income or operating income; (36) billings; (37) bookings; (38) the number of users, including but not limited to unique users; (39) employee retention; (40) initiation of phases of clinical trials and/or studies by specific dates; (41) patient enrollment rates; (42) budget management; (43) submission to, or approval by, a regulatory body (including, but not limited to the FDA of an applicable filing or a drug product candidate); (44) regulatory milestones; (45) progress of internal research or clinical programs; (46) progress of partnered programs; (47) partner satisfaction; (48) timely completion of clinical trials; (49) submission of INDs and NDAs and other regulatory achievements; (50) research progress, including the development of programs; (51) strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property, and (52) to the extent that an award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board of Directors.
The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (i) in the award agreement at the time the award is granted or (ii) in such other document setting forth the performance goals at the time the goals are established, we will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any "extraordinary items" as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude the effect of any change in the outstandingpurchase shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under our bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles; (12) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item; and (13) to exclude the effects of the timing of acceptance for review and/or approval of submissions to the FDA or any other regulatory body. In addition, we retain the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of the goals. The performance goals may differ from participant to participant and from award to award.
Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.
Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to (a) the class and maximum number of shares reserved for issuance under the 2015 plan, (b) the class and maximum number of shares by which the share reserve may increase automatically each year, (c) the class and maximum number of shares that may be issued upon the exercise of ISOs, (d) the class and maximum number of shares subject to stock awards that can be granted in a calendar year (as established under the 2015 plan pursuant to Section 162(m) of the Code) and (e) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.
Corporate Transactions. In the event of certain specified significant corporate transactions, the plan administrator has the discretion to take any of the following actions with respect to stock awards:
arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company;
arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company;
accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction;
arrange for the lapse of any reacquisition or repurchase right held by us;
cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as the Board of Directors may deem appropriate; or
make a payment equal to the excess of (a) the value of the property the participant would have received upon exercise of the stock award over (b) the exercise price otherwise payable in connection with the stock award.
Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the same manner.
Under the 2015 plan, a corporate transaction is generally the consummation of(3) Represents (i) a sale or other disposition of all or substantially all of our consolidated assets, (ii) a sale or other disposition of at least 90% of our outstanding voting securities, (iii) a merger, consolidation or similar transaction following which we are not the surviving corporation, or (iv) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.
Change of Control. The plan administrator may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change of control. Under the 2015 plan, a change of control is generally (i) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger, consolidation or similar transaction; (ii) a consummated merger, consolidation or similar transaction immediately after which our stockholders cease to own more than 50% of the combined voting power of the surviving entity; (iii) a consummated sale, lease or exclusive license or other disposition of all or substantially of our consolidated assets; (iv) our complete liquidation or dissolution (or the approval by our stockholders or the Board of Directors of our complete liquidation or dissolution); or (v) members of the incumbent board cease for any reason to constitute at least a majority of the members of the board.
Amendment and Termination. The Board of Directors has the authority to amend, suspend, or terminate our 2015 plan, provided that such action does not materially impair the existing rights of any participant without such participant's written consent. No ISOs may be granted after the tenth anniversary of the date the Board of Directors adopted our 2015 plan.
2014 Equity Incentive Plan
The Board of Directors and our stockholders approved our 2014 Equity Incentive Plan, or the 2014 Plan, which became effective in March 2014. Through December 31, 2015, there were outstanding stock awards covering a total of 1,037,318 shares that were granted under our 2014 plan. No additional awards will be granted under the 2014 Plan, and all awards granted under the 2014 Plan that are repurchased, forfeited, expire, are cancelled or otherwise not issued will become available for grant under the 2015 plan in accordance with its terms.
Stock Awards. The 2014 Plan provides for the grant of stock awards, which include ISOs, NSOs, restricted stock awards, restricted stock unit awards and stock appreciation rights. ISOs may be granted only to employees of us and our affiliates. All other awards may be granted to employees, including officers, and to non-employee directors and consultants of us and our affiliates.
Share Reserve. The aggregate number of shares of our common stock originally reserved for issuance pursuant to stock awards under the 2014 Plan was 116,754 shares. In April 2014, the Board of Directors approved an increase in the 2014 Plan reserve by 1,334,333 shares and in September 2014 the Board of Directors approved an increase in the 2014 Plan reserve by 619,113 shares. The maximum number of shares that may be issued pursuant to stock awards under our 2014 Plan was 2,070,200 shares.
If a stock award granted under the 2014 Plan expires or otherwise terminates without being exercised in full, or is settled in cash, the shares of our common stock not acquired pursuant to the stock award again will become available for subsequent issuance under the 2014 Plan. In addition, the following types of shares under the 2014 Plan may become available for the grant of new stock awards under the 2014 Plan: (1) shares that are forfeited to or repurchased by us prior to becoming fully vested; (2) shares withheld to satisfy income or employment withholding taxes; or (3) shares used to pay the exercise or purchase price of a stock award. Shares issued under the 2014 Plan may be previously unissued shares or reacquired shares bought by us on the open market.
Administration. The Board of Directors, or a duly authorized committee thereof, has the authority to administer the 2014 Plan. The Board of Directors may also delegate to one or more of our officers the authority to (1) designate officers and employees to be recipients of certain stock awards; provided, however, that an officer may not grant a stock award to himself, and (2) determine the number of21,851 shares of common stock to be subject to such stock awards. Subject to the terms of the 2014 Plan, the Board of Directors or the authorized committee, referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to be granted, and the terms and conditions of the stock awards, including the period of their exercisability and vesting schedule applicable to a stock award. Subject to the limitations set forth below, the plan administrator will also determine the exercise price, strike price or purchase price of awards granted, and the types of consideration to be paid for the award.
The plan administrator has the authority to modify outstanding awards under our 2014 Plan. Subject to the terms of our 2014 Plan, the plan administrator has the authority to reduce the exercise or strike price of any outstanding stock award, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Stock Options. ISOs and NSOs are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2014 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2014 Plan vest at the rate specified by the plan administrator.
The plan administrator determines the term of stock options granted under the 2014 Plan, up to a maximum of 10 years. Unless the terms of an option holder's stock option agreement provide otherwise, if an option holder's service relationship with us or any of our affiliates ceases for any reason other than disability, death or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service. The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable securities laws or our insider trading policy. 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 a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, options generally terminate immediately upon the termination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.
Acceptable consideration for the purchase(ii) 11,066 shares of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise of the option if it is an NSO, and (5) other legal consideration approved by the plan administrator.
Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder's death.
Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the plan administrator. Restricted stock awards may be granted in consideration for (1) past or future services rendered to us or our affiliates, or (2) any other form of legal consideration. Common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested will be forfeited upon the participant's cessation of continuous service for any reason.
Tax Limitations On Incentive Stock Options. The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOsoptions that are exercisable for the first time by an optionholder during any calendar year under allwithin 60 days of ourMarch 12, 2024.
(4) Includes (i) 2,722 shares of common stock, plans may not exceed $100,000. Options, or portions thereof, that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time(ii) 2,760 shares of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of thecommon stock subject to the option on the date of grant and (2) the option is not exercisable after the expiration of five years from the date of grant.
Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to (a) the class and maximum number of shares reserved for issuance under the 2014 Plan, (b) the class and maximum number of shares that may be issued upon the exercise of ISOs, and (c) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.
Corporate Transactions. In the event of certain specified significant corporate transactions, the plan administrator has the discretion to take any of the following actions with respect to stock awards:
arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company;
arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company;
accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction;
arrange for the lapse of any reacquisition or repurchase right held by us;
cancel or arrange for the cancellation of the stock award to the extent not vested or exercised prior to the effective time of the corporate transaction; or
make a payment equal to the excess of (1) the value of the property the participant would have received upon exercise of the stock award over (2) the exercise price otherwise payable in connection with the stock award.
Our plan administrator is not obligated to treat all stock awards, even thoseoptions that are exercisable within 60 days of the same type, in the same manner.
Under the 2014 Plan, a corporate transaction is generally the consummation of (1) a sale or other disposition of all or substantially all of our consolidated assets, (2) a sale or other disposition of at least 50% of our outstanding securities, (3) a merger, consolidation or similar transaction following which we are not the surviving corporation, or (4) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.
Change in Control. The plan administrator may provide, in an individual award agreement or in any other written agreement between a participantMarch 12, 2024, and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change in control. Under the 2014 Plan, a change in control is generally (1) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger, consolidation or similar transaction; (2) a consummated merger, consolidation or similar transaction immediately after which our stockholders cease to own more than 50% of the combined voting power of the surviving entity; (3) a complete dissolution or liquidation; or (4) a consummated sale, lease or exclusive license or other disposition of all or substantially of our consolidated assets.
Amendment and Termination. The 2014 Plan will terminate on March 21, 2024. However, the Board of Directors has the authority to amend, suspend, or terminate our 2014 Plan, provided that such action does not materially impair the existing rights of any participant without such participant's written consent.
2015 Employee Stock Purchase Plan
The Board of Directors adopted the 2015 Employee Stock Purchase Plan, or the ESPP, in January 2015 and our stockholders approved the ESPP in January 2015. The ESPP became effective as of January 28, 2015, the date of the final prospectus for our initial public offering. The purpose of the ESPP is to retain the services of new employees and secure the services of new and existing employees while providing incentives for such individuals to exert maximum efforts toward our success and that of our affiliates.
Share Reserve. The ESPP authorizes the issuance of 354,569 shares of our common stock pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2025 by the least of (a) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) 233,508 shares, or (c) a number determined by the Board of Directors that is less than (a) and (b). The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. As of the date hereof, no shares of our common stock have been purchased under the ESPP.
Administration. The Board of Directors has delegated its authority to administer the ESPP to the Compensation Committee. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances.
Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our common stock under the ESPP. Unless otherwise determined by the Board of Directors, common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of our common stock on the first date of an offering or (b) 85% of the fair market value of a share of our common stock on the date of purchase.
Limitations. Employees may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by the Board of Directors: (a) customarily employed for more than 20 hours per week, (b) customarily employed for more than five months per calendar year or (c) continuous employment with us or one of our affiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of an offering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value pursuant to Section 424(d) of the Code.
Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large non-recurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the Board of Directors will make appropriate adjustments to (a) the number of shares reserved under the ESPP, (b) the maximum number of shares by which the share reserve may increase automatically each year and (c) the number of shares and purchase price of all outstanding purchase rights.
Corporate Transactions. In the event of certain significant corporate transactions, including: (i) a sale of all our assets, (ii) the sale or disposition of 90% of our outstanding securities, (iii) the consummation of a merger or consolidation where we do not survive the transaction, and (iv) the consummation of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such purchase rights, then the participants' accumulated payroll contributions will be used174 warrants to purchase shares of our common stock within 10 business days prior to such corporate transaction, and such purchase rights will terminate immediately.stock.
Plan Amendments, Termination. The Board of Directors has the authority to amend or terminate our ESPP, provided that except in certain circumstances any such amendment or termination may not materially impair any outstanding purchase rights without the holder's consent. We will obtain stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.
Director Compensation
Historically, we have not paid cash or equity compensation to directors who are also our employees for service on the Board of Directors, nor have we paid cash or equity compensation to our non-employee directors who are associated with our principal stockholders for service on the Board of Directors. We have reimbursed and will continue to reimburse all of our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of the Board of Directors and committees of the Board of Directors.
The following table sets forth in summary form information concerning the compensation that we paid or awarded during fiscal year ended December 31, 2015 to each of our non-employee directors:
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Name(1) | Fees Earned or Paid in Cash | | Option Awards(4) | | All Other Compensation | | Total |
| Jeffrey Capello | $ | 41,250 |
| | $ | 335,000 |
| (5) | $ | — |
| | $ | 376,250 |
|
| Peter Barton Hutt | $ | 49,729 |
| | $ | 108,800 |
| (6) | $ | — |
| | $ | 158,529 |
|
Stephen Kraus(2) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Marc Kozin | $ | 48,250 |
| | $ | 108,800 |
| (7) | $ | — |
| | $ | 157,050 |
|
| Roderick MacKinnon, M.D. | $ | 34,111 |
| | $ | 108,800 |
| (8) | $ | 107,500 |
| (12) | $ | 250,411 |
|
| Robert Perez | $ | 13,288 |
| | $ | 141,658 |
| (9) | $ | — |
| | $ | 154,946 |
|
| Stuart Randle | $ | 87,808 |
| | $ | 108,800 |
| (10) | $ | — |
| | $ | 196,608 |
|
| John Sculley | $ | 43,238 |
| | $ | 108,800 |
| (11) | $ | — |
| | $ | 152,038 |
|
Michelle Stacy(3) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
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(1) | Dr. Westphal was an employee director during 2015 and his compensation is fully reflected in the "— Summary Compensation Table" above. Dr. Westphal did not receive any compensation in 2015 for services provided as a member of the Board of Directors. |
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(2) | Mr. Kraus resigned from the Board of Directors on January 27, 2015. |
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(3) | Ms. Stacy joined the Board of Directors in March 2015. Because Ms. Stacy was not a member of the Board of Directors during 2015, Ms. Stacy did not receive any compensation related to her board membership. |
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(4) | In accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards granted during the respective fiscal year computed in accordance with ASC 718. Assumptions used in the calculation of these amounts are included in Note 11 to our consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC. |
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(5) | Represents the grant date fair value associated with an option to purchase 30,000 shares of our common stock at an exercise price of $17.43 per share. |
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(6) | Represents the grant date fair value associated with an option to purchase 10,000 shares of our common stock at an exercise price of $17.43 per share. |
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(7) | Represents the grant date fair value associated with an option to purchase 10,000 shares of our common stock at an exercise price of $17.43 per share. |
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(8) | Represents the grant date fair value associated with an option to purchase 10,000 shares of our common stock at an exercise price of $17.43 per share. |
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(9) | Represents the grant date fair value associated with an option to purchase 20,000 shares of our common stock at an exercise price of $11.05 per share. |
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(10) | Represents the grant date fair value associated with an option to purchase 10,000 shares of our common stock at an exercise price of $17.43 per share. |
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(11) | Represents the grant date fair value associated with an option to purchase 10,000 shares of our common stock at an exercise price of $17.43 per share. |
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(12) | Represents $90,000 of fees paid to Dr. MacKinnon during 2015 for his services as co-chair of our scientific advisory board pursuant to a scientific advisory board agreement, as well as $17,500 for payment of travel and entertainment expenses. |
Effective on January 28, 2015, the Board of Directors adopted a new compensation policy that became applicable to all of our non-employee directors. The policy was subsequently revised by the Board of Directors, upon the recommendation of the Compensation Committee, on June 29, 2015. The compensation policy, as revised, provides that each such non-employee director will receive the following compensation for service on the Board of Directors:
an annual cash retainer of $40,000;
an additional cash retainer of $50,000 for our lead independent director;
an additional annual cash retainer of $7,500 for service as a member of the Audit Committee or $15,000 for service as chair of the Audit Committee;
an additional annual cash retainer of $5,000 for service as a member of the Compensation Committee or $10,000 for service as chair of the Compensation Committee;
an additional annual cash retainer of $3,500 for service as a member of the Nominating and Corporate Governance Committee or $7,500 for service as chair of the Nominating and Corporate Governance Committee;
upon first joining the Board of Directors, an initial grant of an option to purchase 20,000 shares of our common stock vesting monthly over a period of three years measured from the date of such grant (or such other date as the Board of Directors shall otherwise determine); and
for each non-employee director whose term continues on the date of our annual meeting each year, an annual grant of an option to purchase 10,000 shares of our common stock vesting in monthly installments over one year following the grant date.
The options will be granted under our 2015 plan, the terms of which are described in more detail above under “-Equity Benefit Plans - 2015 Equity Incentive Plan.”
TRANSACTIONS WITH RELATED PERSONS
RELATED-PERSON TRANSACTIONS POLICY AND PROCEDURES
We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and oversight of "related-person transactions." For purposes of our policy only, a "related-person transaction" is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any "related person" are participants involving an amount that exceeds $120,000.
Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-person transactions under this policy. A related person is any executive officer, director or a holder of more than 5% of our common stock, including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to the Audit Committee (or, where review by the Audit Committee would be inappropriate, to another independent body of the Board of Directors of directors) for review. The presentation must include a description of, among other things, the material facts, the direct and indirect interests of the related persons, the benefits of the transaction to us and whether any alternative transactions are available. To identify related-person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related-person transactions, the Audit Committee or other independent body of the Board of Directors takes into account the relevant available facts and circumstances including, but not limited to:
the risks, costs and benefits to us;
the impact on a director's independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;
the terms of the transaction;
the availability of other sources for comparable services or products; and
the terms available to or from, as the case may be, unrelated third-parties or to or from our employees generally.
In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.
CERTAIN RELATED-PERSON TRANSACTIONS
The following includes a summary of transactions since January 1, 2015, to which we have been a party, in which the amount involved in the transaction exceeded $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under "Executive and Director Compensation."
Initial Public Offering
In February 2015, we completed our initial public offering pursuant to which we issued and sold an aggregate of 5,491,191 shares of our common stock at a price to the public of $16.00 per share. The following table sets forth the number of(5) Includes (i) 3,294 shares of common stock, purchased in our initial public offering by Longwood Fund II, L.P., a holder(ii) 2,760 shares of more than 5%common stock subject to options that are exercisable within 60 days of ourMarch 12, 2024, and (iii) 174 warrants to purchase shares common stock:stock.
(6) Includes (i) 2,940 shares of common stock, (ii) 2,520 shares of common stock subject to options that are exercisable within 60 days of March 12, 2024. |
| | | | |
| Name | | Shares of Common Stock | | Purchase Price |
Longwood Fund II, L.P.(1) | | 312,500 | | $5,000,000 |
(1) Additional detail regarding Longwood Fund II, L.P. and its equity holdings is provided above under "Security Ownership(7) Includes (i) 1,718 shares of Certain Beneficial Owners and Management." Christoph Westphal, M.D., Ph.D., our Chief Executive Officer and Chairman, is a manager of Longwood Fund II GP, LLC, which is the general partner of Longwood Fund II, L.P.
Indemnification of Officers and Directors
We have entered into, and intend to continue to enter into, separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers or any other company or enterprise to which the person provides services at our request. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder's investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Employment Arrangements
We have entered into employment arrangements with our executive officers, as more fully described in "Executive and Director Compensation — Agreements with our Executive Officers," and "— Potential Payments Upon Termination or Change of Control."
Stock and Stock Options Granted to Executive Officers and Directors
We have issuedcommon stock and granted(ii) 2,760 shares of common stock subject to options that are exercisable within 60 days of March 12, 2024.
(8) Includes (i) 1,788 shares of common stock, (ii) 2,760 shares of common stock subject to options that are exercisable within 60 days of March 12, 2024, and (iii) 348 warrants to purchase shares of common stock.
(9) Includes (i) 2,850 shares of common stock, (ii) 2,760 shares of common stock subject to options that are exercisable within 60 days of March 12, 2024, and (iii) 348 warrants to purchase shares of common stock.
(10) Includes (i) 86,298 shares of common stock, (ii) 64,366 shares of common stock subject to options that are exercisable within 60 days of March 12, 2024, and (iii) 1,131 warrants to purchase shares of common stock that are held by our executive officers and directors as more fully described in "Executive and Director Compensation."
License Agreement
On May 1, 2014, we entered into a license agreement with ECLDS, LLC for the license of a portion of our office space that we sublease at 800 Boylston Street, 24th Floor, Boston, Massachusetts. ECLDS, LLC is owned by Christoph Westphal, M.D., Ph.D., our President, Chief Executive Officer and Chairman. The license agreement provided that ECLDS, LLC will license 2,647 square feet of office space from us for $7,721 per month. Under the license agreement, ECLDS, LLC pays us the same price per square foot that we pay our sublessor for the space. The term of the license is from May 1, 2014 to August 30, 2017 and may be terminated by either party with 90 days written notice. In September 2014, January 2015, May 2015, September 2015 and October 2015, we amended the license agreement to reduce the amount of space ECLDS, LLC licenses from us and reduce the amount ECLDS, LLC pays to us. Effective October 2015, the amount ECLDS, LLC pays us was reduced to $4,540 per month. In October 2015, the license agreement was assigned by ECLDS, LLC to a third party that is not owned by Dr. Westphal but with which Dr. Westphal has a business relationship.
group.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Annual Meeting materials with respect to two or more shareholders sharing the same address by delivering a single set of Annual Meeting materials addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are Flex Pharma shareholders will be “householding” the Company’s proxy materials. A single set of Annual Meeting materials will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate set of Annual Meeting materials, please notify your broker or Flex Pharma. Direct your written request to Flex Pharma, Inc., Robert Hadfield, General Counsel, 800 Boylston Street, 24th Floor, Boston, MA 02199 or contact Robert Hadfield at (617) 874-1821. Shareholders who currently receive multiple copies of the Annual Meeting materials at their addresses and would like to request “householding” of their communications should contact their brokers.
OTHER MATTERS
The Board of Directors knowsdoes not know of noany other mattersbusiness that will be presented for consideration at the AnnualSpecial Meeting. If any other matters arebusiness is properly brought before the meeting, it isSpecial Meeting, the intention of the persons named in the accompanying proxy toholders will vote on such matters in accordance with their best judgment.judgment unless you direct them otherwise. Whether or not you intend to attend the Special Meeting, we urge you to vote by telephone or the Internet.
By OrderHouseholding of Proxy Materials
To reduce the expense of delivering duplicate proxy materials to stockholders who may have more than one account holding our stock but who share the same address, we have adopted a procedure approved by the SEC called “householding.” Under this procedure, certain stockholders of record who have the same address and last name will receive only one copy of our proxy materials until such time as one or more of these stockholders notifies us that they want to receive separate copies. This procedure reduces duplicate mailings and saves printing costs and postage fees, as well as natural resources. Stockholders who participate in householding will continue to have access to and utilize separate proxy voting instructions.
If you receive a single set of proxy materials as a result of householding and you would like to have separate copies of proxy materials mailed to you, please submit a request to our Secretary at 2450 Holcombe Blvd., Suite X, Houston, TX 77021 and we will promptly send you what you have requested. You can also contact our Secretary at the above address if you received multiple copies of the BoardSpecial Meeting materials and would prefer to receive a single copy in the future, or if you would like to opt out of Directorshouseholding for future mailings.
Stockholder Proposals for the 2024 Annual Meeting of Stockholders
To be considered for inclusion in the proxy materials for the 2024 Annual Meeting of Stockholders, your proposal must have been submitted in writing by January 2, 2024, to our Secretary at 2450 Holcombe Blvd., Suite X, Houston, TX 77021. If you wish to submit any other motion related to business proposed to be brought before the 2024 Annual Meeting of Stockholders, you must have provided the specified information required by our Bylaws to our Secretary at 2450 Holcombe Blvd., X, Houston, TX 77021 not more than 120 days (January 2, 2024) nor less than 90 days (February 1, 2024) prior to the first anniversary of the date the proxy statement was provided to our stockholders in connection with the 2023 Annual Meeting of Stockholders; however, if the 2024 Annual Meeting of Stockholders is called for a date that is more than 30 days before or after the anniversary date of the 2023 Annual Meeting of Stockholders, notice by the stockholder must be received by our Secretary not later than the close of business on the later of (i) the 90th day prior to the 2024 Annual Meeting of Stockholders and (ii) the 10th day following the day on which public announcement of the date of the 2024 Annual Meeting of Stockholders is publicly given. You are also advised to review our Bylaws, which contain additional requirements regarding advance notice of stockholder proposals and director nominations.
In addition to satisfying the foregoing advance notice requirements under our Bylaws, to comply with the universal proxy rules under the Exchange Act, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide written notice that sets forth the information required by Rule 14a-19
under the Exchange Act no later than April 15, 2024, which is 60 days prior to the one-year anniversary of the 2023 Annual Meeting of Stockholders.
Other Business
Our Board does not know of any other business that will be presented at the Special Meeting. If any other business is properly brought before the Special Meeting, the proxy holders will vote in accordance with their judgment unless you direct them otherwise. Whether or not you intend to attend the Special Meeting, we urge you to vote by Internet or telephone. | | | | | |
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/s/ Robert HadfieldBy order of the Board of Directors, |
Robert HadfieldHouston, TX |
SecretaryMarch 26, 2024 | /s/ David J. Arthur |
| David J. Arthur President and Chief Executive Officer and Director |
APPENDIX A copy
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Salarius Pharmaceuticals, Inc.
Salarius Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the Company’s Annual ReportGeneral Corporation Law of the State of Delaware (the “Corporation”), does hereby certify as follows:
FIRST: The name of the Corporation is Salarius Pharmaceuticals, Inc., and the Corporation was originally incorporated pursuant to the Securities and Exchange CommissionDGCL on Form 10-K forFebruary 26, 2014 (as subsequently amended, the fiscal year ended December 31, 2015 is available without charge upon written request to: Corporate Secretary,“Certificate of Incorporation”), under the name Flex Pharma, Inc.
SECOND: Article IV.A of the Certificate of Incorporation is amended and restated in its entirety to read as follows:
This Company is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is 110,000,000 shares. 100,000,000 shares shall be Common Stock, each having a par value of $0.0001. 10,000,000 shares shall be Preferred Stock, each having a par value of $0.0001.
Upon the filing and effectiveness (the “Effective Time”) of this amendment to the Corporation’s Amended and Restated Certificate of Incorporation, as amended, pursuant to the Delaware General Corporation Law, each [4][5][6][7][8] shares of Common Stock issued immediately prior to the Effective Time (the “Old Common Stock”) shall be reclassified and combined into one validly issued, fully paid and non-assessable share of the Corporation’s common stock, $0.0001 par value per share (the “New Common Stock”), 800 Boylston Street, 24th Floor, Boston, MA 02199.without any action by the holder thereof (the “Reverse Stock Split”) and without increasing or decreasing the authorized number of shares of Common Stock or Preferred Stock. No fractional shares of New Common Stock shall be issued as a result of the Reverse Stock Split and, in lieu thereof, upon surrender after the Effective Time of a certificate or book entry position which formerly represented shares of Old Common Stock that were issued and outstanding immediately prior to the Effective Time, any person who would otherwise be entitled to a fractional share of New Common Stock as a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive a cash payment equal to the fraction of a share of New Common Stock to which such holder would otherwise be entitled multiplied by the closing price per share of the New Common Stock on the Nasdaq Capital Market at the close of business on the date of the Effective Time. Each certificate that theretofore represented shares of Old Common Stock shall thereafter represent that number of shares of New Common Stock into which the shares of Old Common Stock represented by such certificate shall have been reclassified and combined; provided, that each person holding of record a stock certificate or certificates that represented shares of Old Common Stock shall receive, upon surrender of such certificate or certificates, a new certificate or certificates evidencing and representing the number of shares of New Common Stock to which such person is entitled under the foregoing reclassification and combination.
3. This Certificate of Amendment has been duly adopted by the Board of Directors and stockholders of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware.
4. This Certificate of Amendment shall become effective as of [•] [a.m./p.m.], Eastern Time on [•], 202[•].
[Signature page follows]
25
IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this Certificate of Amendment on this ____ day of ___________, 202_. | | | | | | | | |
| SALARIUS PHARMACEUTICALS, INC. |
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| By: | |
| Name: | |
| Title: | |
