| | Approximate Shares of Common Stock after Reverse Stock Split” gives further effect to the Reverse Stock Split but does not give effect to any other changes, including any issuance of securities after May 25, 2016 or issuance of additional whole shares in exchange for fractional shares. | | | | | | | | | | | | | | | | | | | Number of shares of Common Stock before Reverse Stock Split | | | Estimated number of shares of Common Stock after Reverse Stock Split (3) | | | | | | | Ratio of Reverse Stock Split: | | | | | | | 1:2 | | | 1:10 | | | 1:20 | | Authorized | | | 50,000,000 | | | | 50,000,000 | | | | 50,000,000 | | | | 50,000,000 | | Issued and Outstanding | | | 17,524,641 | | | | 8,762,321 | | | | 1,752,465 | | | | 876,233 | | Issuable under Outstanding Warrants | | | 6,967,392 | | | | 3,483,696 | | | | 696,740 | | | | 348,370 | | Issuable under Outstanding Stock Options | | | 924,315 | | | | 462,158 | | | | 92,432 | | | | 46,216 | | Reserved for Issuance(1) | | | 491,688 | | | | 245,844 | | | | 49,169 | | | | 24,585 | | Authorized but Unissued(2) | | | 24,583,652 | | | |
37,291,825 | | | | 47,458,363 | | | | 48,729,181 | |
———————
| | (1)
| Shares reserved for future issuance under the Company’s existing equity incentive plans, excluding shares issuable under outstanding stock options.
| (2)
| Shares authorized but unissued represent Common
| Outstanding After Reverse Stock available for future issuance beyond shares currently outstanding and shares issuable under outstanding warrants and stock options.Split | (3)
| The shares presented are an estimate as we do not know the number
| Based on Current Authorized | Ratio of fractional share roundings that will be required to effectuate the Reverse Stock Split for individual accounts. | | Number of Shares | | | | None | | | 1:2 | | 17,032,826 | 1:3 | | 11,355,217 | 1:4 | | 8,516,413 | 1:5 | | 6,813,130 | 1:6 | | 5,677,608 | 1:7 | | 4,866,521 | 1:8 | | 4,258,206 | 1:9 | | 3,785,072 | 1:10 | | 3,406,565 |
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates, if Applicable
If the certificate of amendment is approved by the Company’s stockholders, and if at such time the Board of Directors still believes that a Reverse Stock Split is in our best interests and the best interests of the Company and itsour stockholders, the Board of Directors will determine the ratio, within the range approved by the Company’sHeat’s stockholders, of the Reverse Stock Split to be implemented. The Companyimplemented and will publicly announce the selected ratio for the Reverse Stock Split prior to the effectiveness of the Reverse Stock Split. We will file the certificate of amendment with the Secretary of State of the State of Delaware at such time as the Board of Directors has determined the appropriate effective time for the Reverse Stock Split. The Board of Directors may delay effecting the Reverse Stock Split without re-soliciting stockholder approval. The Reverse Stock Split will become effective on the effective date set forth in the certificate of amendment. Beginning on the effective date of the split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
As soon as practicable after the effective date of the split, stockholders will be notified that the Reverse Stock Split has been effected. If you hold shares of Common Stockcommon stock in a book-entry form, you will receive a transmittal letter from the Company’sour transfer agent as soon as practicable after the effective time of the Reverse Stock Split with instructions on how to exchange your shares. After you submit your completed transmittal letter, if you are entitled to post-split shares of our Common Stock,the common stock, a transaction statement will be sent to your address of record as soon as practicable after the effective date of the split indicating the number of shares of Common Stockthe common stock you hold.
Some stockholders hold their shares of Common Stockcommon stock in certificate form or a combination of certificate and book-entry form. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates, if applicable. If you are a stockholder holding pre-split shares in certificate form, you will receive a transmittal letter from the Company’sour transfer agent as soon as practicable after the effective time of the Reverse Stock Split. The transmittal letter will be accompanied by instructions specifying how you can exchange your certificate representing the pre-split shares of our Common Stockthe common stock for a statement of holding. When you submit your certificate representing the pre-split shares of our Common Stock,the common stock, your post-split shares of our Common Stockthe common stock will be held electronically in book-entry form in the Direct Registration System. This means that, instead of receiving a new stock certificate, you will receive a statement of holding that indicates the number of post-split shares you own in book-entry form. We will no longer issue physical stock certificates unless you make a specific request for a share certificate representing your post-split ownership interest.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Beginning on the effective time of the Reverse Stock Split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
Fractional Shares
No fractional shares will be issued in connection with the Reverse Stock Split. Instead, stockholders who otherwise would be entitled to receive fractional shares will, upon surrender to the Company will issue one full shareexchange agent of certificates representing their fractional shares, be entitled to receive cash in an amount equal to the product obtained by multiplying (i) the closing sales price of the post-common stock as reported on the Nasdaq on the effective date of the certificate of amendment to the Certificate of Incorporation by (ii) the number of shares of the common stock held by such stockholder before the Reverse Stock Split Common Stock to any shareholder whothat would otherwise have been entitledexchanged for such fractional share interest. Holders of as many as 9 shares (if we were to receiveimplement a fractional share1:10 Reverse Stock Split) of the common stock would be eliminated as a result of the process. Each common shareholder will holdcash payment in lieu of any issuance of fractional shares or interests in connection with the same percentageReverse Stock Split. The exact number by which the number of holders of the outstanding Commoncommon stock would be reduced will depend on the Reverse Stock immediately followingSplit ratio adopted and the reverse splitnumber of stockholders that hold less than the Reverse Stock Split ratio as that shareholder did immediately prior to the reverse split, and except for minor adjustment due to the additional net share fraction that will need to be issued as a result of the treatmenteffective date of fractional shares.the Reverse Stock Split. Effect on Outstanding Stock Options and Warrants
The Company hasWe have equity incentive plans designed primarily to provide stock-based incentives to employees pursuant to which we have issued stock options to purchase shares of our Common Stock.the common stock. In addition, we have issued to third party investors and others warrants to purchase shares of our Common Stock.the common stock. As of May 13, 2016,28, 2019, we had issued and outstanding warrants to purchase up to 6,967,3929,030,730 shares and had granted 1,416,0033,922,433 outstanding options under our equity incentive plans. In the event of a Reverse Stock Split, ourthe Board of Directors has the discretion to determine theshall make appropriate adjustment to awards granted under the equity incentive plans. Further, the terms of our outstanding warrants all provide for appropriate adjustments in the event of a stock split. Accordingly, if the Reverse Stock Split is approved by our stockholders and ourthe Board of Directors decides to implement the Reverse Stock Split, as of the effective date the number of all outstanding warrants and option grants, the number of shares issuable and the exercise price, as applicable, relating to options under our equity incentive plans and warrants, will be proportionately adjusted using the Reverse Stock Split ratio selected by ourthe Board of Directors. OurThe Board of Directors has also authorized the Companyus to effect any other changes necessary, desirable or appropriate to give effect to the Reverse Stock Split, including any applicable technical, conforming changes.
For example, if a 1-for-5 Reverse Stock Split is effected, the aggregate number of shares of our Common Stockthe common stock issuable under our outstanding warrants and stock options would be approximately 1,393,4791,806,146 and 283,201,784,487, respectively, representing a 5-fold decrease in the number of shares issuable under those warrants and stock options. The terms of our outstanding warrants and stock options do not permit exercise for fractional shares. As such, the number of shares issuable under any individual outstanding warrant or stock option shall either be rounded up or down as provided for under the specific terms of our equity incentive plans and warrants, or in the case of certain of our warrants, upon exercise of those warrants the Company haswe have the option to pay cash amounts for fractional shares that otherwise would be issued or round up. Commensurately, the exercise price under each outstanding warrant and stock option would be increased by 5 times such that upon exercise, the aggregate exercise price payable by the warrant holder or optionee to the Companyus would remain the same. Furthermore, the aggregate number of shares currently available under our equity incentive plans for future stock option and other equity-based grants will be proportionally reduced to reflect the Reverse Stock Split ratio. For example, in the event of a 1-for-5 Reverse Stock Split, 251,980111,800 shares that currently remain available for issuance under our equity incentive plans (without taking into account the increase in the 2018 Plan) would be adjusted to equal approximately 50,39622,360 shares, subject to future potential increases pursuant to the terms of those plans.
Accounting Matters
The Reverse Stock Split will not affect the Common Stockcommon stock capital account on our balance sheet. However, because the par value of our Common Stockthe common stock will remain unchanged on the effective date of the split, the components that make up the Common Stockcommon stock capital account will change by offsetting amounts. Depending on the size of the Reverse Stock Split the Board of Directors decides to implement, the stated capital component will be reduced to an amount between one-half (1/2) and one-twentiethone-tenth (1/20)10) of its present amount, and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of our Common Stockthe common stock will be increased because there will be fewer shares of Common Stockcommon stock outstanding. Prior periods’ per share amounts will be restated to reflect the Reverse Stock Split. No Dissenters’ Rights
Under the Delaware General Corporation Law, the Company’s stockholders will not be entitled to dissenters’ rights with respect to the Reverse Stock Split, and we do not intend to independently provide stockholders with any such right.
Material United States Federal Income Tax Consequences of the Reverse Stock Split
The following discussion describes the anticipated material United States Federal income tax consequences to “U.S. holders” (as defined below) of Company capital stock relating to the Reverse Stock Split. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, judicial authorities, published positions of the Internal Revenue Service (“IRS”), and other applicable authorities, all as currently in effect and all of which are subject to change or differing interpretations (possibly with retroactive effect). We have not obtained a ruling from the IRS or an opinion of legal or tax counsel with respect to the tax consequences of the Reverse Stock Split. The following discussion is for information purposes only and is not intended as tax or legal advice. Each holder should seek advice based on the holder’s particular circumstances from an independent tax advisor.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Companyour capital stock that is for United States Federal income tax purposes: | | | | (i) | an individual citizen or resident of the United States; | | (ii) | a corporation (or other entity treated as a corporation for U.S. Federal income tax purposes) organized under the laws of the United States, any state, or the District of Columbia; | | (iii) | an estate with income subject to United States Federal income tax regardless of its source; or | | (iv) | a trust that (a) is subject to primary supervision by a United States court and for which United States persons control all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. |
This discussion assumes that a U.S. holder holds Companyour capital stock as a capital asset within the meaning of Code Section 1221. This discussion does not address all of the tax consequences that may be relevant to a particular Company stockholder or to Company stockholders that are subject to special treatment under United States Federal income tax laws including, but not limited to, financial institutions, tax-exempt organizations, insurance companies, regulated investment companies, real estate investment trusts, entities disregarded from their owners for tax purposes, persons that are broker-dealers, traders in securities who elect the mark-to-market method of accounting for their securities, or Company stockholders holding their shares of Company capital stock as part of a “straddle,” “hedge,” “conversion transaction,” or other integrated transaction, or persons who hold their Company capital stock through individual retirement or other tax-deferred accounts. This discussion also does not address the tax consequences to the Company,us, or to Companyour stockholders that own 5% or more of the Company’sour capital stock, are affiliates of Company,Heat, or are not U.S. holders. In addition, this discussion does not address other United States Federal taxes (such as gift or estate taxes or alternative minimum taxes), the tax consequences of the Reverse Stock Split under state, local, or foreign tax laws or certain tax reporting requirements that may be applicable with respect to the Reverse Stock Split. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.
If a partnership (or other entity treated as a partnership for United States Federal income tax purposes) is a CompanyHeat stockholder, the tax treatment of a partner in the partnership, or any equity owner of such other entity will generally depend upon the status of the person and the activities of the partnership or other entity treated as a partnership for United States Federal income tax purposes.
Limitation on Awards and Shares AvailableTax Consequences
As of May 28, 2019, there are 58,750 shares of our common stock available for grants that may be made under the 2018 Plan.
Eligibility
Persons eligible to participate in the 2018 Plan include all of our employees, directors and consultants.
Awards
The 2018 Plan provides for the grant of: (i) incentive stock options; (ii) nonqualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units; and (vi) other stock-based awards to eligible individuals. The terms of the Reverse Stock Split Generallyawards will be set forth in an award agreement, consistent with the terms of the 2018 Plan. No stock option will be exercisable later than ten years after the date it is granted.
We believe that the Reverse Stock Split willThe 2018 Plan administrator is authorized to grant awards intended to qualify as a “reorganization”“performance-based compensation” under Section 368(a)(1)(E)162(m) of the Code. Accordingly, providedInternal Revenue Code of 1986, as amended (the “Code”).
Stock Options. The 2018 Plan administrator may grant incentive stock options as defined in Section 422 of the Code and nonqualified stock options. Options shall be exercisable for such prices, shall expire at such times, and shall have such other terms and conditions as the 2018 Plan administrator may determine at the time of grant and as set forth in the award agreement; however, the exercise price must be at least equal to 100% of the fair market value at the date of grant. The option price is payable in cash or other consideration acceptable to the Company.
Stock Appreciation Rights. The 2018 Plan administrator may grant stock appreciation rights with such terms and conditions as the administrator may determine at the time of grant and as set forth in the award agreement. The grant price of a stock appreciation right shall be determined by the administrator and shall be specified in the award agreement; however, the grant price must be at least equal to 100% of the fair market value of a share on the date of grant. Stock appreciation rights may be exercised upon such terms and conditions as are imposed by the 2018 Plan administrator and as set forth in the stock appreciation right award agreement.
Restricted Stock. Restricted stock may be granted in such amounts and subject to the terms and conditions as determined by the 2018 Plan administrator at the time of grant and as set forth in the award agreement. The administrator may impose performance goals for restricted stock. The administrator may authorize the payment of dividends on the restricted stock during the restricted period.
Restricted Stock Units. The 2018 Plan administrator may grant restricted stock units in such amounts and subject to the terms and conditions as determined by the 2018 Plan administrator at the time of grant. Restricted stock units may be awarded independently of or in connection with any other award under the 2018 Plan.
Other Awards. The 2018 Plan administrator may grant other types of equity-based or equity-related awards not otherwise described by the terms of the 2018 Plan, in such amounts and subject to such terms and conditions, as the administrator shall determine. Such awards may be based upon attainment of performance goals established by the administrator and may involve the transfer of actual shares to participants, or payment in cash or otherwise of amounts based on the value of shares.
Adjustments Upon Changes in Stock
In the event of any change in the number of shares of common stock outstanding by reason of any stock dividend or split, reverse stock split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum number of shares of the common stock with respect to which the 2018 Plan administrator may grant awards under the 2018 Plan and the individual annual limit described in the 2018 Plan, shall be appropriately adjusted by the 2018 Plan administrator. In the event of any change in the number of shares of the common stock outstanding by reason of any other event or transaction, the 2018 Plan administrator may, but need not, make such adjustments in the number and class of shares of the common stock with respect to which awards: (i) may be granted under the 2018 Plan and (ii) granted to any one employee of the Company or a subsidiary during any one calendar year, in each case as the 2018 Plan administrator may deem appropriate, unless such adjustment would cause any award that would otherwise qualify as performance based compensation with respect to a “162(m) covered employee” (as defined in Section 162 of the Code), to cease to so qualify.
Corporate Transactions
In the event of (i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company’s assets, (iii) a merger or consolidation involving the Company in which the Company is not the surviving corporation or (iv) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of the common stock receive securities of another corporation and/or other property, including cash, the 2018 Plan administrator shall, in its absolute discretion, have the power to:
| | | | ● | cancel each option and stock appreciation right outstanding immediately prior to the event and make a payment to the grantee equal to the excess of (a) the value, as determined in the absolute discretion of the 2018 Plan administrator, of the property received by a holder of common stock as a result of the event over (b) the exercise price otherwise payable in connection with the stock; | | ● | cancel each option and stock appreciation right outstanding immediately prior to the event and make a payment to the grantee equal to property received by a holder of common stock as a result of the event; or | | ● | provide for the exchange of each option and stock appreciation right outstanding immediately prior to such event (whether or not then exercisable) for an option on or stock appreciation right with respect to, as appropriate, some or all of the property which a holder of the number of shares of the common stock subject to such option or stock appreciation right would have received and, incident thereto, make an equitable adjustment as determined by the 2018 Plan administrator in its absolute discretion in the exercise price of the option or stock appreciation right, or the number of shares or amount of property subject to the option or stock appreciation right or, if appropriate, provide for a cash payment to the grantee to whom such option or stock appreciation right was granted in partial consideration for the exchange of the option or stock appreciation right. |
Amendment and Termination
The Board of Directors may amend the 2018 Plan at any time, subject to stockholder approval to the extent required by applicable law or regulation or the listing standards of the Nasdaq or any other market or stock exchange on which the common stock is at the time primarily traded. Additionally, stockholder approval will be specifically required to (i) increase the number of shares available for issuance under the 2018 Plan or (ii) decrease the exercise price of any outstanding option or stock appreciation right granted under the 2018 Plan.
The Board of Directors may terminate the 2018 Plan at any time. Unless sooner terminated by the Board, the 2018 Plan will terminate on the close of business on May 10, 2028, ten years from the original effective date.
Miscellaneous
The 2018 Plan also contains provisions with respect to payment of exercise prices, vesting and expiration of awards, treatment of awards upon the sale of the Company, transferability of awards, and tax withholding requirements. Various other terms, conditions, and limitations apply, as further described in the 2018 Plan.
Federal Income Tax Consequences
The following is a brief description of the principal federal income tax consequences, as of the date of this proxy statement, associated with the grant of awards under the 2018 Plan. This summary is based on our understanding of present United States federal income tax law and regulations. The summary does not purport to be complete or applicable to every specific situation. Furthermore, the following discussion does not address foreign, state or local tax consequences.
Options
Grant. There is generally no United States federal income tax consequence to the participant solely by reason of the grant of incentive stock options or nonqualified stock options under the 2018 Plan, assuming the exercise price of the option is not less than the fair market value of the post-Reverse Stock Split shares on the date of grant.
Exercise. The exercise of an incentive stock option is not a taxable event for regular federal income tax purposes if certain requirements are satisfied, including the requirement that the participant generally must exercise the incentive stock option no later than three months following the termination of the participant’s employment with us. However, such exercise may give rise to alternative minimum tax liability (see “Alternative Minimum Tax” below). Upon the exercise of a nonqualified stock option, the participant will generally recognize ordinary income in an amount equal to the excess of the fair market value of the shares at the time of exercise over the amount paid by the participant as the exercise price. The ordinary income recognized in connection with the exercise by a participant of a nonqualified stock option will be subject to both wage and employment tax withholding, and we generally will be entitled to a corresponding deduction.
The participant’s tax basis in the shares acquired pursuant to the exercise of an option will be the amount paid upon exercise plus, in the case of a nonqualified stock option, the amount of ordinary income, if any, recognized by the participant upon exercise thereof.
Qualifying Disposition. If a participant disposes of shares of our common stock acquired upon exercise of an incentive stock option in a taxable transaction, and such disposition occurs more than two years from the date on which the option was granted and more than one year after the date on which the shares were transferred to the participant pursuant to the exercise of the incentive stock option, the participant will realize long-term capital gain or loss equal to the difference between the amount realized upon such disposition and the participant’s adjusted basis in such shares (generally the option exercise price).
Disqualifying Disposition. If the participant disposes of shares of our common stock acquired upon the exercise of an incentive stock option (other than in certain tax free transactions) within two years from the date on which the incentive stock option was granted or within one year after the transfer of shares to the participant pursuant to the exercise of the incentive stock option, at the time of disposition the participant will generally recognize ordinary income equal to the lesser of: (i) the excess of each such share’s fair market value on the date of exercise over the exercise price paid by the participant or (ii) the participant’s actual gain. If the total amount realized on a taxable disposition (including return on capital and capital gain) exceeds the fair market value on the date of exercise of the shares of our common stock purchased by the participant under the option, the participant will recognize a capital gain in the amount of the excess. If the participant incurs a loss on the disposition (the total amount realized is less than the exercise price paid by the participant), the loss will be a capital loss.
Other Disposition. If a participant disposes of shares of our common stock acquired upon exercise of a nonqualified stock option in a taxable transaction, the participant will recognize capital gain or loss in an amount equal to the difference between the participant’s basis (as discussed above) in the shares sold and the total amount realized upon disposition. Any such capital gain or loss (and any capital gain or loss recognized on a disqualifying disposition of shares of our common stock acquired upon exercise of incentive stock options as discussed above) will be short-term or long-term depending on whether the shares of our common stock were held for more than one year from the date such shares were transferred to the participant.
Alternative Minimum Tax. Alternative minimum tax is payable if and to the extent the amount thereof exceeds the amount of the taxpayer’s regular tax liability, and any alternative minimum tax paid generally may be credited against future regular tax liability (but not future alternative minimum tax liability).
Alternative minimum tax applies to alternative minimum taxable income. Generally, regular taxable income as adjusted for tax preferences and other items is treated differently under the alternative minimum tax.
For alternative minimum tax purposes, the spread upon exercise of an incentive stock option (but not a nonqualified stock option) will be included in alternative minimum taxable income, and the taxpayer will receive a tax basis equal to the fair market value of the pre-Reverse Stock Split shares surrenderedof our common stock at such time for subsequent alternative minimum tax purposes. However, if the participant disposes of the incentive stock option shares in the Reverse year of exercise, the alternative minimum tax income cannot exceed the gain recognized for regular tax purposes, provided that the disposition meets certain third party requirements for limiting the gain on a disqualifying disposition. If there is a disqualifying disposition in a year other than the year of exercise, the income on the disqualifying disposition is not considered alternative minimum taxable income.
There are no federal income tax consequences to us by reason of the grant of incentive stock options or nonqualified stock options or the exercise of an incentive stock option (other than disqualifying dispositions). At the time the participant recognizes ordinary income from the exercise of a nonqualified stock option, we will be entitled to a federal income tax deduction in the amount of the ordinary income so recognized (as described above), provided that we satisfy our reporting obligations described below. To the extent the participant recognizes ordinary income by reason of a disqualifying disposition of the stock acquired upon exercise of an incentive stock option, and subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we generally will be entitled to a corresponding deduction in the year in which the disposition occurs. We are required to report to the Internal Revenue Service any ordinary income recognized by any participant by reason of the exercise of a nonqualified stock option. We are required to withhold income and employment taxes (and pay the employer’s share of the employment taxes) with respect to ordinary income recognized by the participant upon exercise of nonqualified stock options.
Stock Split:Appreciation Rights
| | | | There are generally no tax consequences to the participant or us by reason of the grant of stock appreciation rights. In general, upon exercise of a stock appreciation rights award, the participant will recognize taxable ordinary income equal to the excess of the stock’s fair market value on the date of exercise over the stock appreciation rights’ base price, or the amount payable. Generally, with respect to employees, the Company is required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, the Company generally will be entitled to a business expense deduction equal to the taxable ordinary income realized by the participant.
Restricted Stock
Unless a participant makes a Section 83(b) election, as described below, with respect to restricted stock granted under the 2018 Plan, a participant receiving such an award will not recognize U.S. taxable ordinary income and we will not be allowed a deduction at the time such award is granted. While an award remains unvested or otherwise subject to a substantial risk of forfeiture, a participant will recognize compensation income equal to the amount of any dividends received and we will be allowed a deduction in a like amount. When an award vests or otherwise ceases to be subject to a substantial risk of forfeiture, the excess of the fair market value of the award on the date of vesting or the cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant for the award will be ordinary income to the participant and will be claimed as a deduction for federal income tax purposes by us. Upon disposition of the shares received, the gain or loss recognized by the participant will be treated as capital gain or loss, and the capital gain or loss will be short-term or long-term depending upon whether the participant held the shares for more than one year following the vesting or cessation of the substantial risk of forfeiture.
However, by filing a Section 83(b) election with the Internal Revenue Service within 30 days after the date of grant, a participant’s ordinary income and commencement of holding period and the deduction will be determined as of the date of grant. In such a case, the amount of ordinary income recognized by such a participant and deductible by us will be equal to the excess of the fair market value of the award as of the date of grant over the amount paid, if any, by the participant for the award. If such election is made and a participant thereafter forfeits his or her award, no refund or deduction will be allowed for the amount previously included in such participant’s income. | ·
| | A U.S. holder will not recognize any gain or loss as a result of the Reverse Stock Split.
| | ·
| | A U.S. holder’s aggregate tax basis in his, her, or its post-Reverse Stock Split shares will be equal to the aggregate tax basis in the pre-Reverse Stock Split shares exchanged therefor.
| | ·
| | A U.S. holder’s holding period for the post-Reverse Stock Split shares will include the period during which such stockholder held the pre-Reverse Stock Split shares surrendered in the Reverse Stock Split.
| | ·
| | For purposes of the above discussion of the basis and holding periods for shares of Company capital stock, and except as provided therein, holders who acquired different blocks of Company capital stock at different times for different prices must calculate their basis and holding periods separately for each identifiable block of such stock exchanged, converted, canceled or received in the Reverse Stock Split.
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Information ReportingGenerally, with respect to employees, we are required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code the satisfaction of a tax reporting obligation and Backup Withholdingany tax withholding condition, we generally will be entitled to a business expense deduction equal to the taxable ordinary income realized by the recipient. Upon disposition of stock, the recipient will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock, if any, plus any amount recognized as ordinary income upon acquisition (or vesting) of the stock. Such gain or loss will be long- or short-term depending on whether the stock was held for more than one year from the date ordinary income is measured.
Cash payments received by a U.S. holder of Company capital stock pursuant to the Reverse Stock Split are subject to information reporting, and may be subject to backup withholding at the applicable rate specified by the U.S. Internal Revenue Service (currently 28%) if the holder fails to provide a valid taxpayer identification number and comply with certain certification procedures or otherwise establish an exemption from backup withholding. Backup withholding is not an additional United States Federal income tax. Rather, the U.S. Federal income tax liabilityNew Plan Benefits
As of the person subjectdate of this proxy statement, we are unable to backup withholdingdetermine any grants of awards under the 2018 Plan that will be reduced bymade.
Existing Plan Benefits
The following table sets forth information with respect to options, restricted stock units, restricted stock and other awards previously granted under the amount2018 Plan.
| | | | | | | | Name and position | | Number of shares subject to grant (#) | | Number of Registered Stock Awards Granted | | Number of Shares Underlying Options Granted | Jeffrey Wolf, Chief Executive Officer | | | 1,600,000 | | 800,000 | | 800,000 | Ann A. Rosar, Former Vice President of Finance | | | 200,000 | | 100,000 | | 100,000 | Robert J. Jakobs, Vice President of Finance | | | 75,000 | | — | | 75,000 | Jeff T. Hutchins, Ph.D., Chief Scientific Officer and Chief Operating Officer | | | 500,000 | | 250,000 | | 250,000 | John K.A. Prendergast, Ph.D. | | | 300,000 | | 300,000 | | — | John Monahan, Ph.D. | | | 150,000 | | — | | 150,000 | Edward B. Smith, III | | | 150,000 | | — | | 150,000 | All Current Executive Officers as a Group(3 persons) | | | 2,375,000 | | 1,250,000 | | 1,225,000 | All Directors as a Group (3 persons) | | | 600,000 | | 300,000 | | 300,000 | All Non-Executive Officer Employee | | | 300,000 | | 139,081 | | 160,919 |
EQUITY COMPENSATION PLAN INFORMATION
The following table contains information about our equity compensation plans as of December 31, 2018.
| | | | | | | | Plan Category | | Number of securities to be issued upon exercise of outstanding options | | Weighted-average exercise price of outstanding options | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | | | (a) | | (b) | | (c) | | Equity compensation plans approved by security holders | | | | | | | | 2009 Stock Incentive Plan | | 23,799 | | $25.61 | | 34,290 | | 2014 Stock Incentive Plan | | 251,684 | | $16.29 | | 12,358 | | 2017 Stock Incentive Plan | | 189,820 | | $ 3.62 | | 213,567 | | 2018 Stock Incentive Plan | | — | | — | | 4,000,000 | | Equity compensation plans not approved by security holders | | — | | — | | — | | Total | | 465,303 | | $11.60 | | 4,260,215 | |
Subsequent to December 31, 2018, we issued Jeffrey Wolf, Jeff T. Hutchins, Ph.D. and Ann A. Rosar options exercisable for 800,000, 356,860, and 110,570 shares of common stock, respectively, that vested 50% on the grant date, with the remaining options vesting 30% on the first anniversary of the tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is timely furnished to the IRS.
Vote Required to Approve Amendment of our Restated Certificate of Incorporation
Approvalgrant date and 10% each of the amendment to our Restated Certificate of Incorporation,second and to authorize our Board of Directors, if in their judgment it is necessary, to effect the Reverse Stock Split requires an affirmative vote of a majoritythird anniversaries of the Common Stock outstandinggrant date as part of their 2018 bonus compensation. Subsequent to December 31, 2018, we also issued: (i) Jeffrey Wolf, Jeff T. Hutchins, Ph.D. and entitled to vote atAnn A. Rosar 800,000, 143,140, and 89,430 restricted stock awards, respectively, that vested 50% on the Annual Meeting. Abstentionsgrant date, with the remaining shares of restricted stock vesting 30% on the first anniversary of the grant date, 10% on the second anniversary of the grant date, and broker non-votes (to the extentremaining 10% vesting on the third anniversary of the grant date, and (ii) Robert J. Jakobs 75,000 stock options vesting pro rata on a broker does not exercise its authority to vote) will be counted towards the vote total for this proposal and will have the same effect as “against” votes.
Recommendation
monthly basis over four years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ATHAT YOU VOTE “FOR”FOR THE AMENDMENT TO OUR 2018 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE THAT WE WILL HAVE AUTHORITY TO GRANT.
PROPOSAL TO APPROVE4
APPROVAL OF AN AMENDMENT (IN THE EVENT IT IS DEEMED BY THE BOARD TO BE ADVISABLE) AN AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF OURTHE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AT A RATIO TO BE DETERMINED IN THE DISCRETION OF THE BOARD OF DIRECTORS IN THEWITHIN A RANGE OF ONE (1) SHARE OF COMMON STOCK FOR EVERY TWO (2) TO TWENTY (20)TEN (10) SHARES OF COMMON STOCK AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF THE AMENDMENT UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
PROPOSAL 4
THE ADJOURNMENT OF THE ANNUAL MEETINGGeneral
OurThe Board of Directors has adopted and is recommending that our stockholders approve a proposed certificate of amendment (in the event it is deemed by the Board to be advisable) to our Restated Certificate of Incorporation to effect a Reverse Stock Split of the issued and outstanding shares of common stock. Holders of the common stock are being asked to consider and vote upon an adjournmentapprove the proposal that Article IV of our Restated Certificate of Incorporation be amended to effect a Reverse Stock Split of the Annual Meeting, if necessary, ifcommon stock at a quorum is present,ratio to solicit additional proxies if there arebe determined in the discretion of the Board of Directors and publicly announced prior to the effectiveness of any Reverse Stock Split within the range of one (1) share of common stock for every two (2) to ten (10) shares of common stock and also to decide whether or not sufficient votes in favorto proceed to effect a Reverse Stock Split or instead to abandon the proposed certificate of approvalamendment altogether. Pursuant to the laws of a proposedthe State of Delaware, our state of incorporation, the Board of Directors must adopt any amendment to our Restated Certificate of Incorporation as amended,and submit the amendment to effectuate astockholders for their approval. The form of proposed certificate of amendment to our Restated Certificate of Incorporation to effect the Reverse Stock Split is attached as described in Proposal 3.Appendix B-1 to this proxy statement. If a certificate of amendment is filed with the Secretary of State of the State of Delaware, the certificate of amendment to the Restated Certificate of Incorporation will effect the Reverse Stock Split by reducing the outstanding number of shares of common stock by the ratio to be determined by the Board of Directors and publicly announced prior to the effectiveness of any Reverse Stock Split. If the Board of Directors does not implement an approved Reverse Stock Split prior to the one-year anniversary of this meeting, the Board will seek stockholder approval before implementing any Reverse Stock Split after that time.
Vote RequiredBy approving this proposal, stockholders will approve the certificate of amendment to our Restated Certificate of Incorporation pursuant to which any whole number of outstanding shares, between and including two and ten, would be combined into one share of common stock, and authorize the Board of Directors to file such certificate of amendment, as determined by the Board of Directors in the manner described herein. If approved, the Board of Directors may also elect not to effect any Reverse Stock Split and consequently not to file any certificate of amendment to the Restated Certificate of Incorporation. The Board of Directors believes that stockholder approval of an amendment granting the Board of Directors this discretion, rather than approval of a specified exchange ratio, provides the Board of Directors with maximum flexibility to react to then-current market conditions and, therefore, is in the best interests of our company and its stockholders. The Board of Directors’ decision as to whether and when to effect the Reverse Stock Split will be based on a number of factors, including market conditions, existing and expected trading prices for the common stock, and the continued listing requirements of the Nasdaq Capital Market (“Nasdaq”). Although our stockholders may approve the Reverse Stock Split, we will not effect the Reverse Stock Split if the Board of Directors does not deem it to be in our best interest and the best interest of our stockholders. The Reverse Stock Split, if authorized pursuant to this resolution and if deemed by the Board of Directors to be in our best interest and the best interest of our stockholders, will be effected, if at all, at a time that is not later than one year from the date of the 2019 Annual Meeting. The Board of Directors will publicly announce the ratio selected for the Reverse Stock Split prior to the effectiveness of any such Reverse Stock Split.
ApprovalThis Proposal 4, the proposed approval of the adjournmentcertificate of amendment to our Restated Certificate of Incorporation to effect the Reverse Stock Split, will not change the number of authorized shares of common stock or preferred stock, or the par value of common stock or preferred stock; however effecting the Reverse Stock Split will provide for additional shares of unissued authorized common stock. However, if Proposal 5 (the Increase), is approved and the Board of Directors determined to effect the Increase and not abandon the Increase, the authorized number of shares of common stock will be increased. As of the Annual Meeting requires an affirmative votedate of a majoritythis proxy statement, our current authorized number of shares of common stock is sufficient to satisfy all of our share issuance obligations and we do not have any current plans, arrangements or understandings relating to the issuance of any additional shares of authorized common stock that will become available following the Reverse Stock Split.
Purpose and Background of the votes properly castReverse Stock Split
On several days during the month of May 2019, the common stock has closed below the required $1.00 per share bid price. If the common stock closes below the required $1.00 per share bid price for or against this proposal at the Annual Meeting. Accordingly, abstentions on this proposal will have the same effect as a vote against the proposal. Broker non-votes (to the extent a broker does not exercise its authority to vote)30 consecutive trading days, we will not be counted towards, and will have no effect on,continue to comply with the vote total for this proposal.applicable NASDAQ minimum bid price requirement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE ADJOURNMENT OF THE ANNUAL MEETING, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES TO APPROVE PROPOSAL 3, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF THE ADJOURNMENT UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL 5
APPROVAL OF AN AMENDMENT TO OUR 2014 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK THAT WE HAVE AUTHORITY TO GRANT FROM 1,100,000 TO 3,000,000
In January 2014, the Board adopted, and on June 11, 2014 at our 2014 Annual Meeting of Stockholders our stockholders approved our 2014 Stock Incentive Plan (the “2014 Plan”) under which we were authorized to grant 500,000 awards in the form of options, restricted stock, restricted stock units and other stock based awards. On July 23, 2015 at our 2015 Annual Meeting of Stockholders our stockholders approved and adopted an amendment to the 2014 Plan to increase by 600,000 shares the aggregate number of shares of Common Stock that may be delivered pursuant to awards granted during the life of the 2014 Plan, which would allow the Company to grant up to 1,100,000 awards under the 2014 Plan, as amended.
In May 2016, our Compensation Committee recommended and ourThe Board of Directors adopted, subjecthas approved the proposal authorizing the Reverse Stock Split for the following reasons:
| | | | | ● | | the Board of Directors believes that effecting the Reverse Stock Split could be an effective means of maintaining compliance with the bid price requirement for continued listing of the common stock on the Nasdaq if the common stock should fail to satisfy the $1.00 bid price Nasdaq requirement; | | ● | | the Board of Directors believes that continued listing on the Nasdaq provides overall credibility to an investment in our stock, given the stringent listing and disclosure requirements of the Nasdaq. Notably, some trading firms discourage investors from investing in lower priced stocks that are traded in the over-the-counter market because they are not held to the same stringent standards. Increasing visibility of our stock among a larger pool of potential investors could result in higher trading volumes after positive news flow. Such increases in visibility and liquidity could also help facilitate future financings; and | | ● | | the Board of Directors believes that a higher stock price, which may be achieved through a Reverse Stock Split, could help us generate investor interest and help attract, retain, and motivate employees. |
The Board has considered the potential harm to stockholder approval atus of a delisting of the 2016 Annual Meeting,common stock and has determined that, if the common stock continues to close below $1.00 per share bid price, the consummation of the Reverse Stock Split is the best way to maintain liquidity by achieving compliance with the Nasdaq requirements. The Board of Directors also believes that the current low per share market price of the common stock has a further amendment tonegative effect on the 2014 Plan to increase by 1,900,000 shares the aggregate number of sharesmarketability of our Common Stock that may be delivered pursuant to awards granted duringexisting shares. The Board of Directors believes there are several reasons for this effect. First, certain institutional investors have internal policies preventing the lifepurchase of low-priced stocks. Second, a variety of policies and practices of broker-dealers discourage individual brokers within those firms from dealing in low-priced stocks. Third, because the brokers’ commissions on low-priced stocks generally represent a higher percentage of the Plan, subjectstock price than commissions on higher priced stocks, the current share price of the common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that are a higher percentage of their total share value than would be the case if the share price of the common stock were substantially higher. This factor is also believed to adjustment.limit the willingness of some institutions to purchase the common stock. The Board of Directors anticipates that a Reverse Stock Split will result in a higher bid price for the common stock, which may help to alleviate some of these problems. The Board of Directors further believes that some potential employees are less likely to work for us if we have a low stock price or are no longer Nasdaq listed, regardless of size of our overall market capitalization.
In 2009, ourWe believe that maintaining listing on the Nasdaq will provide us with a market for the common stock that is more accessible than if the common stock were traded on the OTC Bulletin Board adopted and our stockholders approved our 2009 Stock Incentive Plan (the “2009 Plan”) under which we are authorized to grant 869,565 awardsor in the form of options, restricted stock, restricted stock units“pink sheets” maintained by the OTC Markets Group, Inc. Such alternative markets are generally considered to be less efficient than, and not as broad as, the Nasdaq. Among other stock based awards. As of May 13, 2016: (1) 1,283,129 awards had been granted underfactors, trading on the 2014 Plan, of which 3,750 were exercisedNasdaq may increase liquidity and 383,623 were canceledmay potentially minimize the spread between the “bid” and there were 191,287 shares of Common Stock available for grant under“asked” prices quoted by market makers. Further, a Nasdaq listing may enhance our access to capital, increase our flexibility in responding to anticipated capital requirements and facilitate the 2014 Plan, and (2) 860,270 awards had been granted under the 2009 Plan, of which 188,719 were exercised, and 151,304 were canceled and there were 60,693 sharesuse of common stock availablein any strategic or financing transactions that it may undertake. We believe that prospective investors will view an investment in us more favorably if our shares qualify for grant underlisting on the 2009 Plan.Nasdaq as compared with the OTC markets.
In an effortWe expect that, if effected, a Reverse Stock Split of the common stock will increase the market price of the common stock so that we are able to preserve cashmaintain compliance with the Nasdaq minimum bid price listing standard. However, the effect of a Reverse Stock Split on the market price of the common stock cannot be predicted with any certainty, and the history of similar stock split combinations for companies in like circumstances is varied. It is possible that the per share price of the common stock after the Reverse Stock Split will not rise in proportion to attract, retain and motivate persons who make important contributions to our business, we desire to issue securities to our officers, directors and consultants. Since the 2009 Plan currently only has a limited number of shares of Common Stock reserved for issuance, management believes thatreduction in the number of shares of Commonthe common stock outstanding resulting from the Reverse Stock currently availableSplit, effectively reducing our market capitalization, and there can be no assurance that the market price per post-reverse split share will either exceed or remain in excess of the $1.00 minimum bid price for issuance undera sustained period of time. The market price of the 2009 Plan and 2014 Plan is insufficientcommon stock may vary based on other factors that are unrelated to meet its needs to provide for awards to our officers, directors and consultants and insufficient in order to allow us the ability to compete successfully for talented employees and consultants as does the individuals who are eligible to receive awards under our plans. In addition, the principal reason for the proposed amendment to 2014 Plan is to increase the number of shares ofoutstanding, including our Common Stock approved for issuance under the 2014 Plan to provide our Board of Directors, Compensation Committee and management with greater flexibility to provide grants of stock-based awards under the 2014 Plan.future performance.
The principal provisions of the 2014 Plan, as amended, are summarized below and the Amended and Restated 2014 Plan, which incorporates the amendment to the Plan discussed above, is attached hereto asAppendix B. The following discussion is qualified in its entirety by reference to the Plan.
Purpose of the 2014 Plan
The Board of Directors believes that the 2014 Plan is necessary for us to attract, retain and motivate our employees, directors and consultants through the grant of stock options, stock appreciation rights, restricted stock and restricted stock units. We believe the 2014 Plan is best designed to provide the proper incentives for our employees, directors and consultants, ensures our ability to make performance-based awards, and meets the requirements of applicable law. There are currently twenty-three (23) individuals that would be eligible to participate in the 2014 Plan, of which seven (7) are directors or executive officers and sixteen (16) are employees.
Administration
The 2014 Plan generally is administered by our Compensation Committee which has been appointed by the Board of Directors to administer the 2014 Plan. The Compensation Committee has full authority to establish rules and regulations for the proper administration of the 2014 Plan, to select the employees, directors and consultants to whom awards are granted, and to set the date of grant, the type of award and the other terms and conditions of the awards, consistent with the terms of the 2014 Plan.PLEASE NOTE THAT UNLESS SPECIFICALLY INDICATED TO THE CONTRARY, THE DATA CONTAINED IN THIS PROXY STATEMENT, INCLUDING BUT NOT LIMITED TO SHARE NUMBERS, CONVERSION PRICES AND EXERCISE PRICES OF OPTIONS AND WARRANTS, DOES NOT REFLECT THE IMPACT OF THE REVERSE STOCK SPLIT THAT MAY BE EFFECTUATED
Board Discretion to Implement the Reverse Stock Split If Proposal No. 4 is approved by the stockholders and the Board determines to effect the Reverse Stock Split, it will consider certain factors in selecting the specific stock split ratio, including prevailing market conditions, the trading price of the common stock and the steps that we will need to take in order to achieve compliance with the bid price requirement and other listing regulations of the Nasdaq. Based in part on the price of the common stock on the days leading up to the filing of the certificate of amendment to the Restated Certificate of Incorporation effecting the Reverse Stock Split, the Board of Directors will determine the ratio of the Reverse Stock Split, in the range of 1:2 to 1:10, that, in the judgment of the Board, of Directors is the reverse split ratio most likely to allow us to achieve and maintain compliance with the minimum $1.00 per share bid price requirement for listing on the Nasdaq for the longest period of time, while retaining a sufficient number of outstanding, tradeable shares to facilitate an adequate market. The Board of Directors will publicly announce the ratio selected for the Reverse Stock Split prior to the effectiveness of the Reverse Stock Split within the limits set forth in Proposal No. 4. Notwithstanding approval of the Reverse Stock Split by the stockholders, the Board of Directors may, in its sole discretion, abandon the proposed certificate of amendment and determine prior to the effectiveness of any filing with the Secretary of State of the State of Delaware not to effect the Reverse Stock Split prior to the one year anniversary of the 2019 Annual Meeting of stockholders, as permitted under Section 242(c) of the DGCL. If the Board fails to implement the certificate of amendment prior to the one-year anniversary of this meeting of stockholders, stockholder approval would again be required prior to implementing any Reverse Stock Split. Consequences if Stockholder Approval for Proposal Is Not Obtained If we should fail to satisfy the minimum bid price requirement for thirty consecutive trading days, in accordance with Nasdaq’s Listing Rule 5810(c)(3)(A), we will be given a period of 180 calendar days to regain compliance with the requirement. We may also be eligible for an additional 180 day extension from Nasdaq. If stockholder approval for Proposal No. 4 is not obtained, we will not be able to file a certificate of amendment to the Certificate of Incorporation to effect the Reverse Stock Split. If stockholder approval of the Reverse Stock Split is not obtained at the 2019 Annual Meeting and we should fail to satisfy the Nasdaq minimum bid price, we will continue to seek stockholder approval of a reverse stock split in order to regain compliance within the time period granted by Nasdaq to regain compliance. If compliance is not achieved by the expiration of period of time we are granted to regain compliance with the Nasdaq requirement, then our stock would be delisted from the Nasdaq. If we were unable to regain compliance during any such period, the common stock would likely be transferred to the OTC Bulletin Board or OTC Market. If we fail to meet all applicable Nasdaq requirements and Nasdaq determines to delist the common stock, the delisting could adversely affect the market liquidity of the common stock and the market price of the common stock could decrease. Delisting could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, suppliers, commercial partners and employees. In addition, the limited number of authorized shares of the common stock that are neither outstanding nor reserved for issuance could adversely affect our ability to raise capital through equity financings. Principal Effects of the Reverse Stock Split
If the stockholders approve the proposal to authorize the Board of Directors to implement the Reverse Stock Split and the Board of Directors determines to implement the Reverse Stock Split, we will publicly announce the selected ratio for the Reverse Stock Split and file the certificate of amendment to amend the existing provision of our Restated Certificate of Incorporation to effect the Reverse Stock Split. The text of the form of proposed certificate of amendment to the Restated Certificate of Incorporation is annexed to this proxy statement asAppendix B-1.
The Reverse Stock Split will be effected simultaneously for all issued and outstanding shares of common stock and the stock split 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 our company, except that stockholders who would have otherwise received fractional shares will receive cash in lieu of such fractional shares. After the Reverse Stock Split, the shares of the common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the common stock now authorized common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The Reverse Stock Split will not affect us continuing to be subject to the periodic reporting requirements of the Exchange Act. The Reverse Stock Split is not intended to be, and will not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Exchange Act.
The Reverse Stock Split may result in some stockholders owning “odd-lots” of less than 100 shares of the common stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares. In addition, we will not issue fractional shares in connection with the Reverse Stock Split, and stockholders who would have otherwise been entitled to receive such fractional shares will receive an amount in cash determined in the manner set forth below under the heading “Fractional Shares.”
Following the effectiveness of any Reverse Stock Split approved by the stockholders and implementation by the Board of Directors, current stockholders will hold fewer shares of common stock, with such number of shares dependent on the specific ratio for the Reverse Stock Split. For example, if the Board approves of a 1-for-5 Reverse Stock Split, a stockholder owning a “round-lot” of 100 shares of common stock prior to the Reverse Stock Split would hold 20 shares of common stock following the Reverse Stock Split. THE HIGHER THE REVERSE RATIO (1-FOR-5 BEING HIGHER THAN 1-FOR-2, FOR EXAMPLE), THE GREATER THE REDUCTION OF RELATED SHARES EACH EXISTING STOCKHOLDER, POST REVERSE STOCK SPLIT, WILL EXPERIENCE.
In deciding whether to implement the Reverse Stock Split and the specific Reverse Stock Split ratio to be used, the Board of Directors will consider primarily the satisfaction of the Nasdaq continuing listing requirements, as described above under the heading “Purpose and Background of the Reverse Stock Split.” It may also consider, among other things: (i) the market price of the common stock at the time of the Reverse Stock Split; (ii) the number of shares that will be outstanding after the split; (iii) the stockholders’ equity at such time; (iv) the shares of common stock available for issuance in the future; (v) the liquidity of the common stock in the market and the improved liquidity that may result; and (vi) the nature of our operations. The Board of Directors maintains the right to elect not to proceed with the Reverse Stock Split if it determines, in its sole discretion, that we will be able to satisfy the listing requirements of Nasdaq without implementing the Reverse Stock Split or if this proposal is otherwise no longer in our best interests.
IF THIS PROPOSAL IS NOT APPROVED, WE MAY BE UNABLE TO MAINTAIN THE LISTING OF THE COMMON STOCK ON THE NASDAQ, WHICH COULD ADVERSELY AFFECT THE LIQUIDITY AND MARKETABILITY OF THE COMMON STOCK.
Risks Associated with the Reverse Stock Split
There are risks associated with the Reverse Stock Split, including that the Reverse Stock Split may not result in a sustained increase in the per share price of our common stock. There is no assurance that: | | | | | ● | | the market price per share of our common stock after the Reverse Stock Split will rise in proportion to the reduction in the number of shares of our common stock outstanding before the Reverse Stock Split; | | ● | | the Reverse Stock Split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks; | | ● | | the Reverse Stock Split will result in a per share price that will increase our ability to attract and retain employees and other service providers; | | ● | | the liquidity of the common stock will increase; and | | ● | | the closing bid price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by Nasdaq, or that we will otherwise meet the requirements of Nasdaq for continued inclusion for trading on the Nasdaq. |
Stockholders should note that the effect of the Reverse Stock Split, if any, upon the market price for our common stock cannot be accurately predicted. In particular, we cannot assure you that prices for shares of our common stock after the Reverse Stock Split will be two (2) to ten (10) times, as applicable, the prices for shares of our common stock immediately prior to the Reverse Stock Split. Furthermore, even if the market price of our common stock does rise following the Reverse Stock Split, we cannot assure you that the market price of the common stock immediately after the proposed Reverse Stock Split will be maintained for any period of time. Even if an increased per-share price can be maintained, the Reverse Stock Split may not achieve the desired results that have been outlined above. Moreover, because some investors may view the Reverse Stock Split negatively, we cannot assure you that the Reverse Stock Split will not adversely impact the market price of the common stock.
The market price of the common stock will also be based on our performance and other factors, some of which are unrelated to the Reverse Stock Split or the number of shares outstanding. If the Reverse Stock Split is effected and the market price of the common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a Reverse Stock Split. The total market capitalization of the common stock after implementation of the Reverse Stock Split when and if implemented may also be lower than the total market capitalization before the Reverse Stock Split. Furthermore, the liquidity of the common stock could be adversely affected by the reduced number of shares that would be outstanding after the Reverse Stock Split.
While we aim that the Reverse Stock Split will be sufficient to maintain our listing on Nasdaq, it is possible that, even if the Reverse Stock Split results in a bid price for the common stock that exceeds $1.00 per share another reverse split may be necessary in the future and we may not be able to continue to satisfy the other criteria for continued listing of the common stock on Nasdaq. To continue to have the common stock eligible for continued listing on Nasdaq, we would also need to satisfy additional criteria under at least one of three standards. Under the “Equity Standard Listing Rules,” these criteria require, in addition to the minimum bid price, that:
| | | | ● | we have stockholders’ equity of at least $2.5 million; | | ● | our public float must consist of at least 500,000 shares with a market value of at least $1 million (public float defined under Nasdaq’s rules as the shares held by persons other than officers, directors and beneficial owners of greater than 10% of our total outstanding shares); | | ● | there be at least 300 round lot stockholders; | | ● | there be at least two market makers for the common stock; and | | ● | we comply with certain corporate governance requirements. |
We believe that we will satisfy all of these listing criteria; however, we cannot assure you that we will be successful in continuing to meet all requisite continued listing criteria.
We believe that the Reverse Stock Split may result in greater liquidity for our stockholders. However, it is also possible that such liquidity could be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split, particularly if the share price does not increase as a result of the Reverse Stock Split.
Potential Anti-takeover Effects of a Reverse Stock Split
Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of any action, including the proposals discussed herein, that may be used as an anti-takeover mechanism. The Reverse Stock Split, if effected, will also result in a relative increase in the number of authorized but unissued shares of our common stock vis-à-vis the outstanding shares of our common stock and, could, under certain circumstances, have an anti-takeover effect, although this is not the purpose or intent of the Board of Directors. A relative increase in the number of authorized shares of common stock could have other effects on our stockholders, depending upon the exact nature and circumstances of any actual issuances of authorized but unissued shares. A relative increase in our authorized shares could potentially deter takeovers, including takeovers that the Board of Directors has determined are not in the best interest of our stockholders, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover more difficult. For example, we could issue additional shares so as to dilute the stock ownership or voting rights of persons seeking to obtain control without our agreement. Similarly, the issuance of additional shares to certain persons allied with our management could have the effect of making it more difficult to remove our current management by diluting the stock ownership or voting rights of persons seeking to cause such removal. The Reverse Stock Split therefore may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging initiation of any such unsolicited takeover attempts, the Reverse Stock Split may limit the opportunity for our stockholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal.
Although the Reverse Stock Split has been prompted by business and financial considerations and not by the threat of any known or threatened hostile takeover attempt, stockholders should be aware that the effect of the Reverse Stock Split could facilitate future attempts by us to oppose changes in control and perpetuate our management, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices. We cannot provide assurances that any such transactions will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of the common stock.
Common Stock
After the effective date of the Reverse Stock Split, each stockholder will own fewer shares of the common stock.
Accordingly, a Reverse Stock Split would result in a significant increase in the number of authorized and unissued shares of common stock. Because our stockholders have no preemptive rights to purchase or subscribe for any of the unissued common stock, the future issuance of additional shares of common stock will reduce our current stockholders’ percentage ownership interest in the total outstanding shares of common stock. In the absence of a proportionate increase in our future earnings and book value, an increase in the number of our outstanding shares of common stock would dilute our projected future earnings per share, if any, and book value per share of all our outstanding shares of the common stock. If these factors were reflected in the price per share of our common stock, the potential realizable value of a stockholder’s investment could be adversely affected. An issuance of additional shares could therefore have an adverse effect on the potential realizable value of a stockholder’s investment. As of the date of this filing, Heat does not have any definitive plans, proposals or arrangements to issue any of the newly available authorized shares for any purpose.
This proposal has been prompted solely by the business considerations discussed in the preceding paragraphs. Any additional shares of common stock that would become available for issuance following the Reverse Stock Split could also be used by us management to delay or prevent a change in control. The Board of Directors is not aware of any pending takeover or other transactions that would result in a change in control, and the proposal was not adopted in response to any such proposals.
All outstanding options and warrants to purchase shares of the common stock, including any held by our officers and directors, would be adjusted as a result of the Reverse Stock Split. In particular, the number of shares issuable upon the exercise of each instrument would be reduced, and the exercise price per share, if applicable, would be increased, in accordance with the terms of each instrument and based on the ratio of the Reverse Stock Split.
The following table sets forth the approximate number of shares of the common stock that would be outstanding immediately after the Reverse Stock Split at various exchange ratios, based on 34,065,652 shares of common stock actually outstanding as of May 28, 2019. The table does not account for fractional shares that will be paid in cash.
| | | | | Approximate Shares of Common Stock | | | Outstanding After Reverse Stock Split | | | Based on Current Authorized | Ratio of Reverse Stock Split | | Number of Shares | | | | None | | | 1:2 | | 17,032,826 | 1:3 | | 11,355,217 | 1:4 | | 8,516,413 | 1:5 | | 6,813,130 | 1:6 | | 5,677,608 | 1:7 | | 4,866,521 | 1:8 | | 4,258,206 | 1:9 | | 3,785,072 | 1:10 | | 3,406,565 |
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates, if Applicable
If the certificate of amendment is approved by the stockholders, and if at such time the Board of Directors still believes that a Reverse Stock Split is in our best interests and the best interests of our stockholders, the Board of Directors will determine the ratio, within the range approved by Heat’s stockholders, of the Reverse Stock Split to be implemented and will publicly announce the selected ratio for the Reverse Stock Split prior to the effectiveness of the Reverse Stock Split. We will file the certificate of amendment with the Secretary of State of the State of Delaware at such time as the Board of Directors has determined the appropriate effective time for the Reverse Stock Split. The Board of Directors may delay effecting the Reverse Stock Split without re-soliciting stockholder approval. The Reverse Stock Split will become effective on the effective date set forth in the certificate of amendment. Beginning on the effective date of the split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
As soon as practicable after the effective date of the split, stockholders will be notified that the Reverse Stock Split has been effected. If you hold shares of common stock in a book-entry form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the Reverse Stock Split with instructions on how to exchange your shares. After you submit your completed transmittal letter, if you are entitled to post-split shares of the common stock, a transaction statement will be sent to your address of record as soon as practicable after the effective date of the split indicating the number of shares of the common stock you hold.
Some stockholders hold their shares of common stock in certificate form or a combination of certificate and book-entry form. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates, if applicable. If you are a stockholder holding pre-split shares in certificate form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the Reverse Stock Split. The transmittal letter will be accompanied by instructions specifying how you can exchange your certificate representing the pre-split shares of the common stock for a statement of holding. When you submit your certificate representing the pre-split shares of the common stock, your post-split shares of the common stock will be held electronically in book-entry form in the Direct Registration System. This means that, instead of receiving a new stock certificate, you will receive a statement of holding that indicates the number of post-split shares you own in book-entry form. We will no longer issue physical stock certificates unless you make a specific request for a share certificate representing your post-split ownership interest.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Beginning on the effective time of the Reverse Stock Split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
Fractional Shares
No fractional shares will be issued in connection with the Reverse Stock Split. Instead, stockholders who otherwise would be entitled to receive fractional shares will, upon surrender to the exchange agent of certificates representing their fractional shares, be entitled to receive cash in an amount equal to the product obtained by multiplying (i) the closing sales price of the common stock as reported on the Nasdaq on the effective date of the certificate of amendment to the Certificate of Incorporation by (ii) the number of shares of the common stock held by such stockholder before the Reverse Stock Split that would otherwise have been exchanged for such fractional share interest. Holders of as many as 9 shares (if we were to implement a 1:10 Reverse Stock Split) of the common stock would be eliminated as a result of the cash payment in lieu of any issuance of fractional shares or interests in connection with the Reverse Stock Split. The exact number by which the number of holders of the common stock would be reduced will depend on the Reverse Stock Split ratio adopted and the number of stockholders that hold less than the Reverse Stock Split ratio as of the effective date of the Reverse Stock Split. Effect on Outstanding Stock Options and Warrants
We have equity incentive plans designed primarily to provide stock-based incentives to employees pursuant to which we have issued stock options to purchase shares of the common stock. In addition, we have issued to third party investors and others warrants to purchase shares of the common stock. As of May 28, 2019, we had issued and outstanding warrants to purchase up to 9,030,730 shares and had 3,922,433 outstanding options under our equity incentive plans. In the event of a Reverse Stock Split, the Board of Directors shall make appropriate adjustment to awards granted under the equity incentive plans. Further, the terms of our outstanding warrants all provide for appropriate adjustments in the event of a stock split. Accordingly, if the Reverse Stock Split is approved by our stockholders and the Board of Directors decides to implement the Reverse Stock Split, as of the effective date the number of all outstanding warrants and option grants, the number of shares issuable and the exercise price, as applicable, relating to options under our equity incentive plans and warrants, will be proportionately adjusted using the Reverse Stock Split ratio selected by the Board of Directors. The Board of Directors has also authorized us to effect any other changes necessary, desirable or appropriate to give effect to the Reverse Stock Split, including any applicable technical, conforming changes.
For example, if a 1-for-5 Reverse Stock Split is effected, the aggregate number of shares of the common stock issuable under our outstanding warrants and stock options would be approximately 1,806,146 and 784,487, respectively, representing a 5-fold decrease in the number of shares issuable under those warrants and stock options. The terms of our outstanding warrants and stock options do not permit exercise for fractional shares. As such, the number of shares issuable under any individual outstanding warrant or stock option shall either be rounded up or down as provided for under the specific terms of our equity incentive plans and warrants, or in the case of certain of our warrants, upon exercise of those warrants we have the option to pay cash amounts for fractional shares that otherwise would be issued or round up. Commensurately, the exercise price under each outstanding warrant and stock option would be increased by 5 times such that upon exercise, the aggregate exercise price payable by the warrant holder or optionee to us would remain the same. Furthermore, the aggregate number of shares currently available under our equity incentive plans for future stock option and other equity-based grants will be proportionally reduced to reflect the Reverse Stock Split ratio. For example, in the event of a 1-for-5 Reverse Stock Split, 111,800 shares that currently remain available for issuance under our equity incentive plans (without taking into account the increase in the 2018 Plan) would be adjusted to equal approximately 22,360 shares, subject to future potential increases pursuant to the terms of those plans.
Accounting Matters
The Reverse Stock Split will not affect the common stock capital account on our balance sheet. However, because the par value of the common stock will remain unchanged on the effective date 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 the Board of Directors decides to implement, the stated capital component will be reduced to an amount between one-half (1/2) and one-tenth (1/10) of its present amount, and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of the common stock will be increased because there will be fewer shares of common stock outstanding. Prior periods’ per share amounts will be restated to reflect the Reverse Stock Split. Material United States Federal Income Tax Consequences of the Reverse Stock Split
The following discussion describes the anticipated material United States Federal income tax consequences to “U.S. holders” (as defined below) of Company capital stock relating to the Reverse Stock Split. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, judicial authorities, published positions of the Internal Revenue Service (“IRS”), and other applicable authorities, all as currently in effect and all of which are subject to change or differing interpretations (possibly with retroactive effect). We have not obtained a ruling from the IRS or an opinion of legal or tax counsel with respect to the tax consequences of the Reverse Stock Split. The following discussion is for information purposes only and is not intended as tax or legal advice. Each holder should seek advice based on the holder’s particular circumstances from an independent tax advisor.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of our capital stock that is for United States Federal income tax purposes: | | | | (i) | an individual citizen or resident of the United States; | | (ii) | a corporation (or other entity treated as a corporation for U.S. Federal income tax purposes) organized under the laws of the United States, any state, or the District of Columbia; | | (iii) | an estate with income subject to United States Federal income tax regardless of its source; or | | (iv) | a trust that (a) is subject to primary supervision by a United States court and for which United States persons control all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. |
This discussion assumes that a U.S. holder holds our capital stock as a capital asset within the meaning of Code Section 1221. This discussion does not address all of the tax consequences that may be relevant to a particular stockholder or to stockholders that are subject to special treatment under United States Federal income tax laws including, but not limited to, financial institutions, tax-exempt organizations, insurance companies, regulated investment companies, real estate investment trusts, entities disregarded from their owners for tax purposes, persons that are broker-dealers, traders in securities who elect the mark-to-market method of accounting for their securities, or stockholders holding their shares of capital stock as part of a “straddle,” “hedge,” “conversion transaction,” or other integrated transaction, or persons who hold their capital stock through individual retirement or other tax-deferred accounts. This discussion also does not address the tax consequences to us, or to our stockholders that own 5% or more of our capital stock, are affiliates of Heat, or are not U.S. holders. In addition, this discussion does not address other United States Federal taxes (such as gift or estate taxes or alternative minimum taxes), the tax consequences of the Reverse Stock Split under state, local, or foreign tax laws or certain tax reporting requirements that may be applicable with respect to the Reverse Stock Split. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.
If a partnership (or other entity treated as a partnership for United States Federal income tax purposes) is a Heat stockholder, the tax treatment of a partner in the partnership, or any equity owner of such other entity will generally depend upon the status of the person and the activities of the partnership or other entity treated as a partnership for United States Federal income tax purposes.
Limitation on Awards and Shares Available
As of May 13, 2016,28, 2019, there were 191,287 shares of our Common Stock available for grants under the 2014 Plan. We are seeking the approval of our stockholders to amend the 2014 Plan to increase by 1,900,000 shares the aggregate number of58,750 shares of our common stock available for grants that may be delivered pursuant to awards granted during the life of the 2014 Plan, which would allow us to grant up to 3,000,000 awardsmade under the 20142018 Plan.
Eligibility
Persons eligible to participate in the 20142018 Plan include all of our employees, directors and consultants.
Awards
The 20142018 Plan provides for the grant of: (i) incentive stock options; (ii) nonqualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units; and (v)(vi) other stock-based and cash-based awards to eligible individuals. The terms of the awards will be set forth in an award agreement, consistent with the terms of the 20142018 Plan. No stock option will be exercisable later than ten years after the date it is granted.
The 20142018 Plan Compensation Committeeadministrator is authorized to grant awards intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended.amended (the “Code”).
Stock Options. The Compensation Committee2018 Plan administrator may grant incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock options. Options shall be exercisable for such prices, shall expire at such times, and shall have such other terms and conditions as the Compensation Committee2018 Plan administrator may determine at the time of grant and as set forth in the award agreement; however, the exercise price must be at least equal to 100% of the fair market value at the date of grant. The option price is payable in cash or other consideration acceptable to us.the Company.
Stock Appreciation Rights. The Compensation Committee2018 Plan administrator may grant stock appreciation rights with such terms and conditions as the Compensation Committeeadministrator may determine at the time of grant and as set forth in the award agreement. The grant price of a stock appreciation right shall be determined by the Compensation Committeeadministrator and shall be specified in the award agreement; however, the grant price must be at least equal to 100% of the fair market value of a share on the date of grant. Stock appreciation rights may be exercised upon such terms and conditions as are imposed by the Compensation Committee2018 Plan administrator and as set forth in the stock appreciation right award agreement.
Restricted Stock. Restricted stock may be granted in such amounts and subject to the terms and conditions as determined by the Compensation Committee2018 Plan administrator at the time of grant and as set forth in the award agreement. The Compensation Committeeadministrator may impose performance goals for restricted stock. The Compensation Committeeadministrator may authorize the payment of dividends on the restricted stock during the restricted period.
Restricted Stock Units. The 2018 Plan administrator may grant restricted stock units in such amounts and subject to the terms and conditions as determined by the 2018 Plan administrator at the time of grant. Restricted stock units may be awarded independently of or in connection with any other award under the 2018 Plan.
Other Awards. The Compensation Committee2018 Plan administrator may grant other types of equity-based or equity-related awards not otherwise described by the terms of the 2018 Plan, in such amounts and subject to such terms and conditions, as the Compensation Committeeadministrator shall determine. Such awards may be based upon attainment of performance goals established by the Compensation Committeeadministrator and may involve the transfer of actual shares to participants, or payment in cash or otherwise of amounts based on the value of shares.
Adjustments Upon Changes in Stock
In the event of any change in the number of shares of common stock outstanding by reason of any stock dividend or split, reverse stock split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum number of shares of the common stock with respect to which the 2018 Plan administrator may grant awards under the 2018 Plan and the individual annual limit described in the 2018 Plan, shall be appropriately adjusted by the 2018 Plan administrator. In the event of any change in the number of shares of the common stock outstanding by reason of any other event or transaction, the 2018 Plan administrator may, but need not, make such adjustments in the number and class of shares of the common stock with respect to which awards: (i) may be granted under the 2018 Plan and (ii) granted to any one employee of the Company or a subsidiary during any one calendar year, in each case as the 2018 Plan administrator may deem appropriate, unless such adjustment would cause any award that would otherwise qualify as performance based compensation with respect to a “162(m) covered employee” (as defined in Section 162 of the Code), to cease to so qualify.
Corporate Transactions
In the event of (i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company’s assets, (iii) a merger or consolidation involving the Company in which the Company is not the surviving corporation or (iv) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of the common stock receive securities of another corporation and/or other property, including cash, the 2018 Plan administrator shall, in its absolute discretion, have the power to:
| | | | ● | cancel each option and stock appreciation right outstanding immediately prior to the event and make a payment to the grantee equal to the excess of (a) the value, as determined in the absolute discretion of the 2018 Plan administrator, of the property received by a holder of common stock as a result of the event over (b) the exercise price otherwise payable in connection with the stock; | | ● | cancel each option and stock appreciation right outstanding immediately prior to the event and make a payment to the grantee equal to property received by a holder of common stock as a result of the event; or | | ● | provide for the exchange of each option and stock appreciation right outstanding immediately prior to such event (whether or not then exercisable) for an option on or stock appreciation right with respect to, as appropriate, some or all of the property which a holder of the number of shares of the common stock subject to such option or stock appreciation right would have received and, incident thereto, make an equitable adjustment as determined by the 2018 Plan administrator in its absolute discretion in the exercise price of the option or stock appreciation right, or the number of shares or amount of property subject to the option or stock appreciation right or, if appropriate, provide for a cash payment to the grantee to whom such option or stock appreciation right was granted in partial consideration for the exchange of the option or stock appreciation right. |
Amendment and Termination
OurThe Board of Directors may amend the 20142018 Plan at any time, subject to stockholder approval to the extent required by applicable law or regulation or the listing standards of the NASDAQNasdaq or any other market or stock exchange on which the Common Stockcommon stock is at the time primarily traded. Additionally, stockholder approval will be specifically required to (i) increase the number of shares available for issuance under the 20142018 Plan or (ii) decrease the exercise price of any outstanding option or stock appreciation right granted under the 20142018 Plan.
Our
The Board of Directors may terminate the 20142018 Plan at any time. Unless sooner terminated by the Board, the 2018 Plan will terminate on the close of business on January 16, 2024.May 10, 2028, ten years from the original effective date.
Miscellaneous
The 20142018 Plan also contains provisions with respect to payment of exercise prices, vesting and expiration of awards, treatment of awards upon the sale of the Company, transferability of awards, and tax withholding requirements. Various other terms, conditions, and limitations apply, as further described in the 20142018 Plan.
Federal Income Tax Consequences
The following is a brief description of the principal federal income tax consequences, as of the date of this proxy statement, associated with the grant of awards under the 2009 Plan and 20142018 Plan. This summary is based on our understanding of present United States federal income tax law and regulations. The summary does not purport to be complete or applicable to every specific situation. Furthermore, the following discussion does not address foreign, state or local tax consequences.
Options
Grant. There is generally no United States federal income tax consequence to the participant solely by reason of the grant of incentive stock options or nonqualified stock options under the 20092018 Plan, and 2014 Plan.assuming the exercise price of the option is not less than the fair market value of the shares on the date of grant.
Exercise. The exercise of an incentive stock option is not a taxable event for regular federal income tax purposes if certain requirements are satisfied, including the requirement that the participant generally must exercise the incentive stock option no later than ninety daysthree months following the termination of the participant’s employment with us. However, such exercise may give rise to alternative minimum tax liability (see “Alternative Minimum Tax” below).
Upon the exercise of a nonqualified stock option, the participant will generally recognize ordinary income in an amount equal to the excess of the fair market value of the shares at the time of exercise over the amount paid by the participant as the exercise price. The ordinary income recognized in connection with the exercise by a participant of a nonqualified stock option will be subject to both wage and employment tax withholding.withholding, and we generally will be entitled to a corresponding deduction.
The participant’s tax basis in the shares acquired pursuant to the exercise of an option will be the amount paid upon exercise plus, in the case of a nonqualified stock option, the amount of ordinary income, if any, recognized by the participant upon exercise thereof.
Qualifying Disposition. If a participant disposes of shares of our Common Stockcommon stock acquired upon exercise of an incentive stock option in a taxable transaction, and such disposition occurs more than two years from the date on which the option was granted and more than one year after the date on which the shares were transferred to the participant pursuant to the exercise of the incentive stock option, the participant will realize long-term capital gain or loss equal to the difference between the amount realized upon such disposition and the participant’s adjusted basis in such shares (generally the option exercise price).
Disqualifying Disposition. If the participant disposes of shares of our Common Stockcommon stock acquired upon the exercise of an incentive stock option (other than in certain tax free transactions) within two years from the date on which the incentive stock option was granted or within one year after the transfer of shares to the participant pursuant to the exercise of the incentive stock option, at the time of disposition the participant will generally recognize ordinary income equal to the lesser ofof: (i) the excess of each such share’s fair market value on the date of exercise over the exercise price paid by the participant or (ii) the participant’s actual gain. If the total amount realized on a taxable disposition (including return on capital and capital gain) exceeds the fair market value on the date of exercise of the shares of our Common Stockcommon stock purchased by the participant under the option, the participant will recognize a capital gain in the amount of the excess. If the participant incurs a loss on the disposition (the total amount realized is less than the exercise price paid by the participant), the loss will be a capital loss.
Other Disposition. If a participant disposes of shares of our Common Stockcommon stock acquired upon exercise of a nonqualified stock option in a taxable transaction, the participant will recognize capital gain or loss in an amount equal to the difference between the participant’s basis (as discussed above) in the shares sold and the total amount realized upon disposition. Any such capital gain or loss (and any capital gain or loss recognized on a disqualifying disposition of shares of our Common Stockcommon stock acquired upon exercise of incentive stock options as discussed above) will be short-term or long-term depending on whether the shares of our Common Stockcommon stock were held for more than one year from the date such shares were transferred to the participant.
Alternative Minimum Tax. Alternative minimum tax is payable if and to the extent the amount thereof exceeds the amount of the taxpayer’s regular tax liability, and any alternative minimum tax paid generally may be credited against future regular tax liability (but not future alternative minimum tax liability).
Alternative minimum tax applies to alternative minimum taxable income. Generally, regular taxable income as adjusted for tax preferences and other items is treated differently under the alternative minimum tax.
For alternative minimum tax purposes, the spread upon exercise of an incentive stock option (but not a nonqualified stock option) will be included in alternative minimum taxable income, and the taxpayer will receive a tax basis equal to the fair market value of the shares of our Common Stockcommon stock at such time for subsequent alternative minimum tax purposes. However, if the participant disposes of the incentive stock option shares in the year of exercise, the alternative minimum tax income cannot exceed the gain recognized for regular tax purposes, provided that the disposition meets certain third party requirements for limiting the gain on a disqualifying disposition. If there is a disqualifying disposition in a year other than the year of exercise, the income on the disqualifying disposition is not considered alternative minimum taxable income.
There are no federal income tax consequences to us by reason of the grant of incentive stock options or nonqualified stock options or the exercise of an incentive stock option (other than disqualifying dispositions). At the time the participant recognizes ordinary income from the exercise of a nonqualified stock option, we will be entitled to a federal income tax deduction in the amount of the ordinary income so recognized (as described above), provided that we satisfy our reporting obligations described below. To the extent the participant recognizes ordinary income by reason of a disqualifying disposition of the stock acquired upon exercise of an incentive stock option, and subject to the requirement of reasonableness, the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the satisfaction of a tax reporting obligation, we generally will be entitled to a corresponding deduction in the year in which the disposition occurs. We are required to report to the Internal Revenue Service any ordinary income recognized by any participant by reason of the exercise of a nonqualified stock option. We are required to withhold income and employment taxes (and pay the employer’s share of the employment taxes) with respect to ordinary income recognized by the participant upon exercise of nonqualified stock options.
Stock Appreciation Rights
There are generally no tax consequences to the participant or us by reason of the grant of stock appreciation rights. In general, upon exercise of a stock appreciation rights award, the participant will recognize taxable ordinary income equal to the excess of the stock’s fair market value on the date of exercise over the stock appreciation rights’ base price, or the amount payable. Generally, with respect to employees, the Company is required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the satisfaction of a tax reporting obligation, the Company generally will be entitled to a business expense deduction equal to the taxable ordinary income realized by the participant.
Restricted Stock
Unless a participant makes a Section 83(b) election, as described below, with respect to restricted stock granted under the 2009 Plan and 20142018 Plan, a participant receiving such an award will not recognize U.S. taxable ordinary income and we will not be allowed a deduction at the time such award is granted. While an award remains unvested or otherwise subject to a substantial risk of forfeiture, a participant will recognize compensation income equal to the amount of any dividends received and we will be allowed a deduction in a like amount. When an award vests or otherwise ceases to be subject to a substantial risk of forfeiture, the excess of the fair market value of the award on the date of vesting or the cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant for the award will be ordinary income to the participant and will be claimed as a deduction for federal income tax purposes by us. Upon disposition of the shares received, the gain or loss recognized by the participant will be treated as capital gain or loss, and the capital gain or loss will be short-term or long-term depending upon whether the participant held the shares for more than one year following the vesting or cessation of the substantial risk of forfeiture.
However, by filing a Section 83(b) election with the Internal Revenue Service within 30 days after the date of grant, a participant’s ordinary income and commencement of holding period and the deduction will be determined as of the date of grant. In such a case, the amount of ordinary income recognized by such a participant and deductible by us will be equal to the excess of the fair market value of the award as of the date of grant over the amount paid, if any, by the participant for the award. If such election is made and a participant thereafter forfeits his or her award, no refund or deduction will be allowed for the amount previously included in such participant’s income.
Generally, with respect to employees, we are required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the satisfaction of a tax reporting obligation and any tax withholding condition, we generally will be entitled to a business expense deduction equal to the taxable ordinary income realized by the recipient. Upon disposition of stock, the recipient will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock, if any, plus any amount recognized as ordinary income upon acquisition (or vesting) of the stock. Such gain or loss will be long- or short-term depending on whether the stock was held for more than one year from the date ordinary income is measured.
EQUITY COMPENSATION PLAN INFORMATION
New Plan Benefits Under the 2014 Plan
As of May 13, 2016,the date of this proxy statement, we have granted 2,143,399 options with a weighted average exercise priceare unable to determine any grants of $4.00awards under the 20092018 Plan and 2014 Plan. Of these options, 357,778 were granted to members of the Board of Directors and 1,785,621 were granted to employees and consultants. During the year ended December 31, 2015, we have granted 393,375 options with a weighted average exercise price of $5.32 under the 2014 Plan. Of these options, 0 were granted to members of the Board of Directors and 393,375 were granted to employees and consultants. At this time the benefits and amounts that will be received by or allocated to our executive officers, non-executive directors and employees and consultants under themade.
Existing Plan are not determinable. We have not approved any awards that are conditioned upon stockholder approval of the amendment to the Plan.Benefits
The following table sets forth information aboutwith respect to options, restricted stock units, restricted stock and other awards previously granted under the securities authorized for issuance under our equity compensation plans for the fiscal year ended December 31, 2015. 2018 Plan.
| | | | | | | | Name and position | | Number of shares subject to grant (#) | | Number of Registered Stock Awards Granted | | Number of Shares Underlying Options Granted | Jeffrey Wolf, Chief Executive Officer | | | 1,600,000 | | 800,000 | | 800,000 | Ann A. Rosar, Former Vice President of Finance | | | 200,000 | | 100,000 | | 100,000 | Robert J. Jakobs, Vice President of Finance | | | 75,000 | | — | | 75,000 | Jeff T. Hutchins, Ph.D., Chief Scientific Officer and Chief Operating Officer | | | 500,000 | | 250,000 | | 250,000 | John K.A. Prendergast, Ph.D. | | | 300,000 | | 300,000 | | — | John Monahan, Ph.D. | | | 150,000 | | — | | 150,000 | Edward B. Smith, III | | | 150,000 | | — | | 150,000 | All Current Executive Officers as a Group(3 persons) | | | 2,375,000 | | 1,250,000 | | 1,225,000 | All Directors as a Group (3 persons) | | | 600,000 | | 300,000 | | 300,000 | All Non-Executive Officer Employee | | | 300,000 | | 139,081 | | 160,919 |
EQUITY COMPENSATION PLAN INFORMATION
The following table contains information about our equity compensation plans as of December 31, 2015. Equity Compensation Plan Information2018.
| | | | | | | | | | | | | | Plan Category | | Number of securities to be issued upon exercise of outstanding options (1) | | Weighted-average exercise price of outstanding options | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | | Number of securities to be issued upon exercise of outstanding options | | Weighted-average exercise price of outstanding options | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | | | (a) | | (b) | | (c) | | | (a) | | (b) | | (c) | | Equity compensation plans approved by security holders | | | | | | | | | | | | | | | 2 2009 Equity Incentive Plan | | 553,105 | | $4.03 | | 27,835 | | | 2009 Stock Incentive Plan | | | 23,799 | | $25.61 | | 34,290 | | 2014 Stock Incentive Plan | | 661,581 | | $5.69 | | 425,462 | | | 251,684 | | $16.29 | | 12,358 | | 2017 Stock Incentive Plan | | | 189,820 | | $ 3.62 | | 213,567 | | 2018 Stock Incentive Plan | | | — | | — | | 4,000,000 | | Equity compensation plans not approved by security holders | | — | | — | | — | | | — | | — | | — | | Total | | 1,214,686 | | $4.93 | | 453,297 | |
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(1)
Subsequent to year-end,December 31, 2018, we issued Melissa Price, Anil Goyal, Taylor SchreiberJeffrey Wolf, Jeff T. Hutchins, Ph.D. and Jeffrey WolfAnn A. Rosar options exercisable for 51,587, 21,587, 57,567800,000, 356,860, and 94,048110,570 shares of common stock, respectively, that vested 50% on the grant date, with the remaining options vesting 30% on the first anniversary of the grant date and 10% each of the second and third anniversaries of the grant date as part of their 2018 bonus compensation. Subsequent to December 31, 2018, we also issued: (i) Jeffrey Wolf, Jeff T. Hutchins, Ph.D. and Ann A. Rosar 800,000, 143,140, and 89,430 restricted stock awards, respectively, that vested 50% on the grant date, with the remaining shares of restricted stock vesting 30% on the first anniversary of the grant date, 10% on the second anniversary of the grant date, and the remaining 10% vesting on the third anniversary of the grant date, and (ii) Robert J. Jakobs 75,000 stock options vesting pro rata on a monthly basis over four (4) years as part of their 2015 bonus. In addition, on January 11, 2016, each director who was not an employee was granted an option exercisable for 23,810 shares of Common Stock (having a value of $45,000) vesting on the one-year anniversary of the date of grant. Upon his appointment to the Board, Dr. Prendergast was awarded and option grant exercisable for 40,000 shares of Common Stock and Ms. Rosar was granted a ten year option exercisable for 20,000 shares of Common Stock, upon her appointment as Vice President of Finance.years.
OURTHE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO OUR 2018 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE THAT WE WILL HAVE AUTHORITY TO GRANT.
PROPOSAL 4
APPROVAL OF AN AMENDMENT (IN THE EVENT IT IS DEEMED BY THE BOARD TO BE ADVISABLE) TO OUR RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AT A RATIO TO BE DETERMINED IN THE DISCRETION OF THE BOARD OF DIRECTORS WITHIN A RANGE OF ONE (1) SHARE OF COMMON STOCK FOR EVERY TWO (2) TO TEN (10) SHARES OF COMMON STOCK
General
The Board of Directors has adopted and is recommending that our stockholders approve a proposed certificate of amendment (in the event it is deemed by the Board to be advisable) to our Restated Certificate of Incorporation to effect a Reverse Stock Split of the issued and outstanding shares of common stock. Holders of the common stock are being asked to approve the proposal that Article IV of our Restated Certificate of Incorporation be amended to effect a Reverse Stock Split of the common stock at a ratio to be determined in the discretion of the Board of Directors and publicly announced prior to the effectiveness of any Reverse Stock Split within the range of one (1) share of common stock for every two (2) to ten (10) shares of common stock and also to decide whether or not to proceed to effect a Reverse Stock Split or instead to abandon the proposed certificate of amendment altogether. Pursuant to the laws of the State of Delaware, our state of incorporation, the Board of Directors must adopt any amendment to our Restated Certificate of Incorporation and submit the amendment to stockholders for their approval. The form of proposed certificate of amendment to our Restated Certificate of Incorporation to effect the Reverse Stock Split is attached asAppendix B-1 to this proxy statement. If a certificate of amendment is filed with the Secretary of State of the State of Delaware, the certificate of amendment to the Restated Certificate of Incorporation will effect the Reverse Stock Split by reducing the outstanding number of shares of common stock by the ratio to be determined by the Board of Directors and publicly announced prior to the effectiveness of any Reverse Stock Split. If the Board of Directors does not implement an approved Reverse Stock Split prior to the one-year anniversary of this meeting, the Board will seek stockholder approval before implementing any Reverse Stock Split after that time.
By approving this proposal, stockholders will approve the certificate of amendment to our Restated Certificate of Incorporation pursuant to which any whole number of outstanding shares, between and including two and ten, would be combined into one share of common stock, and authorize the Board of Directors to file such certificate of amendment, as determined by the Board of Directors in the manner described herein. If approved, the Board of Directors may also elect not to effect any Reverse Stock Split and consequently not to file any certificate of amendment to the Restated Certificate of Incorporation. The Board of Directors believes that stockholder approval of an amendment granting the Board of Directors this discretion, rather than approval of a specified exchange ratio, provides the Board of Directors with maximum flexibility to react to then-current market conditions and, therefore, is in the best interests of our company and its stockholders. The Board of Directors’ decision as to whether and when to effect the Reverse Stock Split will be based on a number of factors, including market conditions, existing and expected trading prices for the common stock, and the continued listing requirements of the Nasdaq Capital Market (“Nasdaq”). Although our stockholders may approve the Reverse Stock Split, we will not effect the Reverse Stock Split if the Board of Directors does not deem it to be in our best interest and the best interest of our stockholders. The Reverse Stock Split, if authorized pursuant to this resolution and if deemed by the Board of Directors to be in our best interest and the best interest of our stockholders, will be effected, if at all, at a time that is not later than one year from the date of the 2019 Annual Meeting. The Board of Directors will publicly announce the ratio selected for the Reverse Stock Split prior to the effectiveness of any such Reverse Stock Split.
This Proposal 4, the proposed approval of the certificate of amendment to our Restated Certificate of Incorporation to effect the Reverse Stock Split, will not change the number of authorized shares of common stock or preferred stock, or the par value of common stock or preferred stock; however effecting the Reverse Stock Split will provide for additional shares of unissued authorized common stock. However, if Proposal 5 (the Increase), is approved and the Board of Directors determined to effect the Increase and not abandon the Increase, the authorized number of shares of common stock will be increased. As of the date of this proxy statement, our current authorized number of shares of common stock is sufficient to satisfy all of our share issuance obligations and we do not have any current plans, arrangements or understandings relating to the issuance of any additional shares of authorized common stock that will become available following the Reverse Stock Split.
Purpose and Background of the Reverse Stock Split
On several days during the month of May 2019, the common stock has closed below the required $1.00 per share bid price. If the common stock closes below the required $1.00 per share bid price for 30 consecutive trading days, we will not continue to comply with the applicable NASDAQ minimum bid price requirement.
The Board of Directors has approved the proposal authorizing the Reverse Stock Split for the following reasons: | | | | | ● | | the Board of Directors believes that effecting the Reverse Stock Split could be an effective means of maintaining compliance with the bid price requirement for continued listing of the common stock on the Nasdaq if the common stock should fail to satisfy the $1.00 bid price Nasdaq requirement; | | ● | | the Board of Directors believes that continued listing on the Nasdaq provides overall credibility to an investment in our stock, given the stringent listing and disclosure requirements of the Nasdaq. Notably, some trading firms discourage investors from investing in lower priced stocks that are traded in the over-the-counter market because they are not held to the same stringent standards. Increasing visibility of our stock among a larger pool of potential investors could result in higher trading volumes after positive news flow. Such increases in visibility and liquidity could also help facilitate future financings; and | | ● | | the Board of Directors believes that a higher stock price, which may be achieved through a Reverse Stock Split, could help us generate investor interest and help attract, retain, and motivate employees. |
The Board has considered the potential harm to us of a delisting of the common stock and has determined that, if the common stock continues to close below $1.00 per share bid price, the consummation of the Reverse Stock Split is the best way to maintain liquidity by achieving compliance with the Nasdaq requirements. The Board of Directors also believes that the current low per share market price of the common stock has a negative effect on the marketability of our existing shares. The Board of Directors believes there are several reasons for this effect. First, certain institutional investors have internal policies preventing the purchase of low-priced stocks. Second, a variety of policies and practices of broker-dealers discourage individual brokers within those firms from dealing in low-priced stocks. Third, because the brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current share price of the common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that are a higher percentage of their total share value than would be the case if the share price of the common stock were substantially higher. This factor is also believed to limit the willingness of some institutions to purchase the common stock. The Board of Directors anticipates that a Reverse Stock Split will result in a higher bid price for the common stock, which may help to alleviate some of these problems. The Board of Directors further believes that some potential employees are less likely to work for us if we have a low stock price or are no longer Nasdaq listed, regardless of size of our overall market capitalization.
We believe that maintaining listing on the Nasdaq will provide us with a market for the common stock that is more accessible than if the common stock were traded on the OTC Bulletin Board or in the “pink sheets” maintained by the OTC Markets Group, Inc. Such alternative markets are generally considered to be less efficient than, and not as broad as, the Nasdaq. Among other factors, trading on the Nasdaq may increase liquidity and may potentially minimize the spread between the “bid” and “asked” prices quoted by market makers. Further, a Nasdaq listing may enhance our access to capital, increase our flexibility in responding to anticipated capital requirements and facilitate the use of common stock in any strategic or financing transactions that it may undertake. We believe that prospective investors will view an investment in us more favorably if our shares qualify for listing on the Nasdaq as compared with the OTC markets.
We expect that, if effected, a Reverse Stock Split of the common stock will increase the market price of the common stock so that we are able to maintain compliance with the Nasdaq minimum bid price listing standard. However, the effect of a Reverse Stock Split on the market price of the common stock cannot be predicted with any certainty, and the history of similar stock split combinations for companies in like circumstances is varied. It is possible that the per share price of the common stock after the Reverse Stock Split will not rise in proportion to the reduction in the number of shares of the common stock outstanding resulting from the Reverse Stock Split, effectively reducing our market capitalization, and there can be no assurance that the market price per post-reverse split share will either exceed or remain in excess of the $1.00 minimum bid price for a sustained period of time. The market price of the common stock may vary based on other factors that are unrelated to the number of shares outstanding, including our future performance.
PLEASE NOTE THAT UNLESS SPECIFICALLY INDICATED TO THE CONTRARY, THE DATA CONTAINED IN THIS PROXY STATEMENT, INCLUDING BUT NOT LIMITED TO SHARE NUMBERS, CONVERSION PRICES AND EXERCISE PRICES OF OPTIONS AND WARRANTS, DOES NOT REFLECT THE IMPACT OF THE REVERSE STOCK SPLIT THAT MAY BE EFFECTUATED
Board Discretion to Implement the Reverse Stock Split If Proposal No. 4 is approved by the stockholders and the Board determines to effect the Reverse Stock Split, it will consider certain factors in selecting the specific stock split ratio, including prevailing market conditions, the trading price of the common stock and the steps that we will need to take in order to achieve compliance with the bid price requirement and other listing regulations of the Nasdaq. Based in part on the price of the common stock on the days leading up to the filing of the certificate of amendment to the Restated Certificate of Incorporation effecting the Reverse Stock Split, the Board of Directors will determine the ratio of the Reverse Stock Split, in the range of 1:2 to 1:10, that, in the judgment of the Board, of Directors is the reverse split ratio most likely to allow us to achieve and maintain compliance with the minimum $1.00 per share bid price requirement for listing on the Nasdaq for the longest period of time, while retaining a sufficient number of outstanding, tradeable shares to facilitate an adequate market. The Board of Directors will publicly announce the ratio selected for the Reverse Stock Split prior to the effectiveness of the Reverse Stock Split within the limits set forth in Proposal No. 4. Notwithstanding approval of the Reverse Stock Split by the stockholders, the Board of Directors may, in its sole discretion, abandon the proposed certificate of amendment and determine prior to the effectiveness of any filing with the Secretary of State of the State of Delaware not to effect the Reverse Stock Split prior to the one year anniversary of the 2019 Annual Meeting of stockholders, as permitted under Section 242(c) of the DGCL. If the Board fails to implement the certificate of amendment prior to the one-year anniversary of this meeting of stockholders, stockholder approval would again be required prior to implementing any Reverse Stock Split. Consequences if Stockholder Approval for Proposal Is Not Obtained If we should fail to satisfy the minimum bid price requirement for thirty consecutive trading days, in accordance with Nasdaq’s Listing Rule 5810(c)(3)(A), we will be given a period of 180 calendar days to regain compliance with the requirement. We may also be eligible for an additional 180 day extension from Nasdaq. If stockholder approval for Proposal No. 4 is not obtained, we will not be able to file a certificate of amendment to the Certificate of Incorporation to effect the Reverse Stock Split. If stockholder approval of the Reverse Stock Split is not obtained at the 2019 Annual Meeting and we should fail to satisfy the Nasdaq minimum bid price, we will continue to seek stockholder approval of a reverse stock split in order to regain compliance within the time period granted by Nasdaq to regain compliance. If compliance is not achieved by the expiration of period of time we are granted to regain compliance with the Nasdaq requirement, then our stock would be delisted from the Nasdaq. If we were unable to regain compliance during any such period, the common stock would likely be transferred to the OTC Bulletin Board or OTC Market. If we fail to meet all applicable Nasdaq requirements and Nasdaq determines to delist the common stock, the delisting could adversely affect the market liquidity of the common stock and the market price of the common stock could decrease. Delisting could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, suppliers, commercial partners and employees. In addition, the limited number of authorized shares of the common stock that are neither outstanding nor reserved for issuance could adversely affect our ability to raise capital through equity financings. Principal Effects of the Reverse Stock Split
If the stockholders approve the proposal to authorize the Board of Directors to implement the Reverse Stock Split and the Board of Directors determines to implement the Reverse Stock Split, we will publicly announce the selected ratio for the Reverse Stock Split and file the certificate of amendment to amend the existing provision of our Restated Certificate of Incorporation to effect the Reverse Stock Split. The text of the form of proposed certificate of amendment to the Restated Certificate of Incorporation is annexed to this proxy statement asAppendix B-1.
The Reverse Stock Split will be effected simultaneously for all issued and outstanding shares of common stock and the stock split 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 our company, except that stockholders who would have otherwise received fractional shares will receive cash in lieu of such fractional shares. After the Reverse Stock Split, the shares of the common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the common stock now authorized common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The Reverse Stock Split will not affect us continuing to be subject to the periodic reporting requirements of the Exchange Act. The Reverse Stock Split is not intended to be, and will not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Exchange Act.
The Reverse Stock Split may result in some stockholders owning “odd-lots” of less than 100 shares of the common stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares. In addition, we will not issue fractional shares in connection with the Reverse Stock Split, and stockholders who would have otherwise been entitled to receive such fractional shares will receive an amount in cash determined in the manner set forth below under the heading “Fractional Shares.”
Following the effectiveness of any Reverse Stock Split approved by the stockholders and implementation by the Board of Directors, current stockholders will hold fewer shares of common stock, with such number of shares dependent on the specific ratio for the Reverse Stock Split. For example, if the Board approves of a 1-for-5 Reverse Stock Split, a stockholder owning a “round-lot” of 100 shares of common stock prior to the Reverse Stock Split would hold 20 shares of common stock following the Reverse Stock Split. THE HIGHER THE REVERSE RATIO (1-FOR-5 BEING HIGHER THAN 1-FOR-2, FOR EXAMPLE), THE GREATER THE REDUCTION OF RELATED SHARES EACH EXISTING STOCKHOLDER, POST REVERSE STOCK SPLIT, WILL EXPERIENCE.
In deciding whether to implement the Reverse Stock Split and the specific Reverse Stock Split ratio to be used, the Board of Directors will consider primarily the satisfaction of the Nasdaq continuing listing requirements, as described above under the heading “Purpose and Background of the Reverse Stock Split.” It may also consider, among other things: (i) the market price of the common stock at the time of the Reverse Stock Split; (ii) the number of shares that will be outstanding after the split; (iii) the stockholders’ equity at such time; (iv) the shares of common stock available for issuance in the future; (v) the liquidity of the common stock in the market and the improved liquidity that may result; and (vi) the nature of our operations. The Board of Directors maintains the right to elect not to proceed with the Reverse Stock Split if it determines, in its sole discretion, that we will be able to satisfy the listing requirements of Nasdaq without implementing the Reverse Stock Split or if this proposal is otherwise no longer in our best interests.
IF THIS PROPOSAL IS NOT APPROVED, WE MAY BE UNABLE TO MAINTAIN THE LISTING OF THE COMMON STOCK ON THE NASDAQ, WHICH COULD ADVERSELY AFFECT THE LIQUIDITY AND MARKETABILITY OF THE COMMON STOCK.
Risks Associated with the Reverse Stock Split
There are risks associated with the Reverse Stock Split, including that the Reverse Stock Split may not result in a sustained increase in the per share price of our common stock. There is no assurance that: | | | | | ● | | the market price per share of our common stock after the Reverse Stock Split will rise in proportion to the reduction in the number of shares of our common stock outstanding before the Reverse Stock Split; | | ● | | the Reverse Stock Split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks; | | ● | | the Reverse Stock Split will result in a per share price that will increase our ability to attract and retain employees and other service providers; | | ● | | the liquidity of the common stock will increase; and | | ● | | the closing bid price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by Nasdaq, or that we will otherwise meet the requirements of Nasdaq for continued inclusion for trading on the Nasdaq. |
Stockholders should note that the effect of the Reverse Stock Split, if any, upon the market price for our common stock cannot be accurately predicted. In particular, we cannot assure you that prices for shares of our common stock after the Reverse Stock Split will be two (2) to ten (10) times, as applicable, the prices for shares of our common stock immediately prior to the Reverse Stock Split. Furthermore, even if the market price of our common stock does rise following the Reverse Stock Split, we cannot assure you that the market price of the common stock immediately after the proposed Reverse Stock Split will be maintained for any period of time. Even if an increased per-share price can be maintained, the Reverse Stock Split may not achieve the desired results that have been outlined above. Moreover, because some investors may view the Reverse Stock Split negatively, we cannot assure you that the Reverse Stock Split will not adversely impact the market price of the common stock.
The market price of the common stock will also be based on our performance and other factors, some of which are unrelated to the Reverse Stock Split or the number of shares outstanding. If the Reverse Stock Split is effected and the market price of the common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a Reverse Stock Split. The total market capitalization of the common stock after implementation of the Reverse Stock Split when and if implemented may also be lower than the total market capitalization before the Reverse Stock Split. Furthermore, the liquidity of the common stock could be adversely affected by the reduced number of shares that would be outstanding after the Reverse Stock Split.
While we aim that the Reverse Stock Split will be sufficient to maintain our listing on Nasdaq, it is possible that, even if the Reverse Stock Split results in a bid price for the common stock that exceeds $1.00 per share another reverse split may be necessary in the future and we may not be able to continue to satisfy the other criteria for continued listing of the common stock on Nasdaq. To continue to have the common stock eligible for continued listing on Nasdaq, we would also need to satisfy additional criteria under at least one of three standards. Under the “Equity Standard Listing Rules,” these criteria require, in addition to the minimum bid price, that:
| | | | ● | we have stockholders’ equity of at least $2.5 million; | | ● | our public float must consist of at least 500,000 shares with a market value of at least $1 million (public float defined under Nasdaq’s rules as the shares held by persons other than officers, directors and beneficial owners of greater than 10% of our total outstanding shares); | | ● | there be at least 300 round lot stockholders; | | ● | there be at least two market makers for the common stock; and | | ● | we comply with certain corporate governance requirements. |
We believe that we will satisfy all of these listing criteria; however, we cannot assure you that we will be successful in continuing to meet all requisite continued listing criteria.
We believe that the Reverse Stock Split may result in greater liquidity for our stockholders. However, it is also possible that such liquidity could be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split, particularly if the share price does not increase as a result of the Reverse Stock Split.
Potential Anti-takeover Effects of a Reverse Stock Split
Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of any action, including the proposals discussed herein, that may be used as an anti-takeover mechanism. The Reverse Stock Split, if effected, will also result in a relative increase in the number of authorized but unissued shares of our common stock vis-à-vis the outstanding shares of our common stock and, could, under certain circumstances, have an anti-takeover effect, although this is not the purpose or intent of the Board of Directors. A relative increase in the number of authorized shares of common stock could have other effects on our stockholders, depending upon the exact nature and circumstances of any actual issuances of authorized but unissued shares. A relative increase in our authorized shares could potentially deter takeovers, including takeovers that the Board of Directors has determined are not in the best interest of our stockholders, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover more difficult. For example, we could issue additional shares so as to dilute the stock ownership or voting rights of persons seeking to obtain control without our agreement. Similarly, the issuance of additional shares to certain persons allied with our management could have the effect of making it more difficult to remove our current management by diluting the stock ownership or voting rights of persons seeking to cause such removal. The Reverse Stock Split therefore may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging initiation of any such unsolicited takeover attempts, the Reverse Stock Split may limit the opportunity for our stockholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal.
Although the Reverse Stock Split has been prompted by business and financial considerations and not by the threat of any known or threatened hostile takeover attempt, stockholders should be aware that the effect of the Reverse Stock Split could facilitate future attempts by us to oppose changes in control and perpetuate our management, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices. We cannot provide assurances that any such transactions will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of the common stock.
Common Stock
After the effective date of the Reverse Stock Split, each stockholder will own fewer shares of the common stock.
Accordingly, a Reverse Stock Split would result in a significant increase in the number of authorized and unissued shares of common stock. Because our stockholders have no preemptive rights to purchase or subscribe for any of the unissued common stock, the future issuance of additional shares of common stock will reduce our current stockholders’ percentage ownership interest in the total outstanding shares of common stock. In the absence of a proportionate increase in our future earnings and book value, an increase in the number of our outstanding shares of common stock would dilute our projected future earnings per share, if any, and book value per share of all our outstanding shares of the common stock. If these factors were reflected in the price per share of our common stock, the potential realizable value of a stockholder’s investment could be adversely affected. An issuance of additional shares could therefore have an adverse effect on the potential realizable value of a stockholder’s investment. As of the date of this filing, Heat does not have any definitive plans, proposals or arrangements to issue any of the newly available authorized shares for any purpose.
This proposal has been prompted solely by the business considerations discussed in the preceding paragraphs. Any additional shares of common stock that would become available for issuance following the Reverse Stock Split could also be used by us management to delay or prevent a change in control. The Board of Directors is not aware of any pending takeover or other transactions that would result in a change in control, and the proposal was not adopted in response to any such proposals.
All outstanding options and warrants to purchase shares of the common stock, including any held by our officers and directors, would be adjusted as a result of the Reverse Stock Split. In particular, the number of shares issuable upon the exercise of each instrument would be reduced, and the exercise price per share, if applicable, would be increased, in accordance with the terms of each instrument and based on the ratio of the Reverse Stock Split.
The following table sets forth the approximate number of shares of the common stock that would be outstanding immediately after the Reverse Stock Split at various exchange ratios, based on 34,065,652 shares of common stock actually outstanding as of May 28, 2019. The table does not account for fractional shares that will be paid in cash.
| | | | | Approximate Shares of Common Stock | | | Outstanding After Reverse Stock Split | | | Based on Current Authorized | Ratio of Reverse Stock Split | | Number of Shares | | | | None | | | 1:2 | | 17,032,826 | 1:3 | | 11,355,217 | 1:4 | | 8,516,413 | 1:5 | | 6,813,130 | 1:6 | | 5,677,608 | 1:7 | | 4,866,521 | 1:8 | | 4,258,206 | 1:9 | | 3,785,072 | 1:10 | | 3,406,565 |
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates, if Applicable
If the certificate of amendment is approved by the stockholders, and if at such time the Board of Directors still believes that a Reverse Stock Split is in our best interests and the best interests of our stockholders, the Board of Directors will determine the ratio, within the range approved by Heat’s stockholders, of the Reverse Stock Split to be implemented and will publicly announce the selected ratio for the Reverse Stock Split prior to the effectiveness of the Reverse Stock Split. We will file the certificate of amendment with the Secretary of State of the State of Delaware at such time as the Board of Directors has determined the appropriate effective time for the Reverse Stock Split. The Board of Directors may delay effecting the Reverse Stock Split without re-soliciting stockholder approval. The Reverse Stock Split will become effective on the effective date set forth in the certificate of amendment. Beginning on the effective date of the split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
As soon as practicable after the effective date of the split, stockholders will be notified that the Reverse Stock Split has been effected. If you hold shares of common stock in a book-entry form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the Reverse Stock Split with instructions on how to exchange your shares. After you submit your completed transmittal letter, if you are entitled to post-split shares of the common stock, a transaction statement will be sent to your address of record as soon as practicable after the effective date of the split indicating the number of shares of the common stock you hold.
Some stockholders hold their shares of common stock in certificate form or a combination of certificate and book-entry form. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates, if applicable. If you are a stockholder holding pre-split shares in certificate form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the Reverse Stock Split. The transmittal letter will be accompanied by instructions specifying how you can exchange your certificate representing the pre-split shares of the common stock for a statement of holding. When you submit your certificate representing the pre-split shares of the common stock, your post-split shares of the common stock will be held electronically in book-entry form in the Direct Registration System. This means that, instead of receiving a new stock certificate, you will receive a statement of holding that indicates the number of post-split shares you own in book-entry form. We will no longer issue physical stock certificates unless you make a specific request for a share certificate representing your post-split ownership interest.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Beginning on the effective time of the Reverse Stock Split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
Fractional Shares
No fractional shares will be issued in connection with the Reverse Stock Split. Instead, stockholders who otherwise would be entitled to receive fractional shares will, upon surrender to the exchange agent of certificates representing their fractional shares, be entitled to receive cash in an amount equal to the product obtained by multiplying (i) the closing sales price of the common stock as reported on the Nasdaq on the effective date of the certificate of amendment to the Certificate of Incorporation by (ii) the number of shares of the common stock held by such stockholder before the Reverse Stock Split that would otherwise have been exchanged for such fractional share interest. Holders of as many as 9 shares (if we were to implement a 1:10 Reverse Stock Split) of the common stock would be eliminated as a result of the cash payment in lieu of any issuance of fractional shares or interests in connection with the Reverse Stock Split. The exact number by which the number of holders of the common stock would be reduced will depend on the Reverse Stock Split ratio adopted and the number of stockholders that hold less than the Reverse Stock Split ratio as of the effective date of the Reverse Stock Split. Effect on Outstanding Stock Options and Warrants
We have equity incentive plans designed primarily to provide stock-based incentives to employees pursuant to which we have issued stock options to purchase shares of the common stock. In addition, we have issued to third party investors and others warrants to purchase shares of the common stock. As of May 28, 2019, we had issued and outstanding warrants to purchase up to 9,030,730 shares and had 3,922,433 outstanding options under our equity incentive plans. In the event of a Reverse Stock Split, the Board of Directors shall make appropriate adjustment to awards granted under the equity incentive plans. Further, the terms of our outstanding warrants all provide for appropriate adjustments in the event of a stock split. Accordingly, if the Reverse Stock Split is approved by our stockholders and the Board of Directors decides to implement the Reverse Stock Split, as of the effective date the number of all outstanding warrants and option grants, the number of shares issuable and the exercise price, as applicable, relating to options under our equity incentive plans and warrants, will be proportionately adjusted using the Reverse Stock Split ratio selected by the Board of Directors. The Board of Directors has also authorized us to effect any other changes necessary, desirable or appropriate to give effect to the Reverse Stock Split, including any applicable technical, conforming changes.
For example, if a 1-for-5 Reverse Stock Split is effected, the aggregate number of shares of the common stock issuable under our outstanding warrants and stock options would be approximately 1,806,146 and 784,487, respectively, representing a 5-fold decrease in the number of shares issuable under those warrants and stock options. The terms of our outstanding warrants and stock options do not permit exercise for fractional shares. As such, the number of shares issuable under any individual outstanding warrant or stock option shall either be rounded up or down as provided for under the specific terms of our equity incentive plans and warrants, or in the case of certain of our warrants, upon exercise of those warrants we have the option to pay cash amounts for fractional shares that otherwise would be issued or round up. Commensurately, the exercise price under each outstanding warrant and stock option would be increased by 5 times such that upon exercise, the aggregate exercise price payable by the warrant holder or optionee to us would remain the same. Furthermore, the aggregate number of shares currently available under our equity incentive plans for future stock option and other equity-based grants will be proportionally reduced to reflect the Reverse Stock Split ratio. For example, in the event of a 1-for-5 Reverse Stock Split, 111,800 shares that currently remain available for issuance under our equity incentive plans (without taking into account the increase in the 2018 Plan) would be adjusted to equal approximately 22,360 shares, subject to future potential increases pursuant to the terms of those plans.
Accounting Matters
The Reverse Stock Split will not affect the common stock capital account on our balance sheet. However, because the par value of the common stock will remain unchanged on the effective date 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 the Board of Directors decides to implement, the stated capital component will be reduced to an amount between one-half (1/2) and one-tenth (1/10) of its present amount, and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of the common stock will be increased because there will be fewer shares of common stock outstanding. Prior periods’ per share amounts will be restated to reflect the Reverse Stock Split. Material United States Federal Income Tax Consequences of the Reverse Stock Split
The following discussion describes the anticipated material United States Federal income tax consequences to “U.S. holders” (as defined below) of Company capital stock relating to the Reverse Stock Split. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, judicial authorities, published positions of the Internal Revenue Service (“IRS”), and other applicable authorities, all as currently in effect and all of which are subject to change or differing interpretations (possibly with retroactive effect). We have not obtained a ruling from the IRS or an opinion of legal or tax counsel with respect to the tax consequences of the Reverse Stock Split. The following discussion is for information purposes only and is not intended as tax or legal advice. Each holder should seek advice based on the holder’s particular circumstances from an independent tax advisor.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of our capital stock that is for United States Federal income tax purposes: | | | | (i) | an individual citizen or resident of the United States; | | (ii) | a corporation (or other entity treated as a corporation for U.S. Federal income tax purposes) organized under the laws of the United States, any state, or the District of Columbia; | | (iii) | an estate with income subject to United States Federal income tax regardless of its source; or | | (iv) | a trust that (a) is subject to primary supervision by a United States court and for which United States persons control all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. |
This discussion assumes that a U.S. holder holds our capital stock as a capital asset within the meaning of Code Section 1221. This discussion does not address all of the tax consequences that may be relevant to a particular stockholder or to stockholders that are subject to special treatment under United States Federal income tax laws including, but not limited to, financial institutions, tax-exempt organizations, insurance companies, regulated investment companies, real estate investment trusts, entities disregarded from their owners for tax purposes, persons that are broker-dealers, traders in securities who elect the mark-to-market method of accounting for their securities, or stockholders holding their shares of capital stock as part of a “straddle,” “hedge,” “conversion transaction,” or other integrated transaction, or persons who hold their capital stock through individual retirement or other tax-deferred accounts. This discussion also does not address the tax consequences to us, or to our stockholders that own 5% or more of our capital stock, are affiliates of Heat, or are not U.S. holders. In addition, this discussion does not address other United States Federal taxes (such as gift or estate taxes or alternative minimum taxes), the tax consequences of the Reverse Stock Split under state, local, or foreign tax laws or certain tax reporting requirements that may be applicable with respect to the Reverse Stock Split. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.
If a partnership (or other entity treated as a partnership for United States Federal income tax purposes) is a Heat stockholder, the tax treatment of a partner in the partnership, or any equity owner of such other entity will generally depend upon the status of the person and the activities of the partnership or other entity treated as a partnership for United States Federal income tax purposes.
Tax Consequences of the Reverse Stock Split Generally
We believe that the Reverse Stock Split will qualify as a “reorganization” under Section 368(a)(1)(E) of the Code. Accordingly, provided that the fair market value of the post-Reverse Stock Split shares is equal to the fair market value of the pre-Reverse Stock Split shares surrendered in the Reverse Stock Split: | | | | | ● | | A U.S. holder will not recognize any gain or loss as a result of the Reverse Stock Split other than cash payments if any, received by a stockholder in lieu of fractional shares as discussed below. | | ● | | A U.S. holder’s aggregate tax basis in his, her, or its post-Reverse Stock Split shares will be equal to the aggregate tax basis in the pre-Reverse Stock Split shares exchanged therefor, less any basis attributable to fractional share interests. | | ● | | A U.S. holder’s holding period for the post-Reverse Stock Split shares will include the period during which such stockholder held the pre-Reverse Stock Split shares surrendered in the Reverse Stock Split. | | ● | | For purposes of the above discussion of the basis and holding periods for shares of Heat capital stock, and except as provided therein, holders who acquired different blocks of Heat capital stock at different times for different prices must calculate their basis and holding periods separately for each identifiable block of such stock exchanged, converted, canceled or received in the Reverse Stock Split. | | ● | | Stockholders who receive cash in lieu of fractional share interests as a result of the Reverse Stock Split will be treated as having received the fractional shares pursuant to the Reverse Stock Split and then as having exchanged the fractional shares for cash in a redemption by Heat, and will generally recognize gain or loss equal to the difference between the amount of cash received in lieu of a fractional share and their adjusted basis allocable to the fractional share interests redeemed. Such gain or loss will be long term capital gain or loss if the shares held prior to the Reverse Stock Split were held for more than one year. The stockholder’s holding period for the shares issued after the Reverse Stock Split will include the period during which the stockholder held the shares surrendered in the Reverse Stock Split. |
Information Reporting and Backup Withholding
Cash payments received by a U.S. holder of our capital stock pursuant to the Reverse Stock Split are subject to information reporting, and may be subject to backup withholding at the applicable rate specified by the U.S. Internal Revenue Service (currently 28%) if the holder fails to provide a valid taxpayer identification number and comply with certain certification procedures or otherwise establish an exemption from backup withholding. Backup withholding is not an additional United States Federal income tax. Rather, the U.S. Federal income tax liability of the person subject to backup withholding will be reduced by the amount of the tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is timely furnished to the IRS.
Vote Required to Approve Amendment of our Restated Certificate of Incorporation
Approval of the certificate of amendment to our Restated Certificate of Incorporation included asAppendix B-1, and to authorize the Board of Directors, if in their judgment it is necessary, to effect the Reverse Stock Split requires an affirmative vote of a majority of the common stock outstanding and entitled to vote at the 2019 Annual Meeting as of the record date. Abstentions and broker non-votes will be counted towards the vote total for this proposal and will have the same effect as “against” votes. Approval by our stockholders of the Reverse Stock Split is not conditioned upon approval by our stockholders of the Increase; conversely, approval by our stockholder of the Increase is not conditioned upon approval by our stockholders of the Reverse Stock Split.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF OUR AMENDEDCOMMON STOCK AT A RATIO TO BE DETERMINED IN THE DISCRETION OF THE BOARD OF DIRECTORS IN THE RANGE OF ONE (1) SHARE OF COMMON STOCK FOR EVERY TWO (2) TO TEN (10) SHARES OF COMMON STOCK, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF THE AMENDMENT UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
PROPOSAL 5
APPROVAL OF AMENDMENT (IN THE EVENT IT IS DEEMED BY THE BOARD TO BE ADVISABLE) TO OUR RESTATED 2014CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK INCENTIVE PLAN.FROM 100,000,000 to 250,000,000 The Board of Directors has adopted a resolution approving and recommending to our stockholders for their approval, a proposed certificate of amendment (in the event it is deemed by the Board of Directors to be advisable) to our Restated Certificate of Incorporation to effect an increase in the number of shares of our authorized common stock from the 100,000,000 shares that are currently authorized for issuance pursuant to our Restated Certificate of Incorporation to a total of 250,000,000 shares of common stock, if the Board of Directors deems the Increase advisable.
The text of the form of the proposed certificate of amendment to the Restated Certificate of Incorporation to implement Proposal 5 is annexed to this proxy statement asAppendix B-2. Assuming the stockholders approve the proposal and the Board of Directors deems it advisable, the Increase will be effected upon the filing of the certificate of amendment to the Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The Board of Directors will implement the Increase at such time, if ever, if and when it is deemed by the Board to be advisable. The Board of Directors will also have the discretion to abandon the Increase in authorized shares if the Board does not believe it to be in the best interests of Heat and our stockholders. If the Board of Directors does not implement an approved Increase prior to the one-year anniversary of the 2019 Annual Meeting, the Board of Directors will seek stockholder approval before implementing any Increase after that time.
The Board of Directors proposes and recommends increasing the number of shares of our authorized common stock from the 100,000,000 shares that are currently authorized for issuance pursuant to our Restated Certificate of Incorporation to a total of 250,000,000 shares of common stock. Of our 100,000,000 shares of currently authorized common stock, 34,065,652 shares were outstanding as of May 28, 2019, and after taking into account (i) shares underlying outstanding warrants and options, and (ii) the reservation of shares for issuance under our stock incentive plans, assuming the 2018 Plan amendment is adopted, approximately 48,869,385 of the 100,000,000 shares authorized in our Restated Certificate of Incorporation would be available for issuance.
The chart below illustrates the number of shares of common stock that will be available for issuance if both the Increase and the Reverse Stock Split are effected based on a 1-for-5 and 1-for-10 reverse stock split. The number of shares disclosed in the column “Estimated Number of shares of Common Stock before Reverse Stock Split and before Increase” reflects the approximate number of shares as of May 28, 2019. The number of shares disclosed in the column “Estimated number of shares of Common Stock after the Increase and before the Reverse Stock Split” gives further effect to the Increase in the number of authorized shares of common stock from 100,000,000 to 250,000,000 and assumes that the 2018 Plan amendment is adopted. The number of shares disclosed in the column “Estimated number of shares of Common Stock after Reverse Stock Split and after the Increase” gives further effect to the Reverse Stock Split based on a 1-for-5 and 1-for-10 reverse stock split and also gives effect to the Increase described in this Proposal 5 and assumes that the 2018 Plan amendment is adopted, but does not take into account any fractional shares.
| | | | | | | | | | | Estimated number of shares of Common Stock before Reverse Stock | | Estimated number of shares of Common Stock after the Increase and before the Reverse Stock Split (Assuming the 2018 | | Estimated number of shares of Common Stock after Reverse Stock Split and after the Increase (Assuming the 2018 Plan Amendment is Adopted)(3) | | | Split and before | | Plan Amendment is | | Ratio of Reverse Stock Split: | | | Increase | | Adopted) | | 1:5 | | 1:10 | Authorized | | 100,000,000 | | 250,000,000 | | 250,000,000 | | 250,000,000 | Issued and Outstanding | | 34,065,652 | | 34,065,652 | | 6,813,130 | | 3,406,565 | Issuable under Outstanding Warrants | | 9,030,730 | | 9,030,730 | | 1,806,146 | | 903,073 | Issuable under Outstanding Stock Options | | 3,922,433 | | 3,922,314 | | 784,487 | | 392,231 | Reserved for Issuance(1) | | 4,111,800 | | 4,111,800 | | 822,360 | | 411,180 | Authorized but Unissued(2) | | 48,869,385 | | 198,869,385 | | 39,773,877 | | 19,886,939 |
——————— | | (1) | Shares reserved for future issuance under our existing equity incentive plans and assuming the amendment to the 2018 Plan is approved, excluding shares issuable under outstanding stock options. | (2) | Shares authorized but unissued represent common stock available for future issuance beyond shares currently outstanding, shares issuable under outstanding warrants and stock options and shares reserved for issuance under equity incentive plans (assuming approval of the amendment to the 2018 Plan). | (3) | The shares presented are an estimate as we do not know the number of fractional share roundings that will be required to effectuate the Reverse Stock Split for individual accounts. |
The Board of Directors currently believes that the Increase is advisable and in our best interest and the best interest of our stockholders. The Increase will provide us with flexibility in completing financing and capital raising transactions, which may be necessary for us to execute our future business plans. Other possible business and financial uses for the additional shares of common stock include, without limitation, attracting and retaining employees by the issuance of additional securities, and other transactions and corporate purposes that the Board of Directors may deem are in our best interest. We could also use the additional shares of common stock for potential strategic transactions, including, among other things, acquisitions, strategic partnerships, joint ventures, restructurings, business combinations and investments. We believe that the additional authorized shares would enable us to act quickly in response to opportunities that may arise for these types of transactions, in most cases without the necessity of obtaining further stockholder approval and holding a special stockholders’ meeting before such issuance(s) could proceed, except as provided under Delaware law, as applicable, or under applicable Nasdaq rules. As of the date of this Proxy Statement, and other than upon issuance of currently outstanding securities exercisable into or convertible into the common stock, we have no arrangements or understandings regarding the additional shares that would be authorized or immediate plans to consummate any such transactions. However, we review and evaluate potential capital raising activities, transactions and other corporate actions on an ongoing basis to determine if such actions would be in our best interest and the best interest of our stockholders. We cannot provide assurances that any such transactions will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of the common stock.
If approved, the Board of Directors may also elect not to effect the Increase and consequently not to file any certificate of amendment to the Restated Certificate of Incorporation. If the Board of Directors fails to implement the certificate of amendment prior to the one-year anniversary of the 2019 Annual Meeting of stockholders, stockholder approval would again be required prior to implementing the Increase. Although approval by our stockholders of the Reverse Stock Split is not conditioned upon approval by our stockholders of the Increase; conversely, approval by our stockholder of the Increase is not conditioned upon approval by our stockholders of the Reverse Stock Split, if the stockholders should approve the Reverse Stock Split and the Board of Directors should implement the Reverse Stock Split, the number of shares of common stock authorized but unissued after implementing the Reverse Stock Split may impact the decision as to whether or not to effect the Increase since effecting the Reverse Stock Split will provide for additional shares of unissued authorized common stock.
The Increase would not have any immediate dilutive effect on the proportionate voting power or other rights of existing stockholders. As is true for shares presently authorized but unissued, the future issuance of common stock authorized by the Increase may, among other things, decrease existing stockholders’ percentage equity ownership, could be dilutive to the voting rights of existing stockholders and, depending on the price at which they are issued could have a negative effect on the market price of the common stock. In addition, an increase in the number of shares of our authorized common stock could result in an increase in the franchise tax that we would owe to the State of Delaware. Potential Anti-takeover Effects of the Increase
Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of any action, including the proposals discussed herein, that may be used as an anti-takeover mechanism. Since the amendment to our Restated Certificate of Incorporation will provide that the number of authorized shares of common stock will be 250,000,000, the Increase, if effected, will result in a relative increase in the number of authorized but unissued shares of our common stock vis-à-vis the outstanding shares of our common stock and, could, under certain circumstances, have an anti-takeover effect, although this is not the purpose or intent of the Board of Directors. A relative increase in the number of authorized shares of common stock could have other effects on our stockholders, depending upon the exact nature and circumstances of any actual issuances of authorized but unissued shares. A relative increase in our authorized shares could potentially deter takeovers, including takeovers that the Board of Directors has determined are not in the best interest of our stockholders, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover more difficult. For example, we could issue additional shares so as to dilute the stock ownership or voting rights of persons seeking to obtain control without our agreement. Similarly, the issuance of additional shares to certain persons allied with our management could have the effect of making it more difficult to remove our current management by diluting the stock ownership or voting rights of persons seeking to cause such removal. The Increase therefore may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging initiation of any such unsolicited takeover attempts, the Increase may limit the opportunity for our stockholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal.
We have not proposed the Increase with the intention of using the additional authorized shares for anti-takeover purposes, but we would be able to use the additional shares to oppose a hostile takeover attempt or delay or prevent changes in control or management of Heat. For example, without further stockholder approval, the Board of Directors could authorize the sale of shares of common stock in a private transaction to purchasers who would oppose a takeover or favor our current Board of Directors. Although the Increase has been prompted by business and financial considerations and not by the threat of any known or threatened hostile takeover attempt, stockholders should be aware that the effect of the Increase could facilitate future attempts by us to oppose changes in control of our Company and perpetuate our management, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices. We cannot provide assurances that any such transactions will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of the common stock.
Vote Required to Approve Amendment of our Restated Certificate of Incorporation
Approval of the certificate of amendment to our Restated Certificate of Incorporation included asAppendix B-2, and to authorize the Board of Directors to effect the Increase requires an affirmative vote of a majority of the shares of common stock outstanding as of the record date. Abstentions and broker non-votes (to the extent a broker does not exercise its authority to vote, although we do not expect any broker non-votes since this is a routine matter for which brokers have discretion to vote if beneficial owners do not provide voting instructions) will be counted towards the vote total for this proposal and will have the same effect as “AGAINST” votes. Approval by our stockholders of the Reverse Stock Split is not conditioned upon approval by our stockholders of the Increase; conversely, approval by our stockholder of the Increase is not conditioned upon approval by our stockholders of the Reverse Stock Split; however, if the stockholders should approve the Reverse Stock Split and the Board of Directors should implement the Reverse Stock Split, the number of shares of common stock authorized but unissued after implementing the Reverse Stock Split may impact the decision as to whether or not to effect the Increase since effecting the Reverse Stock Split will provide for additional shares of unissued authorized common stock. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AUTHORIZED SHARE INCREASE.
PROPOSAL 6
ADJOURNMENT OF THE ANNUAL MEETING OF STOCKHOLDERS, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE INSUFFICIENT VOTES IN FAVOR OF PROPOSAL 4 OR PROPOSAL 5
Adjournment to Solicit Additional Proxies If we fail to receive a sufficient number of votes to approve Proposal 4 (an amendment to the Restated Certificate of Incorporation to effect the Reverse Stock Split) or Proposal 5 (an amendment to the Restated Certificate of Incorporation to effect the Increase), we may propose to adjourn the 2019 Annual Meeting, if the Board of Directors determines it to be necessary or appropriate for the purpose of soliciting additional proxies to approve Proposal 4 or Proposal 5. We currently do not intend to propose adjournment of the 2019 Annual Meeting, if there are sufficient votes in favor of Proposal 4 or Proposal 5. If our stockholders approve this proposal, we could adjourn the 2019 Annual Meeting and any adjourned or postponed session of the 2019 Annual Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from our stockholders that have previously voted. Among other things, approval of this proposal could mean that, even if we had received proxies representing a sufficient number of votes to defeat Proposal 4 or Proposal 5, we could adjourn the 2019 Annual Meeting without a vote on such proposal and seek to convince our stockholders to change their votes in favor of such proposal. If it is necessary or appropriate (as determined in good faith by the Board of Directors) to adjourn the 2019 Annual Meeting, no notice of the adjourned meeting is required to be given to our stockholders under Delaware law, other than an announcement at the 2019 Annual Meeting of the time and place to which the 2019 Annual Meeting is adjourned, so long as the meeting is adjourned for 30 days or less and no new record date is fixed for the adjourned meeting. At the adjourned meeting, we may transact any business which might have been transacted at the original meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” PROPOSAL 6 TO ADJOURN THE 2019 ANNUAL MEETING, IF THE BOARD DETERMINES IT TO BE NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL 4 OR PROPOSAL 5.
PROPOSAL 7
ADVISORY VOTE ON THE APPROVAL OF EXECUTIVE COMPENSATION
As of January 1, 2019, we are no longer an “emerging growth company” as defined in the JumpstartOur Business Startups Act of 2012 (the “JOBS Act”). As a result, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) we are required to provide our stockholders with the opportunity to cast an advisory vote on the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules. The advisory stockholder vote to approve the compensation of our named executive officers is often referred to as the “say-on-pay vote.”This say-on-pay vote will not be binding on us, the Board of Directors, or the Compensation Committee.
As described in detail in this proxy statement, our executive compensation program is designed to (1) align executive officers’ interests with those of our stockholders; (2) attract, motivate and retain executive officers; and (3) reward the achievement of our annual, long-term and strategic goals. Our executive officers are rewarded for the achievement of specific financial operating goals established by the Compensation Committee and the realization of increased stockholder value.
Our Compensation Committee continually reviews the compensation programs for our executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our stockholders’ interests and current market practices.
The Board of Directors is asking our stockholders to indicate their support for our named executive officers’ compensation as disclosed in this proxy statement. This proposal gives our stockholders the opportunity to express their views on our executive compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement.
Accordingly, the Board of Directors will ask our stockholders to vote “FOR” the following resolution at the 2019 Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers as disclosed in the proxy statement for the 2019 Annual Meeting pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Summary Compensation Table for fiscal year 2018, and the other related tables and disclosures).”
The say-on-pay vote is advisory, and therefore is not binding on us, the Compensation Committee or the Board of Directors. The Board of Directors and Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against the named executive officers’ compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Required Vote
The affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote that are present or represented at the meeting and voted is required to approve, on an advisory basis, the compensation of the Company’s named executive officers. In accordance with Delaware law, abstentions will be counted for purposes of determining the presence or absence of a quorum as are broker non-votes. Abstentions will have the same effect as a vote against the proposal and broker non-votes will not be counted for purposes of determining the number of shares represented and voted on this proposal in the meeting and, accordingly, will not affect the outcome of the Say-on-Pay vote.
THE BOARD OF DIRECTORS AND COMPENSATION COMMITTEE UNANIMOUSLY RECOMMEND A VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
PROPOSAL 8
ADVISORY VOTE REGARDING THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
As of January 1, 2019, we are no longer an “emerging growth company” as defined in the JOBS Act. As a result, in accordance with the Dodd-Frank Act, we are seeking the input of our stockholders on the question of how frequently Heat should seek the stockholder vote to approve (on an advisory basis) the compensation of our named executive officers. The advisory stockholder vote to approve the compensation of our named executive officers is often referred to as the “say-on-pay vote”; Proposal No. 7 is such a “say-on-pay” proposal. This Proposal No. 8 is often referred to as a “say-on-frequency” vote.
The Dodd-Frank Act specifies that stockholders be given the opportunity to vote on the Company’s executive compensation programs either annually, every two years, or every three years. Although this vote is advisory and nonbinding, the Board of Directors will review voting results and give consideration to the outcome of such voting. However, because this vote is advisory and not binding on the Board of Directors or us, the Board of Directors may decide that it is in the best interests of our stockholders and us to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.
The Board of Directors recognizes the value of receiving input from the Company’s stockholders on important issues such as the Company’s compensation programs. However, it believes that a well-structured compensation program should include plans that drive creation of stockholder value over the long-term rather than focus on short term results. The three-year voting cycle allows stockholders to review compensation over a longer period of time, providing sufficient time to evaluate the impact of changes made in one year where outcomes may not be immediately known. In addition, a three-year voting cycle is more closely aligned with a longer-term view of compensation and consistent with the vesting period we typically use for equity awards. The Board of Directors therefore recommends that our stockholders select “3 YEARS” when voting on the frequency of the advisory vote on executive compensation.
Required Vote
The option of one year, two years, or three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been selected by stockholders. In accordance with Delaware law, abstentions will be counted for purposes of determining the presence or absence of a quorum as will broker non-votes. Abstentions and broker non-votes will not be counted for purposes of determining the number of shares represented and voted on this proposal and, accordingly, will not affect the outcome of this proposal.
THE BOARD OF DIRECTORS AND COMPENSATION COMMITTEE UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR APPROVAL OF A 3 YEAR FREQUENCY FOR HOLDING AN ADVISORY VOTE ON EXECUTIVE COMPENSATION.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented to the 2019 Annual Meeting. If any other business is properly brought before the Annual Meeting, proxies will be voted in accordance with the judgment of the persons named therein.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Below is certain information regarding our executive officers.officers who are not Directors.
| | | | | | | Name | | Age | | Position | | Served as an Officer Since | Jeffrey Wolf | | 52 | | Chairman, Chief Executive Officer and President | | 2008 | Ann Rosar | | 64 | | Vice President of Finance, Controller and Secretary | | 2016 | Melissa Price, Ph.D. | | 42 | | Vice President of Product Development | | 2013 | Taylor Schreiber, M.D., Ph.D. | | 36 | | Chief Scientific Officer | | 2014 |
All of the officers listed above are full-time employees of the Company.
| | | | | | | Name | | Age | | Position | | Served as an Officer Since | Jeff T. Hutchins, Ph. D. | | 60 | | Chief Scientific Officer and Chief Operating Officer | | 2017 | Robert J. Jakobs | | 64 | | Vice President of Finance, Controller and Secretary | | 2019 |
Jeffrey Wolf,Jeff T. Hutchins, Ph.D.,Chairman, Chief ExecutiveScientific Officer and PresidentChief Operating Officer
Mr. Wolf founded Heat Biologics in August, 2008, and has been Chairman,Dr. Hutchins joined our company on January 1, 2017 as Chief ExecutiveScientific Officer and Senior Vice President of Pre-Clinical Development and in June 2017 he was appointed as both Chief Scientific Officer and Chief Operating Officer. Dr. Hutchins oversees our research efforts, bringing over 27 years of research and clinical development experience from both large pharmaceutical and biotechnology companies. Most recently and since then.2012, Dr. Hutchins served as Vice President of Preclinical Research for Peregrine Pharmaceuticals, Inc., a biopharmaceutical company developing therapeutics to fight cancer and infectious diseases. Dr. Hutchins was responsible for building out the research program for Peregrine Pharmaceuticals, Inc.'s lead product candidate, bavituximab, a chimeric monoclonal antibody designed to target phosphatidylserine. Prior to founding Heat,joining Peregrine Pharmaceutical in 2012, from June 1997 to March 2011, Mr. Wolf has2001 until 2012, Dr. Hutchins served as managing directorVice President, Preclinical Development at Seed-One Ventures, LLCInhibitex Inc., which was acquired by Bristol-Myers Squibb. From 1991 to 2000, Dr. Hutchins held several senior scientist positions in Discovery Research at Burroughs Wellcome and Glaxo Wellcome, with a venture firm focused on launching and growing exceptional healthcare companiesvisiting professor appointment at Rush Medical College.
Dr. Hutchins earned a B.S. in Biology from the ground up. Since founding Seed-One, Mr. Wolf has founded and run several biomedical companies. Mr. Wolf’s start-ups include Avigen,Oral Roberts University, a gene therapy company where he was a co-founder and director; TyRx Pharma, a company focused on the development of bio-compatible polymers where he was a co-founder and Chairman; EluSys Therapeutics, a company focused on the development of a novel technology to remove blood-borne pathogens where he was a co-founder, Chairman and Chief Executive Officer; and GenerationOne, a company focused on mobile-based collaborative care, where he was the founder, Chairman and Chief Executive Officer. Mr. Wolf received his M.B.A. from Stanford Business School, his J.D. from New York University School of Law and his B.A.Ph.D. in Biomedical Sciences from the University of Chicago, where he graduated with honorsTexas, Health Science Center at the M.D. Anderson Cancer Center and conducted postdoctoral training in Economics. Mr. Wolf serves as a directorthe University of several Seed-One portfolio companiesSouthern California's Department of Microbiology at the Norris Cancer Center. Dr. Hutchins' publications and serves as a directorpatents span the fields of Synthetic Biologics, Inc., a biotechnology company focused on the development of novel anti-infective biologiconcology, infectious disease, osteoarthritis and drug candidates targeting specific pathogens that cause serious infections and other diseases. immunology.
Ann Rosar,Robert J. Jakobs,Vice President of Finance, Controller and Secretary
Ms.
Mr. Jakobs joined our company on March 4, 2019 as Controller. Effective April 1, 2019, following the retirement of Ann A. Rosar, has beenMr. Jakobs was appointed to serve as our Vice President of Finance Controller and Corporate Secretary since April 2016, havingSecretary. Prior to joining our company, Mr. Jakobs served as Controller since January 2015. Ms. Rosar, has over twenty (20) years of experience in finance with publicly held companies and more than fifteen (15) years of experience regarding regulatory reporting requirements. Prior to serving as our Controller, Ms. Rosar served as Manager of Financial Reporting and Accounting for LipoScience, Inc. (acquired by LabCorp), a provider of specialized cardiovascular diagnostic tests, from 2013 to 2015. From 2007 until 2013 she served in various roles at DARA Biosciences, Inc. (now Midatech Pharma US), an oncology supportive care pharmaceutical company, including the Vice President Accounting and Finance of Finance, Chief Accounting Officer and Controller. Ms. Rosar was the Manager of Financial Reporting and Accounting with Cicero,Anutra Medical, Inc. (formerly Level 8 Systems), a provider of business integration software, from June 2000 until November 2007, where she was responsible for Securities and Exchange Commission reporting, audits and budget analysis.2014 to February 2019. Prior to that, position, shehe served as an Independent Chief Financial Officer/Controller Partner at Rankin McKenzie Partners from 2012 through 2014. Mr. Jakobs also served as Senior Financial Analyst-Business Operations for Nextel Communications. Ms. Rosar receivedDirector Accounting and Finance at Icagen, Inc. from 1996 through 2012. In addition, Mr. Jakobs served as Corporate Controller of Sphinx Pharmaceuticals Ltd., a MBA in Finance from the University of Houstonpublicly traded biotechnology company that was acquired by Eli Lilly and received her undergraduate degree from North Carolina State University.
Melissa Price, Ph.D.,Vice President of Product Development
Dr. Price is responsible for coordinating the clinical developmentCompany, and operational efforts at Heat Biologics. Prior to joining Heat Biologics, Inc., Dr. Price servedworked in various accounting positions at INC Research including Vice President of Global FSP Solutions at INC Research from February 2012 until October 2013in the chemical and Executive Director, Strategic Alliance Management from January 2010 until February 2012. From June 2009 until January 2010, Dr. Price served as the Senior Director, Drug Development Partnerships at Novaquest, a Quintiles Company. Prior thereto, from 2006 until 2009 she served in various positions at INC Research and Attenuon. Dr. Price received herPh.D. in Organic Chemistry from Yale University.equipment manufacturing companies.
Taylor H. Schreiber, M.D., Ph.D.,Chief Scientific OfficerEXECUTIVE COMPENSATION
Dr. Schreiber joined Heat Biologics in March 2014 initially as Vice President of Research and Development and in July 2015 was appointed Chief Scientific Officer, leading Heat’s preclinical drug development and scientific operations. As a cancer biologist and drug development scientist, Dr. Schreiber possesses over 15 years of laboratory experience in the discovery of novel therapeutic immuno-oncology compounds. He is the co-inventor of significant elements of Heat’sImPACT® andComPACTTM immunotherapy platforms as well as a co-inventor of TNFRSF25 agonist technologies. Dr. Schreiber received his Ph.D. from the Sheila and David Fuente Program in cancer biology as well as his M.D. at the University of Miami Miller School of Medicine. In addition, he completed his post-doctoral fellowship with the original inventor of Heat’sImPACT® technology platform, Eckhard R. Podack, M.D., Ph.D., studying the immunobiology of TNFRSF25. Dr. Schreiber has authored over 25 peer-reviewed tumor immunology and heat shock protein-based cancer immunotherapy publications. In 2011, he was nominated as a Future Leader in Cancer Research by the American Association for Cancer Research.
EXECUTIVE COMPENSATION
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE
All share numbers in the discussion below and in the following tables have been adjusted for the one-for-ten reverse stock split effective January 19, 2018.
Overview of Our Compensation Program
A. Philosophy and Objectives
The Company’sOur primary objective with respect to executive compensation is to design compensation programs that will align executives’ compensation with the Company’sour overall business strategies for the creation of stockholder value and attract, motivate and retain highly qualified executives.
Our executive compensation program is based on the following philosophies and objectives:
· Compensation Should Align with Stockholders’ Interests — The Compensation Committee believes that executives’ interests should be aligned with those of the stockholders. Executives are granted stock options so that their total compensation is tied directly to the same value realized by our stockholders. Executive bonuses are tied directly to the value that we gain from an executive’sexecutive’s contribution to our success as a whole.
· Compensation is Competitive — The Compensation Committee seeks to provide a total compensation package that attracts, motivates and retains the executive talent that we need in order to maximize itsthe return to stockholders. To accomplish this objective, executive compensation is reviewed annually to ensure that compensation levels are competitive and reasonable given our level of performance and other comparable companies with which we compete for talent.
· Compensation Motivates and Rewards the Achievement of Goals —Our executive compensation program is designed to appropriately reward both individual and collective performance that meets and exceeds our annual, long-term and strategic goals. To accomplish this objective, a substantial percentage of total compensation is variable, “at risk”, both through annual incentive compensation and the granting of long-term incentive awards.
The Company seeksWe seek to achieve these objectives through three key compensation elements:
· a base salary;
· a performance-based annual cash incentive (i.e., annual cash incentive compensation (IC))compensation); and
· stock option.equity awards.
In order to enhance the Compensation Committee’s ability to carry out its responsibilities effectively, as well as maintain strong links between executive pay and performance, the Compensation Committee reviews compensation information for each named executive officer (as defined below), which includes the following information:
· the annual compensation and benefit values that are being offered to each executive;
· the value of all outstanding equity awards; and
· the Compensation Committee also meets with our Chairman, Chief Executive Officer and other senior management in connection with compensation matters, and may retain and meet in executive session with, compensation and other advisors from time to time.
B. Compensation Administration
Roles and Responsibilities of Compensation Committee
The primary purpose of the Compensation Committee is to conduct reviews of the Company’sour general executive compensation policies and strategies and oversee and evaluate the Company’sour overall compensation structure and programs. The Compensation Committee seeks to confirm that total compensation paid to the(i) Jeffrey Wolf, our Chief Executive Officer, Principal Financial(ii) Ann A. Rosar, our Former Vice President of Finance, and (iii) Jeff T. Hutchins, Ph.D., our Chief Scientific Officer and those other individuals included inChief Operating Officer (collectively, our “named executive officers”) during the Summary Compensation Tableyear ended December 31, 2018, is reasonable and competitive. All of these Named Executive Officers are referred to as the NEOs. Responsibilities of the Compensation Committee include, but are not limited to:
· Establishing on an annual basis performance goals and objectives for purposes of determining the compensation of the Company’sour Chief Executive Officer and other senior executive officers, evaluating the performance of such officers in light of those goals and objectives, and setting the compensation level for those officers based on this evaluation.
· Recommending to the Board the compensation for Board members (including retainer, committee and committee chair’s fees, stock options and other similar items as appropriate).
· Reviewing the competitive position of, and making recommendations to the Board with respect to, the cash-based and equity-based compensation plans and other programs of the Company relating to compensation and benefits.
· Reviewing theour financial performance and the operations of the Company’sas well as our major benefit plans.
· Overseeing the administration of the Company’sour stock option and other executive compensation plans, including recommending to the Board of Directors the granting of options and awards under the plans, and the approval or disapproval of the participation of individual employees in those plans.
· Reviewing and approving for the Company’sour Chief Executive Officer and other senior executive officers: (a) employment agreements; (b) severance agreements; (c) change in control agreements/provisions; and (d) any other material perquisites or other in-kind benefits.
Additional information regarding the Compensation Committee’s responsibilities is set forth in its charter, which is posted on our website atwww.heatbio.com.
Outside ConsultantsUse of Compensation Consultant
In December 2015,As noted above, the Compensation Committee retained Hay Group for matters related to the compensation for our Chief Executive Officer, Vice President of Research and Development and Vice President of Business Development, as well as matters related to our non-employee director compensation. Hay Group isKorn Ferry, a nationally-recognized global human resources consulting firm, as its independent compensation advisor for 2018. Korn Ferry principally provides analysis, advice and recommendations regarding named executive officer and non-employee director compensation as well as guidance and considerations on our long-term incentive program for all eligible employees. Korn Ferry reports to the Chairman of the Compensation Committee and has direct access to the other members of the Compensation Committee. Korn Ferry does not provide any other services to the Company. Our Compensation Committee determined that Hay Group was independent and lacked any conflict of interest. Hay Group was asked to provide independent, third-party advice and expertise on executive compensation issues and reported toCompany other than in its role as the Compensation Committee. Hay Group provided the Compensation Committee with comparative market data and alternatives to consider when making compensation decisions and reviewed the recommendations being made by the Compensation Committee and senior management.Committee’s independent advisor.
Competitive Considerations
In making compensation decisions with respect to each element of compensation for our named executive officers, the Compensation Committee considers the competitive market for executivespay data from both our publicly-traded peer group (14 similarly-situated biotechnology, pharmaceuticals and biopharma companies) and a premier compensation survey which is specific to our size and industry. In setting 2018 and 2019 target total direct compensation levels provided by comparable companies. Thefor our named executive officers, the Compensation Committee regularly reviews the compensation practices at companies with which it competes for talent, including businesses engagedrelied in activities similar to those of the Company, including specialty pharmaceuticals.part on reports prepared by Korn Ferry in December 2017 and December 2018, respectively.
TheFor each of our named executive officers in context of competitive market data, the Compensation Committee generally targets total executivedirect compensation at below the medianthat is within a competitive range of compensation packages formarket (+/- 15% of median) relative to executives in similar positions and with similar responsibilities and experience at similar companies of comparable size with the opportunity for top quartile compensation based upon individual and company performance.experience. The Compensation Committee’s choicedesired competitive positioning and its pay program decision-making (in terms of this target percentile reflects the Company’s consideration for our shareholders’ interests in paying what is competitive, but not more than thatboth compensation levels and overall mix of pay which is competitive, to achievefocused on variable or “at risk” compensation) is reflective of our corporate goals, while conserving cashpay for performance philosophy and equity as much as practicable.provides alignment of executive and shareholder interests.
We believe that, given the industry in which we operate and our compensation philosophy and objectives, our approach to executive compensation targets are generallyis sufficient to retain our current executive officers and to hire new executive officers when and as required. In setting compensation for the NEOs, the Compensation Committee considered comparative market data requested from Hay Group. In gathering relevant competitive market compensation data, the Compensation Committee approved the use of a sample of a peer group of similarly situated specialty pharmaceutical and biotechnology companies, including high-growth industry companies with similar operations as Heat.
Role of the Chief Executive Officer
Our Chief Executive Officer, Mr. Wolf, makes recommendations to the Compensation Committee regarding the compensation of our other Named Executive Officers.named executive officers. Mr. Wolf does not participate in any discussions or processes concerning his own compensation, and participates in a non-voting capacity in discussions or processes concerning the compensation of our Principal Financial Officer and other members of management.
1. Base Salaries We provide our named executive officers a base salary commensurate with their position, responsibilities and experience. In setting the base salary, the Compensation Committee considers the scope and accountability associated with each named executive officer’s position and such factors as performance and experience of each named executive officer. We design base pay to provide the essential reward for an employee’s work and are required to be competitive in attracting talent. Once base pay levels are initially determined, increases in base pay may be provided to recognize an employee’s specific performance achievements. The base salaries are targeted to be competitive with other similar biotechnology companies. Base salaries for the named executive officers are set by their respective employment contracts and are reviewed annually by the Compensation Committee. Our Chief Executive Officer, Vice President of Finance and Chief Scientific Officer/ Chief Operating Officer typically make performance assessments of our other employees throughout the year, and provide ongoing feedback to employees, provide resources and maximize individual and team performance levels. Based on the analysis provided to us by Korn Ferry and other comparative research performed by the Committee, the Committee was able to compare the base salary for the Chief Executive Officer, Vice President of Finance and Chief Scientific Officer/Chief Operating Officer. It was determined that our Chief Executive’s Officer’s, Vice President of Finance and Chief Scientific Officer’s/Chief Operating Officer’s 2018 base salary levels were within a competitive range of market relative to competitive market data and therefore only modest merit-related base salary increases were provided for 2019. The 2018 and 2019 base salaries for our named executive officers are as follows:
| | | | | | Named Executive Officer | | Base Salary 2018 | | Base Salary 2019 | | Jeffrey Wolf, Chief Executive Officer | | $417,150 | | $427,579 | | Ann A. Rosar, Former Vice President of Finance | | $260,000 | | $266,500 | | Jeff T. Hutchins, Ph.D. Chief Scientific Officer and Chief Operating Officer | | $335,000 | | $343,375 | |
2. Bonuses The Compensation Committee also makes recommendations to the full Board of Directors for determining bonuses. For the year ended December 31, 2018, the Compensation Committee approved a $208,575 cash bonus for Jeffrey Wolf (50% of pro-rated gross base salary), a $100,500 cash bonus for Jeff T. Hutchins, Ph.D. (30% of pro-rated gross base salary) and a $65,000 cash bonus for Ann A. Rosar (25% of pro-rated gross base salary). In addition, on January 1, 2019, the Board of Directors granted the following one time supplemental cash bonuses to the executive officers for significant strategic and operational achievements in 2018: (i) Mr. Wolf a one-time supplemental cash bonus equal to $208,576; (ii) Ms. Rosar a one-time cash supplemental bonus equal to $65,000; and (iii) Dr. Hutchins a one-time supplemental cash bonus equal to $100,500.
COMPENSATION OF EXECUTIVE OFFICERSThe employment agreement with Jeffrey Wolf that was in effect during 2018 provided that he was eligible for a cash performance bonus of up to fifty percent of his base as well an equity bonus in the sole discretion of the Board of Directors, with the actual amount of any such bonus increased or decreased in the sole discretion of the Board of Directors. Dr. Hutchins employment agreement was amended in January 2019 to increase his bonus such that he is eligible for a cash performance bonus of up to thirty percent of his base and as well an equity bonus in the sole discretion of the Board of Directors, with the actual amount of any such bonus increased or decreased in the sole discretion of the Board of Directors. Ann A. Rosar’s employment agreement provided that she was eligible for an annual bonus, payable in cash and/or equity, in the discretion of the Board of Directors. The bonuses are to be rewarded based on whether, in the discretion of the Compensation Committee and the Board of Directors, our company and the named executive officer met certain objectives established by the Compensation Committee. The Compensation Committee believes that the granting of a bonus is appropriate to motivate the named executive officers. The Compensation Committee focuses on individual performance, which enables the Compensation Committee to differentiate among executives and emphasize the link between personal performance and compensation. Although the Compensation Committee does not use any fixed formula in determining bonuses, it does link them to financial objectives of importance to it.
3. Long-Term Incentives The Compensation Committee believes that a substantial portion of the named executive officer’s compensation should be awarded in equity-based compensation since equity-based compensation is directly linked to the interests of stockholders. The Compensation Committee has elected to grant a combination of stock options and restricted stock awards to the named executive officers and other key employees as the primary long-term incentive vehicles. In making this determination, the Compensation Committee considered a number of factors including: the accounting impact, potential value of stock option grants versus other equity instruments and cash incentives, and the alignment of equity participants with stockholders. The Compensation Committee determined to grant a combination of stock options and restricted stock awards to: | | | | ● | enhance the link between the creation of stockholder value and executive compensation; | | | | | ● | provide an opportunity for equity ownership; | | | | | ● | act as a retention tool; and | | | | | ● | provide competitive levels of total compensation. |
The Board’s rationale for making equity awards was to use the awards to encourage retention and better align the interest of the named executive officers with the stockholders. In 2018 and 2019 the Board also considered each named executive officer prior long terms service and the fact that there was a lack of realizable value from their prior awards since substantially all of the prior awards were of significant low value. Each of Jeffrey Wolf, Jeff T. Hutchins, Ph.D. and Ann A. Rosar were granted options to purchase 800,000, 356,860 and 110,570 shares of common stock, respectively, in January 2019 as part of their long term incentive compensation for the year ended December 31, 2018. In addition, Jeffrey Wolf, Jeff T. Hutchins, Ph.D. and Ann A. Rosar were issued 800,000, 143,140, and 89,430 restricted stock awards, respectively in January 2019, as part of their long term incentive compensation. The stock options and restricted stock awards granted vest 50% immediately, 30% on the one year anniversary of the grant date, 10% shall vest on the two-year anniversary grant date, and the remaining 10% shall vest on the three-year anniversary grant date. The stock options have a term of ten years.
The Compensation Committee reviews the performance, potential burn rates and dilution levels to create an option pool that may be awarded to employee participants. Grants to the named executive officers were determined by the Compensation Committee after reviewing market data, including the reports and analysis discussed above and after considering each executive’s performance, role and responsibilities. The Compensation Committee does not seek to time equity grants to take advantage of information, either positive or negative, about our company that has not been publicly disclosed. Option grants are effective on the date the award determination is made by the Compensation Committee, and the exercise price of options is the closing market price of our common stock on the business day of the grant or, if the grant is made on a weekend or holiday, on the prior business day. Set forth below is the compensation paid or accrued to our named executive officers during the years ended December 31, 20152018 and December 31, 20142017 that exceeded $100,000.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | Salary | | | Bonus | | | Options (9) | | | Other (1) | | | Total | | Jeffrey Wolf | | 2015 | | $ | 395,000 | | | $ | 177,750 | (2) | | $ | 47,513 | | | $ | — | | | $ | 620,263 | | Chairman and CEO | | 2014 | | $ | 381,893 | | | $ | 127,500 | (3) | | $ | 346,600 | | | $ | 12,108 | | | $ | 868,101 | | | | | | | | | | | | | | | | | | | | | | | | | Timothy Creech | | 2015 | | $ | 24,542 | | | $ | — | | | $ | 144,627 | | | $ | — | | | $ | 169,169 | | Former Chief Financial Officer (4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Steve Di Palma | | 2015 | | $ | 13,798 | | | $ | — | | | $ | — | | | $ | — | | | $ | 13,798 | | Former Interim Chief Financial Officer (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Matt Czajkowski | | 2015 | | $ | 82,500 | (6) | | $ | — | | | $ | — | | | $ | — | | | $ | 82,500 | | Former Chief Financial Officer | | 2014 | | $ | 162,500 | | | $ | 40,500 | (3) | | $ | 73,300 | | | $ | — | | | $ | 276,300 | | | | | | | | | | | | | | | | | | | | | | | | | Anil Goyal | | 2015 | | $ | 255,000 | | | $ | 51,000 | (2) | | $ | 47,513 | | | $ | — | | | $ | 353,513 | | Former Vice President of Business Development(7) | | 2014 | | $ | 219,975 | | | $ | 49,500 | (3) | | $ | 257,880 | | | $ | — | | | $ | 527,355 | | | | | | | | | | | | | | | | | | | | | | | | | Melissa Price | | 2015 | | $ | 250,000 | | | $ | 75,000 | (2) | | $ | — | | | $ | — | | | $ | 325,000 | | Vice President of Product Development (8) | | 2014 | | $ | 210,000 | | | $ | 47,250 | (3) | | $ | 43,870 | | | $ | — | | | $ | 301,120 | | | | | | | | | | | | | | | | | | | | | | | | | Taylor Schreiber | | 2015 | | $ | 272,005 | | | $ | 95,202 | (2) | | $ | 187,390 | | | $ | — | | | $ | 554,597 | | Chief Scientific Officer (9) | | 2014 | | $ | 174,411 | | | $ | 39,483 | (3) | | $ | 191,300 | | | $ | 2,567 | | | $ | 407,761 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | Salary | | | Bonus | | | Stock Awards (8) | | | Options (8) | | | Other | | | Total | | Jeffrey Wolf | | 2018 | | $ | 417,150 | | | $ | 417,150 | (1) | | $ | 160,785 | | | $ | 171,533 | | | $ | — | | | $ | 1,166,618 | | Chairman and Chief Executive Officer | | 2017 | | $ | 417,150 | | | $ | 208,575 | (2) | | $ | 213,038 | (3) | | $ | 125,000 | | | $ | — | | | $ | 963,763 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jeff T. Hutchins, Ph.D. | | 2018 | | $ | 335,000 | | | $ | 201,000 | (4) | | $ | — | | | $ | 85,386 | | | $ | — | | | $ | 621,386 | | Chief Scientific Officer and Chief Operating officer | | 2017 | | $ | 309,442 | | | $ | 77,361 | (5) | | $ | — | | | $ | 94,583 | | | $ | 66,000 | (6) | | $ | 547,386 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ann A. Rosar | | 2018 | | $ | 260,000 | | | $ | 135,000 | (7) | | $ | 17,865 | | | $ | 19,060 | | | $ | — | | | $ | 431,925 | | Former Vice President of Finance (9) | | 2017 | | $ | 212,500 | | | $ | 53,125 | (5) | | $ | 60,900 | | | $ | 52,975 | | | $ | — | | | $ | 379,500 | |
——————— (1) Represents payment for health insurance.Mr. Wolf’s annual 2018 bonus of $208,575 was paid in 2018. The one-time supplemental cash bonus of $208,575 was accrued in 2018 and paid in 2019.
(2) Mr. Wolf agreed to accept 26,072 restricted stock units in lieu of $52,144 of his cash bonus (25% of his cash bonus). The restricted stock units received in lieu of the cash bonus had a value at the time of grant of $104,288. (3) Includes the value of the restricted stock units ($52,144) that exceed the value of the bonus foregone. The restricted stock units vest immediately but may not be sold until the one year anniversary of their grant date. Each restricted stock units represents a contingent right to receive one share of common stock. (4) Dr. Hutchins’ annual 2018 bonus of $100,500 was paid in 2018. The one-time supplemental cash bonus of $100,500 was accrued in 2018 and paid in 2019. (5) This bonus was accrued in 20152017 and paid in 2016.2018. (3)(6)
This is the sign-on bonus per Dr. Hutchins’ January 2017 employment agreement. (7) Ms. Rosar’s annual 2018 bonus of $65,000 was paid in 2018. Ms. Rosar received a performance bonus of $5,000 in June 2018. The one-time supplemental cash bonus of $65,000 was accrued in 2014 but2018 and paid in 2015. (4)
Mr. Creech commenced employment on November 30, 2015 and his employment was terminated on April 5, 2016. Mr. Creech’s annual salary was $285,000 and he was entitled to devote up to 20% of his professional time to other non-competitive efforts.
(5)
Mr. DiPalma served on a part time basis as our Chief Financial Officer until the appointment of Mr. Creech effective November 30, 2015.
(6)
Mr. Czajkowski resigned as our Chief Financial Officer effective March 15, 2015, includes $45,000 severance.
(7)
Dr. Goyal was appointed as Vice President of Business Development on December 16, 2013 and his employment was terminated on April 5, 2016.
(7)
On July 23, 2015, Dr. Price was appointed our Vice President of Product Development.2019.
(8) On July 23, 2015, Dr. Schreiber was appointed our Chief Scientific Officer.
(9)
For all stock options and stock awards, the values reflect the aggregate grant date fair value computed in accordance with FASB ASC 718. Assumptions made in the calculation of these amounts are described in Note 910 to the Company’s audited consolidated financial statements for the years ended December 31, 20152018 and 2014.2017. (9) Ms. Rosar resigned as our Vice President of Finance on March 31, 2019.
Outstanding Equity Awards at Fiscal Year-End (December 31, 2015)2018)
| | | | | | | | | Name and Principal Position | | Number of securities underlying unexercised options/ exercisable | | Number of securities underlying unexercised options/ unexercisable | | Option exercise price | | Option expiration date | Jeffrey Wolf | | 10,965(1) | | — | | $2.30 | | 12/18/2019 | Chairman and CEO | | 108,696(1) | | — | | $0.71 | | 4/7/2021 | | | 50,000(2) | | 50,000 | | $8.62 | | 6/11/2024 | | | 3,125(3) | | 9,375 | | $4.53 | | 1/12/2025 | | | | | | | | | | Timothy Creech | | 2,916 | | 67,084 | | $3.10 | | 11/30/2025 | Former Chief Financial Officer(4) | | | | | | | | | | | | | | | | | | Matt Czajkowski | | 23,441 | | — | | $8.81 | | 5/15/2023 | Former Chief Financial Officer(5) | | 2,708 | | — | | $8.62 | | 1/17/2024 | | | | | | | | | | Anil Goyal | | 20,000(7) | | 20,000(7) | | $7.58 | | 12/16/2023 | Former Vice President of Business Development(6) | | 3,125(8) | | 9,375(8) | | $4.53 | | 1/12/2025 | | | | | | | | | | Melissa Price | | 28,125(9) | | 21,875(9) | | $12.57 | | 10/1/2023 | Vice President of Product Development | | 2,916(10) | | 7,084(10) | | $5.30 | | 10/15/2024 | | | | | | | | | | Taylor Schreiber | | 22,914(11) | | 27,086(11) | | $4.57 | | 6/11/2024 | Chief Scientific Officer | | 2,500(12) | | 7,500(12) | | $4.53 | | 1/12/2025 | | | 3,645(13) | | 31,355(13) | | $6.03 | | 7/22/2025 |
| | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | Name and Principal Position | | Number of securities underlying unexercised options/ exercisable | | | Number of securities underlying unexercised options/ unexercisable | | | Option exercise price | | | 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 | | Jeffrey Wolf | | | 1,097 | (1) | | | — | | | $ | 23.00 | | | 12/18/2019 | | | | — | | | | — | | Chairman and | | | 10,000 | (2) | | | — | | | $ | 86.20 | | | 6/11/2024 | | | | — | | | | — | | Chief Executive Officer | | | 1,251 | (3) | | | — | | | $ | 45.30 | | | 1/12/2025 | | | | — | | | | — | | | | | 7,057 | (4) | | | 2,349 | | | $ | 24.70 | | | 1/11/2026 | | | | — | | | | — | | | | | 3,611 | (5) | | | 3,889 | | | $ | 8.60 | | | 12/30/2026 | | | | 1,875 | (6) | | $ | 1,838 | | | | | 6,004 | (7) | | | 6,497 | | | $ | 8.70 | | | 1/03/2027 | | | | 6,250 | (8) | | $ | 6,125 | | | | | 13,651 | (9) | | | 45,909 | | | $ | 3.97 | | | 1/07/2028 | | | | 30,375 | (10) | | $ | 29,768 | | | | | | | | | | | | | | | | | | | | | | | | | | Jeff T. Hutchins, Ph.D. | | | 9,583 | (11) | | | 10,417 | | | $ | 8.70 | | | 1/03/2027 | | | | — | | | | — | | Chief Scientific Officer and | | | 3,958 | (12) | | | 6,042 | | | $ | 6.60 | | | 6/28/2027 | | | | — | | | | — | | Chief Operating Officer | | | 6,794 | (13) | | | 22,854 | | | $ | 3.97 | | | 1/07/2028 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | Ann A. Rosar | | | 979 | (14) | | | 21 | | | $ | 45.30 | | | 1/12/2025 | | | | — | | | | — | | Former Vice President of | | | 463 | (15) | | | 155 | | | $ | 24.70 | | | 1/11/2026 | | | | — | | | | — | | Finance, Controller | | | 1,375 | (16) | | | 625 | | | $ | 6.60 | | | 4/05/2026 | | | | — | | | | — | | and Secretary | | | 3,354 | (17) | | | 3,646 | | | $ | 8.70 | | | 1/03/2027 | | | | 3,500 | (18) | | $ | 3,430 | | | | | 989 | (19) | | | 1,511 | | | $ | 6.60 | | | 6/28/2027 | | | | — | | | | — | | | | | 1,516 | (20) | | | 5,102 | | | $ | 3.97 | | | 1/07/2028 | | | | 3,375 | (21) | | $ | 3,308 | |
——————— (1) All shares are fully vested as of December 31, 2013. (2) All shares as full vested as of January 2016. (3) All shares as full vested as of December 2018. (4) Issued on JuneJanuary 11, 2014,2016, these options vest over a two yearfour-year period and will be fully vested in December 2019. (5) Issued on December 30, 2016, these options vest over a four-year period and will be fully vested in January 2016.2020. (3)(6)
Issued on December 30, 2016, 3,750 restricted stock units vested as of December 30, 2017; 1,875 will vest December 30, 2018; and 1,875 will vest December 30, 2019. Amount represents the value of shares at December 31, 2018. (7) Issued on January 3, 2017, these shares vest over a 46-month period and will be fully vested in January 2021. (8) Issued on January 3, 2017, 3,125 restricted stock units vested January 3, 2017; 3,125 vested January 3, 2018; 3,125 will vest January 3, 2019; and 3,125 will vest January 3, 2020. Amount represents the value of shares at December 31, 2018. (9) Issued on January 7, 2018, these shares vest over a 46-month period and will be fully vested in January 2022. (10) Issued on January 7, 2018, 10,125 restricted stock units vested January 8, 2018; 10,125 will vest January 8, 2019; 10,125 will vest January 7, 2020; and 10,125 will vest January 8, 2021. Amount represents the value of shares at December 31, 2018. (11) Issued on January 3, 2017, these shares vest over a 46-month period and will be fully vested in January 2021. (12) Issued on June 28, 2017, these shares vest over a 46-month period and will be fully vested in May 2021. (13) Issued January 7, 2018, these shares vest over a 46-month period and will be fully vested in January 2022. (14) Issued January 12, 2015, these shares vest over a four-year period and will be fully vested in January 2019. (15) Issued on January 11, 2016, these options vest over a four yearfour-year period and will be fully vested in December 2018.2019. (4)(16)
On November 30, 2015, Mr. Creech was appointed our Chief Financial Officer and was issuedIssued on April 5, 2016, these options which vest over a 48 monthfour-year period and will be fully vested in October 2019. Mr. Creech’s employment was terminated on April 5, 2016.March 2020.
(5)
Mr. Czajkowski resigned as our Chief Financial Officer effective March 15, 2015. Mr. Czajkowski has 23,441 vested option which are exercisable up to the ten year anniversary date of grant, May 15, 2023 and 2,708 vested options which are exercisable up to the ten year anniversary of the date of grant, January 17, 2024.
(6)
Dr. Goyal was appointed as Vice President of Business Development on December 16, 2013 and his employment was terminated on April 5, 2016.
(7)(17)
Issued on December 16, 2013,January 3, 2017, these shares vest over a 48 month46-month period and will be fully vested in December 2017.January 2021. (8)(18)
Issued on January 12, 20153, 2017, 1,750 restricted stock units vested January 3, 2017; 1,750 vested January 3, 2018; 1,750 will vest January 3, 2019; and 1,750 will vest January 3, 2020. Amount represents the value of shares at December 31, 2018. (19) Issued on June 28, 2017, these optionsshares vest over a four year46-month period and will be fully vested in December 2018.May 2027. (9)(20)
Issued on October 1, 2013,January 7, 2018, these shares vest over a 48 month46-month period and will be fully vested in September 2017.January 2022. (10)
Issued on October 15, 2014, these shares vest over a 48 month period and will be fully vested in October 2018.
(11)
Issued on June 11, 2014, these shares vest over a 46 month period and will be fully vested in February 2018.
(12)(21)
Issued on January 12, 2015 these options7, 2018, 1,125 restricted stock units vested January 7, 2018; 1,125 will vest over a four year periodJanuary 8, 2019; 1,125 will vest January 7, 2020; and 1,125 will be fully vested invest January 7, 2021. Amount represents the value of shares at December 31, 2018. (13)
Issued on July 23, 2015, these options vest over a four year period and will be fully vested in July 2019.
The chart above does not include the grant on January 2, 2019 of (i) options exercisable for 94,048, 57,567, 51,587800,000, 356,860, and 21,587110,570 shares of Common Stockcommon stock issued to each of Mr. Wolf, Dr. Schreiber,Hutchins, and Ms. Rosar, respectively; and (ii) 800,000, 143,140, and 89,430 restricted stock awards that were issued to Mr. Wolf, Dr. PriceHutchins, and Dr. Goyal,Ms. Rosar, respectively, in January 2016.which vest 50% on grant date, 30% on the one year anniversary of the grant date, 10% shall vest on the two-year anniversary of the grant date, and the remaining 10% shall vest on the three-year anniversary of the grant date and expire (10) years from the date of the grant, unless terminated earlier.
Employment Agreements Change in Control Agreements; Severance Agreements
On December 18, 2009, we entered into an employment agreement with Jeffrey Wolf to act as our Chief Executive Officer, which agreement was amended on November 22, 2011, and further amended on each of January 20, 2014, January 11, 2016 and AprilJanuary 1, 2016.2017. Mr. Wolf receives an annual base salary of $405,000$417,150 per year and has voluntarily elected to defer a portion of his salary as discussed below.year. He also may receive, at the sole discretion of the Board,board, an additional cash performance-based bonuses equal to up to 50% of his then outstanding base salary at the end of each year and a discretionary equity award, with the actual amount of his bonus to be increased or decreased in the sole discretion of the Board of Directors. In addition, he is to receive certain options to purchase 2% of our fully diluted equity at an exercise price equal to the then current market price if our stock is traded on a nationally recognized exchange or NASDAQNasdaq and our market capitalization is at least $250 million for at least 5 days. If Mr. Wolf’s employment contract is terminated for death or disability (as defined in the agreement), he (or his estate in the event of death) will receive six month’s severance. If Mr. Wolf’s employment is terminated by us other than for cause, he will receive 12 month’s severance. In addition, if Mr. Wolf’s employment is terminated by us other than for cause all Restricted Shares, Common Stockcommon stock and options to purchase Common Stockcommon stock that would have vested shall immediately vest. Mr. Wolf will not be entitled to any additional severance in the event he is terminated for cause or voluntarily resigns. Under his employment agreement, Mr. Wolf has also agreed to non-competition provisions.
Effective October 1, 2013,On January 2, 2017, we appointed Melissa Price, Ph.D. as our Vice Presidentapproved the entry into of Clinical and Regulatory Affairs. In connection with her appointment, Dr. Price entered into a four-year employment agreement, effective as of January 1, 2017, with us,Jeff T. Hutchins, Ph.D., which agreement was amended on June 29, 2017, January 20, 2014,1, 2018 and January 12, 2015, July 23, 2015, January 11, 2016 and April 1, 2016 (the “Price2019 (collectively, the “Hutchins Employment Agreement”). On July 23, 2015, Dr. Price, who was initially appointed ourto serve as the Chief Scientific Officer and Senior Vice President of Product Development.Pre-Clinical Development of the Company. Pursuant to the PriceHutchins Employment Agreement that was amended on June 29, 2017, Dr. Price receivesHutchins was appointed to serve as both Chief Scientific Officer and Chief Operating Officer. Pursuant to the Hutchins Employment Agreement, as amended, Dr. Hutchins is entitled to an annual base salary of $250,000 (which she has voluntarily elected to defer a portion of as discussed below)$335,000 and will be eligible for a discretionary cash performance bonus payment ofequal to approximately 30% of herhis then outstanding base salary and a discretionaryat the end of each year in addition to an equity awardbonus in the sole discretion of Board, with the actual amount of herany such bonus to be increased or decreased in the sole discretion of the Board of Directors. The Price Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Price. If Dr. Price’s employment is terminated for any reason, she or her estate as the case may be, will be entitled to receive the Accrued Obligations accrued by her to the extent not previously paid;provided,however, that if her employment is terminated (1) by us without Just Cause (as defined in the Price Employment Agreement) or by Dr. Price for Good Reason (as defined in the Price Employment Agreement) then in addition to paying the Accrued Obligations, (x) we shall continue to pay her then current base salary for a period of four months; (y) she shall receive a pro-rated amount of the annual bonus which she would have received during the year without the occurrence of such termination and (z) she will have the right to exercise any vested options and any options that would have vested in the next four months until the earlier of the expiration of the severance or the expiration of the term of the option.Board.
Effective March 3, 2014, we appointed Taylor Schreiber, M.D., Ph.D., as our Vice President of Research and Development and effective July 23, 2015, Dr. Schreiber was appointed our Chief Scientific Officer. In connection with his appointment, Dr. Schreiber entered into a four-year employment agreement with us, which was amended January 12, 2015, July 23, 2015, January 11, 2016 and April 1, 2016 (the “Schreiber Employment Agreement”). Pursuant to the Schreiber Employment Agreement, Dr. Schreiber receives an annual base salary of $300,000 (which he has voluntarily elected to defer a portion of as discussed below) and will be eligible for discretionary cash performance bonus payment of 35% of his base salary and a discretionary equity award with the actual amount of his bonus to be increased or decreased in the sole discretion of the Board of Directors. The Schreiber Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Schreiber. If Dr. Schreiber’sHutchins’ employment is terminated for any reason, he or his estate as the case may be, will beis entitled to receive the Accrued Obligationsaccrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid;paid (the “Hutchins Accrued Obligations”); provided,,however,, that if his employment is terminated (1) by the Companyus without Just Cause (as defined in the Schreiber Employment Agreement), or (2) by Dr. Schreiber for Good Reason (as defined in the SchreiberHutchins Employment Agreement) then in addition to paying the Hutchins Accrued Obligations, (x) the Company(i) we will shall continue to pay his then current base salary for a period of foursix (6) months; (y) heand (ii) the vesting on all unvested options shall receivebe accelerated so that all options shall become fully vested. If his employment is terminated within one year of a pro-rated amountChange of the annual bonus which he would have received during the year without the occurrence of such terminationControl (as defined in our Amended and (z)Restated 2014 Stock Incentive Plan), he will have the right to exercise any vested options until the earlierbe paid his then current base salary for a period of the expiration of the severance or the expiration of the term of the option.nine (9) months.
On April 5, 2016, the Companywe entered into a four-year employment agreement with Ann A. Rosar (the “Rosar Employment Agreement”), the Company’s Controller since January 2015, newly appointing her to serve as the Company’sour Vice President of Finance, Controller and Corporate Secretary.Secretary, which agreement was amended on January 1, 2017, June 29, 2017 and January 1, 2018 (collectively, the “Rosar Employment Agreement”). Pursuant to the Rosar Employment Agreement, as amended, Ms. Rosar receivesreceived an annual base salary of $160,000$260,000 and iswas eligible for a discretionary performance bonus. Ms. Rosar was also granted a ten year option exercisable for 20,000 shares of the Company’s Common Stock, vesting pro rata on a monthly basis over a four year period. In addition, if Ms. Rosar’s agreement that if her employment iswas terminated for any reason, she or her estate as the case may be, arewould be entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by her to the extent not previously paid (“Rosar Accrued Obligations”);provided,however, that if her employment iswas terminated by the Companyus without Just Cause (as defined in the employment agreement) or by Ms. Rosar for Good Reason (defined as a material breach of the terms of the employment agreement by the Company,us, which breach is not cured within thirty (30) days) then in addition to paying the Accrued Obligations, the Company shallwe were obligated to continue to pay her then current base salary for a period of four (4) months.
In connection
Ms. Rosar resigned as our Vice President of Finance and on March 7, 2019, we entered into an agreement with Ms. Rosar (the “Rosar Agreement”) pursuant to which, among other things, she will be retained as our cost-savings plan, Timothy Creech, our former Chief Financial Officer and Corporate Secretary departed from the Companyconsultant, effective as of April 30, 2019. In consideration of her continued services as a consultant, Ms. Rosar will be paid her current monthly compensation for services performed for the month of April, an hourly rate thereafter for providing consulting services, will receive payment for unused paid time off and all vested options at the expiration of her provision of services will terminate five years from the date of grant (subject to her execution of a general release).
Effective April 1, 2019, Robert J. Jakobs, became our Vice President of Finance and Secretary. Mr. Jakobs joined our company on March 4, 2016. We entered into a severance agreement, dated April 5, 2016,2019 as Controller. Pursuant to our offer letter with Mr. Creech in accordance with the terms of his employment agreement. PursuantJakobs, Mr. Jakobs is entitled to the severance agreement, Mr. Creech will receive a payment equal to six (6) months of his annual base salary (which equals $142,500). The severance agreement also contains provisions that are customary for agreements of this type including confidentiality and non-solicitation provisions. Effective November 30, 2015, we appointed Timothy Creech as our Chief Financial Officer. In connection with his appointment, Mr. Creech entered into a four-year employment agreement with us (the “Creech Employment Agreement”), which was amended on January 11, 2016. Pursuant to the terms of the. Creech’s Employment Agreement that was entered into effective November 30, 2015 and amended January 11, 2016, Mr. Creech received an annual base salary of $285,000$220,000 and wasis eligible to receive an annual bonus of up to 20% of his annual salary. In addition, Mr. Jakobs will be granted 75,000 incentive stock options to purchase shares of common stock that will vest pro rata over four (4) years. Mr. Jakobs will also be eligible for a discretionary cash performance bonus payment of 35% of his base salary and a discretionary equity awardother benefits consistent with the actual amount of his bonus to be increased or decreased in the sole discretion of the Board of Directors. The Creech Employment Agreement provided that if Mr. Creech’s employment was terminated for any reason, he or his estate as the case may be, was entitled to receive the accrued base salary, vacation pay, expense reimbursement and anythose received by our other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);provided,however, that if his employment is terminated (1) by us without Just Cause (as defined in the Creech Employment Agreement) or (2) by Mr. Creech for Good Reason (as defined in the Creech Employment Agreement) then in addition to paying the Accrued Obligations: (x) we were obligated to continue to pay his then current base salary for a period of six months; (y) he was entitled to receive a pro-rated amount of the annual bonus which he would have received during the year without the occurrence of such termination at 100% of the targeted amount.executives.
In connection with the Company’s cost-savings plan, Anil Goyal, the Company’s Vice President of Business Development, departed from the Company effective as of April 4, 2016. We entered into a severance agreement, dated April 5, 2016, with Dr. Goyal in accordance with the terms of his employment agreement. Pursuant to the severance agreement, Dr. Goyal will receive a payment equal to four (4) months of his annual base salary (which equals $85,000). The severance agreement also contains provisions that are customary for agreements of this type. These include confidentiality and non-solicitation provisions. Effective December 16, 2013, we appointed Anil K. Goyal, Ph.D. as our Vice President of Business Development. Pursuant to the Goyal Employment Agreement, Dr. Goyal received an annual base salary of $255,000 and will be eligible for a discretionary cash performance bonus payment of 30% of his base salary and a discretionary equity award with the actual amount of his bonus to be increased or decreased in the sole discretion of the Board of Directors. The Goyal Employment Agreement provided that if Dr. Goyal’s employment was terminated for any reason, he or his estate as the case may be, was entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);provided,however, that if his employment was terminated (1) by us without Just Cause (as defined in the Goyal Employment Agreement) or (2) by Dr. Goyal for Good Reason (as defined in the Goyal Employment Agreement) then in addition to paying the Accrued Obligations: (x) we were obligated to continue to pay his then current base salary for a period of four months; (y) and he was entitled to receive a pro-rated amount of the annual bonus which he would have received during the year without the occurrence of such termination; and (z) he has the right to exercise any vested options and any options that would have vested in the next four months until the earlier of the expiration of the severance or the expiration of the term of the option.
On March 9, 2015, we entered into a consulting agreement (the “Consulting Agreement”) with Danforth Advisors, LLC (“Danforth”) for finance, accounting and administrative functions, including interim chief financial officer services provided by Mr. Stephen J. DiPalma. We paid Danforth an agreed upon hourly rate for such services and reimbursed Danforth for expenses. The Consulting Agreement continued until December 31, 2015.
On May 15, 2013, we entered into an employment agreement with Matthew E. Czajkowski to act as our Chief Financial Officer, which was amended on January 20, 2014 and further amended on May 1, 2014. Mr. Czajkowski received an annual base salary of $180,000 per year for his provision of services to us for 80% of his professional time. In addition, Mr. Czajkowski was eligible to receive, at the sole discretion of the board, additional performance-based bonuses equal to up to 50% of this then outstanding base salary at the end of each year. Mr. Czajkowski’s employment contract provided for three month’s severance pay upon termination not for cause (as defined in the agreement) and accelerated vesting of all options that would have vested within one year of such termination. The agreement also provided for payments in the event of death and disability. On March 9, 2015, we entered into a severance agreement with Mr. Czajkowski effective as of March 15, 2015. In accordance with the terms of the severance agreement, Mr. Czajkowski resigned as our Chief Financial Officer effective as of March 15, 2015, and we paid Mr. Czajkowski all accrued and unpaid base salary and an expense reimbursement in addition to $45,000. Mr. Czajkowski has the ability to exercise all stock options issued to him that vested prior to the date of resignation in accordance with the terms of his employment agreement at any time prior to the ten year anniversary of the date of grant and any unvested options at the time of resignation were immediately vested and are exercisable for 90 days after March 15, 2015. The severance agreement also contained additional provisions that are customary for agreements of this type, including confidentiality, non-competition and non-solicitation provisions.
Modification of Compensation Arrangements
In connection with a cost-savings plan implemented by the Company in April 2016, each of Jeffrey Wolf, Melissa Price, and Taylor Schreiber entered into amendments to their respective employment agreements pursuant to which they each agreed to defer payment of a portion of their annual base salary (25% for Mr. Wolf, 20% for Dr. Price and 20% for Dr. Schreiber) on a monthly basis commencing on April 1, 2016 until December 31, 2016 at which time the payment of the full base salary shall resume;provided that payment of the full base salary shall resume and full payment of all deferred amounts shall be made upon the earliest to occur of certain events that are described in amendments to the employment agreements entered into by the Company with each of Mr. Wolf, Dr. Price and Dr. Schreiber.
OTHER INFORMATION REGARDING THE COMPANY
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of May 13, 2016,28, 2019, or as otherwise set forth below, with respect to the beneficial ownership of our Common Stockcommon stock (i) all persons knownknow to us to be the beneficial owners of more than 5% of the outstanding shares of our Common Stock,common stock, (ii) each of our directors and our executive officersofficer named in the Summary Compensation Table, and (iii) all of our directors and our executive officer as a group. As of May 13, 2016,28, 2019, we had 17,524,641had34,065,652 shares of Common Stock issued andcommon stock outstanding.
Principal Stockholders Table
Unless otherwise indicated the mailing address of each of the stockholders below is c/o Heat Biologics, Inc., 801 Capitola Drive, Suite 12, Durham, North Carolina 27713. Except as otherwise indicated, and subject to applicable community property laws, except to the extent authority is shared by both spouses under applicable law, the Company believes the persons named in the table have sole voting and investment power with respect to all shares of Common Stockcommon stock held by them.
| | | | | | | | | | | | | | Name of Beneficial Owner | | Common Stock | | Shares subject to Options (1) | | Total Number of Shares Beneficially Owned | | | Percentage Ownership | | Executive Officers, Former Executive Officers & Directors | | | | | | | | | | | | Timothy Creech (Former Chief Financial Officer) | | — | | 7,292 | | 7,292 | | | * | | | Anil Goyal, Ph.D. (Former Vice President of Business Development) | | — | | 27,754 | | 27,754 | | | * | | | Michael Kharitonov, Ph.D. (Former Director)(2) | | 949,960 | | 41,050 | | 1,666,010 | | | 9.5 | % | | John Monahan, Ph.D. (Director) | | 1,211 | | 41,050 | | 42,261 | | | * | | | John K. A. Prendergast, Ph.D. (Director) | | — | | 2,500 | | 2,500 | | | * | | | Melissa Price, Ph.D. (Vice President of Product Development) (3) | | 692 | | 47,105 | | 47,797 | | | * | | | Ann Rosar (Vice President of Finance, Controller and Secretary) | | — | | 6,108 | | 6,108 | | | * | | | Taylor Schreiber, M.D., PhD (Chief Scientific Officer)(4) | | 39,132 | | 49,537 | | 88,669 | | | * | | | Edward B. Smith, III (Director)(5) | | 697,303 | | 33,441 | | 730,744 | | | 4.2 | % | | Jeffrey Wolf (Director, Chief Executive Officer President)(6) | | 1,237,396 | | 238,323 | | 1,475,719 | | | 8.3 | % | | Matthew Czajkowski (Former Chief Financial Officer) | | — | | 26,149 | | 26,149 | | | * | | | Stephen DiPalma (Former Chief Financial Officer) | | — | | — | | — | | | * | | | All Executive Officers, Former Executive Officers & Directors, as a group (12 persons) | | 3,600,694 | | 520,309 | | 4,121,003 | | | 22.8 | % | | | | | | | | | | | | | | 5% Stockholders | | | | | | | | | | | | Franklin Resources, Inc. (7) | | | | | | 1,327,000 | | | 7.6 | % | | Sabby Management, LLC and affiliates (8) | | | | | | 1,700,000 | | | 9.7 | % | |
| | | | | | | | | | | | | Name of Beneficial Owner | | Common Stock | | Shares subject to Options (1) | | | Total Number of Shares Beneficially Owned | | | Percentage Ownership | Executive Officers & Directors | | | | | | | | | | | | Jeff T. Hutchins, Ph.D. (Chief Scientific Officer and Chief Operating Officer) | | 143,140 | (2) | 204,977 | | | 348,117 | | | 1.0 | % | Robert J. Jakobs, (Vice President of Finance, Controller and Secretary) | | 0 | | 1,563 | | | 1,563 | | | * | | John Monahan, Ph.D. (Director) | | 516 | | 100,018 | | | 100,534 | | | * | | John K.A. Prendergast, Ph.D. (Director) | | 300,000 | (3) | 40,225 | | | 340,225 | | | 1.0 | % | Ann A. Rosar (Former Vice President of Finance, Former Controller and Former Secretary) | | 51,539 | (4) | 65,088 | | | 116,627 | | | * | | Edward B. Smith, III (Director) (5) | | 104,305 | | 99,257 | | | 203,562 | | | * | | Jeffrey Wolf (Chairman of the Board of Directors, Chief Executive Officer and President) (6) | | 1,012,235 | (7) | 462,827 | | | 1,475,062 | | | 4.3 | % | | | | | | | | | | | | | All Executive Officers and Directors, as a group (7 persons) | | 1,611,735 | | 973,955 | | | 2,585,690 | | | 7.4 | % |
———————— *less than 1%
(1) Represents shares subject to options whichthat are currently vested and options that will vest and become exercisable within 60 days of May 13, 2016.28, 2019. (2) Information obtained from a Schedule 13D filed withDr. Hutchins was granted 143,140 restricted stock award January 2, 2019 of which 50% vested on grant date and the SEC on March 23, 2016. Dr. Kharitonov resigned from the Board of Directors on April 4, 2016. Includes (i) 949,960 shares of Common Stock held by Dr. Kharitonov, (ii) warrants exercisable for 675,000 shares of Common Stock and (iii) options exercisable for 41,050. Dr. Kharitonov disclaims beneficial ownership of these shares exceptremaining 71,570 is subject to the extent of any pecuniary interest (as defined in Rule 16a–1(a)(2) promulgated under the Exchange Act) that he may have in the Sunrise Equity, LLC.forfeiture.
(3) The 692 shares of Common Stock are held in custodial accounts in the names of Dr. Price’s children,Prendergast was granted 300,000 restricted stock award January 2, 2019 of which Dr. Price disclaims beneficial ownership except50% vested on grant date and the remaining 150,000 is subject to the extent of any pecuniary interest (as defined in Rule 16a–1(a)(2) promulgated under the Exchange Act) that she may have.forfeiture.
(4) Dr. SchreiberIncludes 89,430 Restricted Stock Award granted January 2, 2019 of which 50% vested on grant date and an entity controlled by Dr. Schreiber havethe remaining 44,715 has been issued an aggregate of 39,132 shares of Common Stock that are included in the number of shares beneficially owned by Dr. Schreiber.forfeited .
(5) Information obtained from a Schedule 13D/A filed on January 8, 2015 with the SEC filed on behalfIncludes 69,730 shares of common stock owned by Aristar Capital Management, LLC, an entity of which Mr. Smith is the managing member and exercises investment discretion. Mr. Smith disclaims beneficial ownership of 697,303the 69,730 shares of Common Stock,common stock, except to the extent of any pecuniary interest (as defined in Rule 16a–1(a)(2) promulgated under the Exchange Act) that he may have in such entities.
(6) Includes 695,65377,172 shares of Common Stockcommon stock held by Orion Holdings V, LLC and 536,86271,620 shares of Common Stockcommon stock held by Seed-One Holdings VI, LLC, entities for which Mr. Wolf serves as the managing member. Mr. Wolf is deemed to beneficially own the shares held by such entities as in his role as the managing member he has the control over the voting and disposition of any shares held by these entities. Includes 3,660 shares purchased May 2014 and 1,221 shares converted from Series B, doesDoes not include 86,95726,468 shares of Common Stockcommon stock beneficially owned by Mr. Wolf’s children’s trust of which Mr. Wolf is not the trustee. Mr. Wolf disclaims beneficial ownership of these shares except to the extent of any pecuniary interest (as defined in Rule 16a–16a – 1(a)(2) promulgated under the Exchange Act) that he may have in such entities. In addition, if our Companycompany is traded on a recognized national exchange or NASDAQNasdaq while Mr. Wolf is employed by us and the market capitalization of our Companycompany is in excess of $250 million for at least five consecutive trading days, then Mr. Wolf will be entitled to receive an additional stock option equal to 2% of the then outstanding shares of our Common Stock,common stock, at an exercise price equal to the then current market price as determined in good faith by the board. (7) Information obtained from a Schedule 13G/A filed withIncludes 800,000 Restricted Stock Award granted January 2, 2019 of which 50% vested on grant date and the SEC on April 7, 2016. Charles B. Johnson and Rupert H. Johnson, Jr. each own in excess of 10% of the outstanding Common Stock of Franklin Resources, Inc. (“FRI”) and are the principal stockholders of FRI. Franklin Advisor, Inc. a management subsidiary of FRIremaining 400,000 is also deemedsubject to be a beneficial owner of the Common Stock owned by FRI. The address of Franklin Resources, Inc. is One Franklin Parkway, San Mateo, California 94403-1906. forfeiture.
(8)
Information obtained from a Schedule 13G filed with the SEC on March 24, 2016. Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd. own 1,000,000 and 700,000 shares of our Common Stock, respectively. Hal Mintz, as manager of Sabby Management, LLC, the investment manager of Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, indirectly beneficially own the 1,700,000 shares of Common Stock. The principal business address of Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd. is c/o Ogier Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007 Cayman Islands. The principal business address of Sabby Management, LLC and Hal Mintz is 10 Mountainview Road, Suite 205, Upper Saddle River, New Jersey 07458.
NO DISSENTERS’ RIGHTS
The corporate actionactions described in this Proxy Statementproxy statement will not afford stockholders the opportunity to dissent from the actions described herein or to receive an agreed or judicially appraised value for their shares.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Pursuant to our charter, our Audit Committee shall review on an on-going basis for potential conflicts of interest, and approve if appropriate, all our “Related Party Transactions” as required by of NASDAQNasdaq Rule 4350(h). For purposes of the Audit Committee Charter, “Related Party Transactions” shall mean those transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404.
The following is a summary of transactions since January 1, 20152017 to which we have been a party in which the amount involved exceeded the lesser of $120,000 or 1% of the average of our total assets at the end of the most recent completed fiscal year and in which any of our executive officers, directors or beneficial holders of more than 5%five percent of our capital stock had or will have a direct or indirect material interest, other than compensation arrangements which are described under the section Executivesections of this proxy statement “2018 Director Compensation” and “Executive Compensation.”
On April 21, 2016, we issued options to Dr. Prendergast to purchase 40,000 shares of Common Stock. The stock options granted have an exercise price of $0.65, which is closing price of the Common Stock on the date of grant, commence vesting on April 5, 2016 and vest pro rata on a monthly basis over four (4) years and expire ten (10) years form the date of grant, unless terminated earlier.
On April 5, 2016, we issued options to Ann Rosar to purchase 20,000 shares of Common Stock. The stock options granted have an exercise price of $0.66, which is closing price of the Common Stock on the date of grant, commence vesting on April 5, 2016, vest pro rata on a monthly basis over four (4) years and expire ten (10) and expire ten (10) years form the date of grant, unless terminated earlier.
On January 11, 2016, our named executive officers were awarded the following 2015 year-end bonus compensation: Jeffrey A. Wolf, our Chief Executive Officer, was granted options to purchase 94,048 shares of Common Stock and received a cash bonus in the amount of $177,500; Dr. Goyal was granted options to purchase 21,587 shares of Common Stock and received a cash bonus in the amount of $51,000; Dr. Price was granted options to purchase 51,587 shares of Common Stock and received a cash bonus in the amount of $75,000; and Dr. Schreiber was granted options to purchase 57,567 shares of our Common Stock and received a cash bonus in the amount of $95,202. The stock options granted have an exercise price of $2.47 per share, which is the closing price of Common Stock on the grant date (January 11, 2016), vest pro rata, on a monthly basis, over a four (4) year period and expire ten (10) years from the date of the grant, unless terminated earlier.
On January 11, 2016, our non-executive directors were granted options to purchase 23,810 shares of Common Stock. The stock options granted have an exercise price of $2.47, which is the closing price of Common Stock on the grant date (January 11, 2016), vest on January 11, 2017 and expire ten (10) years from the date of the grant, unless terminated earlier.
On July 23, 2015, we issued an additional 35,000 options to Dr. Schreiber vesting monthly on a pro rata basis over a four-year period.
On March 9, 2015,8, 2017, we entered into a severance agreementStock Purchase Agreement with Pelican, and the majority of the stockholders of Pelican to purchase outstanding capital stock of Pelican. On April 28, 2017, we completed the acquisition of 80% of Pelican’s common stock. Pelican is a biotechnology company focused on the development and commercialization of monoclonal antibody and fusion protein-based therapies that are designed to activate the immune system. Pelican has been awarded a $15.2 million grant to fund preclinical and some clinical activities from CPRIT. Jeffrey Wolf, through one or more of his affiliated entities, and Edward B. Smith, III and entities controlled by Mr. Czajkowski effectiveSmith sold approximately 84.7% of their shares of the capital stock of Pelican. Mr. Wolf was the managing member of a limited liability company (the “LLC”) thatat the time of the Pelican Acquisition owned 60.1% of the outstanding capital stock of Pelican and Mr. Wolf directly and through entities owned by him owned 31.6% of the membership interests of the LLC. Mr. Smith directly and through entities that he controlled held approximately 10.2% of Pelican’s outstanding capital stock at the time of the Pelican Acquisition and Mr. Smith directly and indirectly through an entity he controlled at the time of the Pelican Acquisition owned an aggregate of 23.1% of the membership interests of the LLC. Taylor Schreiber, M.D., Ph.D. our former Chief Scientific Officer, held less than 1% of Pelican’s total outstanding capital stock at the time of the Pelican Acquisition and indirectly through an entity he controlled, at the time of the Pelican Acquisition owned 5% of the limited liability company at the time of the Pelican Acquisition. Dr. Schreiber also sold approximately 84.7% of his shares of the capital stock of Pelican in order to meet the 80% closing condition, on the same terms as the other participating Pelican stockholders. John Monahan, Ph.D. owned 0.46% of March 15, 2015.the LLC. In accordance withaddition, a trust for which Mr. Wolf does not serve as the trustee for the benefit of Mr. Wolf’s children directly owned 2.2% of Pelican’s total outstanding capital stock and at the time of the Pelican Acquisition owned 10% of the membership interests of the LLC. Mr. Wolf disclaims beneficial ownership of all shares held by the trust.
Compensation paid to our executive officers during 2018 and 2019, equity awards granted to our executive officers and directors during 2018 and on January 2, 2019, as well as the terms of our consulting arrangement with Ann A. Rosar are disclosed under the severance agreement, Mr. Czajkowski resigned as our Chief Financial Officer effective as of March 15, 2015, and we paid Mr. Czajkowski all accrued and unpaid base salary and an expense reimbursement in addition to $45,000. Mr. Czajkowski has the ability to exercise all stock options issued to him that vested prior to the date of resignation in accordance with the terms of his employment agreement at any time prior to the ten-year anniversary of the date of grant. The severance agreement also contained additional provisions that are customary for agreementssections of this type, including confidentiality, non-competitionproxy statement entitled “2018 Director Compensation” and non-solicitation provisions.
On January 12, 2015, we entered into an amendment to the employment agreement with Anil K. Goyal, Ph.D., our former Vice President of Business Development, dated December 16, 2013 to increase Dr. Goyal’s annual base salary to $255,000.
“Executive Compensation.”
On January 12, 2015, we entered into an amendment to the employment agreement with Melissa Price, Ph.D., our Vice President of Product Development, dated October 1, 2013, as amended on January 20, 2014 to increase Dr. Price’s annual base salary to $250,000.
On January 12, 2015, we entered into an amendment to the employment agreement with Taylor Schreiber, M.D., Ph.D., our Chief Scientific Officer, dated March 3, 2014, to increase Dr. Schreiber’s annual base salary to $250,000.
In addition, on January 12, 2015, our named executive officers were awarded the following 2014 year-end bonus compensation: Jeffrey A. Wolf, our Chief Executive Officer, was granted options to purchase 12,500 shares of the Common Stock and received a cash bonus in the amount of $127,500; Dr. Goyal was granted options to purchase 12,500 shares of the Common Stock and received a cash bonus in the amount of $49,500; Dr. Price received a cash bonus in the amount of $47,250; and Dr. Schreiber was granted options to purchase 10,000 shares of Common Stock and received a cash bonus in the amount of $39,483. The stock options granted have an exercise price of $4.53, which is the closing price of the Common Stock on the grant date (January 12, 2015), vest immediately, pro rata, on a monthly basis, over a four (4) year period and expire ten (10) years from the date of the grant, unless terminated earlier.
On April 5, 2016, the Company entered into an employment agreement with Ann Rosar, the Company’s Controller since January 2015, newly appointing her to serve as the Company’s Vice President of Finance, Controller and Corporate Secretary. Pursuant to the employment agreement, Ms. Rosar will be entitled to an annual base salary of $160,000 and will be eligible for a discretionary performance bonus. Ms. Rosar was also granted a ten year option exercisable for 20,000 shares of Common Stock, vesting pro rata on a monthly basis over a four year period. In addition, if Ms. Rosar’s employment is terminated for any reason, she or her estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by her to the extent not previously paid (the “Accrued Obligations”);provided,however, that if her employment is terminated by the Company without Just Cause (as defined in the employment agreement) or by Ms. Rosar for good reason (defined as a material breach of the terms of the employment agreement by the Company, which breach is not cured within thirty (30) days) then in addition to paying the Accrued Obligations, the Company shall continue to pay her then current base salary for a period of four (4) months.
In connection with a cost-savings plan implemented by the Company in April 2016, each of Jeffrey Wolf, Melissa Price, and Taylor Schreiber entered into amendments to their respective employment agreements pursuant to which they each agreed to defer payment of a portion of their annual base salary (25% for Mr. Wolf, 20% for Dr. Price and 20% for Dr. Schreiber) on a monthly basis commencing on April 1, 2016 until December 31, 2016 at which time the payment of the full base salary will resume;provided that payment of the full base salary will also resume and full payment of all deferred amounts will be made upon the earliest to occur of certain events, including a change of control of the Company, that are described in amendments to the employment agreements entered into by the Company with each of Mr. Wolf, Dr. Price and Dr. Schreiber.
The Company entered into a severance agreement, dated April 5, 2016, with each of Mr. Creech and Dr. Goyal, respectively, in accordance with the terms of their respective employment agreements. Pursuant to the severance agreements, Mr. Creech will receive a payment equal to six (6) months of his annual base salary (which equals $142,500) and Dr. Goyal will receive a payment equal to four (4) months of his annual base salary (which equals $85,000). Each severance agreement also contains provisions that are customary for agreements of this type. These include confidentiality and non-solicitation provisions.
OTHER MATTERS
As of the date of this Proxy Statement,proxy statement, the Board of Directors of the CompanyHeat knows of no other matters to be presented for stockholder action at the 2019 Annual Meeting. However, other matters may properly come before the 2019 Annual Meeting or any adjournment or postponement thereof. If any other matter is properly brought before the 2019 Annual Meeting for action by the stockholders, proxies in the enclosed form returned to the CompanyHeat will be voted in accordance with the recommendation of the Board of Directors.
ANNUAL REPORT/FORM 10-K
The Company’s 2015Heat’s 2018 Annual Report on Form 10-K for the year ended December 31, 2018 to its stockholders is being mailed to certain stockholders concurrently with this Proxy Statement.proxy statement. Copies of the Company’s Annual Report on Form 10-K as filed with the SEC and any amendments thereto may be obtained without charge by writing to Heat Biologics, Inc., 801 Capitola Drive, Suite 12, Durham, North Carolina 27713, Attention: Corporate Secretary. A complimentary copy may also be obtained at the internet website maintained by the SEC atwww.sec.gov, and by visiting our internet website atwww.heatbio.com.
NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS (“HOUSEHOLDING” INFORMATION)
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials, proxy statements and annual reports by delivering a single copy of these materials to an address shared by two or more CompanyHeat stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies and intermediaries. A number of brokers and other intermediaries with account holders who are our stockholders may be householding our stockholder materials, including Notices of Internet Availability of Proxy Materials and this proxy statement. In that event, a single Notice of Internet Availability of Proxy Materials or proxy statement, as the case may be, will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or other intermediary that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent, which is deemed to be given unless you inform the broker or other intermediary otherwise when you receive or received the original notice of householding. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Notice of Internet Availability of Proxy Materials or proxy statement, please notify your broker or other intermediary to discontinue householding and direct your written request to receive a separate proxy statement to us at: Heat Biologics, Inc., Attention: Corporate Secretary, 801 Capitola Drive, Suite 12, Durham, North Carolina 27713 or by calling us at (919) 240-7133. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their communications should contact their broker or other intermediary.
STOCKHOLDER PROPOSALS FOR THE 20172020 ANNUAL MEETING
ProposalsStockholders who intend to present proposals at the 2020 Annual Meeting of stockholders intended to be presented pursuant toStockholders under SEC Rule 14a-8 under the Exchange Act at the 2017 Annual Meeting must beensure that such proposals are received by us at our principal executive offices addressed to the Corporate Secretary of the Company nonot later than _____________, 2016 in orderFebruary , 2020. Such proposals must meet the requirements of the SEC to be considered timelyeligible for inclusion in the 2017 Proxy Statement.Company’s 2020 proxy materials.
The Company’s Bylaws provide that the nomination of persons for election to the Board and the proposal of business to be considered by stockholders may be made at the annual meeting as set out in the Company’s notice of such meeting, by or at the direction of the Board or by any stockholder of the Company who is entitled to vote at the meeting on such nomination or other proposal, and who, in the case of a holder of common stock, complies with certain notice procedures. Any holder of common stock proposing to nominate an individual for election to the Board or proposing business to be considered by the Company’s stockholders at an annual meeting must give written notice and certain information to the Corporate Secretary of the Company generally not less than 90 days nor more than 120 days before the first anniversary of the preceding year’s annual meeting (however, if we hold the 2020 Annual Meeting of Stockholders on a date that is not within 30 days before or 70 days after such anniversary date, we must receive the notice no earlier than 120 days prior to such annual meeting and no later than 90 days prior to such annual meeting or 10 days after the day on which public announcement of the date of such meeting is first made by us we announce it publicly). As a result, stockholders who intend to present proposals at the 2020 Annual Meeting of Stockholders under these provisions must give written notice to the Corporate Secretary, and otherwise comply with the Bylaw requirements, no earlier than the close of business on March 25, 2020, and no later than the close of business on April 24, 2020.
All proposals should be addressed to the Corporate Secretary, Heat Biologics, Inc., 801 Capitola Drive, Suite 12, Durham, North Carolina 27713. | | | By order of the Board of Directors, | | | | | | | | Jeffrey Wolf | | Chairman, Chief Executive Officer and President |
Durham, North Carolina June , 20162019
APPENDIX A
AMENDMENT NO. 1 TO THE
HEAT BIOLOGICS, INC.
2018 STOCK INCENTIVE PLAN
This amendment (the “Amendment”) to the Heat Biologics, Inc. 2018 Stock Incentive Plan (the “Plan”), is hereby adopted this 21st day of May, 2019, by the Board of Directors (the “Board”) of Heat Biologics, Inc. (the “Company”). All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings set forth in the Plan.
WITNESETH:
WHEREAS, the Company adopted the Plan for the purposes set forth therein; and
WHEREAS, pursuant to Section 15 of the Plan, the Board has the right to amend the Plan with respect to certain matters, provided that any material increase in the number of Shares available under the Plan shall be subject to stockholder approval; and
WHEREAS, the Board has approved and authorized this Amendment to the Plan and has recommended that the stockholders of the Company approve this Amendment;
NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended, subject to and effective as of the date of stockholder approval hereof, in the following particulars:
1. Section 4(a) of the Plan is hereby amended by increasing the share references in such section by an additional 4,000,000shares of common stock to 8,000,000 shares of common stock, so that Section 4(a) reads in its entirety as follows:
“(a) Shares Available for Awards. The maximum aggregate number of shares of Company Stock reserved for issuance under the Plan (all of which may be granted as Incentive Stock Options) shall be Eight Million (8,000,000) shares. Shares reserved under the Plan may be authorized but unissued Company Stock or authorized and issued Company Stock held in the Company’s treasury. The Compensation Committee may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan.”
2. Except as specifically set forth herein, the terms of the Plan shall be and remain unchanged, and the Plan as amended shall remain in full force and effect.
The foregoing is hereby acknowledged as being Amendment No. 1 to the Heat Biologics, Inc. 2018 Stock Incentive Plan, as adopted by the Board on May 21, 2019, and approved by the Company’s stockholders on July 23, 2019.
| | | | HEAT BIOLOGICS, INC. | | | | | | | By: | /s/ Jeffrey Wolf | | Name: | Jeffrey Wolf | | Title: | Chairman, President and Chief Executive Officer |
APPENDIX AB-1
FORM OF CERTIFICATE OF AMENDMENT OF THE THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HEAT BIOLOGICS, INC.
Heat Biologics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), does hereby certify:
1. The name of the Corporation is “Heat Biologics, Inc.” The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 10, 2008, the First Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on October 16, 2009, the Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on December 16, 2011, and the Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 21, 2013 (the “Third Amended and Restated Certificate of Incorporation”) and an amendment to the Third Amended and Restated Certificated of Incorporation was filed with the Secretary of State of the State of Delaware on May 29, 2013.
2. The Board of Directors of the Corporation has duly adopted a resolution pursuant to Section 242 of the General Corporation Law of the State of Delaware setting forth a proposed amendment to the Third Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The requisite stockholders of the Corporation have duly approved said proposed amendment in accordance with Section 242 of the General Corporation Law of the State of Delaware. The amendment amends the Third Amended and Restated Certificate of Incorporation of the Corporation as follows:
Article IV is hereby amended to add the following paragraph immediately after the first paragraph of Article IV:
“Effective at 5:01 p.m. Eastern time, on the date of the filing of this Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Effective Time”), the shares of the Corporation’s Common Stock, par value $0.0002 per share, issued and outstanding immediately prior to the Effective Time and the shares of Common Stock issued and held in the treasury of the Corporation immediately prior to the Effective Time shall be combined into a smaller number of shares such that each [2 to 10 shares, with the exact number of shares to be determined by the Board of Directors and publicly announced by the Corporation prior to the Effective Time], of issued and outstanding Common Stock immediately prior to the Effective Time are combined into one validly issued, fully paid and nonassessable share of Common Stock, par value $0.0002 per share. Notwithstanding the immediately preceding sentence, no fractional shares shall be issued and, in lieu thereof, upon surrender after the Effective Time of a certificate which formerly represented shares of 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 Common Stock as a result of the combination, following the Effective Time (after taking into account all fractional shares of Common Stock otherwise issuable to such holder), shall be entitled to receive a cash payment equal to the fraction to which such holder would otherwise be entitled multiplied by the fair value of the Common Stock on the date of the Effective Time, as determined by the Board of Directors.
Each stock certificate that, immediately prior to the Effective Time, represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been combined (as well as the right to receive cash in lieu of fractional shares of Common Stock after the Effective Time), provided however, that each person of record holding a certificate that represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall receive, upon surrender of such certificate, a new certificate evidencing and representing the number of whole shares of Common stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been combined.”
2. This Certificate of Amendment shall be effective as of ____ at ____ Eastern Time.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Certificate of Incorporation to be signed by Jeffrey Wolf, its Chairman, Chief Executive Officer and President, this [ ] day of [ ], 201[ ].
| | | | HEAT BIOLOGICS, INC. | | | | | By: | | | | Jeffrey Wolf | | | Chairman, Chief Executive Officer and President |
B-1-1
APPENDIX B-2 FORM OF CERTIFICATE OF AMENDMENT TO THE THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HEAT BIOLOGICS, INC.
Heat Biologics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), does hereby certify:
1. The Board of Directors of the Corporation has duly adopted a resolution pursuant to Section 228242 of the General Corporation Law of the State of Delaware setting forth a proposed amendment to the Third Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The requisite stockholders of the Corporation have duly approved said proposed amendment in accordance with Section 242 of the General Corporation Law of the State of Delaware. The amendment amends the Third Amended and Restated Certificate of Incorporation of the Corporation as follows:
Article IV is hereby amended by deleting the first paragraph of Article IV and replacing such paragraph with the following two paragraphs:paragraph:
“The total number of shares of all classes of capital stock which the Corporation is authorized to issue is 60,000,000260,000,000 shares, consisting of 50,000,000250,000,000 shares of common stock, par value $0.0002 per share (the ““Common Stock”),and 10,000,000 shares of preferred stock, par value $0.0001 per share (the(the“ “Preferred Stock”). Upon the effectiveness of the Certificate of Amendment to the Restated Certificate of Incorporation, as amended, to effect a plan of recapitalization of the Common Stock by effecting a 1-for-[2 to 20, as determined by the Board] Reverse Stock Split with respect to the issued and outstanding shares of the Common Stock (the “Reverse Stock Split”), without any change in the powers, preferences and rights or qualifications, limitations or restrictions thereof, such that, without further action of any kind on the part of the Corporation or its stockholders, every [2 to 20, as determined by the Board] shares of Common Stock outstanding or held by the Corporation in its treasury on the date of the filing of the Certificate of Amendment (the “Effective Date”) shall be changed and reclassified into one (1) share of Common Stock, $0.0002 par value per share, which shares shall be fully paid and nonassessable shares of Common Stock. There shall be no fractional shares issued. A holder of record of Common Stock on the Effective Date who would otherwise be entitled to a fraction of a share shall, in lieu thereof, be entitled to receive one full share. Each stock certificate that, immediately prior to the effectiveness of the Reverse Stock Split, represented shares of Common Stock that were issued and outstanding immediately prior to the effectiveness of the Reverse Stock Split shall, from and after the effectiveness of the Reverse Split Effective, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock after the effectiveness of the Reverse Stock Split into which the shares of Common Stock formerly represented by such certificate shall have been reclassified, provided, however, that each person of record holding a certificate that represented shares of Common Stock that were issued and outstanding immediately prior to the effectiveness of the Reverse Split shall receive, upon surrender of such certificate, a new certificate evidencing and representing the number of whole shares of Common Stock after the effectiveness of the Reverse Stock Split into which the shares of Common Stock formerly represented by such certificate shall have been reclassified.
3. All other sections in Article IV shall remain the same.”
4.2. This Certificate of Amendment shall be effective as of ____ at ____ Eastern Time.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of the Corporation to be signed by Jeffrey Wolf, its Chairman, Chief Executive Officer and President, this [ ] day of [ ], 2016.2019.
| | | | HEAT BIOLOGICS, INC. | | | | | By: | | | | Jeffrey Wolf | | | Chairman, Chief Executive Officer and President |
| | *
| By approving this amendment, stockholders will approve the combination of any whole number of shares of Common Stock between and including two (2) and twenty (20) into one (1) share. The certificate of amendment filed with the Secretary of State of the State of Delaware will include only that number determined by the Board of Directors to be in the best interests of the Corporation and its stockholders. In accordance with these resolutions, the Board of Directors will not implement any amendment providing for a different split ratio.
|
APPENDIX B
HEAT BIOLOGICS, INC.
AMENDED AND RESTATED 2014 STOCK INCENTIVE PLAN
1. Establishment and Purpose.
The purpose of the Heat Biologics, Inc. 2014 Amended and Restated Stock Incentive Plan (the “Plan”) is to promote the interests of the Company and the stockholders of the Company by providing directors, officers, employees and consultants of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ or service of the Company, to acquire a proprietary interest in the long-term success of the Company and to reward the performance of individuals in fulfilling long-term corporate objectives.
2. Administration of the Plan.
The Plan shall be administered by a Committee appointed by the Board of Directors. The Committee shall have the authority, in its sole discretion, subject to and not inconsistent with the express terms and provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted (including whether an Option granted is an Incentive Stock Option or a Nonqualified Stock Option); to determine the number of shares of stock to which an Award may relate and the terms, conditions, restrictions and performance criteria, if any, relating to any Award; to determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, exchanged or surrendered; to make adjustments in the performance goals that may be required for any award in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company (to the extent not inconsistent with Section 162(m) of the Code, if applicable), or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan.
The Committee may, in its absolute discretion, without amendment to the Plan, (a) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, and (b) accelerate the vesting date, or waive any condition imposed hereunder, with respect to any share of Restricted Stock, or other Award or otherwise adjust any of the terms applicable to any such Award. Notwithstanding the foregoing, and subject to Sections 4(c) and 4(d), neither the Board of Directors, the Committee nor their respective delegates shall have the authority to re-price (or cancel and/or re-grant) any Option, Stock Appreciation Right or, if applicable, other Award at a lower exercise, base or purchase price without first obtaining the approval of the Company’s stockholders.
Subject to Section 162(m) of the Code and except as required by Rule 16b-3 with respect to grants of Awards to individuals who are subject to Section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees.
Subject to Section 162(m) of the Code and Section 16 of the Exchange Act, to the extent the Committee deems it necessary, appropriate or desirable to comply with foreign law or practices and to further the purpose of the Plan, the Committee may, without amending this Plan, establish special rules applicable to Awards granted to Participants who are foreign nationals, are employed outside the United States, or both, including rules that differ from those set forth in the Plan, and grant Awards to such Participants in accordance with those rules.
All decisions, determinations and interpretations of the Committee or the Board of Directors shall be final and binding on all persons with any interest in an Award, including the Company and the Participant (or any person claiming any rights under the Plan from or through any Participant). No member of the Committee or the Board of Directors shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award.
3. Definitions.
(a) “Agreement” shall mean the written agreement between the Company and a Participant evidencing an Award.
(b) “Annual Incentive Award” shall mean an Award described in Section 6(g) hereof that is based upon a period of one year or less.
(c) “Award” shall mean any Option, Restricted Stock, Stock Bonus award, Stock Appreciation Right, Performance Award, Other Stock-Based Award or Other Cash-Based Award granted pursuant to the terms of the Plan.
(d) “Board of Directors” shall mean the Board of Directors of the Company.
(e) “Cause” shall mean a termination of a Participant’s employment by the Company or any of its Subsidiaries due to (i) the continued failure, after written notice, by such Participant substantially to perform his or her duties with the Company or any of its Subsidiaries (other than any such failure resulting from incapacity due to reasonably documented physical illness or injury or mental illness), (ii) the engagement by such Participant in serious misconduct that causes, or in the good faith judgment of the Board of Directors may cause, harm (financial or otherwise) to the Company or any of its Subsidiaries including, without limitation, the disclosure of material secret or confidential information of the Company or any of its Subsidiaries or (iii) the material breach by the Participant of any agreement between such Participant, on the one hand, and the Company, on the other hand. Notwithstanding the above, with respect to any Participant who is a party to an employment agreement with the Company, Cause shall have the meaning set forth in such employment agreement.
(f) A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 30% or more of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least a two-thirds of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the Company with any other corporation other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 30% or more of the combined voting power of the Company’s then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity at least 75% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(g) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. References in the Plan to specific sections of the Code shall be deemed to include any successor provisions thereto.
(h) “Committee” shall mean, at the discretion of the Board of Directors, a Committee of the Board of Directors, which shall consist of two or more persons, each of whom, unless otherwise determined by the Board of Directors, is an “outside director” within the meaning of Section 162(m) of the Code and a “nonemployee director” within the meaning of Rule 16b-3.
(i) “Company” shall mean Heat Biologics, Inc., a Delaware corporation, and, where appropriate, each of its Subsidiaries.
(j) “Company Stock” shall mean the common stock of the Company, par value $0.0002 per share.
(k) “Disability” shall mean permanent disability as determined pursuant to the Company’s long-term disability plan or policy, in effect at the time of such disability.
(l) “Effective Date” shall mean the date as of which this Plan is adopted by the Board of Directors.
(m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(n) The “Fair Market Value” of a share of Company Stock, as of a date of determination, shall mean (1) the closing sales price per share of Company Stock on the national securities exchange on which such stock is principally traded on the date of the grant of such Award, or (2) if the shares of Company Stock are not listed or admitted to trading on any such exchange, the closing price as reported by the Nasdaq Stock Market for the last preceding date on which there was a sale of such stock on such exchange, or (3) if the shares of Company Stock are not then listed on a national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as determined by the Committee in good faith upon the advice of a qualified valuation expert. In no event shall the fair market value of any share of Company Stock, the Option exercise price of any Option, the appreciation base per share of Company Stock under any Stock Appreciation Right, or the amount payable per share of Company Stock under any other Award, be less than the par value per share of Company Stock.
(o) “Full Value Award” means any Award, other than an Option or a Stock Appreciation Right, which Award is settled in Stock.
(p) “Incentive Stock Option” shall mean an Option that is an “incentive stock option” within the meaning of Section 422 of the Code, or any successor provision, and that is designated by the Committee as an Incentive Stock Option.
(q) “Long Term Incentive Award” shall mean an Award described in Section 6(g) hereof that is based upon a period in excess of one year.
(r) “Nonemployee Director” shall mean a member of the Board of Directors who is not an employee of the Company.
(s) “Nonqualified Stock Option” shall mean an Option other than an Incentive Stock Option.
(t) “Option” shall mean an option to purchase shares of Company Stock granted pursuant to Section 6(b).
(u) “Other Cash-Based Award” shall mean a right or other interest granted to a Participant pursuant to Section 6(g) hereof other than an Other Stock-Based Award.
(v) “Other Stock-Based Award” shall mean a right or other interest granted to a Participant, valued in whole or in part by reference to, or otherwise based on, or related to, Company Stock pursuant to Section 6(g) hereof, including but not limited to (i) unrestricted Company Stock awarded as a bonus or upon the attainment of performance goals or otherwise as permitted under the Plan, and (ii) a right granted to a Participant to acquire Company Stock from the Company containing terms and conditions prescribed by the Committee.
(w) “Participant” shall mean an employee, consultant or director of the Company to whom an Award is granted pursuant to the Plan, and, upon the death of the employee, consultant or director, his or her successors, heirs, executors and administrators, as the case may be.
(x) “Performance Award” shall mean an Award granted to a Participant pursuant to Section 6(f) hereof.
(y) “Person” shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, except that such term shall not include (1) the Company, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(z) “Restricted Stock” shall mean a share of Company Stock which is granted pursuant to the terms of Section 6(e) hereof.
(aa) “Retirement” shall mean, in the case of employees, the termination of employment with the Company (other than for Cause) during or after the calendar year in which a Participant has or will reach (i) age 55 with ten years of service with the Company, or (ii) age 60 with five years of service with the Company. “Retirement” shall mean, in the case of directors, the termination of service with the Company (other than for Cause) during or after the calendar year in which a Participant has or will reach age 75 with five years of service with the Company.
(bb) “Rule 16b-3” shall mean the Rule 16b-3 promulgated under the Exchange Act, as amended from time to time.
(cc) “Securities Act” shall mean the Securities Act of 1933, as amended from time to time.
(dd) “Stock Appreciation Right” shall mean the right, granted to a Participant under Section 6(d), to be paid an amount measured by the appreciation in the Fair Market Value of a share of Company Stock from the date of grant to the date of exercise of the right, with payment to be made in cash and/or a share of Company Stock, as specified in the Award or determined by the Committee.
(ee) “Stock Bonus” shall mean a bonus payable in shares of Company Stock granted pursuant to Section 6(e) hereof.
(ff) “Subsidiary” shall mean a “subsidiary corporation” within the meaning of Section 424(f) of the Code.
4.Stock Subject to the Plan.
(a) Shares Available for Awards. The maximum number of shares of Company Stock reserved for issuance under the Plan (all of which may be granted as Incentive Stock Options) shall be Three Million (3,000,000) shares. Notwithstanding the foregoing, of the Three Million (3,000,000) shares originally reserved for issuance under this Plan, no more than seven hundred fifty thousand (750,000) of such shares shall be issued as Full Value Awards. Shares reserved under the Plan may be authorized but unissued Company Stock or authorized and issued Company Stock held in the Company’s treasury. The Committee may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan.
(b) Individual Limitation. To the extent required by Section 162(m) of the Code, the total number of shares of Company Stock subject to Awards awarded to any one Participant during any tax year of the Company, shall not exceed two hundred fifty thousand (250,000) shares (subject to adjustment as provided herein).
(c) Adjustment for Change in Capitalization. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Company Stock, or other property), recapitalization, Company Stock split, reverse Company Stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, makes an adjustment appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (1) the number and kind of shares of Company Stock which may thereafter be issued in connection with Awards, (2) the number and kind of shares of Company Stock, securities or other property (including cash) issued or issuable in respect of outstanding Awards, (3) the exercise price, grant price or purchase price relating to any Award, and (4) the maximum number of shares subject to Awards which may be awarded to any employee during any tax year of the Company; provided that, with respect to Incentive Stock Options, any such adjustment shall be made in accordance with Section 424 of the Code; and provided further that, no such adjustment shall cause any Award hereunder which is or could be subject to Section 409A of the Code to fail to comply with the requirements of such section.
(d) Reuse of Shares. Except as set forth below, if any shares subject to an Award are forfeited, cancelled, exchanged or surrendered, or if an Award terminates or expires without a distribution of shares to the Participant, the shares of stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration, again be available for Awards under the Plan. Notwithstanding the foregoing, upon the exercise of any Award granted in tandem with any other Awards, such related Awards shall be cancelled to the extent of the number of shares of Company Stock as to which the Award is exercised and such number of shares shall no longer be available for Awards under the Plan. In addition, notwithstanding the forgoing, the shares of stock surrendered or withheld as payment of either the exercise price of an Option (including shares of stock otherwise underlying an Award of a Stock Appreciation Right that are retained by the Company to account for the appreciation base of such Stock Appreciation Right) and/or withholding taxes in respect of an Award shall no longer be available for Awards under the Plan.
5.Eligibility.
The persons who shall be eligible to receive Awards pursuant to the Plan shall be the individuals the Committee shall select from time to time, who are employees (including officers of the Company and its Subsidiaries, whether or not they are directors of the Company or its Subsidiaries), Nonemployee Directors, and consultants of the Company and its Subsidiaries; provided, that Incentive Stock Options shall be granted only to employees (including officers and directors who are also employees) of the Company or its Subsidiaries.
6.Awards Under the Plan.
(a) Agreement. The Committee may grant Awards in such amounts and with such terms and conditions as the Committee shall determine in its sole discretion, subject to the terms and provisions of the Plan. Each Award granted under the Plan (except an unconditional Stock Bonus) shall be evidenced by an Agreement as the Committee may in its sole discretion deem necessary or desirable and unless the Committee determines otherwise, such Agreement must be signed, acknowledged and returned by the Participant to the Company. Unless the Committee determines otherwise, any failure by the Participant to sign and return the Agreement within such period of time following the granting of the Award as the Committee shall prescribe shall cause such Award to the Participant to be null and void. By accepting an Award or other benefits under the Plan (including participation in the Plan), each Participant, shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, all provisions of the Plan and the Agreement.
(b) Stock Options.
(i) Grant of Stock Options. The Committee may grant Options under the Plan to purchase shares of Company Stock in such amounts and subject to such terms and conditions as the Committee shall from time to time determine in its sole discretion, subject to the terms and provisions of the Plan. The exercise price of the share purchasable under an Option shall be determined by the Committee, but in no event shall the exercise price be less than the Fair Market Value per share on the grant date of such Option. The date as of which the Committee adopts a resolution granting an Option shall be considered the day on which such Option is granted unless such resolution specifies a later date.
(ii) Identification. Each Option shall be clearly identified in the applicable Agreement as either an Incentive Stock Option or a Nonqualified Stock Option and shall state the number of shares of Company Stock to which the Option (and/or each type of Option) relates.
(c) Special Requirements for Incentive Stock Options.
(i) To the extent that the aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company shall exceed $100,000, such Options shall be treated as Nonqualified Stock Options. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted.
(ii) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns (or is deemed to own under the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company unless (A) the exercise price of such Incentive Stock Option is at least 110% of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (B) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted.
(d) Stock Appreciation Rights.
(i) The Committee may grant a related Stock Appreciation Right in connection with all or any part of an Option granted under the Plan, either at the time such Option is granted or at any time thereafter prior to the exercise, termination or cancellation of such Option, and subject to such terms and conditions as the Committee shall from time to time determine in its sole discretion, consistent with the terms and provisions of the Plan, provided, however, that in no event shall the appreciation base of the shares of Company Stock subject to the Stock Appreciation Right be less than the Fair Market Value per share on the grant date of such Stock Appreciation Right. The holder of a related Stock Appreciation Right shall, subject to the terms and conditions of the Plan and the applicable Agreement, have the right by exercise thereof to surrender to the Company for cancellation all or a portion of such related Stock Appreciation Right, but only to the extent that the related Option is then exercisable, and to be paid therefor an amount equal to the excess (if any) of (i) the aggregate Fair Market Value of the shares of Company Stock subject to the related Stock Appreciation Right or portion thereof surrendered (determined as of the exercise date), over (ii) the aggregate appreciation base of the shares of Company Stock subject to the Stock Appreciation Right or portion thereof surrendered. Upon any exercise of a related Stock Appreciation Right or any portion thereof, the number of shares of Company Stock subject to the related Option shall be reduced by the number of shares of Company Stock in respect of which such Stock Appreciation Right shall have been exercised.
(ii) The Committee may grant unrelated Stock Appreciation Rights in such amount and subject to such terms and conditions, as the Committee shall from time to time determine in its sole discretion, subject to the terms and provisions of the Plan, provided, however, that in no event shall the appreciation base of the shares of Company Stock subject to the Stock Appreciation Right be less than the Fair Market Value per share on the grant date of such Stock Appreciation Right. The holder of an unrelated Stock Appreciation Right shall, subject to the terms and conditions of the Plan and the applicable Agreement, have the right to surrender to the Company for cancellation all or a portion of such Stock Appreciation Right, but only to the extent that such Stock Appreciation Right is then exercisable, and to be paid therefor an amount equal to the excess (if any) of (x) the aggregate Fair Market Value of the shares of Company Stock subject to the Stock Appreciation Right or portion thereof surrendered (determined as of the exercise date), over (y) the aggregate appreciation base of the shares of Company Stock subject to the Stock Appreciation Right or portion thereof surrendered.
(iii) The grant or exercisability of any Stock Appreciation Right shall be subject to such conditions as the Committee, in its sole discretion, shall determine.
(e) Restricted Stock and Stock Bonus.
(i) The Committee may grant Restricted Stock awards, alone or in tandem with other Awards under the Plan, subject to such restrictions, terms and conditions, as the Committee shall determine in its sole discretion and as shall be evidenced by the applicable Agreements. The vesting of a Restricted Stock award granted under the Plan may be conditioned upon the completion of a specified period of employment or service with the Company or any Subsidiary, upon the attainment of specified performance goals, and/or upon such other criteria as the Committee may determine in its sole discretion.
(ii) Each Agreement with respect to a Restricted Stock award shall set forth the amount (if any) to be paid by the Participant with respect to such Award and when and under what circumstances such payment is required to be made.
(iii) The Committee may, upon such terms and conditions as the Committee determines in its sole discretion, provide that a certificate or certificates representing the shares underlying a Restricted Stock award shall be registered in the Participant’s name and bear an appropriate legend specifying that such shares are not transferable and are subject to the provisions of the Plan and the restrictions, terms and conditions set forth in the applicable Agreement, or that such certificate or certificates shall be held in escrow by the Company on behalf of the Participant until such shares become vested or are forfeited. Except as provided in the applicable Agreement, no shares underlying a Restricted Stock award may be assigned, transferred, or otherwise encumbered or disposed of by the Participant until such shares have vested in accordance with the terms of such Award.
(iv) If and to the extent that the applicable Agreement may so provide, a Participant shall have the right to vote and receive dividends on the shares underlying a Restricted Stock award granted under the Plan. Unless otherwise provided in the applicable Agreement, any stock received as a dividend on or in connection with a stock split of the shares underlying a Restricted Stock award shall be subject to the same restrictions as the shares underlying such Restricted Stock award.
(v) The Committee may grant Stock Bonus awards, alone or in tandem with other Awards under the Plan, subject to such terms and conditions as the Committee shall determine in its sole discretion and as may be evidenced by the applicable Agreement.
(f) Performance Awards.
(i) The Committee may grant Performance Awards, alone or in tandem with other Awards under the Plan, to acquire shares of Company Stock in such amounts and subject to such terms and conditions as the Committee shall from time to time in its sole discretion determine, subject to the terms of the Plan. To the extent necessary to satisfy the short-term deferral exception to Section 409A of the Code, unless the Committee shall determine otherwise, the Performance Awards shall provide that payment shall be made within 2 1/2 months after the end of the year in which the Participant has a legally binding vested right to such award.
(ii) In the event that the Committee grants a Performance Award or other Award (other than Nonqualified Stock Option or Incentive Stock Option or a Stock Appreciation Right) that is intended to constitute qualified performance-based compensation within the meaning Section 162(m) of the Code, the following rules shall apply (as such rules may be modified by the Committee to conform with Section 162(m) of the Code and the Treasury Regulations thereunder as may be in effect from time to time, and any amendments, revisions or successor provisions thereto): (a) payments under the Performance Award shall be made solely on account of the attainment of one or more objective performance goals established in writing by the Committee not later than 90 days after the commencement of the period of service to which the Performance Award relates (but in no event after 25% of the period of service has elapsed); (b) the performance goal(s) to which the Performance Award relates shall be based on one or more of the following business criteria applied to the Participant and/or a business unit or the Company and/or a Subsidiary:(1) scientific progress, (2) product development progress, (3) business development progress, including in-licensing, (4) sales, (5) sales growth, (6) earnings growth, (7) cash flow or cash position, (8) gross margins, (9) stock price, (10) financings (issuance of debt or equity), (11) market share, (12) total shareholder return, (13) net revenues, (14) earnings per share of Company Stock; (15) net income (before or after taxes), (16) return on assets, (17) return on sales, (18) return on assets, (19) equity or investment, (20) improvement of financial ratings, (21) achievement of balance sheet or income statement objectives or (22) total stockholder return. (23) earnings from continuing operations; levels of expense, cost or liability, (24) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA” or “EBITDA”), (25) cost reduction goals, (26) business development goals (including without limitation regulatory submissions, product launches and other business development-related opportunities), (27) identification or consummation of investment opportunities or completion of specified projects in accordance with corporate business plans, including strategic mergers, acquisitions or divestitures, (28) meeting specified market penetration or value added goals, (29) development of new technologies (including patent application or issuance goals), (30) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period, and (31) such other criteria as the stockholders of the Company may approve; in each case as applicable, as determined in accordance with generally accepted accounting principles; and (c) once granted, the Committee may not have discretion to increase the amount payable under such Award, provided, however, that whether or not an Award is intended to constitute qualified performance-based compensation within the meaning of Section 162(m) of the Code, the Committee, to the extent provided by the Committee at the time the Award is granted or as otherwise permitted under Section 162(m) of the Code, shall have the authority to make appropriate adjustments in performance goals under an Award to reflect the impact of extraordinary items not reflected in such goals. For purposes of the Plan, extraordinary items shall be defined as (1) any profit or loss attributable to acquisitions or dispositions of stock or assets, (2) any changes in accounting standards that may be required or permitted by the Financial Accounting Standards Board or adopted by the Company after the goal is established, (3) all items of gain, loss or expense for the year related to restructuring charges for the Company, (4) all items of gain, loss or expense for the year determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business, (5) all items of gain, loss or expense for the year related to discontinued operations that do not qualify as a segment of a business as defined in APB Opinion No. 30, and (6) such other items as may be prescribed by Section 162(m) of the Code and the Treasury Regulations thereunder as may be in effect from time to time, and any amendments, revisions or successor provisions and any changes thereto. The Committee shall, prior to making payment under any award under this Section 6(f), certify in writing that all applicable performance goals have been attained. Notwithstanding anything to the contrary contained in the Plan or in any applicable Agreement, no dividends or dividend equivalents will be paid with respect to unvested Performance Awards.
(g)Other Stock- or Cash-Based Awards.
(i) The Committee is authorized to grant Awards to Participants in the form of Other Stock-Based Awards or Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. To the extent necessary to satisfy the short-term deferral exception to Section 409A of the Code, unless the Committee shall determine otherwise, the awards shall provide that payment shall be made within 2½ months after the end of the year in which the Participant has a legally binding vested right to such award. With respect to Other Cash-Based Awards intended to qualify as performance based compensation under Section 162(m) of the Code, (i) the maximum value of the aggregate payment that any Participant may receive with respect to any such Other Cash-Based Award that is an Annual Incentive Award is $3,000,000, (ii) the maximum value of the aggregate payment that any Participant may receive with respect to any such Other Cash-Based Award that is a Long Term Incentive Award is the amount set forth in clause (i) above multiplied by a fraction, the numerator of which is the number of months in the performance period and the denominator of which is twelve, and (iii) such additional rules set forth in Section 6(f) applicable to Awards intended to qualify as performance-based compensation under Section 162(m) shall apply. The Committee may establish such other rules applicable to the Other Stock- or Cash-Based Awards to the extent not inconsistent with Section 162(m) of the Code.
(h) Exercisability of Awards; Cancellation of Awards in Certain Cases.
(i) Except as hereinafter provided, each Agreement with respect to an Option or Stock Appreciation Right shall set forth the period during which and the conditions subject to which the Option or Stock Appreciation Right evidenced thereby shall be exercisable, and each Agreement with respect to a Restricted Stock award, Stock Bonus award, Performance Award or other Award shall set forth the period after which and the conditions subject to which amounts underlying such Award shall vest or be deliverable, all such periods and conditions to be determined by the Committee in its sole discretion.
(ii) Except as provided in Section 7(d) hereof, no Option or Stock Appreciation Right may be exercised and no shares of Company Stock underlying any other Award under the Plan may vest or become deliverable more than ten years after the date of grant (the “Stated Expiration Date”).
(iii) Except as provided in Section 7 hereof, no Option or Stock Appreciation Right may be exercised and no shares of Common Stock underlying any other Award under the Plan may vest or become deliverable unless the Participant is at such time in the employ (for Participants who are employees) or service (for Participants who are Nonemployee Directors or consultants) of the Company or a Subsidiary (or a company, or a parent or subsidiary company of such company, issuing or assuming the relevant right or award in a Change in Control) and has remained continuously so employed or in service since the relevant date of grant of the Award.
(iv) An Option or Stock Appreciation Right shall be exercisable by the filing of a written notice of exercise or a notice of exercise in such other manner with the Company, on such form and in such manner as the Committee shall in its sole discretion prescribe, and by payment in accordance with Section 6(i) hereof.
(v) Unless the applicable Agreement provides otherwise, the “Option exercise date” and the “Stock Appreciation Right exercise date” shall be the date that the written notice of exercise, together with payment, are received by the Company.
(i) Payment of Award Price.
(i) Unless the applicable Agreement provides otherwise or the Committee in its sole discretion otherwise determines, any written notice of exercise of an Option or Stock Appreciation Right must be accompanied by payment of the full Option or Stock Appreciation Right exercise price.
(ii) Payment of the Option exercise price and of any other payment required by the Agreement to be made pursuant to any other Award shall be made in any combination of the following: (a) by certified or official bank check payable to the Company (or the equivalent thereof acceptable to the Committee), (b) with the consent of the Committee in its sole discretion, by personal check (subject to collection) which may in the Committee’s discretion be deemed conditional, (c) unless otherwise provided in the applicable Agreement, and as permitted by the Committee, by delivery of previously-acquired shares of Common Stock owned by the Participant having a Fair Market Value (determined as of the Option exercise date, in the case of Options, or other relevant payment date as determined by the Committee, in the case of other Awards) equal to the portion of the exercise price being paid thereby; and/or (d) unless otherwise provided in applicable agreement, and as permitted by the Committee, on a net-settlement basis with the Company withholding the amount of Common Stock sufficient to cover the exercise price and tax withholding obligation. Payment in accordance with clause (a) of this Section 6(i)(ii) may be deemed to be satisfied, if and to the extent that the applicable Agreement so provides or the Committee permits, by delivery to the Company of an assignment of a sufficient amount of the proceeds from the sale of Company Stock to be acquired pursuant to the Award to pay for all of the Company Stock to be acquired pursuant to the Award and an authorization to the broker or selling agent to pay that amount to the Company and to effect such sale at the time of exercise or other delivery of shares of Company Stock.
7. Termination of Employment.
(a) Unless the applicable Agreement provides otherwise or the Committee in its sole discretion determines otherwise, upon termination of a Participant’s employment or service with the Company and its Subsidiaries by the Company or its Subsidiary for Cause (or in the case of a Nonemployee Director upon such Nonemployee Director’s failure to be renominated as Nonemployee Director of the Company), the portions of outstanding Options and Stock Appreciation Rights granted to such Participant that are exercisable as of the date of such termination of employment or service shall remain exercisable, and any payment or notice provided for under the terms of any other outstanding Award as respects the portion thereof that is vested as of the date of such termination of employment or service, may be given, for a period of thirty (30) days from and including the date of termination of employment or service (and shall thereafter terminate). All portions of outstanding Options or Stock Appreciation Rights granted to such Participant which are not exercisable as of the date of such termination of employment or service, and any other outstanding Award which is not vested as of the date of such termination of employment or service shall terminate upon the date of such termination of employment or service.
(b) Unless the applicable Agreement provides otherwise or the Committee in its sole discretion determines otherwise, upon termination of the Participant’s employment or service with the Company and its Subsidiaries for any reason other than as described in subsection (a), (c), (d) or (e) hereof, the portions of outstanding Options and Stock Appreciation Rights granted to such Participant that are exercisable as of the date of such termination of employment or service shall remain exercisable for a period of ninety (90) days (and shall terminate thereafter), and any payment or notice provided for under the terms of any other outstanding Award as respects the portion thereof vested as of the date of termination of employment or service may be given, for a period of ninety (90) days from and including the date of termination of employment or service (and shall terminate thereafter). All additional portions of outstanding Options or Stock Appreciation Rights granted to such Participant which are not exercisable as of the date of such termination of employment or service, and any other outstanding Award which is not vested as of the date of such termination of employment or service shall terminate upon the date of such termination of employment or service.
(c) Unless the applicable Agreement provides otherwise or the Committee in its sole discretion determines otherwise, if the Participant voluntarily Retires with the consent of the Company or the Participant’s employment or service terminates due to Disability, all outstanding Options, Stock Appreciation Rights and all other outstanding Awards (except, in the event a Participant voluntarily Retires, with respect to Awards (other than Options and Stock Appreciation Rights) intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code) granted to such Participant shall continue to vest in accordance with the terms of the applicable Agreements. The Participant shall be entitled to exercise each such Option or Stock Appreciation Right and to make any payment, give any notice or to satisfy other condition under each such other Award, in each case, for a period of one year from and including the later of (i) date such entire Award becomes vested or exercisable in accordance with the terms of such Award and (ii) the date of Retirement, and thereafter such Awards or parts thereof shall be canceled. Notwithstanding the foregoing, the Committee may in its sole discretion provide for a longer or shorter period for exercise of an Option or Stock Appreciation Right or may permit a Participant to continue vesting under an Option, Stock Appreciation Right or Restricted Stock award or to make any payment, give any notice or to satisfy other condition under any other Award. The Committee may in its sole discretion, and in accordance with Section 409A of the Code, determine (i) for purposes of the Plan, whether any termination of employment or service is a voluntary Retirement with the Company’s consent or is due to Disability for purposes of the Plan, (ii) whether any leave of absence (including any short-term or long-term Disability or medical leave) constitutes a termination of employment or service, or a failure to have remained continuously employed or in service, for purposes of the Plan (regardless of whether such leave or status would constitute such a termination or failure for purposes of employment law), (iii) the applicable date of any such termination of employment or service, and (iv) the impact, if any, of any of the foregoing on Awards under the Plan.
(d) Unless the applicable Agreement provides otherwise or the Committee in its sole discretion determines otherwise, if the Participant’s employment or service terminates by reason of death, or if the Participant’s employment or service terminates under circumstances providing for continued rights under subsection (b), (c) or (e) of this Section 7 and during the period of continued rights described in subsection (b), (c) or (e) the Participant dies, all outstanding Options, Restricted Stock and Stock Appreciation Rights granted to such Participant shall vest and become fully exercisable, and any payment or notice provided for under the terms of any other outstanding Award may be immediately paid or given and any condition may be satisfied, by the person to whom such rights have passed under the Participant’s will (or if applicable, pursuant to the laws of descent and distribution) for a period of one year from and including the date of the Participant’s death and thereafter all such Awards or parts thereof shall be canceled.
(e) Unless the applicable Agreement provides otherwise or the Committee in its sole discretion determines otherwise, upon termination of a Participant’s employment or service with the Company and its Subsidiaries (i) by the Company or its Subsidiaries without Cause (including, in case of a Nonemployee Director, the failure to be elected as a Nonemployee Director) or (ii) by the Participant for “good reason” or any like term as defined under any employment agreement with the Company or a Subsidiary to which a Participant may be a party to, the portions of outstanding Options and Stock Appreciation Rights granted to such Participant which are exercisable as of the date of termination of employment or service of such Participant shall remain exercisable, and any payment or notice provided for under the terms of any other outstanding Award as respects the portion thereof vested as of the date of termination of employment or service may be given, for a period of one year from and including the date of termination of employment or service and shall terminate thereafter. Unless the applicable Agreement provides otherwise or the Committee in its sole discretion determines otherwise, any other outstanding Award shall terminate as of the date of such termination of employment or service.
(f) Notwithstanding anything in this Section 7 to the contrary, no Option or Stock Appreciation Right may be exercised and no shares of Company Stock underlying any other Award under the Plan may vest or become deliverable past the Stated Expiration Date.
8. Effect of Change in Control.
Unless otherwise determined in an Award Agreement, in the event of a Change in Control:
(a) With respect to each outstanding Award that is assumed or substituted in connection with a Change in Control, in the event of a termination of a Participant’s employment or service by the Company without Cause during the 24-month period following such Change in Control, on the date of such termination (i) such Award shall become fully vested and, if applicable, exercisable, (ii) the restrictions, payment conditions, and forfeiture conditions applicable to any such Award granted shall lapse, and (iii) any performance conditions imposed with respect to Awards shall be deemed to be fully achieved at target levels.
(b) With respect to each outstanding Award that is not assumed or substituted in connection with a Change in Control, immediately upon the occurrence of the Change in Control, (i) such Award shall become fully vested and, if applicable, exercisable, (ii) the restrictions, payment conditions, and forfeiture conditions applicable to any such Award granted shall lapse, and (iii) any performance conditions imposed with respect to Awards shall be deemed to be fully achieved at target levels.
(c) For purposes of this Section 8, an Award shall be considered assumed or substituted for if, following the Change in Control, the Award remains subject to the same terms and conditions that were applicable to the Award immediately prior to the Change in Control except that, if the Award related to Shares, the Award instead confers the right to receive Common Stock of the acquiring entity.
(d) Notwithstanding any other provision of the Plan: (i) in the event of a Change in Control, except as would otherwise result in adverse tax consequences under Section 409A of the Code, the Board may, in its sole discretion, provide that each Award shall, immediately upon the occurrence of a Change in Control, be cancelled in exchange for a payment in cash or securities in an amount equal to (x) the excess of the consideration paid per Share in the Change in Control over the exercise or purchase price (if any) per Share subject to the Award multiplied by (y) the number of Shares granted under the Award and (ii) with respect to any Award that constitutes a deferral of compensation subject to Section 409A of the Code, in the event of a Change in Control that does not constitute a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code and regulations thereunder, such Award shall be settled in accordance with its original terms or at such earlier time as permitted by Section 409A of the Code.
9. Miscellaneous.
(a) Agreements evidencing Awards under the Plan shall contain such other terms and conditions, not inconsistent with the Plan, as the Committee may determine in its sole discretion, including penalties for the commission of competitive acts or other actions detrimental to the Company. Notwithstanding any other provision hereof, the Committee shall have the right at any time to deny or delay a Participant’s exercise of Options if such Participant is reasonably believed by the Committee (i) to be engaged in material conduct adversely affecting the Company or (ii) to be contemplating such conduct, unless and until the Committee shall have received reasonable assurance that the Participant is not engaged in, and is not contemplating, such material conduct adverse to the interests of the Company.
(b) Participants are and at all times shall remain subject to the trading window policies adopted by the Company from time to time throughout the period of time during which they may exercise Options, Stock Appreciation Rights or sell shares of Company Stock acquired pursuant to the Plan.
10.No Special Employment Rights, No Right to Award.
(a) Nothing contained in the Plan or any Agreement shall confer upon any Participant any right with respect to the continuation of employment or service by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or service or to increase or decrease the compensation of the Participant.
(b) No person shall have any claim or right to receive an Award hereunder. The Committee’s granting of an Award to a Participant at any time shall neither require the Committee to grant any other Award to such Participant or other person at any time or preclude the Committee from making subsequent grants to such Participant or any other person.
11.Securities Matters.
(a) The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such shares make such agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or desirable.
(b) The transfer of any shares of Company Stock hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any transfer of shares of Company Stock hereunder in order to allow the issuance of such shares to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Participant in writing of its decision to defer the effectiveness of a transfer. During the period of such deferral in connection with the exercise of an Award, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.
12.Withholding Taxes.
(a) Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto.
(b) Whenever shares of Company Stock are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Company Stock having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.
13.Non-Competition and Confidentiality.
By accepting Awards and as a condition to the exercise of Awards and the enjoyment of any benefits of the Plan, including participation therein, each Participant agrees to be bound by and subject to non-competition, confidentiality and invention ownership agreements acceptable to the Committee or any officer or director to whom the Committee elects to delegate such authority.
14.Notification of Election Under Section 83(b) of the Code.
If any Participant shall, in connection with the acquisition of shares of Company Stock under the Plan, make the election permitted under Section 83(b) of the Code, such Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service.
15.Amendment or Termination of the Plan.
The Board of Directors or the Committee may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that the requisite stockholder approval shall be required if and to the extent the Board of Directors or Committee determines that such approval is appropriate or necessary for purposes of satisfying Sections 162(m) or 422 of the Code or Rule 16b-3 or other applicable law. Awards may be granted under the Plan prior to the receipt of such stockholder approval of the Plan but each such grant shall be subject in its entirety to such approval and no Award may be exercised, vested or otherwise satisfied prior to the receipt of such approval. No amendment or termination of the Plan may, without the consent of a Participant, adversely affect the Participant’s rights under any outstanding Award.
16.Transfers Upon Death; Nonassignability.
(a) A Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, upon the death of a Participant, outstanding Awards granted to such Participant may be exercised only by the executor or administrator of the Participant’s estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. No transfer of an Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and an agreement by the transferee to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Award.
(b) During a Participant’s lifetime, the Committee may, in its discretion, pursuant to the provisions set forth in this clause (b), permit the transfer, assignment or other encumbrance of an outstanding Option unless such Option is an Incentive Stock Option and the Committee and the Participant intends that it shall retain such status. Subject to the approval of the Committee and to any conditions that the Committee may prescribe, a Participant may, upon providing written notice to the General Counsel of the Company, elect to transfer any or all Options granted to such Participant pursuant to the Plan to members of his or her immediate family, including, but not limited to, children, grandchildren and spouse or to trusts for the benefit of such immediate family members or to partnerships in which such family members are the only partners; provided, however, that no such transfer by any Participant may be made in exchange for consideration. Any such transferee must agree, in writing, to be bound by all provisions of the Plan.
17.Effective Date and Term of Plan.
The Plan shall become effective on the Effective Date, but the Plan shall be subject to the requisite approval of the stockholders of the Company at the Company’s next annual meeting of its shareholders. In the absence of such approval, such Awards shall be null and void. Unless earlier terminated by the Board of Directors, the right to grant Awards under the Plan shall terminate on the tenth anniversary of the Effective Date. Awards outstanding at Plan termination shall remain in effect according to their terms and the provisions of the Plan.
18.Applicable Law.
Except to the extent preempted by any applicable federal law, the Plan shall be construed and administered in accordance with the laws of the State of Delaware, without reference to its principles of conflicts of law.
19.Participant Rights.
(a) No Participant shall have any claim to be granted any award under the Plan, and there is no obligation for uniformity of treatment for Participants. Except as provided specifically herein, a Participant or a transferee of an Award shall have no rights as a stockholder with respect to any shares covered by any award until the date of the issuance of a Company Stock certificate to him or her for such shares.
(b) Determinations by the Committee under the Plan relating to the form, amount and terms and conditions of grants and Awards need not be uniform, and may be made selectively among persons who receive or are eligible to receive grants and awards under the Plan, whether or not such persons are similarly situated.
20.Unfunded Status of Awards.
The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Agreement shall give any such Participant any rights that are greater than those of a general creditor of the Company.
21.No Fractional Shares.
No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
22.Interpretation.
The Plan is designed and intended to the extent applicable, to comply with Section 162(m) of the Code, and to provide for grants and other transactions which are exempt under Rule 16b-3, and all provisions hereof shall be construed in a manner to so comply. Awards under the Plan are intended to comply with Code Section 409A to the extent subject thereto and the Plan and all Awards shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the effective date of the Plan. Notwithstanding any provision in the Plan to the contrary, no payment or distribution under this Plan that constitutes an item of deferred compensation under Code Section 409A and becomes payable by reason of a Participant’s termination of employment or service with the Company will be made to such Participant until such Participant’s termination of employment or service constitutes a “separation from service” (as defined in Code Section 409A). For purposes of this Plan, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Code Section 409A. If a participant is a “specified employee” (as defined in Code Section 409A), then to the extent necessary to avoid the imposition of taxes under Code Section 409A, such Participant shall not be entitled to any payments upon a termination of his or her employment or service until the earlier of: (i) the expiration of the six (6)-month period measured from the date of such Participant’s “separation from service” or (ii) the date of such Participant’s death. Upon the expiration of the applicable waiting period set forth in the preceding sentence, all payments and benefits deferred pursuant to this Section 22 (whether they would have otherwise been payable in a single lump sum or in installments in the absence of such deferral) shall be paid to such Participant in a lump sum as soon as practicable, but in no event later than sixty (60) calendar days, following such expired period, and any remaining payments due under this Plan will be paid in accordance with the normal payment dates specified for them herein.
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Amendment to increase the number of shares available for grant from 1,100,000 to 3,000,000 approved and adopted by the Board of Directors this 2nd day of May, 2016.
| | | HEAT BIOLOGICS, INC. 801 CAPITOLA DRIVE, SUITE 12 DURHAM, NC 27713 | VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on July 18, 2016.22, 2019. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | | | | ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. | | | | VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on July 18, 2016. Have your proxy card in hand when you call and then follow the instructions.
| | | | VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
| | | | TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: ý¨ | KEEP THIS PORTION FOR YOUR RECORDS | — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — | | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For | Withhold | For All | To withhold authority to vote for any individual | | All | All | Except | nominee(s), mark “For All Except” and write the | The Board of Directors recommends you vote FOR the following: | | | | number(s) of the nominee(s) on the line below. | | | | | | | | | | 1. | Election of Directors | ¨ | ¨ | ¨ | | | | | | | | | | | | | Nominees: | | | | | | | | | | | | | | | | | | 01 Jeffrey Wolf | 02 John Monahan, Ph.D. | | 03 Edward B. Smith, III | 04 John K.A. Prendergast, Ph.D. | | | | | | | | | | | | The Board of Directors recommends you vote FOR the proposals 2, 3, 4, 5, 6, 7 and 5.8. | | For | Against | Abstain | | | | | | | | | 2. | toTo ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for our fiscal year ending on December 31, 20162019.
| | ¨ | ¨ | ¨ | | | | | | | | | 3. | To approve an amendment to our 2018 Stock Incentive Plan to increase the number of shares of common stock that we will have authority to grant under the plan by an additional 4,000,000 shares of common stock. | | ¨ | ¨ | ¨ | | | | | | | | | 4. | To approve (in the event it is deemed advisable by our Board of Directors) an amendment to our third amended and restated certificate of incorporation, as amended (the “Restated Certificate of Incorporation”), to effect a reverse stock split of our issued and outstanding shares of common stock, $0.0002 par value per share, at a ratio to be determined in the discretion of our Board of Directors within a range of one (1) share of Common Stockcommon stock for every two (2) to twenty (20)ten (10) shares of Common Stock; | | ¨
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| to authorize an adjournment of the Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3;Stock.
| | ¨ | ¨ | ¨ | | | | | | | | | 5. | toTo approve (in the event it is deemed advisable by our Board of Directors) an amendment to our Amended andthe Restated 2014 Stock Incentive PlanCertificate of Incorporation to increase the number of authorized shares of our Common Stock that we have authoritycommon stock from 100,000,000 to grant from 1,100,000 to 3,000,000; and250,000,000.
| | ¨ | ¨ | ¨ | | | | | | | | | 6. | To approve an adjournment of the Annual Meeting, if the Board determines it to be necessary or appropriate, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal 4 or Proposal 5. | | ¨ | ¨ | ¨ | | | | | | | | | 7. | To approve, on an advisory basis, the compensation of our named executive officers, as disclosed in this proxy statement. | | ¨ | ¨ | ¨ | | | | 1 year | 2 years | 3 years | Abstain | | 8. | To recommend, on an advisory basis, a three year frequency for holding an advisory vote on executive compensation. | ¨ | ¨ | ¨ | ¨ | | | | | | | | | NOTE:to To transact such other business as may properly come before the meeting or any adjournments or postponements of the meeting. | | | | | | | | | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. | | | | | | | | | | | | | | | | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as
attorney, executor, administrator, or other fiduciary, please give full
title as such. Joint owners should each sign personally. All holders must
sign. If a corporation or partnership, please sign in full corporate or
partnership name, by authorized officer.
| | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | Date | | Signature (Joint Owners) | Date | |
| | Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice & Proxy Statement, and Form 10-K are available atwww.proxyvote.com |
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| | HEAT BIOLOGICS, INC. 2019 Annual Meeting of Stockholders July 19, 2016 9:23, 2019 10:00 AMA.M. Local Time This proxy is solicited by the Board of Directors | | The undersigned shareholderstockholder hereby appoints Jeffrey Wolf and Ann Rosar,Robert J. Jakobs, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of HEAT BIOLOGICS, INC. that the undersigned is entitled to vote at the 2019 Annual Meeting of Stockholders to be held at 9:10:00 AM,A.M., local time, on July 19, 2016,23, 2019, at Gracin & Marlow, LLP, The Chrysler Building, 405 Lexington Avenue, 26th Floor, New York, New York,the offices of the Company, 801 Capitola Drive, Suite 12, Durham, North Carolina 27713, and any adjournment or postponement thereof. | | This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. | | | | | | | | | Continued and to be signed on reverse side |
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