Item 5.02 Departure of Directors or Certain Officers; Election
of Directors; Compensatory Arrangements of Certain Officers.
On August 6, 2019, the Board of Directors (the
“Board”) of Assembly Biosciences, Inc. (the “Company”) appointed John G. McHutchison, A.O., M.D. as
the Company’s Chief Executive Officer and President, effective as of August 6, 2019 (the “Start Date”). In
this role, Dr. McHutchison will be the Company’s “principal executive officer” as such term is used for
purposes of the rules and regulations of the Securities and Exchange Commission. In connection with his appointment as Chief
Executive Officer and President, Dr. McHutchison was also appointed a director of the Company to fill the newly created
vacancy resulting from an increase in the number of authorized members of the Board, as described below under Item 5.03, until
the Company’s 2020 annual meeting of stockholders and until his successor is duly elected and qualified, or, if
sooner, until his earlier death, resignation or removal.
In connection with Dr. McHutchison’s appointments,
the Company also entered into an employment agreement with him, effective as of the Start Date. Dr. McHutchison’s
employment is at-will. The employment agreement provides for an initial annual base salary of $800,000 and an annual
performance-based incentive cash bonus in an amount initially targeted to 75% of Dr. McHutchison’s then-current
annualized base salary. The Company will also pay Dr. McHutchison a sign-on bonus of $300,000 (the “Sign-on
Bonus”), payable in a lump sum within 30 days of the Start Date. The Sign-on Bonus is subject to a declining repayment
schedule if Dr. McHutchison’s employment is terminated under certain circumstances within 18 months of the Start
If Dr. McHutchison’s employment is terminated as a result
of his death, then the Company will pay to his estate his then-current base salary for a period of 12 months following such termination,
reduced to the extent of any life insurance benefit provided by the Company.
If Dr. McHutchison’s employment is terminated by the
Company for disability or without cause or by Dr. McHutchison for good reason or as a result of his death within one month
prior to or within 12 months following, a change of control (as defined in his employment agreement), and subject to Dr.
McHutchison’s execution and non-revocation of a general release of claims, the Company will
provide Dr. McHutchison the following benefits: (i) a lump sum payment equal to 18 months of his then-current base salary;
(ii) an amount equal to 1.5 times his full target annual bonus for the year in which the termination occurred; (iii)
immediate vesting in full of all equity awards (including equity awards that vest based on performance but only to the extent
accelerated vesting is provided in agreements governing such equity awards); provided, however that (a) in the event that
such termination occurs during the one month prior to a change of control, any equity-based compensation outstanding as of
the termination will not accelerate but will remain outstanding and eligible to vest immediately prior to the consummation of
the change of control and (b) in the event that such termination occurs prior to a change of control and such change of
control is not consummated on or prior to the date one month after such termination, no vesting will occur and any equity
awards outstanding as of the termination will vest, if at all, and terminate in accordance with, and to the extent provided
in the non-change of control separation provisions and the equity award agreements; (iv) extension of the exercise period for
all vested stock options held by Dr. McHutchison to the end of their term; and (v) up to 18 months of COBRA following
If Dr. McHutchison’s employment is terminated by the
Company as a result of his disability, by the Company without cause or by Dr. McHutchison for good reason, and such
termination does not occur during the one month prior to or within 12 months following, a change of control, and subject to
Dr. McHutchison’s execution and non-revocation of a general release of claims, the Company
will provide him the following benefits: (i) continued payment of his then-current base salary for 12 months following
date of termination of employment; (ii) his annual performance bonus, if any, for the year in which termination occurs in an
amount equal to the amount Dr. McHutchison would have earned based on Company’s performance if he was employed for the
full year, pro-rated based on the number of days employed for the year of termination; (iii) all equity awards that would
have time vested during the 12 months following the termination date shall accelerate and vest; (iv) extension of the
exercise period for all vested stock options held by the Dr. McHutchison as of the termination date until the earlier of the
first anniversary of the employment termination date and the termination date of the vested stock options; and (v) up to 12
months of COBRA following termination. The benefits described in this paragraph are in lieu of, and not in addition to, the
benefits described in the prior preceding paragraph.
Dr. McHutchison also was granted a non-qualified stock option
to purchase 500,000 shares of the Company’s common stock (the “New Hire Stock Option”). The New Hire Stock Option
vests over three years as follows: one-third will vest on the first anniversary of the date of grant, August 6, 2020; and the remaining
two-thirds will vest in 24 equal monthly installments, with the option becoming fully vested on August 6, 2022. Dr. McHutchison
also was granted 100,000 restricted stock units, which vest over three years in approximately three equal installments on the first
three anniversaries of the date of grant and, within 45 days of the Start Date, he will be granted 100,000 performance-based restricted
stock units, which will vest upon the achievement of performance metrics to be determined by the Board in consultation with Dr.
McHutchison (collectively, the restricted stock units and the New Hire Stock Options, the “New Hire Equity Awards”).
The New Hire Equity Awards are subject to Dr. McHutchison’s continued service with the Company through the applicable vesting
dates and to acceleration upon the occurrence of certain events as set forth in the equity award agreements and his employment
The foregoing description of the terms of Dr. McHutchison’s
employment agreement does not purport to be complete and is qualified in their entirety by reference to the complete text of the
employment agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended
September 30, 2019.
Prior to joining the Company, Dr. McHutchison, age 61, was
the Chief Scientific Officer and Head of Research and Development of Gilead Sciences, Inc. (“Gilead”). Prior
to joining Gilead in 2010, Dr. McHutchison worked at Duke University Medical Center, where he served as Associate Director
of the Duke Clinical Research Institute. He also held the positions of Professor of Medicine in the Division of
Gastroenterology at Duke University Medical Center, Associate Director at Duke Clinical Research Institute and Co-Director of
the Duke Clinical and Translational Science Award. Prior to his positions at Duke University, Dr. McHutchison spent nearly 10
years at Scripps Clinic, most recently as Medical Director, Liver Transplantation. He also previously held an Assistant
Professorship in Medicine at the University of Southern California. In June 2018, Dr. McHutchison was appointed an Officer of
the Order of Australia in recognition of his distinguished service to medical research in gastroenterology and hepatology.
Dr. McHutchison has undergraduate degrees in medicine and surgery from the University of Melbourne in Australia and completed
his residency in internal medicine and fellowship in gastroenterology at the Royal Melbourne Hospital. He is a member of the
Royal Australasian College of Physicians.
There are no arrangements or understandings between Dr. McHutchison
and any other persons pursuant to which Dr. McHutchison was appointed as President and Chief Executive Officer of the Company or
as a director. There are also no family relationships between Dr. McHutchison and any director or executive officer of the Company
and he has no direct or indirect interest in any transaction or proposed transaction required to be disclosed pursuant to Item
404(a) of Regulation S-K.
Transition of Derek A. Small, as Chief Executive Officer
On August 7, 2019, the Company announced that Derek A. Small
has stepped down as the Company’s Chief Executive Officer and President effective as of August 6, 2019. Mr. Small also resigned
from the positions of principal executive officer and principal financial officer. Mr. Small will continue as an employee in the
role of Senior Advisor to the Chief Executive Officer through December 31, 2019 (the “Separation Date”) and then following
the Separation Date, Mr. Small will transition to a consultant. Mr. Small will remain on the Board until the Company’s 2020
annual meeting of stockholders and until his successor is duly elected and qualified, or, if sooner, until his earlier death, resignation
On August 6, 2019, the Board, acting on the recommendation of
the Board’s Compensation Committee, approved (1) the terms and conditions of a Separation Agreement and General Release
of Claims with Mr. Small, which was executed on August 6, 2019 (the “Separation Agreement”); (2) the terms and
conditions of a Consulting Agreement with Mr. Small, which was executed on August 6, 2019 to be effective January 1, 2020 (the
“Consulting Agreement”); and (3) an award of 125,000 restricted stock units (“RSUs” and together with
the Separation Agreement and Consulting Agreement, the “Small Separation Documents”) to be granted to Mr. Small effective
as of the first day following the effective date of his Consulting Agreement, which is anticipated to be January 2, 2020.
Pursuant to the Separation Agreement, subject to Mr. Small agreeing
to a release of claims in favor of the Company and complying with certain other continuing obligations contained therein, the Company
will pay Mr. Small the amounts owed to Mr. Small pursuant to Section 10(c) of that certain executive employment agreement, dated
July 11, 2014, as amended, by and between the Company and Mr. Small (the “Small Employment Agreement”), as modified
by the Separation Agreement and the terms of stock option agreements governing stock options granted in 2018 and 2019. Additionally,
Mr. Small will remain eligible to earn his annual performance-based cash incentive bonus based on Company’s performance.
Mr. Small and the Company executed the Consulting Agreement to be effective immediately following the Small Separation Date. Under
the Consulting Agreement, Mr. Small will serve as a senior advisor to the Chief Executive Officer for up to 10 hours per week until
December 31, 2020, unless earlier terminated by either party in accordance with the terms of the Consulting Agreement. In exchange
for his services, the Company will grant Mr. Small the RSUs on the first day following the effective date of the Consulting Agreement.
Assuming continuous service to the Company under the Consulting Agreement, the RSUs granted to Mr. Small will vest in monthly installments
on the last day of each month following the effective date of the Consulting Agreement, with the RSUs becoming fully vested on
last day of the consulting term. The vesting of the RSUs will accelerate upon the occurrence of certain events specified in the
agreement governing the RSUs.
The foregoing descriptions of the terms of the Small Separation
Documents do not purport to be complete and are qualified in their entirety by reference to the complete text of the Small Separation
Documents, which will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the period ended September