BENEFICIAL OWNERSHIP OF SHARES OF COMMON STOCK
The following table sets forth, as of March 31, 2016, information regarding beneficial ownership of our capital stock by:
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each person, or group of affiliated persons, known by us to be the beneficial owner of 5% or more of any class of our voting securities;
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each of our current directors and nominees;
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each of our current named executive officers; and
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all current directors and named executive officers as a group.
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Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security and includes any securities that person or group has the right to acquire within 60 days after the measurement date. This table is based on information supplied by officers, directors and principal stockholders. Except as otherwise indicated, we believe that each of the beneficial owners of the common stock listed below, based on the information such beneficial owner has given to us, has sole investment and voting power with respect to such beneficial owners
shares, except where community property laws may apply.
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Common Stock
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Name and Address of Beneficial Owner
(1)
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Shares
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Shares
Underlying
Convertible
Securities
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Total
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Percent of
Class
(2)
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Directors and named executive officers
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Karl Johe, Ph.D.
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930,373
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(3)
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10,485,153
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11,415,526
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12.40
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%
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I. Richard Garr
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1,449,804
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4,333,036
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5,782,840
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6.28
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%
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Stanley Westreich
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1,593,818
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273,561
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1,867,379
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2.03
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%
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William Oldaker
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183,457
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461,650
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645,107
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*
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Scott Ogilvie
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72,651
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357,752
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430,403
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*
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Sandford Smith
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105,214
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74,367
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179,581
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*
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Catherine Sohn
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105,214
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57,669
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162,883
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*
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Jonathan Lloyd Jones
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25,000
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25,000
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*
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Richard Daly
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*
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All directors and named executive officers
as a group (9 individuals)
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20,508,718
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22.28
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%
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5% owners as reported on form SC 13G
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Putnam Investments, LLC
(4)
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5,894,944
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5,894,944
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6.40
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%
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All directors, named executive officers, and 5% owners as a group (10 entities)
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26,403,662
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28.69
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%
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*
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Represents less than one percent.
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(1)
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Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is c/o Neuralstem, Inc. 20271 Goldenrod Lane, Germantown, MD 20876.
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(2)
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Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There are 92,044,042 shares of common stock issued and outstanding as of March 31, 2016.
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(3)
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370,370 shares are pledged as collateral pursuant to a personal loan and remaining shares are pledged as collateral pursuant to Dr. Johes divorce settlement.
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(4)
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As reported by owner disclosing ownership as of 12/31/2015.
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9
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The names of our directors and executive officers and their ages, positions, and biographies as of April 1, 2016 are set forth below. Our executive officers are appointed by, and serve at the discretion of the Board. There are no family relationships among any of our directors or executive officers.
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Name
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Position
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Age
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Position
Since
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Executive Directors
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Richard J. Daly
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Chief Executive Officer and Director
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55
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2/2016
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Karl Johe, Ph.D.
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Chief Scientific Officer and Chairman of the Board
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55
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1996
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Independent Directors
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Scott V. Ogilvie
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Director
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61
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2007
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William Oldaker
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Director
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74
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2007
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Stanley Westreich
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Director
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79
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2011
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Dr. Catherine Angell Sohn
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Director
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63
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2014
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Sandford D. Smith
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Director
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69
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2014
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Non-Independent Directors
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I. Richard Garr
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Director
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63
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1996
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Richard Daly
, has been a director and our Chief Executive Officer since February of 2016. Mr. Daly brings over 25 years of commercial pharmaceutical experience working in positions of progressive responsibility in sales, marketing and operations. From November 2015 until February 2016, Mr. Daly was a managing partner at Ravine Rock Partners, LLC, a bio-pharmaceutical consulting company. Prior to that, from August 2013 until February 2014, Mr. Daly (as an employee of BMS) was the U.S. President of the BMS-AZ Diabetes Alliance. In February 2014 AstraZeneca purchased the BMS interest in the Diabetes Alliance and Mr.
Daly Became the President of U.S. Diabetes, a subsidiary of AstraZeneca Pharmaceutical LP. He served in this position until November 2014. From October 2011 until November 2012, Mr. Daly was a founding partner, board member and investor in SagePath Partners LLC, a commercial outsourcing provider to the pharmaceutical industry. Between July 2008 and October 2011, Mr. Daly was executive vice president of North and South America for Takeda NA, the north American subsidiary of Takeda Pharmaceuticals (TSE: TYO). Since June 2015, Mr. Daly has served on the board of directors and on the Compensation and Commercial Committees for Synergy Pharmaceuticals (NASDAQ: SGYP). Since February 2015, Mr. Daly has also served on the board of directors and on the Compensation Committee of Catalyst Pharmaceuticals (NASDAQ: CPRX). Mr. Daly holds a BS in Microbiology from The University of Notre Dame and an MBA from Northwestern University's Kellogg Graduate School of Management. In evaluating Mr. Dalys
specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work with both public and private organizations, including his experience in building biopharmaceutical organizations, his strong business development background and his past experience and relationships in the biopharma and biotech fields.
Dr. Karl Johe, Ph.D.,
has been a director, Chairman of the Board and our Chief Scientific Officer since 1996. Dr. Johe has over 15 years of research and laboratory experience. Dr. Johe is the sole inventor of Neuralstems stem cell patents and is responsible for the strategic planning and development of our therapeutic products. Dr. Johe received his Bachelor of Arts Degree in Chemistry and a Masters Degree from the University of Kansas. Dr. Johe received his doctorate from the Albert Einstein College of Medicine of Yeshiva University. From 1993 to January 1997, Dr. Johe served as a Staff Scientist at
the Laboratory of Molecular Biology of the National Institute of Neurological Disease and Stroke in Bethesda, Maryland. While holding this position, Dr. Johe conducted research on the isolation of neural stem cells, the elucidation of mechanisms directing cell type specification of central nervous system stem cells and the establishment of an in vitro model of mammalian neurogenesis. In evaluating Dr. Johes specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his extensive experience in international science and business communities. Dr. Johe is also multilingual.
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Mr. Scott V. Ogilvie
, has served as a director on our board since February 2008. Mr. Ogilvie is currently the President of AFIN International, Inc., an international private equity and strategic advisory firm, which he founded in 2006. Prior to December 31, 2009, he was CEO of Gulf Enterprises International, Ltd, an investment and strategic advisory company with primary activities in the Middle East and North Africa. He held this position since August 2006. Mr. Ogilvie previously served as Chief Operating Officer of CIC Group, Inc., an investment manager, a position he held from 2001 to 2007. He began his career
as a corporate and securities lawyer with Hill, Farrer & Burrill, and has extensive public and private corporate management and board experience in finance, real estate, and life science and technology companies. During the past 5 years, Mr. Ogilvie has served on the board of directors of Innovative Card Technologies, Inc. (OTCBB: INVC), Preferred Voice, Inc., (OTCBB: PRFV), GenSpera, Inc. (OTCQB: GNSZ) and Research Solutions, Inc. (OTCQB: RSSS). In evaluating Mr. Ogilvies specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work in both public and private organizations regarding corporate finance, securities and compliance and international business development.
Mr. William Oldaker,
has served on our board of directors since April 2007. Mr. Oldaker is a founder and partner in the Washington, D.C. law firm of Oldaker Group LLC. Prior to founding the firm in 1993, Mr. Oldaker was a partner in the Washington office of the law firm of Manatt, Phelps and Phillips from 1987 to 1993. In 2004, Mr. Oldaker was a founder of Washington First Bank in Washington, D.C. and serves as a member of the board of directors. He previously served as a director of Century National Bank, from 1982 until its acquisition in 2001. Mr. Oldaker was appointed by President Clinton to serve as a
commissioner on the National Bioethics Advisory Commission, a post he held until 2001. He is a member of the Colorado, D.C. and Iowa Bar Associations, the Bar Association for the Court of Appeals, D.C., and the Bar of the United States Supreme Court. He is also a partner in The National Group, a consulting firm. In evaluating Mr. Oldakers specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his extensive experience with managing and developing federal government regulations and expertise in the legislative process. He also was a founding member, and has served on the board of directors of a bank for almost thirty years.
Mr. Stanley Westreich
, has served on our board of directors since February 2011. Mr. Westreich is the manager of Westreich Services, LLC, a private investment and advisory firm which he founded in 2005. Prior to founding Westreich Services, LLC, Mr. Westreich was President of Westfield Realty, Inc., a real estate development and construction company, from 1965 to 2005. From July 26, 1994 to May 2010 he served as a director of Capital One Financial Corporation (NYSE: COF) and also served as a director of Capital One Bank (USA), National Association. He served as a member of the Capital One Financial Corporation
Compensation Committee from March 1995 through February 2010 and was its Chairman from March 1995 through April 2005. He has also served on the Capital One Financial Corporation Finance and Trust Oversight Committee from April 2004 to May of 2010. In evaluating Mr. Westreichs specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior experience on the board of Capital One Financial and its related committees as well as his track record at Westreich Reality, Inc.
Catherine Angell Sohn, Pharm.D.
has served on our board of directors since January 2014. Dr. Sohn is the founder of Sohn Health Strategies, where since 2010, she has consulted to pharmaceutical, biotechnology, medical device, and consumer healthcare companies in the areas of business strategy, business development and strategic product development. She is currently an independent director on the board of directors of Jazz Pharmaceuticals plc (NASDAQ: JAZZ) and Landec Corp (NASDAQ: LNDC). From 1982 to 2010, she was with GlaxoSmithKline plc, a pharmaceutical company (and with SmithKline Beecham plc before its merger
with Glaxo Wellcome plc), where she served most recently as Senior Vice President, Worldwide Business Development and Strategic Alliances in GSKs Consumer Healthcare division, and previously was Vice President, Worldwide Strategic Product Development in the pharmaceutical division. Before that, she held a series of positions in Medical Affairs, Pharmaceutical Business Development and U.S. Product Marketing also in the pharmaceutical division. Dr. Sohn currently holds the positions of Adjunct Professor at the University of California, San Francisco and Deans Professor at the University of the Sciences. She received a Doctor of Pharmacy from the University of California, San Francisco and a Certificate of Professional Development from the Wharton School at the University of Pennsylvania. Dr. Sohn was named Woman of the Year by the
11
Healthcare Businesswomen's Association (2003) and is a Certified Licensing Professional and a National Association of Corporate Directors (NACD) Board Leadership Fellow. In evaluating Dr. Sohns specific experience, qualifications, attributes and skills in connection with her appointment to our board, we took into account her three decades of pharmaceutical industry experience developing and commercializing neuroscience and biological products, and her public company board experience.
Mr. Sandford D. Smith
, has served on our board of directors since March 2014. Since December 2011, Mr. Smith has served as Founder and Chairman of Global Biolink Partners. From 1996 until 2011, Mr. Smith served in various senior and executive management positions at Genzyme Corporation (Formerly NASDAQ: GENZ), including Executive Vice President and President, International Group with responsibility for the commercial activities for Genzymes products outside of the U.S. Prior to joining Genzyme, Mr. Smith served from 1986 to 1996 as President and Chief Executive Officer and a Director of Repligen Corporation,
a formerly publicly traded biotechnology company. Mr. Smith previously held a number of positions with Bristol-Myers Squibb Company (NYSE: BMY) from 1977 to 1986, including Vice President of Business Development and Strategic Planning for the Pharmaceutical Group. Mr. Smith currently serves as a director of Cytokynetics, Inc. (NASDAQ: CYTK), Apricus Biosciences, Inc. (NASDAQ: APRI) and as chairman of Aegerion Pharmaceuticals, Inc. (NASDAQ: AEGR) and. Mr. Smith serves as a member of the Presidents Advisory Board of Brigham and Womens Hospital in Boston, member of the Advisory Board of Tullis Health Investors in Greenwich, and an advisor to BioNEST Partners in New York and Paris. Mr. Smith also is the founder of Smith Scholars, a medical residency program for physicians from resource-poor nations. In selecting Mr. Smith as a board member, the board took into account his history of marketing and developing of therapies targeted at rare disease or those with orphan designations
as well as his general experience in the biotech industry.
Mr. I. Richard Garr, JD
, has been a director since 1996 and was our Chief Financial Officer until May 2015 and Chief Executive Officer, President and general counsel until February of 2016. Mr. Garr was previously an attorney with Beli, Weil & Jacobs, the B&G Companies, and Circle Management Companies. Mr. Garr is a graduate of Drew University (1976) and the Columbus School of Law, The Catholic University of America (1979). Additionally, he was a founder and current board member of the First Star Foundation, a childrens charity focused on abused childrens issues; a founder of The Starlight
Foundation Mid Atlantic chapter, which focuses on helping seriously ill children; and is a past Honorary Chairman of the Brain Tumor Society. In evaluating Mr. Garrs specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his broad experience in Neural Stem Cells.
Board of Directors
Our Board consists of eight members. Our business, property and affairs are managed under the direction of the Board. Members of the Board are kept informed of our business through discussions with the Chief Executive Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees.
Our Board is responsible for establishing broad corporate policies and for overseeing our overall management. In addition to considering various matters which require its approval, the Board provides advice and counsel to, and ultimately monitors the performance of, our senior management.
Board Meetings
During 2015, the Board held ten (10) meetings and acted through unanimous written consent three (3) times. Each director attended at least 75% of all meetings of the general Board and each respective committee on which such director serves. The Board currently holds regularly scheduled meetings and calls for special meetings or acts through unanimous written consents as necessary. Meetings of the Board may be held telephonically. Directors are expected to attend all board meetings and meetings of the committees of the board on which they serve and to spend the time needed and meet as frequently as necessary to properly
discharge their duties. Information with regard to committee meetings and written consent is provided for below in the section of this proxy statement entitled Committees. Although attendance of meetings is encouraged, we do not have a formal policy regarding attendance by directors at board and committee meetings.
12
Attendance at 2015 Annual Meeting
Though we do not have a formal policy regarding attendance by directors at annual meetings of stockholders, attendance is encouraged. Our 2015 Annual Meeting was attended, in person, by all of the Companys directors at the time: Messrs. Garr, Ogilvie, Oldaker, Smith and Westreich and Drs. Sohn and Johe.
Classification of Board
Pursuant to our bylaws, we have a classified Board which is divided into three classes with staggered three-year terms. Only one class may be elected each year, while the directors in the other classes continue to hold office for the remainder of their three-year terms. Each class is required to have approximately the same number of directors. The Board may, on its own, determine the size of the exact number of directors on the Board and may fill vacancies on the Board. The procedure for electing and removing directors on a classified board of directors generally makes it more difficult for stockholders to change management
control by replacing a majority of the board at any one time, and the classified board structure may discourage a third party tender offer or other attempt to gain control of the Company and may maintain the incumbency of directors. In addition, under our bylaws, directors may only be removed from office by a vote of the majority of the shares then outstanding and eligible to vote.
Independent Directors
Our common stock is listed on the NASDAQ Capital Market. As such, we are subject to the NASDAQ Stock Market LLC (NASDAQ) director independence standards. In accordance with these standards, in determining independence the Board affirmatively determines whether a director has a material relationship with Neuralstem that would compromise his or her independence from management or would cause him or her to fail to meet the NASDAQs specific independence criteria. When assessing the materiality of a director's relationship with Neuralstem, the Board considers all relevant facts and
circumstances, not merely from the director's standpoint, but from that of the persons or organizations with which the director has an affiliation, and, where applicable, the frequency and regularity of the services, and whether the services are being carried out at arm's length in the ordinary course of business. Material relationships can include commercial, consulting, charitable, familial and other relationships. A relationship is not material if, in the Board's judgment, it is not inconsistent with the NASDAQS director independence standards and it does not compromise a director's independence from management.
Applying the NASDAQs standards, the Board has determined that Messrs. Ogilvie, Oldaker, Smith and Westreich, and Dr. Sohn are each independent as that term is defined by the NASDAQs standards. Messrs. Oldaker and Westreich are up for re-election at the Annual Meeting.
Communications with Directors
We have adopted a formal process for shareholder communications with our independent directors. The policy, is available on our website,
www.neuralstem.com
in the Corporate Governance section under the Investors tab. Individuals wanting to communicate with our directors are invited to communicate with the non-management members of the Board by sending correspondence to the non-management members of the Board of Directors, c/o Corporate Secretary, Neuralstem, Inc., 20271 Goldenrod Lane, Suite 2024, Germantown, MD 20876.
The Corporate Secretary will review all such correspondence and forward to the non-management members of the Board a summary of all such correspondence received during the prior month and copies of all such correspondence that deals with the functions of the Board or committees thereof or that otherwise is determined to require attention of the non-management directors. Non-management directors may at any time review the log of all correspondence received by us that are addressed to the non-management members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or
auditing matters will immediately be brought to the attention of the Chairman of the Audit Committee.
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Corporate Governance Guidelines and Code of Ethics
We have adopted Corporate Governance Guidelines that are intended to ensure that our Board has the necessary authority and practices in place to review and evaluate our business operations and to make decisions that are independent of management. The Corporate Governance Guidelines are intended to align the interests of directors and management with those of our shareholders and establish practices for the Board with regard to its oversight of the Company. Under our guidelines, the Board conducts a self-evaluation to assess adherence to the Corporate Governance Guidelines and identify opportunities to improve Board performance.
A copy of our codes can be viewed on our website at
www.neuralstem.com
under Corporate Governance under the Investors tab.
In addition to our Corporate Governance Guidelines, we have adopted several guidelines intended to promote the honest and ethical conduct of our officers, directors, employees and consultants. They include, our Code of Ethics that applies to our officer, directors and employees and our Finance Code of Professional Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and any persons who participate in our financial reporting process. A copy of our codes can be viewed on our website at
www.neuralstem.com
under Corporate Governance under the Investors tab.
The codes incorporate our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The codes also incorporate our expectations of our officers, directors and employees that enable us to provide accurate and timely disclosure in our filings with the SEC and other public communications. In addition, the codes incorporate guidelines pertaining to topics such as complying with applicable laws, rules, and regulations; reporting violations; and maintaining accountability for adherence to the codes.
We intend to disclose future amendments to certain provisions of our codes, or waivers of such provisions on our web site within four business days following the date of such amendment or waiver.
Stock Ownership Guidelines
On November 10, 2015, we adopted stock ownership guidelines for our Chief Executive Officer and Chief Scientific Officer and named executive officers. Under the guidelines, our CEO and CSO are expected to own shares of our common stock that have a value equal to 2x their respective annual salaries. All other named executive officer or Section 16 filing employees are expected to own shares of our common stock that have a value equal to 1x their respective annual salaries. Shares may be owned directly by the individual, or owned jointly with or separately by the individuals spouse, or held in trust for the benefit of the
individual, the individuals spouse or children. Share ownership requirements must be met within five years after first becoming subject to the guidelines.
Committees
We have established three (3) corporate governance committees comprised of the: (i) Audit Committee; (ii) Compensation Committee; and (iii) Governance and Nominating Committee. The committee membership and the function of each of the committees are described below. Each committee is governed by written committee charters. We periodically review such charters and may amend or update the process and procedures contained therein. In the event of such amendment or update, we will promptly post our revised charter on our website. In addition to our established committee, we may from time to time establish special committees as the
Board deems necessary. A copy of each respective committees charter can be viewed on our website at
www.neuralstem.com
under Corporate Governance under the Investors tab.
14
The table below identifies the Boards standing committees and committee membership as of March 31, 2016:
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Director
|
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Independent
|
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Audit Committee
|
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Governance and Nominating Committee
|
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Compensation Committee
|
William Oldaker
|
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Yes
|
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Chair
|
|
|
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Member
|
Scott Ogilvie
(1)
|
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Yes
|
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Member
|
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Member
|
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Stanley Westreich
(2)
|
|
Yes
|
|
|
|
Member
|
|
Member
|
Dr. Catherine Angell Sohn
(3)
|
|
Yes
|
|
|
|
Chair
|
|
Member
|
Sandford D. Smith
(4)
|
|
Yes
|
|
Member
|
|
|
|
Chair
|
|
(1)
|
Mr. Ogilvie served as Audit Committee Member for all of 2015. Mr. Ogilvie began serving as Governance and Nominating Committee Member on July 1, 2015.
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|
(2)
|
Mr. Westreich served as (i) Governance and Nominating Committee Member, and (ii) Compensation Committee Member for all of 2015. Mr. Westreich served on the Audit Committee Member from January 1, 2015 to July 1, 2015.
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|
(3)
|
From January 1, 2015 to July 1, 2015, Dr. Sohn served as (i) Audit Committee Member, and (ii) Governance and Nominating Committee Chair. Dr. Sohn ceased serving on the Audit Committee and began serving on the Compensation Committee on July 1, 2015.
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|
(4)
|
From January 1, 2015 to July 1, 2015, Mr. Smith served as (i) Compensation Committee Chair, and (ii) Governance and Nominating Committee Member. Mr. Smith ceased serving on the Governance and Nominating Committee and began serving on the Audit Committee on July 1, 2015.
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Each member of the Audit Committee, the Compensation Committee and the Nomination and Corporate Governance Committee is considered independent under NASDAQ listing criteria.
Audit Committee
We have a designated audit committee in accordance with section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Messrs. Ogilvie, Oldaker and Smith. The main function of our Audit Committee is to oversee our accounting and financial reporting processes. The Audit Committee assists the Board in fulfilling its oversight and monitoring responsibility of reviewing the financial information provided to shareholders and others, appoints Neuralstems independent registered public accounting firm, reviews the services performed by the independent registered public accounting firm and Neuralstems
finance department, evaluates Neuralstems accounting policies and the system of internal controls established by management and the Board, reviews significant financial transactions, and oversees enterprise risk management.
During 2015, our Audit Committee held eight (8) meetings and acted by written consent three (3) times. The Board has determined that Messrs. Ogilvie, Oldaker and Smith are each an audit committee financial expert within the meaning of SEC rules. An audit committee financial expert is a person who can demonstrate the following attributes: (1) an understanding of generally accepted accounting principles and financial statements; (2) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (3) experience preparing, auditing, analyzing or
evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Companys financial statements, or experience actively supervising one or more persons engaged in such activities; (4) an understanding of internal controls and procedures for financial reporting; and (5) an understanding of audit committee functions.
Governance and Nominating Committee
Our Governance and Nominating Committees purpose is to assist our board of directors in identifying individuals qualified to become members of our board of directors consistent with criteria set by our board of directors, to oversee the evaluation of the board of directors and management, and to develop and update our corporate governance principles. The Governance and Nominating Committee has recommended to the full Board each of the nominees named in this Proxy Statement for election to the Board. Messrs. Westreich, Ogilvie and Dr. Sohn are the members of the Governance and Nominating Committee. During 2015, our
Governance and Nominating Committee held three (3) meetings and acted by written consent two (2) times.
15
The Governance and Nominating Committee evaluates candidates for the Board. Candidates may come to the attention of the Governance and Nominating Committee through current Board members, professional search firms, stockholders or other persons. The Governance and Nominating Committee will consider nominees recommended by our stockholders. For additional information regarding the process for nominee submission and selection, see the
Consideration of Director Nominees
on page
17
of this proxy statement.
Compensation Committee
The Compensation Committee reviews and approves the compensation arrangements for Neuralstems executive officers, including the CEO, administers our equity compensation plans, and reviews the Boards compensation. Messrs. Smith, Westreich, Oldaker and Dr. Sohn are members of the Compensation Committee. During 2015, the Compensation Committee held four (4) meetings and acted by written consent two (2) times.
Compensation Committee Interlocks and Insider Participation
During 2015, Messrs. Westreich, Smith and Oldaker and Dr. Sohn all served for some period on the Compensation Committee. None of the members on the Compensation Committee during the year end December 31, 2015 has been an officer or employee of Neuralstem. None of our executive officers serve on the Board or compensation committee of a company that has an executive officer that serves on our Board or the Compensation Committee.
Leadership Structure
The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. At present, the positions of Chairman and Chief Executive Officer are held by different individuals. This structure makes the best use of the Chief Executive Officer's and Chairmans respective knowledge of the Company, its business and its industry, as well as fostering greater communication between the Company's management and
the Board.
Risk Oversight
The Company has a risk management program overseen by the Chief Executive Officer. Material risks are identified and prioritized by management, and each prioritized risk is referred to a Board Committee or the full Board for oversight. For example, strategic risks are referred to the full Board while financial risks are referred to the Audit Committees. The Board regularly reviews information regarding the Company's liquidity and operations, as well as the risks associated with each, and annually reviews the Company's risks as a whole. Also, the Compensation Committee periodically reviews the most important risks to the
Company to ensure that compensation programs do not encourage excessive risk-taking. Mr. Stanley Westreich serves as the Boards lead independent board member. As the Companys lead independent director, Mr. Westreich has the following responsibilities:
|
|
Advising the executive chairman of the Board as to the quality, quantity, and timeliness of the flow of information from management that is necessary for the independent directors to perform their duties effectively and responsibly.
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|
Confirming the agenda with the Chief Executive Officer for meetings of the Board.
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Coordinating and moderating executive sessions of the Boards independent directors.
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Acting as the principal liaison between the independent directors and the executive chairman of the Board on sensitive issues.
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Performing such other duties as the Board may from time to time delegate in order to assist the Board in the fulfillment of its responsibilities.
|
16
Consideration of Director Nominees
Stockholder Recommendations and Nominees
The policy of our Governance and Nominating Committee is to consider properly submitted recommendations for candidates to the Board from stockholders. In evaluating such recommendations, the Governance and Nominating Committee seeks to achieve a balance of experience, knowledge, integrity, and capability on the Board and to address the membership criteria set forth under Director Qualifications below. Any stockholder recommendations for consideration by the Governance and Nominating Committee should include the candidates (i) the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by the person, (iv) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, (v) a written indication of the candidates willingness to serve on the Board, (vi) any other information required to be provided under securities laws and regulations, and (vii) a written indication to provide such other information as the Governance and Nominating Committee may reasonably request. There are no differences in the manner in which the Governance and Nominating Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder or otherwise. Stockholder recommendations to the Board should be sent to:
Neuralstem, Inc.
Attn: Corporate Secretary
20271 Goldenrod Lane, Suite 2024
Germantown, Maryland 20876
Fax: 301-560-6634
In addition, our bylaws permit stockholders to nominate directors for consideration at an annual meeting. For a description of the process for nominating directors in accordance with our bylaws, see Questions 27 What is the deadline to propose actions for consideration at next years Annual Meeting of Stockholders or to nominate individuals to serve as directors? on page
7
of this proxy statement.
Director Qualifications
Our Governance and Nominating Committee will evaluate and recommend candidates for membership on the Board consistent with criteria established by the Board. While the Board has not adopted a formal diversity policy or specific standards with regard to the selection of director nominees, due to the nature of our business, the Board believes it is important to consider diversity of race, ethnicity, gender, age, education, cultural background, and professional experiences in evaluating board candidates.
Although the Board has not formally established any specific, minimum qualifications that must be met by each candidate for the Board or specific qualities or skills that are necessary for one or more of the members of the Board to possess, when considering a potential non-incumbent candidate, the Governance and Nominating Committee will factor into its determination the following qualities of a candidate: educational background, diversity of professional experience, including whether the person is a current or former chief executive officer or chief financial officer of a public company or the head of a division of a large
international organization, knowledge of our business, integrity, professional reputation, independence, and ability to represent the best interests of our stockholders.
The Board is composed of a diverse group of individuals who have gained experience over their respective careers in strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. Most of our directors also have experience serving on boards of directors and board committees of other public and private companies, which provides an understanding of different business processes, challenges, and strategies. Some of our directors also have experience with regard to the protection of intellectual property and litigation strategy as well as with the development of our core
technologies.
17
The Governance and Nominating Committee and the Board believe that the above-mentioned attributes, along with the leadership skills and other experiences of our board members described below, provide us with a diverse range of perspectives and judgment necessary to guide our strategies and monitor their execution.
Identification and Evaluation of Nominees for Directors
Our Governance and Nominating Committee uses a variety of methods for identifying and evaluating nominees for directors. Our Governance and Nominating Committee regularly assesses the appropriate size and composition of the Board, the needs of the Board and the respective committees of the Board, and the qualifications of candidates in light of these needs. Candidates may come to the attention of the Governance and Nominating Committee through stockholders, management, current members of the Board, or search firms. The evaluation of these candidates may be based solely upon information provided to the committee or may also
include discussions with persons familiar with the candidate, an interview of the candidate or other actions the committee deems appropriate, including the use of third parties to review candidates.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers, directors, and stockholders owning more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of such reports. Based solely on our review of Form 3, 4 and 5s, the following table provides information regarding any of the reports which were filed late during the fiscal year ended December 31, 2015:
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|
|
Name of Reporting Person
|
|
Type of Report and Number Filed Late
|
|
No. of
Transactions
Reported Late
|
I. Richard Garr
|
|
Form 4 (1 filed late)
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1
|
Karl Johe, PhD
|
|
Form 4 (2 filed late)
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2
|
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions Procedure
We review all known relationships and transactions in which Neuralstem and our directors, executive officers, and significant stockholders or their immediate family members are participants to determine whether such persons have a direct or indirect interest. Our management, in consultation with our outside legal consultants, determines based on specific fact and circumstances whether Neuralstem or a related party has a direct or indirect interest in these transactions. In addition, our directors and executive officers are required to notify us of any potential related party transactions and provide us with the information
regarding such transactions.
If it is determined that a transaction is a related party transaction, the Audit Committee must review the transaction and either approve or disapprove it. In determining whether to approve or ratify a transaction with a related party, the Audit Committee will take into account all of the relevant facts and circumstances available to it, including, among any other factors it deems appropriate:
|
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the benefits to us of the transaction;
|
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|
the nature of the related partys interest in the transaction;
|
|
|
whether the transaction would impair the judgment of a director or executive officer to act in the best interests of Neuralstem and our stockholders;
|
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|
the potential impact of the transaction on a directors independence; and
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|
whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances.
|
Any member of the Audit Committee who is a related party with respect to a transaction under review may not participate in the deliberations or vote on the approval of the transaction.
Related Party Transactions
Summarized below are certain transactions and business relationships between Neuralstem and persons who are or were an executive officer, director or holder of more than five percent of any class of our securities since January 1, 2015.
Information regarding disclosure of an employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction is included in the Section of this proxy statement entitled
Director Compensation
and
Executive Compensation
.
Information regarding disclosure of compensation to a director is included in the Section of this proxy statement entitled
Director Compensation.
Information regarding the identification of each independent director is included in the Section of this proxy statement entitled
Director, and Executive Officers Independent Directors.
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During 2015 and 2016, all of our officers and directors entered into our revised standard indemnification agreement.
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|
On March 2, 2016, we entered into a general release and waiver of claims agreement with I. Richard Garr in connection with his resignation as the Companys chief executive officer. Mr. Garrs employment agreement previously required the Company to pay Mr. Garr, upon termination of employment and as severance, (i) a one-time payment of $1,000,000 and (ii) the vesting of all outstanding, but unvested awards and grants. Pursuant to the release, the terms of Mr. Garrs severance were amended as follows: (i) Mr. Garr will continue to earn his current monthly salary until March 2017, (ii) Mr. Garr will receive payments in the amount of $177,000 to be paid on June 1, 2016, January 1, 2017 and March 1, 2017, (iii) Mr. Garr will continue to receive healthcare benefits until March 2017, and (iv) the immediate vesting of any previously outstanding but unvested equity awards.
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19
DIRECTOR COMPENSATION
Board Compensation Arrangements
Our director compensation program is designed to enable continued attraction and retention of highly qualified directors by ensuring that director compensation is in line with peer companies competing for director talent, and is designed to address the time, effort, expertise, and accountability required of active board membership. In general, we believe that annual compensation for non-employee directors should be equity based and designed to compensate members for their service on the Board and its committees, align the interests of directors and stockholders and, by vesting over time, to create an incentive for continued
service on the Board.
The following are the terms of our amended Director Compensation Plan pursuant to which non-employee directors are compensated:
Securities
Each director will receive a $200,000 annual board fee subject to annual review and adjustment. The board fee will be payable in restricted stock, restricted stock units, or common stock options at the election of the director. Such grants will be made as of July 1 each year and will vest quarterly over the grant year. Fees for new directors appointed or elected during the year will be pro-rated and made on the fifth (5
th
) day following such approval and acceptance on the Board.
Each continuing director will elect to receive the board fee in either restricted stock, restricted stock units, or common stock options by June 15
th
of each year. New directors will make such election upon a notification of their approval to serve on the board. A failure to make any election will result in the fee being paid via a stock option grant.
All grants of restricted stock and restricted stock units will be valued using the adjusted closing bid price of the Companys common stock on the applicable grant date. All option grants will be valued using the Black-Scholes option pricing model and be subject to customary assumptions used in the preparation of the financial statements.
Board Compensation for 2015
The following table summarizes compensation paid to non-employee directors during 2015.
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|
|
|
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|
Name
(a)
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|
Fees
Earned or
Paid in
Cash
($)
(b)
|
|
Stock
Awards
($)
(c)
|
|
Option
Awards
($)
(d)
|
|
Nonequity
Incentive
Plan
Compensation
($)
(e)
|
|
Non-qualified
Deferred
Compensation
Earnings
($)
(f)
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|
All Other
Compensation
($)
(g)
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Total
($)
(h)
|
William Oldaker
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|
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|
|
|
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Independent Director
(1)
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$
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100,000
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|
100,000
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|
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|
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|
|
|
|
|
|
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|
$
|
200,000
|
|
Audit Committee
|
|
$
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$
|
|
|
Compensation Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$
|
|
|
Governance and Nominating Committee
|
|
$
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|
|
|
|
|
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|
|
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|
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$
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|
Scott Ogilvie
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|
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|
|
|
|
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|
Independent Director
(1)
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|
$
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
Audit Committee
|
|
$
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$
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|
|
Compensation Committee
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|
$
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|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
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|
$
|
|
|
Governance and Nominating Committee
|
|
$
|
|
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|
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|
|
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|
|
|
|
|
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$
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|
|
Stanley Westriech
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|
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|
|
|
|
|
|
|
|
|
|
Independent Director
(2)
|
|
$
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
Audit Committee
|
|
$
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Compensation Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Governance and Nominating Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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$
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|
20
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|
|
Name
(a)
|
|
Fees
Earned or
Paid in
Cash
($)
(b)
|
|
Stock
Awards
($)
(c)
|
|
Option
Awards
($)
(d)
|
|
Nonequity
Incentive
Plan
Compensation
($)
(e)
|
|
Non-qualified
Deferred
Compensation
Earnings
($)
(f)
|
|
All Other
Compensation
($)
(g)
|
|
Total
($)
(h)
|
Catherine Sohn
|
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|
|
|
|
|
|
|
|
|
|
Independent Director
(2)
|
|
$
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
Audit Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Compensation Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Governance and Nominating Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$
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|
|
Sandford Smith
|
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|
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|
|
|
|
|
|
|
Independent Director
(2)
|
|
$
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
Audit Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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$
|
|
|
Compensation Committee
|
|
$
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Governance and Nominating Committee
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
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(1)
|
On July 1, 2015, we issued to each of Messrs. Ogilvie and Oldaker 53,476 restricted stock shares and options to purchase 99,824 common shares as compensation for the board year from July 2015 through June 2016. The restricted stock and option grants were issued pursuant to our 2010 Stock Plan, and vest quarterly over the Board year July 2015 though June 2016. The restricted stock has a grant date fair value of $1.87. The options have an exercise price of $1.87, a grant date fair value of $1.002, and a term of seven (7) years.
|
|
(2)
|
On July 1, 2015, we issued to each of Messrs. Smith and Westreich and Dr. Sohn, 106,952 restricted stock shares as compensation for the board year from July 2015 through June 2016. The restricted stock award was issued pursuant to our 2010 Stock Plan, vests quarterly over the Board year July 2015 though June 2016, and has a grant date fair value of $1.87.
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21
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides information about the material components of our executive compensation program for:
|
|
Richard J. Daly, our current President and Chief Executive Officer (CEO);
|
|
|
Jonathan Lloyd Jones, our current Chief Financial Officer (CFO);
|
|
|
Dr. Karl Johe, our Chairman of the Board and Chief Scientific Officer (CSO); and
|
|
|
I. Richard Garr, our former President, Chief Executive Officer, Chief Financial Officer (until May 2015) and General Counsel (our CEO and CFO). Mr. Jonathan Lloyd Jones assumed the role of CFO in May 2015. Mr. Garr resigned from all employment duties on February 15, 2016, but remained a member of the Board.
|
We refer to these executives collectively in this Compensation Discussion and Analysis and the related compensation tables as the Named Executive Officers.
Specifically, this Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each element of compensation that we provide. In addition, we explain how and why the Compensation Committee of the Board (the Compensation Committee) arrived at the specific compensation policies and decisions involving our executives during 2015.
Executive Summary
Our executive compensation program is relatively straightforward and does not materially change from year to year. At the core of our executive compensation philosophy is a strong pay-for-performance structure that links a significant portion of each executives compensation to both corporate and individual performance. At the same time, the Compensation Committee has structured our executive compensation program to ensure that our executives and other members of senior management are compensated in a manner consistent with stockholder interests and competitive practices. The following table sets forth a
summary of the primary components of our executive compensation program and the actions taken in 2015 and 2016 to date:
|
|
|
|
|
Compensation Component
|
|
Description
|
|
Actions and Decisions in 2015/2016
|
Base Salary
|
|
Provides an annual fixed level of cash compensation.
|
|
Effective March 1, 2015, the Compensation Committee increased the salary of I. Richard Garr, our former chief executive officer to $440,000 per annum. Mr. Garr resigned as CEO on February 15, 2016
Effective May 18, 2015, Jonathan Lloyd Jones was appointed CFO with a salary of $315,000 per annum.
On February 15, 2016, Richard Daly was appointed CEO and President with a salary of $440,000 per annum.
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22
|
|
|
|
|
Compensation Component
|
|
Description
|
|
Actions and Decisions in 2015/2016
|
Annual Incentive Awards
|
|
Discretionary performance-based award to recognize achievement of corporate and individual objectives set by Compensation Committee for the year.
|
|
Target award opportunities were consistent with prior year target awards for our previous executive officers. Based on individual performance and that of the Company, the Compensation Committee awarded the following Annual Incentive Awards:
Karl Johe received 25% of the target award of 60% of his annual base salary. Dr. Johe was awarded $112,500 (15% of his $750,000 salary for 2015).
Jonathan Lloyd Jones received 50% of the target award of 50% of his annual base salary pro-rated for the time in which he was employed by the Company. Mr. Lloyd Jones was awarded $48,976 (25% of his $315,000 salary for 2015 on a pro-rated basis).
Richard Garr, our former CEO, was not awarded an annual incentive award for 2015.
A further description of these awards and the manner in which such compensation was paid is included in our executive compensation table beginning on page
30
of this Proxy Statement.
|
Long-Term Equity Incentive Awards
|
|
Grants of stock options and restricted stock awards and restricted stock units to align executives interests with stockholder interests.
Size of awards corresponds to executives position and responsibilities.
|
|
Grants were made effective March 8, 2016 and were consistent with our compensation policy. Additionally, on March 8, 2016, we made Long-Term Equity Incentive Awards. The Compensation Committee awarded the following Long-Term Equity Incentive Awards:
Jonathan Lloyd Jones received 50% of his target long term incentive award opportunities of 50% of annual base salary pro-rated for the time in which he was employed by the Company. Accordingly, Mr. Lloyd Jones was awarded options to purchase 79,776 common shares, equivalent to $48,976 (25% of his $315,000 salary for 2015 on a pro-rated basis) at the time of the award.
No long-term equity incentive awards were granted to Mr. Garr, our former CEO, or Dr. Johe, our CSO.
A further description of these awards and the manner in which such compensation was paid is included in our executive compensation table beginning on page
30
of this Proxy Statement.
Size of the long-term incentive awards in a given year is determined by the overall performance of the Company and each individual executives performance.
|
23
|
|
|
|
|
Compensation Component
|
|
Description
|
|
Actions and Decisions in 2015/2016
|
Benefits and Perquisites
|
|
Benefit programs offered to all employees, including executives, include comprehensive medical, dental, and vision insurance,
The Company offers a non-contributory 401k and long and short term disability pay to all employees.
Executives receive limited perquisites consisting of an automobile allowance and limited tax preparation services.
|
|
Except for limited perquisites related to relocation costs to our CEO and CFO, there were no changes to benefits offered to employees, including executives, in 2015.
|
Severance and Change-in-Control Arrangements
|
|
The Company maintains employment agreements with certain executives that generally provide for severance payments and/or certain benefits in the event of a termination of employment or change in control.
|
|
On July 25, 2012, we renewed the employment contracts of: (i) Mr. I. Richard Garr, the Companys CEO, interim CFO and general counsel, and (ii) Dr. Karl Johe, the Companys Chief Scientific Officer. The renewals extended the current employment agreements of Mr. Garr, Dr. and Dr. Johe for an additional period which expires on October 31, 2017. On February 15, 2016, Mr. Garr resigned as the Companys CEO, President, and general counsel.
As of May 18, 2015, we entered into an at will employment agreement with Jonathan Lloyd Jones, our CFO.
On February 15, 2016, we entered into an at will employment agreement with Richard Daly, our CEO.
|
Executive Compensation Philosophy and Objectives
Our executive compensation program impacts all of our employees by establishing a general framework for compensation and creating a work environment focused on expectations, goals, and rewards. Because the performance of every employee is important to the overall success of the Company, our Board is mindful of the impact that our executive compensation program has on all of our employees. In considering our executive compensation policies and practices, our Board balances the needs to conserve cash and minimize stockholder dilution against the requirements to attract, retain, and motivate our executives and other employees
while fostering an innovative and entrepreneurial corporate culture. Our Board strives to act in the long-term best interests of the Company and its stockholders, as well as ensure that the components of compensation do not, individually or in the aggregate, encourage excessive risk-taking.
Compensation-Setting Process
Role of the Board and Compensation Committee
The Compensation Committee is responsible for overseeing, determining, and approving the compensation of our CEO and other executives, including the other Named Executive Officers. From time to time during the year, the Compensation Committee will review the compensation of our CEO and other executives, determine whether to make any adjustments to their base salaries, determine whether an annual incentive award was earned for the last completed fiscal year based on its assessment of the Company and individual performance for that period and, if so, the amount of any such bonuses, and determine whether to make equity awards
based on Company and individual performance.
As described below, the Compensation Committee gives considerable weight to our CEOs performance evaluation of the other executives because of his direct knowledge of each executives performance and contributions. The Compensation Committee conducts an annual review of our executives compensation and considers adjustments in executive compensation levels to ensure alignment with our compensation strategy and competitive market practices. During this process, the Compensation Committee is also mindful of the
24
results of the shareholders Advisory Vote on Executive Compensation during the most recent vote and although not binding, is considered in the compensation setting process.
Role of Senior Management
The Compensation Committee typically seeks the input of our CEO when discussing the performance of and compensation for our other executives, including the other Named Executive Officers. In this regard, at the request of the Compensation Committee our CEO reviews the performance of the other executives, including the other Named Executive Officers, annually and presents to the Compensation Committee his conclusions and recommendations as to their compensation, including base salary adjustments, annual incentive awards, and long-term equity incentive awards. The Compensation Committee then uses these recommendations as one
factor in its deliberations to determine the compensation of our executives.
Role of Compensation Consultant
The Compensation Committee is authorized to retain the services of one or more executive compensation advisors, as it sees fit, in connection with the oversight of our executive compensation program and related policies and practices. In 2015, the Compensation Committee consulted with Radford, an Aon Hewitt Company and a national compensation consulting firm, with regard to our executive compensation program. Radford was engaged to provide the Compensation Committee with information, recommendations, and other advice relating to executive compensation on an ongoing basis. Radford serves at the discretion of the Compensation
Committee and provides no other services to the Company. During 2015, the Company paid an aggregate of $28,380 to Radford for such services.
Competitive Positioning
In making compensation decisions, the Compensation Committee reviews independent survey data, such as the Radford Global Life Sciences compensation survey, as well as publicly-available data from companies with which we compete for executive talent. The companies chosen for comparison may differ from one executive to the next depending on the scope and nature of the business for which the particular executive is responsible.
Although the compensation data from comparable companies is useful comparative information, the Compensation Committee does not require that the compensation components of individual executives bear any particular relationship to the compensation of executives of similar positions of those comparable companies. In development-focused companies within the biopharmaceutical industry, many traditional measures of corporate performance, such as earnings-per-share or sales growth, may not readily apply in reviewing the performance of executives. Because of the Companys current stage of development, the Compensation Committee
evaluates other indications of performance, including progress towards the Companys research and development programs and corporate development activities, as well as the Companys success in securing capital sufficient to enable the Company to continue research and development activities, in its decision-making process.
Say-on-Pay
At our 2014 Annual Meeting of Stockholders held on June 27, 2014, we submitted two proposals to our stockholders regarding our executive compensation practices.
The first was an advisory vote on the 2013 compensation awarded to our named executive officers (commonly known as a say-on-pay vote). At our 2014 annual meeting, excluding broker non-votes, approximately 25,282,538 shares cast votes with regard to the say-on-pay proposal. Of those, 21,316,632 or approximately 84%, of the shares approved the compensation of named executive officers. We believe that the outcome of our say-on-pay vote signals our stockholders support of our compensation approach, specifically our efforts to retain and motivate our named executive officers. In light of this stockholder support,
the Compensation Committee determined not to change its approach to compensation. However, even though stockholders demonstrated overwhelming support for our compensation approach in 2014, the Compensation Committee annually reevaluates our compensation practices to determine how they might be improved. The Compensation Committee will continue to consider the outcome of say-on-pay votes when making future compensation decisions for our named executive officers.
25
The second proposal was a vote on the frequency of future stockholder advisory votes regarding compensation awarded to named executive officers (commonly known as a say-when-on-pay vote). The frequency of once every three years received the highest number of votes cast. Based on these results, our Board of Directors determined that we would hold our next say-on-pay votes at the 2017 Annual Meeting.
Executive Compensation Program Components
The compensation of our executives, including the Named Executive Officers, consists of base salary, an annual incentive award opportunity, long-term equity compensation (in the form of stock options, restricted stock units, or restricted stock), and benefits and perquisites. Of these components, only base salary is fixed while the other components are variable based on the performance of both the Company and the individual executive.
Base Salary
We use base salary to provide a minimum amount of financial certainty and security to our executives on an ongoing basis. The Compensation Committee annually evaluates the base salaries for all of our executives. If necessary, adjustments are made to reflect changes in job responsibilities and market conditions. At the discretion of the Compensation Committee, these adjustments can be made on a retroactive basis if warranted.
When establishing or reviewing base salaries for each executive, the Compensation Committee considers numerous factors, including the qualifications of the executive, his or her level of relevant experience, the nature and responsibility of the position, strategic goals for which the executive has responsibility, Company and individual performance, salary norms for persons in comparable positions at comparable companies, the competitiveness of the market for the executives services, and industry compensation levels.
In March 2015, the Compensation Committee increased the salary of I. Richard Garr, our chief executive officer from $407,000 per annum to $440,000 per annum effective March 1, 2015. Mr. Garr resigned as chief executive officer on February 15, 2016.
As of May 18, 2015, we entered into an at will employment agreement with Jonathan Lloyd Jones, our chief financial officer with a base salary of $315,000 per annum.
On February 15, 2016, we entered into an at will employment agreement with Richard Daly, our chief executive officer and president with a base salary of $440,000 per annum.
The base salaries paid to the Named Executive Officers during 2015 (and to be paid during 2016) are set forth in the section entitled
Summary Compensation Table
below.
Annual Incentive Awards
We use annual incentive awards to motivate our executives to achieve our short-term objectives while making progress towards our longer-term goals. Each year, the Compensation Committee establishes an annual incentive award plan for our executives, which provides for annual cash incentive awards based on our actual level of achievement as measured against one or more pre-established corporate objectives as well as the achievement of individual performance objectives. By using an appropriate amount of performance-based compensation, we believe our annual incentive award plan creates a direct link between executive compensation
and our performance to provide further motivation for our executives to implement strategic initiatives.
Each employee, including each executive, is given target annual incentive award opportunity, which is expressed as a percentage of the employees base salary. This percentage varies by rank within the Company and is competitive with market practices. In the case of the Named Executive Officers, their target annual incentive award opportunities for 2015 were as follows:
|
|
|
Named Executive Officer
|
|
2015
Annual Incentive
Award Opportunity
(as a percentage of
base salary)
|
Dr. Johe
|
|
|
60
|
%
|
Mr. Garr
|
|
|
60
|
%
|
Mr. Lloyd Jones
|
|
|
50
|
%
|
26
Each executives annual incentive award is determined by taking into account corporate and individual performance. There are no guaranteed minimum payouts and awards. Also, at the discretion of the Compensation Committee, individuals may receive awards above the target level of each respective Named Executive Officer. Awards may be made in cash or equity (RSUs, shares or Options) at the discretion of the executive. Awards are made on a discretionary basis by the Compensation Committee after subjectively evaluating the corporate and individual performance achieved by our Named Executive Officers for the year. Individual
performance for each executive is based on our CEOs assessment of the executives performance for the year which is then provided to the Compensation Committee. While our CEO reviews the performance of our other executives, our Board conducts an independent assessment of our CEOs performance which is submitted to the Compensation Committee for its use.
Annual incentive award opportunities for our Named Executive Officers for 2016 and are as follows:
|
|
|
Named Executive Officer
|
|
2016
Annual Incentive
Award Opportunity
(as a percentage of
base salary)
|
Dr. Johe
|
|
|
60
|
%
|
Mr. Daly*
|
|
|
50
|
%
|
Mr. Lloyd Jones
|
|
|
50
|
%
|
|
*
|
Mr. Dalys employment with the Company began on February 15, 2016.
|
Award Decisions and Analysis
For 2015, the Compensation Committee determined the amount of the annual incentive awards to be paid to our executives, including the Named Executive Officers, by consultation with our CEO with respect to the Named Executive Officers other than himself and evaluated our performance and the level of achievement of both corporate and individual goals for the year. Following this review, the Compensation Committee decided to award discretionary annual incentive awards, which were calculated using each executives annual base salary as of January 1, 2015 (or such date of employment in the event such executive was not yet
employed). In the case of the Named Executive Officers, the annual incentive awards for 2015 were as follows:
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2015
Base Salary
|
|
Target Annual
Incentive Award
Opportunity
(as a percentage of
base salary)
|
|
Percentage
of Target
Incentive
Opportunity
Awarded
|
|
Annual
Incentive
Award
|
Dr. Johe
|
|
$
|
750,000
|
|
|
|
60
|
%
|
|
|
25
|
%
|
|
$
|
122,500
|
(1)
|
Mr. Garr
|
|
$
|
440,000
|
|
|
|
60
|
%
|
|
|
0
|
%
|
|
$
|
0
|
|
Mr. Lloyd Jones
|
|
$
|
315,000
|
(2)
|
|
|
50
|
%
|
|
|
50
|
%
|
|
$
|
48,976
|
(1)
(2)
|
|
(1)
|
Dr. Johes and Mr. Lloyd Jones awards were paid in cash
|
|
(2)
|
Mr. Lloyd Jones received his award on a pro-rated basis as his employment began on May 18, 2015.
|
Long Term Equity Incentive Awards
We use long term equity awards to incent, reward and retain our executives, including the Named Executive Officers, for long-term corporate performance and, thereby, to align the interests of our executives with those of our stockholders. These equity awards have been granted in the form of stock options to purchase shares of our common stock, restricted stock grants and restricted stock unit awards. We believe that stock options, when granted with exercise prices equal to the fair market value of our common stock on the date of grant, provide an appropriate long-term incentive for our executives, since the stock options reward
them only to the extent that our stock price grows and stockholders realize value. In addition, we believe that restricted stock grants and restricted stock unit awards serve as an effective retention tool while also motivating our executives to work toward corporate objectives that provide a meaningful return to our stockholders.
27
The Compensation Committee determines the size of each executives long-term equity awards according to his or her position within the Company, competitive market practices and sets a level it considers appropriate to create an opportunity for reward predicated on increasing stockholder value. Other factors include long-term incentives previously granted, the amount of actual versus theoretical equity value per year that has been derived to date by the executive, and the current actual value of the unvested equity awards for the executive. The relative weight given to each of these factors can vary among executives in the
Compensation Committees discretion. There is no set formula for the granting of long-term equity awards to individual executives.
In connection with their employment during 2015, the following awards have been granted:
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2015
Base Salary
|
|
Target Long
Term Equity
Incentive Award
(as a percentage of
base salary)
|
|
Percentage of
Long Term
Equity Target
Awarded
|
|
Long Term
Equity Award
|
Dr. Johe
|
|
$
|
750,000
|
|
|
|
100
|
%
|
|
|
0
|
%
|
|
$
|
0
|
|
Mr. Garr
|
|
$
|
440,000
|
|
|
|
100
|
%
|
|
|
0
|
%
|
|
$
|
0
|
|
Mr. Lloyd Jones
|
|
$
|
315,000
|
|
|
|
50
|
%
|
|
|
50
|
%
|
|
$
|
48,976
|
(1)
|
|
(1)
|
Mr. Lloyd Jones received his award on a pro-rated basis as his employment began on May 18, 2015.
|
Each named executives 2015 Long Term Equity Incentive Award was as follows:
|
|
|
Name
|
|
Common
Stock Options
|
Karl Johe, Ph.D.
|
|
|
0
|
|
Richard Garr
|
|
|
0
|
|
Jonathan Lloyd Jones
|
|
|
79,776
|
|
These awards were granted pursuant to our equity compensation plans and are subject to certain vesting conditions. In determining the amount of these awards, the Compensation Committee took into consideration the factors described above, as well as internal equity and current market practices. The number of shares of our common stock to be awarded under option was determined by dividing the Black-Sholes value of a stock option for a single share by the value of the executives stock option pool. The awards vest 1/12 per quarter over three years commencing on the grant date based on each respective Named Executive
Officers continued employment with the Company. The long-term equity awards granted to the Named Executive Officers as compensation for 2015 are set forth in the Summary Compensation Table in the Compensation Committee Report below.
Target Long term Equity Awards for 2016 are as follows:
|
|
|
Named Executive Officer
|
|
Target Long
Term Equity
Incentive Award
(as a percentage of
2016 base salary)
|
Dr. Johe
|
|
|
100
|
%
|
Mr. Daly*
|
|
|
|
(1)
|
Mr. Lloyd Jones
|
|
|
50
|
%
|
|
(1)
|
Pursuant to his employment agreement, Mr. Daly is eligible to receive an annual market based stock option grant at the discretion of the Board (or a committee thereof).
|
|
*
|
Mr. Dalys employment with the Company began on February 15, 2016.
|
28
Benefits and Perquisites
We provide other medical benefits to our executives, including the Named Executive Officers, on the same basis as all of our full-time employees. These benefits include medical, dental, prescription and vision insurance, a non-contributory 401k program, life insurance and long term and short term disability pay. These benefits are provided to our executives on the same general terms as to all of our full-time employees in the country in which they are resident.
We provide a limited number of perquisites to our executives to assist them in the performance of their duties, to make them more efficient and effective, and for recruitment and retention purposes. Perquisites provided to the Named Executive Officers during 2015 included an automobile allowance, relocation allowance and limited tax preparation services as described in the Summary Compensation Table in the Compensation Committee Report below.
Employment Agreements
We have employment agreements with each of the Named Executive Officers setting forth the terms and conditions of their employment. Each of these arrangements was approved on our behalf by the Board. For a summary of the material terms and conditions of employment for the Named Executive Officers, see
Employment Agreements and Arrangements and Change-In-Control Arrangements
below.
In retaining our executives, we recognized that it would be necessary to recruit and retain individuals with the requisite experience and skills to manage a dynamic, growing business. In addition, we recognized that a competitive compensation package would have to contain a financial inducement sufficient to motivate the candidate to accept an employment offer over any competing offers. Accordingly, we have sought to develop competitive compensation packages to attract qualified candidates who could fill our most critical positions. At the same time, we have been sensitive to the need to maintain an equitable executive
compensation structure, balancing both competitive and internal considerations.
Post-Employment Compensation
Except as contained in the employment agreements, if any, for our Named Executive Officers, we do not have any agreements or other arrangements with any of our executives that provide for payments or benefits in the event of a termination of employment or in connection with a change in control of the Company. For a summary of such terms and conditions, see
Employment Agreements and Arrangements and Change-In-Control Arrangements
below.
29
COMPENSATION COMMITTEE REPORT
This Section is not soliciting material, is not deemed filed with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Exchange Act of 1934, as amended (the Exchange Act), or the Securities Act of 1933, as amended (the Securities Act), whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and contained within this Proxy Statement with management and, based on such review and discussions, our Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated into our Annual Report on Form 10-K for the year ended December 31, 2015.
Submitted on April 26, 2016 by the members of the Compensation Committee of the Board of Directors:
|
|
|
Stanley Westreich
|
|
Compensation Committee Member
|
Sandford Smith
|
|
Compensation Committee Chair
|
Dr. Catherine Sohn
|
|
Compensation Committee Member
|
William Oldaker
|
|
Compensation Committee Member
|
Summary Compensation Table
The following table includes information concerning compensation for the years ended December 31, 2015, 2014 and 2013 to our Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
(a)
|
|
Year
(b)
|
|
Salary
($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards
($)
(e)
|
|
Option
Awards
($)
(f)
(2)
|
|
Nonequity
Incentive Plan
Compensation
($)
(g)
|
|
Non-qualified
Deferred
Compensation
Earnings
($)
(h)
|
|
All Other
Compensation
($)
(i)
(1)
|
|
Total
($)
(j)
|
I. Richard Garr
Chief Executive, President, General Counsel (PEO)
|
|
|
2015
|
|
|
$
|
434,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
440,500
|
|
|
|
2014
|
|
|
$
|
407,000
|
|
|
|
244,200
|
|
|
|
(5)
|
|
|
|
407,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
1,064,200
|
|
|
|
2013
|
|
|
$
|
407,000
|
|
|
|
244,200
|
|
|
|
(3)
|
|
|
|
407,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
1,064,200
|
|
Karl Johe
Chief Scientific Officer
|
|
|
2015
|
|
|
$
|
750,000
|
|
|
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
868,500
|
|
|
|
2014
|
|
|
$
|
750,000
|
|
|
|
450,000
|
|
|
|
(6),(7)
|
|
|
|
1,154,302
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
2,360,302
|
|
|
|
2013
|
|
|
$
|
422,100
|
|
|
|
253,260
|
|
|
|
(4)
|
|
|
|
2,283,700
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
2,965,060
|
|
Jonathan Lloyd Jones
Chief Financial Officer
|
|
|
2015
|
|
|
$
|
195,865
|
|
|
|
48,976
|
|
|
|
|
|
|
|
48,976
|
(8)
|
|
|
|
|
|
|
|
|
|
|
78,857
|
(9)
|
|
$
|
372,657
|
|
|
(1)
|
Includes automobile allowance, relocation allowance, perquisites and other personal benefits.
|
|
(2)
|
For additional information regarding the valuation of Option Awards, refer to Note 5 of our financial statements in the section captioned Stock Options contained in our Annual Report filed March 10, 2015 with the SEC on form 10-K.
|
|
(3)
|
Represents 193,158 options awarded as a Long-Term incentive on January 28, 2014. The Long-Term incentive options have a strike price of $3.22, vest quarterly over a three-year period and expire January 28, 2024.
|
|
(4)
|
Includes $422,100 of compensation related to 200,324 options awarded as a Long-Term incentive on January 28, 2014. The Long-Term incentive options have a strike price of $3.22, vest quarterly over a three-year period and expire January 28, 2024. Also, includes $1,861,600 related to the 2,000,000 contingent options for which shareholder approval was received in 2013.
|
|
(5)
|
Represents 171,008 options awarded as a Long-Term incentive on February 20, 2015. The Long-Term incentive options have a strike price of $3.80, vest quarterly over a three-year period and expire February 20, 2025.
|
30
|
(6)
|
Includes $750,000 related to 315,126 options awarded as a Long-Term incentive on February 20, 2015. The Long-Term incentive options have a strike price of $3.80, vest quarterly over a three-year period and expire February 20, 2025. Also includes $404,302 of compensation expense related to modification of certain outstanding option awards. 2.5 million of the options initially granted on July 25, 2012 contained certain contingency clauses whereby the number of shares into which the options were exercisable were subject to reduction based on certain conditions. On January 28, 2014 the Compensation Committee of the board of directors modified these awards to remove such conditions. This modification was made as part of the Compensation Committees evaluation of Dr. Johes compensation given his expanded duties as Chief Medical Officer and Chief Science Officer.
|
|
(7)
|
Excludes amounts related to the modification of certain warrants to purchase an aggregate of 3,000,000 common shares that were originally issued on June 5, 2007 in connection with the transfer of certain intellectual property. In June 2014 the Companys board of directors extended the original term of such warrants by an additional 5 years. The Company recognized $3,109,850 of expense related to this modification.
|
|
(8)
|
Represents 79,776 options awarded as a Long-Term incentive on March 8, 2016. The Long-Term incentive options have a strike price of $0.94, vest quarterly over a three-year period and expire March 8, 2026.
|
|
(9)
|
Represents relocation expense of $25,000 as well as 50,000 options awarded as a one time hiring incentive on May 18, 2015 valued at $53,857. The Long-Term incentive options have a strike price of $1.71, vest quarterly over a two-year period and expire May 18, 2025.
|
Grants of Plan-Based Awards for 2015
The following table sets forth information with respect to the stock options and restricted stock awards granted during the year ended December 31, 2015 to each of the Named Executive Officers as listed in the Summary Compensation Table shown under the caption Executive Compensation Tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future payouts under
non-equity incentive plan awards
|
|
Estimated Future payouts under
equity incentive plan awards
|
|
All other
stock
awards:
number of
shares of
stock or
units
(#)
(i)
|
|
All other
option
awards:
number of
securities
underlying
options
(#)
(j)
|
|
Exercise
or base
price of
option
awards
($/sh)
(k)
|
|
Grant date
fair value
of stock
and option
awards
(l)
|
Name
(a)
|
|
Grant
Date
(b)
|
|
Threshhold
($)
(c)
|
|
Target
($)
(d)
|
|
Maximum
($)
(e)
|
|
Threshhold
(#)
(f)
|
|
Target
(#)
(g)
|
|
Maximum
(#)
(h)
|
I. Richard Garr
(1)
|
|
|
2/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.80
|
|
|
$
|
407,000
|
|
Karl Johe
(2)
|
|
|
2/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.80
|
|
|
$
|
750,000
|
|
Jonathan Lloyd Jones
(3)
|
|
|
5/18/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.71
|
|
|
$
|
53,857
|
|
|
(1)
|
Represents the Long-Term Incentive award to Mr. Garr consisting of 171,008 options which vests quarterly over a three year period and expires February 20, 2025. The award represents 100% of the target award approved by the Compensation Committee.
|
|
(2)
|
Represents the Long-Term Incentive award to Dr. Johe consisting of 315,126 options which vests quarterly over a three year period and expires February 20, 2025. The award represents 100% of the target award approved by the Compensation Committee.
|
|
(3)
|
Represents the Hiring Incentive award to Mr. Lloyd Jones consisting of 50,000 options which vests quarterly over a two year period and expires May 18, 2025.
|
31
Employment Agreements and Arrangements and Change-In-Control Arrangements
Employment Agreement with I. Richard Garr(*)
We had a written employment agreement with Mr. Garr, our former Chief Executive Officer and General Counsel. Pursuant to the employment agreement and until he resigned, Mr. Garr was entitled to an annual salary of $440,000 paid monthly of which $30,000 is paid in connection with Mr. Garrs duties as general counsel. Additionally, Mr. Garrs employment agreement provided for certain performance bonuses as determined from time to time by our Compensation Committee. For 2015, Mr. Garrs target levels for annual incentive bonus and long term equity compensation were: (i) 60%, and (ii) 100%, of Mr. Garrs 2015
base salary, respectively. For 2016, Mr. Garrs target bonus levels for annual incentive and long term equity compensation bonuses are: (i) 60%, and (ii) 100%, of 2015 base salary, respectively. Mr. Garrs employment agreement also provided for a $500 monthly automobile allowance and the reimbursement of reasonable business expenses. Mr. Garrs employment agreement terminates on October 31, 2017.
Mr. Garrs employment agreement also provided for severance (Termination Provisions) in an amount equal to the greater of: (i) the aggregate compensation remaining on his contract; or (ii) $1,000,000, in the event Mr. Garr is terminated for any reason. In the event of termination, the agreement also provides for the immediate vesting of 100% of stock options granted to Mr. Garr during his term of employment. These termination provisions apply whether employee is terminated for cause or without cause. Additionally, in the event employee voluntarily terminates his employment following a
change in control and material reassignment of duties, he will also be entitled to the termination provisions under the contract. In the event of early termination, the Termination Provisions will require us to make a substantial payment to the employee. Mr. Garrs agreement contains non-solicitation, and confidentiality and non-competition covenants. The agreement may be terminated by either party with or without cause and without prior notice subject to the termination provisions as discussed.
Employment Agreement with Richard Daly
On February 15, 2016, Richard Daly was appointed Chief Executive Officer, President, and as a member of the Companys board of directors (Effective Date). Pursuant to the terms of the employment agreement, Mr. Daly will receive a base salary of $440,000 per year and will be eligible to receive an annual cash bonus based on achievement of certain performance goals with a target of 50% of his base salary.
Mr. Dalys employment agreement provides for severance in the event Company terminates Mr. Dalys employment without Cause or Mr. Daly resigns with Good Reason, as each term is defined in the employment agreement, Mr. Daly will be eligible for (a) payment of his accrued but unpaid base salary, any unpaid or unreimbursed expenses and any accrued but unused vacation through the date of termination; and (b) continued payment of his base salary for (i) 18 months following the termination date if termination occurs within 12 months of the Effective Date, (ii) 12 months following the termination date if termination occurs
within between 12 and 24 months of the Effective Date, or (iii) 9 months following the termination date if termination occurs 24 months after the Effective Date (collectively, the Severance Benefits). Further, if within 18 months following a Sale Event (as defined in the Companys inducement stock option plan) Mr. Dalys employment is (a) terminated by the Company for any reason (other than as a result of his death or disability or a with Cause termination) or (b) terminated by Mr. Daly with Good Reason, then Mr. Daly will be eligible to receive, in addition to the Severance Benefits: (i) acceleration of the vesting of 100% of Mr. Dalys then outstanding unvested equity awards and (ii) payment of a pro rata portion of Mr. Dalys target annual bonus for the year in which the termination of employment occurs.
|
*
|
Mr. Garrs employment terminated on February 15, 2016. According to terms negotiated by the Companys compensation and audit committees, Mr. Garr will receive (i) a monthly payment equivalent to his monthly salary at the time of his resignation through March 1 2017, a lump sums of $177,000 on (1) June 1, 2016 (subject to deductions contained in (v) below), (2) January 1, 2017 and (3) March 1, 2017, (iii) continued healthcare benefits until March 1, 2017, (iv) his laptop computer and desktop computer owned by Neuralstem. the value of which shall be deducted from the lump sum to be received on June 1, 2016, and (v) such amounts previously advanced to him during January of 2016 shall be deducted from the lump sum to be received on June 1, 2016.
|
32
Mr. Daly also entered into a confidential information and invention assignment agreement governing the ownership of any inventions and confidential information. Mr. Daly also entered into the Companys standard indemnification agreement which is entered into by the Companys officers and directors.
Employment Agreement with Karl Johe, Ph.D.
We have a written employment agreement with Dr. Johe, our Chief Scientific Officer. Pursuant to the agreement, Dr. Johe is entitled to an annual salary of $750,000 paid monthly. Additionally, Dr. Johes employment agreement provides for certain performance bonuses as determined from time to time by our Compensation Committee. For 2015, Dr. Johes target levels for annual incentive bonus and long term equity compensation were: (i) 60%, and (ii) 100%, of Dr. Johes 2015 base salary, respectively. For 2016, Dr. Johes target bonus levels for annual incentive and long term equity compensation bonuses are: (i)
60%, and (ii) 100%, of 2016 base salary, respectively. Dr. Johes employment agreement also provides for a $500 monthly automobile allowance and the reimbursement of reasonable business expenses. Dr. Johes employment agreement terminates on October 31, 2017.
Mr. Johes employment agreement also provides for severance (Termination Provisions) in an amount equal to the greater of: (i) the aggregate compensation remaining on his contract; or (ii) $1,000,000, in the event Mr. Johe is terminated for any reason. In the event of termination, the agreement also provides for the immediate vesting of 100% of stock options granted to Mr. Johe during his term of employment. These termination provisions apply whether employee is terminated for cause or without cause. Additionally, in the event employee voluntarily terminates his employment following a
change in control and material reassignment of duties, he will also be entitled to the termination provisions under the contract. In the event of early termination, the Termination Provisions will require us to make a substantial payment to the employee. By way of example, such payments would be approximately as follows:
|
|
|
|
|
|
|
Officer
|
|
Severance
(1)
|
|
Accelerated
Vesting of
Awards
(2)
|
|
Total
|
Dr. Karl Johe
|
|
$
|
1,456,598
|
|
|
$
|
220,000
|
|
|
$
|
1,676,598
|
|
|
(1)
|
Assumes termination at December 31, 2015.
|
|
(2)
|
Derived from the intrinsic value of the stock options as of December 31, 2015 using a market value of $1.03 for the Companys common stock.
|
Mr. Johes agreement contains non-solicitation, and confidentiality and non-competition covenants. The agreement may be terminated by either party with or without cause and without prior notice subject to the termination provisions as discussed.
Employment Agreement with Jonathan Lloyd Jones
We have a written employment agreement with Jonathan Lloyd Jones our Chief Financial Officer. Pursuant to the agreement, Mr. Lloyd Jones is entitled to an annual salary of $315,000 paid monthly. Additionally, Mr. Lloyd Jones employment agreement provides for certain performance bonuses as determined from time to time by our Compensation Committee. For 2015, Mr. Lloyd Jones target levels for annual incentive bonus and long term equity compensation were: (i) 50%, and (ii) 50%, of Mr. Lloyd Jones 2015 base salary, respectively. For 2016, Mr. Lloyd Jones target bonus levels for annual incentive and long term
equity compensation bonuses are: (i) 50%, and (ii) 50%, of 2016 base salary, respectively. Mr. Lloyd Jones employment agreement also provides for the reimbursement of reasonable business expenses. Mr. Lloyd Jones employment agreement is at-will.
33
Mr. Lloyd Jones employment agreement also provides that in the event Mr. Lloyd Jones is terminated for any reason other than Cause, then he shall be entitled to (i) severance in an amount equal to one year of his annual salary and (ii) the immediate vesting of all previously unvested stock options granted to Mr. Lloyd Jones upon execution of his employment agreement, or 50,000 aggregate options (collectively, Termination Provisions). Additionally, in the event of a termination of employment following a change in control, Mr. Lloyd Jones will also be entitled to the foregoing Termination Provisions.
In the event a termination for any reason other than Cause, we will be required to make such payments, approximately, as follows:
|
|
|
|
|
|
|
Officer
|
|
Severance
(1)
|
|
Accelerated
Vesting of
Awards
(2)
|
|
Total
|
Mr. Jonathan Lloyd Jones
|
|
$
|
315,000
|
|
|
$
|
0
|
|
|
$
|
315,000
|
|
|
(1)
|
Assumes termination date of December 31, 2015.
|
|
(2)
|
Derived from the intrinsic value of the stock options as of December 31, 2015 using a market value of $1.03 for the Companys common stock.
|
Mr. Lloyd Jones agreement may be terminated by either party with or without cause and without prior notice subject to the Termination Provisions as discussed.
Outstanding Equity Awards Value at Fiscal Year-End
The following table includes information with respect to the value of all outstanding equity awards previously awarded to the Named Executive Officers as of December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
(a)
|
|
|
|
Number of
securities
underlying
unexercised
options
exercisable
(#)
(b)
|
|
Number of
securities
underlying
unexercised
options
unexercisable
(#)
(c)
|
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
(d)
|
|
Option
exercise
price
($)
(e)
|
|
Option
expiration
date
(f)
|
|
Number of
shares
or units of
stock that
have not
vested
(#)
(g)
|
|
Market
value
of shares
of units of
stock that
have not
vested
($)
(h)
|
|
Equity
incentive
plan award:
Number of
unearned
shares, units
or other
rights that
have not
vested
(#)
(i)
|
|
Equity
incentive
plan awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested
(#)
(j)
|
I. Richard Garr
|
|
|
|
(1)
|
|
|
2,100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3.66
|
|
|
|
01/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
263,147
|
|
|
|
|
|
|
|
|
|
|
$
|
2.21
|
|
|
|
11/11/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
|
1,053,407
|
|
|
|
|
|
|
|
|
|
|
$
|
1.09
|
|
|
|
04/11/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
652,774
|
|
|
|
47,586
|
|
|
|
|
|
|
$
|
1.12
|
|
|
|
03/28/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
112,676
|
|
|
|
80,483
|
|
|
|
|
|
|
$
|
3.22
|
|
|
|
01/28/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
|
42,752
|
|
|
|
128,256
|
|
|
|
|
|
|
$
|
3.80
|
|
|
|
02/20/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl Johe
(7)
|
|
|
|
(8)
|
|
|
2,100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3.66
|
|
|
|
01/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
|
|
272,909
|
|
|
|
|
|
|
|
|
|
|
$
|
2.21
|
|
|
|
11/11/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
|
|
738,479
|
|
|
|
|
|
|
|
|
|
|
$
|
1.09
|
|
|
|
04/11/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
|
|
3,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
|
$
|
0.92
|
|
|
|
07/25/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
|
|
542,867
|
|
|
|
49,352
|
|
|
|
|
|
|
$
|
1.12
|
|
|
|
03/28/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13)
|
|
|
116,856
|
|
|
|
83,468
|
|
|
|
|
|
|
$
|
3.22
|
|
|
|
01/28/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14)
|
|
|
78,782
|
|
|
|
236,345
|
|
|
|
|
|
|
$
|
3.80
|
|
|
|
02/20/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Lloyd Jones
|
|
|
|
(15)
|
|
|
12,500
|
|
|
|
37,500
|
|
|
|
|
|
|
$
|
1.71
|
|
|
|
05/18/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On January 21, 2008, we granted our CEO an option to purchase 2,100,000 common shares. The grant has an effective date of January 1, 2008. The option was granted under our 2007 Stock Plan. The option vests at a rate of 700,000 per 14 month period. The applicable vesting dates are February 28, 2009, April 30, 2010, and June 30, 2011. The only vesting condition was Mr. Garrs continued employment.
|
34
|
(2)
|
On November 11, 2010, we granted our CEO an option to purchase 263,147 common shares and 138,122 restricted stock units. The award was granted under our 2010 Stock Plan. The awards vested quarterly over three years commencing on November 11, 2010. The only vesting condition was Mr. Garrs continued employment.
|
|
(3)
|
On April 11, 2012, we granted our CEO on option to purchase 1,053,407 common shares under our 2010 Stock Plan of which 412,552 options were vested on grant date and 640,855 vest quarterly over 3 years. The only vesting condition is Mr. Garrs continued employment.
|
|
(4)
|
On March 28, 2013, we granted our CEO on option to purchase 129,327 common shares under our 2007 plan and 571,033 common shares under our 2010 Stock Plan of which 129,327 options were vested on grant date and 571,033 vest quarterly over 3 years. The only vesting condition is Mr. Garrs continued employment.
|
|
(5)
|
On January 28, 2014, we granted our CEO on option to purchase 193,158 common shares under our 2010 Stock Plan. The award vests quarterly over 3 years. The only vesting condition is Mr. Garrs continued employment.
|
|
(6)
|
On February 20, 2015, we granted our CEO on option to purchase 171,008 common shares under our 2010 Stock Plan. The award vests quarterly over 3 years. The only vesting condition is Mr. Garrs continued employment.
|
|
(7)
|
Outstanding equity awards for Dr. Johe do not include warrants to purchase an aggregate of 3,000,000 common shares that were issued on June 5, 2007.
|
|
(8)
|
On January 21, 2008, we granted our CSO an option to purchase 2,100,000 common shares. The grant has an effective date of January 1, 2008. The option was granted under our 2007 Stock Plan. The option vests at a rate of 700,000 per 14 month period. The applicable vesting dates are February 28, 2009, April 30, 2010, and June 30, 2011. The only vesting condition was Dr. Johes continued employment.
|
|
(9)
|
On November 11, 2010, we granted our CSO an option to purchase 272,909 common shares and 143,247 shares of restricted stock units. The award was granted under our 2010 Stock Plan. The awards vested quarterly over three years effective November 11, 2010. The only vesting condition was Dr. Johes continued employment.
|
|
(10)
|
On April 11, 2012, we granted our CSO an option to purchase 738,479 common shares under our 2010 Stock Plan. The awards vest quartelry over three years. The only vesting condition is Dr. Johes continued employment.
|
|
(11)
|
On July 25, 2012, we granted our CSO an option to purchase 5,000,000 common shares under our 2010 Stock Plan. The award was issued in conjunction with the renewal of Dr. Johes employment contract.
|
|
(12)
|
On March 28, 2013, we granted our CSO on option to purchase 592,219 common shares under our 2010 Stock Plan. The award vests quarterly over 3 years. The only vesting condition is Dr. Johes continued employment.
|
|
(13)
|
On January 28, 2014, we granted our CSO on option to purchase 200,324 common shares under our 2010 Stock Plan. The award vests quarterly over 3 years. The only vesting condition is Dr. Johes continued employment.
|
|
(14)
|
On February 20, 2015, we granted our CSO on option to purchase 315,126 common shares under our 2010 Stock Plan. The award vests quarterly over 3 years. The only vesting condition is Dr. Johes continued employment.
|
|
(15)
|
On May 18, 2015, we granted our CFO on option to purchase 50,000 common shares under our 2010 Stock Plan. The award vests quarterly over 2 years. The only vesting condition is Mr. Lloyd Jones continued employment.
|
35
Option Exercises and Stock Vested in 2015
The following table includes certain information with respect to the options exercised and restricted stock awards vested by the Named Executive Officers during the year ended December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
(a)
|
|
Number
of shares
acquired
on exercise
(#)
(b)
|
|
Value
realized
on exercise
($)
(c)
|
|
Number
of shares
acquired
on vesting
(#)
(d)
|
|
Value
realized
on vesting
(#)
(e)
|
I. Richard Garr
(1)
|
|
|
419,737
|
|
|
|
1,464,000
|
(2)
|
|
|
100,346
|
|
|
|
157,459
|
|
Karl Johe
(3)
|
|
|
578,984
|
|
|
|
1,144,000
|
(4)
|
|
|
104,069
|
|
|
|
163,302
|
|
|
(1)
|
Represents the exercise of 800,000 options using the cashless exercise feature of the option award. 380,263 options were returned to cover the exercise price and the withholding taxes due, resulting in 419,737 net shares being acquired on exercise.
|
|
(2)
|
Represents the issuance of 138,122 shares underlying RSU granted in 2010. 37,776 RSU were returned to cover the withholding taxes due, resulting in 100,346 net shares being acquired on expiration of 5-year restriction.
|
|
(3)
|
Represents the exercise of 1,200,000 options using the cashless exercise feature of the option award. 621,016 options were returned to cover the exercise price and the withholding taxes due, resulting in 578,984 net shares being acquired on exercise.
|
|
(4)
|
Represents the issuance of 143,247 shares underlying RSU granted in 2010. 39,178 RSU were returned to cover the withholding taxes due, resulting in 104,069 net shares being acquired on expiration of 5-year restriction.
|
36
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to our equity compensation plans as of December 31, 2015.
|
|
|
|
|
|
|
Plan Category
|
|
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
(a)
|
|
Weighted-Avearge
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
|
|
Number of
Securities
Remaining
Available for
Future Issuance
under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a))
(c)
|
Equity compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Stock Plan, as amended and restated
|
|
|
580,000
|
|
|
$
|
2.24
|
|
|
|
|
|
2007 Stock Plan
|
|
|
5,886,318
|
|
|
$
|
3.21
|
|
|
|
115,105
|
|
2010 Equity Compensation Plan
|
|
|
10,787,536
|
|
|
$
|
1.43
|
|
|
|
2,516,686
|
|
Equity compensation plans not approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total
|
|
|
17,253,854
|
|
|
$
|
2.07
|
|
|
|
2,631,791
|
|
Inducement Award Stock Option Plan
On February 15, 2016, the board of directors approved our Inducement Award Stock Option Plan (Inducement Plan). The Inducement Plan is used exclusively for the granting of options to individuals who were not previously an employee or non-employee director of the Company whom is being hired by the Company. Under the terms of the Inducement Plan, the administrator of the Inducement Plan (board or committee thereof), is authorized to issue up to 6,000,000 options to purchase common stock provided that (i) the exercise price per share of all options shall not be less than 100% of the fair market value of the
Companys stock on the grant date and (ii) the term of each option shall not be longer than 10 years. In accordance with NASDAQ Listing Rule 5635(c)(4), the Company did not seek approval of the Inducement Plan by our stockholders. As of March 31, 2016, the Company has issued 2,750,000 of the available 6,000,000 shares available under the Inducement Plan. Accordingly, as of March 31, 2016, there are 3,250,000 shares available for issuance under the Inducement Plan.
37
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table summarizes the approximate aggregate fees billed to us or expected to be billed to us by our independent auditors, Stegman & Company, for our 2015 and 2014 fiscal years:
|
|
|
|
|
Type of Fees
|
|
2015
|
|
2014
|
Audit Fees
|
|
|
|
|
|
|
|
|
Stegman & Company
|
|
$
|
111,599
|
|
|
$
|
106,861
|
|
Audit Related Fees
(1)
|
|
|
12,713
|
|
|
|
19,600
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
Stegman & Company
|
|
|
7,350
|
|
|
|
7,000
|
|
All other Fees
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
131,662
|
|
|
$
|
133,461
|
|
|
(1)
|
Fees associated with issuance of comfort letters
|
Pre-Approval of Independent Auditor Services and Fees
Our audit committee reviewed and pre-approved all audit and non-audit fees for services provided by Stegman & Company and has determined that the provision of such services to us during fiscal 2015 and in connection with the audit of our 2015 fiscal year financials is compatible with and did not impair independence. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by our independent auditors in accordance with the applicable requirements of the SEC. Stegman & Company did not provide us with any services, other than those listed above.
38
AUDIT COMMITTEE REPORT
This section of the proxy statement will not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed filed under these Acts.
The Audit Committee (Committee) of the Board of Directors of Neuralstem is comprised entirely of independent directors who meet the independence requirements of the Listing Rules of the NASDAQ Stock Market and the Securities and Exchange Commission. The Committee operates pursuant to a charter that is available on our website at
www.neuralstem.com
. To view the charter, select Corporate Governance under Investor section and then Audit Committee located in the Committee Charters section of such page.
The Committee oversees Neuralstems financial reporting process and internal control structure on behalf of the Board of Directors. Management is responsible for the preparation, presentation, and integrity of the financial statements and the effectiveness of Neuralstems internal control over financial reporting. Neuralstems independent auditors are responsible for expressing an opinion as to the conformity of Neuralstems consolidated financial statements with generally accepted accounting principles and as to the effectiveness of Neuralstems internal control over financial reporting.
In performing its responsibilities, the Committee has reviewed and discussed with management and the independent auditors the audited consolidated financial statements in Neuralstems Annual Report on Form 10-K for the year ended December 31, 2015. The Committee has also discussed with the independent auditors matters required to be discussed by Statement on Auditing Standard No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board (PCAOB).
The Committee received written disclosures and the letter from the independent auditors pursuant to the applicable requirements of the PCAOB regarding the independent auditors communications with the Committee concerning independence, and the Committee discussed with the auditors their independence.
Based on the reviews and discussions referred to above, the Committee unanimously recommended to the Board of Directors that the audited consolidated financial statements be included in Neuralstems Annual Report on Form 10-K for the year ended December 31, 2015.
Scott Ogilvie Audit Committee Member
William Oldaker Audit Committee Chair
Sandford Smith Audit Committee Member
39
PROPOSAL 1
ELECTION OF DIRECTORS
The Companys Board currently consists of eight (8) members, five (5) of which are independent, as that term is defined by Listing Rules of the NASDAQ Stock Market. The Companys Bylaws provide for the classification of the Board into three classes, as nearly equal in number as possible, with staggered terms of office. The Companys Bylaws also provide that upon expiration of the term of office for a class of directors, nominees for such class will be elected for a term of three years or until their successors are duly elected and qualified.
At this years annual meeting, the terms of Messrs. Oldaker and Westreich will expire. Two (2) Directors will be elected at the annual meeting to serve for a three-year term which will expire at our annual meeting in 2019. The Board has nominated Messrs. Oldaker and Westreich as Class II directors. Messrs. Oldaker and Westreich are currently directors of the Company. The candidates receiving the highest number of affirmative votes of the shares represented and entitled to vote at the Annual Meeting will be elected as Class II directors.
The sections titled Directors and Executive Officers and Corporate Governance on pages
10
18
of this proxy statement contain more information about the leadership skills and other experiences that caused the Governance and Nominating Committee and the board of directors to determine that these nominees should serve as directors of Neuralstem.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For a Three Year Term Expiring at the
2019 Annual Meeting
Nominees for Term Expiring in 2019 (Class II)
The Governance and Nominating Committee recommended, and the Board of Directors nominated the following individuals to serve as Class II directors:
Except as set forth below, unless otherwise instructed, the persons appointed in the accompanying form of proxy will vote the proxies received by them for these nominees, who are all presently directors of Neuralstem. In the event that any nominee becomes unavailable or unwilling to serve as a member of our Board of Directors, the proxy holders will vote in their discretion for a substitute nominee. The term of office of each person elected as a director will continue until the 2019 annual meeting or until a successor has been elected and qualified, or until the directors earlier death, resignation, or removal. The
nominees for election have agreed to serve if elected, and management has no reason to believe that the nominees will be unable to serve.
Required Vote
The nominee receiving the highest number of affirmative FOR votes shall be elected as directors. Unless marked to the contrary, proxies received will be voted FOR these nominees.
Recommendation
The Board of Directors Unanimously Recommends that Stockholders Vote FOR the Election of the Nominees to the Board of Directors
****************
40
PROPOSAL 2
RATIFICATION OF AUDIT COMMITTEE'S SELECTION OF STEGMAN & COMPANY AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2016
The Audit Committee has selected Stegman & Company as the independent registered public accounting firm for the fiscal year ending December 31, 2016. Stegman & Company has served as the Companys independent registered public accounting firm since 2007. Representatives of Stegman & Company are expected to attend the Annual Meeting, either in person or telephonically, and to respond to appropriate questions, and they will have the opportunity to make a statement if they wish.
We are asking our stockholders to ratify the selection of Stegman & Company as our independent registered public accounting firm. Although ratification is not required, our Board is submitting the selection of Stegman & Company to stockholders for ratification because we value our stockholders' views on our independent registered public accounting firm and as a matter of good corporate practice. In the event stockholders fail to ratify the appointment of Stegman & Company, the Audit Committee will reconsider this appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the
appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that the change would be in the best interests of the Company and our stockholders.
The Company has been informed by Stegman & Company that, to the best of their knowledge, neither the firm nor any of its members or their associates has any direct financial interest or material indirect financial interest in the Company or its affiliates.
Required Vote
Ratification of the appointment of Stegman & Company as our independent registered public accounting firm for the fiscal year ending December 31, 2016 requires the affirmative FOR vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Unless marked to the contrary, proxies received will be voted FOR ratification of the appointment of Stegman & Company.
Recommendation
Our Board of Directors recommends a vote FOR the ratification of the appointment of Stegman & Company as our independent registered public accounting firm for the fiscal year ending December 31, 2016.
****************
41
PROPOSAL 3
AMENDMENT OF 2010 EQUITY COMPENSATION PLAN
On April 26, 2016 our Compensation Committee recommended and our Board approved an amendment to our 2010 Equity Compensation Plan (Plan). Pursuant to the amendment, the number of shares eligible for issuance under the plan will be increased by 7,000,000. We are asking our stockholders to approve the amendment of the Plan. Under the terms of the Plan, as amended, we will reserve an aggregate of 21,000,000 common shares for awards to our employees, directors, officers and consultants. As of March 31, 2016, there are 12,387,737 shares issued or reserved for issuance upon the exercise or conversion of outstanding
awards. The Compensation Committee and the full board of directors believe that in order to successfully attract and retain the best possible candidates, we must continue to offer a competitive equity incentive program. Upon review, our Compensation Committee and board determined that the provisions as well as shares available for future awards under our existing plans were insufficient to achieve such goal. Therefore, the Compensation Committee recommended, and the full board of directors approved, subject to stockholder approval, the amendment of the Plan in order to increase the aggregate number of shares available for grants and awards under the plan to 21,000,000 of which 8,612,263 shares will be reserved for issuance for future grants and awards.
Summary of the Plan
The following summary of the Plan is qualified in its entirety by the specific language of the Plan as proposed to be amended, which is included in this proxy statement as Appendix A.
General
. The Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and nonstatutory stock options, restricted stock, performance units, performance shares, RSUs, and other stock based awards to our employees, directors, and consultants. The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our employees, directors, and consultants and to promote the success of our business.
Common Stock Available Under the Plan
. Assuming stockholders approve this proposal, a total of 21,000,000 shares of common stock will have been reserved for issuance pursuant to the Plan, of which 12,387,737 are issued or will be reserved for issuance pursuant to outstanding awards. If an award expires or is terminated or canceled without having been exercised or settled in full, or is forfeited back to or repurchased by us, the terminated portion of the award (or forfeited or repurchased shares subject to the award) will become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares are not deemed to be issued under the Plan with respect to any portion of an award that is settled in cash or to the extent such shares are withheld in satisfaction of tax withholding obligations. If the exercise or purchase price of an award is paid for through the tender of shares, or tax withholding obligations are met through the tender or withholding of shares, those shares tendered or withheld will again be available for issuance under the Plan. However, shares that have actually been transferred to a financial institution or other person or entity selected by the Plan administrator will not be returned to the Plan and will not be available for future distribution under the Plan.
Administration of the Plan
. Our board of directors, or one or more committees appointed by our board of directors, will administer our Plan (the administrator). In the case of awards intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, the Compensation Committee will consist of two or more outside directors within the meaning of Section 162(m) of the Code to enable us to receive a federal tax deduction for certain compensation paid under the Plan. The administrator has the power to determine the terms of the awards,
including the exercise price (which may be changed by the administrator after the date of grant), the number of shares subject to each award (subject to the limits under the Plan), the exercisability of the awards and the form of consideration payable upon exercise. The administrator also has the power to implement an award exchange program, an award transfer program (whereby awards may be transferred to a financial institution or other person or entity selected by the Plan administrator), and a program through which participants may reduce cash compensation payable in exchange for awards, and to create other stock based awards that are valued in whole or in part by reference to (or are otherwise based on) shares of our common stock (or the cash equivalent of such shares).
42
Eligibility
. Nonstatutory stock options, restricted stock, stock appreciation rights, performance units, performance shares, RSUs, and other stock based awards may be granted under the Plan to our employees, directors, and consultants. Incentive stock options may be granted only to employees. As of March 31, 2016, we had thirty three (33) employees, eight (8) directors (including two employee directors) and numerous consultants and/or temporary workers.
Limitations
. In general, Section 162(m) limits our compensation deduction to $1,000,000 paid in any tax year to any covered employee as defined under Section 162(m). This deduction limitation does not apply to certain types of compensation, including Performance-Based Compensation. The terms of the Plan permit, but do not require, us to grant performance-based awards under the Plan that meet the requirements of Performance-Based Compensation so that such awards will be deductible by us for federal income tax purposes.
Options
. A stock option is the right to purchase shares of our common stock at a fixed exercise price for a fixed period of time. Each option is evidenced by a stock option agreement and is subject to the following terms and conditions:
Number of Options
. The administrator will determine the number of shares granted to any eligible individual pursuant to a stock option.
Exercise Price
. The administrator will determine the exercise price of options granted under our Plan at the time the options are granted, but with respect to nonstatutory stock options intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code and all incentive stock options, the exercise price generally must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of an incentive stock option granted to a 10% stockholder may not be less than 110% of the fair market value on the date such option is
granted. The fair market value of common stock generally is determined with reference to the closing sale price for our common stock (or the closing bid if no sales were reported) on the day the option is granted.
Exercise of Option; Form of Consideration
. The administrator determines when options become exercisable, and may in its discretion, accelerate the vesting of any outstanding option. The means of payment for shares issued upon exercise of an option is specified in each option agreement. To the extent permitted by applicable law, the Plan permits payment to be made by cash, check, promissory note, other shares of our common stock (with some restrictions), cashless exercises, a reduction in the amount of our liability to the participant, any combination of the prior methods of payment or any other form of
consideration permitted by applicable law.
Term of Option
. The term of stock options will be stated in the stock option agreement. However, the term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding capital stock, the term must not exceed five years. No option may be exercised after the expiration of its term.
Termination of Service
. After termination of service, an option holder may exercise his or her option for the period of time determined by the administrator and stated in the option agreement. In the absence of a time specified in a participants award agreement, a participant may exercise the option within three months of such termination, to the extent that the option is vested on the date of termination (but in no event later than the expiration of the term of such option as set forth in the option agreement), unless such participants service terminates due to the participants death
or disability, in which case the participant or, if the participant has died, the participants estate, beneficiary designated in accordance with the administrators requirements or the person who acquires the right to exercise the option by bequest or inheritance may exercise the option, to the extent the option was vested on the date of termination (or to the extent the vesting is accelerated upon the participants death), within one year from the date of such termination.
43
Nontransferability of Options
. Unless otherwise determined by the administrator, options granted under the Plan are not transferable other than by will or the laws of descent and distribution, and may be exercised during the optionees lifetime only by the optionee. However, the administrator may at any time implement an award transfer program (whereby awards may be transferred to a financial institution or other person or entity selected by the Plan administrator).
Restricted Stock
. Restricted stock awards are awards of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator may impose whatever conditions to vesting it determines to be appropriate including, if the administrator has determined it is desirable for the award to qualify as performance-based compensation for purposes of Section 162(m) of the Code, that the restricted stock will vest based on the achievement of performance goals. Each award of restricted stock is evidenced by an award agreement specifying the terms and
conditions of the award. The administrator will determine the number of shares of restricted stock granted to any employee. The administrator also determines the purchase price of any grants of restricted stock and, unless the administrator determines otherwise, shares that do not vest typically will be subject to forfeiture or to our right of repurchase, which we may exercise upon the voluntary or involuntary termination of the purchasers service with us for any reason including death or disability.
Restricted Stock Units
. RSUs are awards of restricted stock, performance shares, or performance units that are paid out in installments or on a deferred basis. The administrator determines the terms and conditions of RSUs. Each RSU award will be evidenced by an award agreement that will specify terms and conditions as the administrator may determine in its sole discretion, including, without limitation whatever conditions to vesting it determines to be appropriate. As with awards of restricted stock, performance shares, and performance units, the administrator may set restrictions with respect to the
RSUs based on the achievement of specific performance goals. The administrator also determines the number of shares granted pursuant to a RSU award.
Performance Shares and Performance Units
. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. The performance goals may be based upon the achievement of company-wide, divisional, or individual goals (including solely
continued service), applicable securities laws or other basis determined by the administrator. Payment for performance units and performance shares may be made in cash or in shares of our common stock with equivalent value, or in some combination, as determined by the administrator. Performance units will have an initial dollar value established by the administrator prior to the grant date. Performance shares will have an initial value equal to the fair market value of our common stock on the grant date. The administrator also determines the number of performance shares and performance units granted to any employee. Each performance unit and performance share is evidenced by an award agreement, and is subject to the terms and conditions determined by the administrator.
Other Stock Based Awards
. The administrator has the authority to create awards under the Plan in addition to those specifically described in the Plan. These awards must be valued in whole or in part by reference to, or must otherwise be based on, the shares of our common stock (or the cash equivalent of such shares). These awards may be granted either alone, in addition to, or in tandem with, other awards granted under the Plan and/or cash awards made outside the Plan. Each other stock based award will be evidenced by an award agreement that will specify terms and conditions as the administrator may
determine.
Transferability of Awards
. Unless the administrator determines otherwise, our Plan does not allow for the transfer of awards other than by will, by the laws of descent and distribution, or pursuant to an award transfer program which the administrator has reserved the discretion to implement from time to time. Only the participant may exercise an award during his or her lifetime.
Performance Goals
. As discussed above, under Section 162(m) of the Code, the annual compensation paid to the chief executive officer, the chief financial officer, and each of the other three most highly compensated executive officers (our named executive officers) may not be deductible to the extent it exceeds $1,000,000.
44
However, we are able to preserve the deductibility of compensation in excess of $1,000,000 if the conditions of Section 162(m) of the Code are met. These conditions include stockholder approval of the Plan, setting limits on the number of awards that any individual may receive, and for awards other than options establishing performance criteria that must be met before the award actually will vest or be paid. The administrator (in its discretion) may make performance goals applicable to a participant. The performance goals may differ from participant to participant and from award to award. Any criteria used may be measured, as
applicable, in absolute terms or in relative terms (including passage of time and/or against another company or companies), on a per-share basis, against the performance of the company as a whole or any segment of the company, and on a pre-tax or after-tax basis.
Adjustments upon Changes in Capitalization
. In the event that our stock changes by reason of any dividend (excluding an ordinary dividend) or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of our securities, or other similar change in our capital structure, the administrator will make the adjustments to the number and class of shares of common stock subject to the Plan, the maximum number of shares of common stock that may be issued to any individual in any fiscal year pursuant to
awards, and the number, class, and price of shares of common stock subject to any outstanding award.
Adjustments upon Liquidation or Dissolution
. In the event of our liquidation or dissolution, any unexercised award will terminate. The administrator may, in its sole discretion, provide that each participant will have the right to exercise all or any part of the award, including shares as to which the award would not otherwise be exercisable.
Adjustments upon Merger or Change in Control
. Our Plan provides that in the event of a merger with or into another corporation or our change in control, including the sale of all or substantially all of our assets, the successor corporation will assume or substitute an equivalent award for each outstanding award. Unless determined otherwise by the administrator, any outstanding options not assumed or substituted for will be fully vested and exercisable, including as to shares that would not otherwise have been vested and exercisable, for a period of up to 15 days from the date of notice to
the holder of such award. The option or stock appreciation right will terminate at the end of such period. Unless determined otherwise by the administrator, any restricted stock, performance shares, performance units, RSUs, or other stock based awards not assumed or substituted for will be fully vested as to all of the shares subject to the award, including shares which would not otherwise be vested. In the event an outside director is terminated immediately prior to or following a change in control, other than pursuant to a voluntary resignation, the awards he or she received under the Plan will fully vest and become immediately exercisable.
Amendment and Termination of Our Plan
. Our Plan will automatically terminate in July 11, 2020, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend, or terminate our Plan provided it does not adversely affect any award previously granted under our Plan.
Plan Benefits
The amount and timing of awards granted under the Plan are determined in the sole discretion of the administrator and therefore cannot be determined in advance. The future awards that would be received under the Plan by executive officers and other employees are discretionary and are therefore not determinable at this time.
U.S. Federal Income Tax Information
Incentive Stock Options
. An optionee who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise, although the exercise is an adjustment item for alternative minimum tax purposes and may subject the optionee to the alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, any gain or loss is treated as long-term capital gain or loss. If these holding periods are not satisfied, the optionee recognizes ordinary income at the time of disposition
equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise, or (ii) the sale price of the shares. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the
45
holding period. Unless limited by Section 162(m) of the Code, we are generally entitled to a deduction in the same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options
. An optionee does not recognize any taxable income at the time he or she is granted a nonstatutory stock option. Upon exercise, the optionee recognizes taxable income generally measured by the excess of the then fair market value of the shares over the exercise price. Any taxable income recognized in connection with an option exercise by an employee is subject to tax withholding. Unless limited by Section 162(m) of the Code, we are generally entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Upon a disposition of such shares by the
optionee, any difference between the sale price and the optionees exercise price, to the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period.
Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units
. A participant generally will not have taxable income at the time an award of restricted stock and RSUs are granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture (e.g., vested). However, a holder of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market
value of the shares underlying the award less any amount paid for the shares on the date the award is granted.
Our Tax Impact from Awards
. We generally will be entitled to a tax deduction in connection with an award under the Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to our named executive officers. Under Section 162(m) of the Code, the annual compensation paid to named executive officers may not be deductible to the extent it exceeds $1,000,000. However, we can preserve the deductibility of certain
compensation in excess of $1,000,000 if the conditions of Section 162(m) of the Code are met. These conditions include stockholder approval of the Plan and setting limits on the number of awards that any individual may receive per year. The Plan has been designed to permit the administrator to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m) of the Code, which permits us to continue to receive a federal income tax deduction in connection with such awards.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF AN INDIVIDUALS DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH ANY ELIGIBLE INDIVIDUAL MAY RESIDE.
The Board of Directors recommends that you vote FOR the amendment of the 2010 Equity Compensation Plan. Proxies will be voted FOR the amendment of the 2010 Equity Compensation Plan unless you otherwise specify in your proxy.
****************
46
ANNUAL REPORT ON FORM 10-K AND OTHER SEC FILINGS
You can obtain copies of this Proxy statement, our Annual Report and exhibits, as well as other filings we make with the SEC, on the SEC's website at
www.sec.gov
. or on Neuralstems website at
www.neuralstem.com
. Additional copies may be requested in writing. Such requests should be submitted to Mr. Richard Daly, Chief Executive Officer, Neuralstem, Inc., 20271 Goldenrod Lane, Suite 2024, Germantown, Maryland 20876. Exhibits to Form 10-K will also be provided upon specific request. The materials will be provided without charge.
We have not incorporated by reference into this Proxy Statement the information in, or that can be accessed through, our website or social media channels, and you should not consider it to be a part of this Proxy Statement.
OTHER MATTERS
We have not received notice of and do not expect any matters to be presented for a vote at the meeting, other than the proposals described in this proxy statement. If you grant a proxy, each of the persons named as proxy holder, Richard Daly and Dr. Karl Johe, or their nominees or substitutes, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any unforeseen reason, any of our nominees are not available as a candidate for director, the proxy holder will vote your proxy for such other candidate or candidates nominated by our Board of Directors.
|
|
|
|
|
By Order of the Board of Directors
|
April 28, 2016
|
|
/s/ Dr. Karl Johe
Chairman of the Board
|
47
APPENDIX A
2010 EQUITY COMPENSATION PLAN
A-1
NEURALSTEM, INC.
2010 EQUITY COMPENSATION PLAN
Initially adopted on July 12, 2010;
As amended on June 21, 2013; and
As amended on [*], 2016
1.
Purposes of the Plan
. The purposes of this Plan are:
|
|
to attract and retain the best available personnel for positions of substantial responsibility,
|
|
|
to provide additional incentive to Employees, Directors and Consultants, and
|
|
|
to promote the success of the Companys business.
|
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and Other Stock Based Awards.
2.
Definitions
. As used herein, the following definitions will apply:
(a)
Administrator
means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b)
Applicable Laws
means the requirements relating to the administration of equity-based awards or equity compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
(c)
Award
means, individually or collectively, a grant under the Plan of Options, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares or Other Stock Based Awards.
(d)
Award Agreement
means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(e)
Award Transfer Program
means any program instituted by the Administrator which would permit Participants the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator.
(f)
Awarded Stock
means the Common Stock subject to an Award.
(g)
Board
means the Board of Directors of the Company.
(h)
Change in Control
means the occurrence of any of the following events:
(i) Any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Companys then outstanding voting securities and within three (3) years from the date of such acquisition, a merger or consolidation of the Company with or into the person (or affiliate thereof) holding such beneficial ownership of securities of the Company is consummated; or
(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Companys assets; or
(iii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. Incumbent Directors means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual
A-2
whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or
(iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
For purposes of this Section, affiliate will mean, with respect to any specified person, any other person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person (control, controlled by and under common control with will mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contact or credit arrangement, as trustee or executor, or otherwise).
(i)
Code
means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.
(j)
Committee
means a committee of Directors or other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 of the Plan.
(k)
Common Stock
means the Common Stock of the Company, or in the case of Performance Units and certain Other Stock Based Awards, the cash equivalent thereof.
(l)
Company
means Neuralstem, Inc., a Delaware corporation, or any successor thereto.
(m)
Consultant
means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.
(n)
Director
means a member of the Board.
(o)
Disability
means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(p)
Dividend Equivalent
means a credit, made at the discretion of the Administrator, to the account of a Participant in an amount equal to the cash dividends paid on one Share for each Share represented by an Award held by such Participant.
(q)
Employee
means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a directors fee by the Company will be sufficient to constitute employment by the Company.
(r)
Exchange Act
means the Securities Exchange Act of 1934, as amended.
(s)
Exchange Program
means a program under which outstanding Awards or awards under prior or existing equity compensation plans are surrendered or cancelled in exchange for Awards of the same type, or (ii) Awards of a different type, and/or cash. Notwithstanding the foregoing, in no event will any exchange pursuant to an Exchange Program result in the reduction of the exercise price of an outstanding Award.
(t)
Fair Market Value
means, as of any date and unless the Administrator determines otherwise, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the day of determination, as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable;
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(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock will be the mean between the high bid and low asked prices for the Common Stock for the day of determination, as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
(iv) Notwithstanding the preceding, for federal, state, and local income tax reporting purposes and for such other purposes as the Administrator deems appropriate, the Fair Market Value shall be determined by the Administrator in accordance with uniform and nondiscriminatory standards adopted by it from time to time.
(u)
Fiscal Year
means the fiscal year of the Company.
(v)
Incentive Stock Option
means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(w)
Individual Objectives
means as to a Participant, the objective and measurable goals set by a management by objectives process and approved by the Committee (in its discretion).
(x)
Nonstatutory Stock Option
means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(y)
Officer
means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(z)
Option
means a stock option granted pursuant to the Plan.
(aa)
Other Stock Based Awards
means any other awards not specifically described in the Plan that are valued in whole or in part by reference to, or are otherwise based on, Shares and are created by the Administrator pursuant to Section 11.
(bb)
Outside Director
means a Director who is not an Employee.
(cc)
Parent
means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(dd)
Participant
means the holder of an outstanding Award granted under the Plan.
(ee)
Performance Goals
means the goal(s) (or combined goal(s)) determined by the Committee (in its discretion) to be applicable to a Participant with respect to an Award. The Performance Goals may differ from Participant to Participant and from Award to Award. Any criteria used may be measured, as applicable, in absolute or relative terms (including passage of time and/or against another company or companies), on a per share basis, against the performance of the Company as a whole or any segment of the Company, and on a pre-tax or after-tax basis.
(ff)
Performance Share
means an Award granted to a Service Provider pursuant to Section 9 of the Plan.
(gg)
Performance Unit
means an Award granted to a Service Provider pursuant to Section 9 of the Plan.
(hh)
Period of Restriction
means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(ii)
Plan
means this 2010 Stock Plan as amended on [*].
(jj)
Restricted Stock
means shares of Common Stock issued pursuant to a Restricted Stock award under Section 8, Section 10 or Section 11 of the Plan or issued pursuant to the early exercise of an Option.
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(kk)
Restricted Stock Unit
means an Award that the Administrator permits to be paid in installments or on a deferred basis pursuant to Section 10 of the Plan.
(ll)
Rule 16b-3
means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(mm)
Section 16(b)
means Section 16(b) of the Exchange Act.
(nn)
Service Provider
means an Employee, Director or Consultant.
(oo)
Share
means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.
(pp)
Subsidiary
means a subsidiary corporation, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(qq)
Unvested Awards
means Options or Restricted Stock that (i) were granted to an individual in connection with such individuals position as a Service Provider and (ii) are still subject to vesting or lapsing of Company repurchase rights or similar restrictions.
3.
Stock Subject to the Plan
.
(a)
Stock Subject to the Plan
. Subject to the provisions of Sections 14 of the Plan, the maximum number of Shares that may be issued under the Plan is 21,000,000. The Shares may be authorized, but unissued, or reacquired Common Stock. Shares shall not be deemed to have been issued pursuant to the Plan (i) with respect to any portion of an Award that is settled in cash, or (ii) to the extent such Shares are withheld in satisfaction of tax withholding obligations. Upon payment in Shares pursuant to the exercise of an Award, the number of Shares available for issuance under the Plan shall be reduced only by the
number of Shares actually issued in such payment. If a Participant pays the exercise price (or purchase price, if applicable) of an Award through the tender of Shares, the number of Shares so tendered shall again be available for issuance pursuant to future Awards under the Plan. Notwithstanding anything in the Plan, or any Award Agreement to the contrary, Shares attributable to Awards transferred under any Award Transfer Program shall not be again available for grant under the Plan.
(b)
Lapsed Awards
. If any outstanding Award expires or is terminated or canceled without having been exercised or settled in full, or if Shares acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, the Shares allocable to the terminated portion of such Award or such forfeited or repurchased Shares shall again be available for grant under the Plan.
4.
Administration of the Plan
.
(a)
Procedure
.
(i)
Section 162(m)
. To the extent that the Administrator determines it to be desirable and necessary to qualify Awards granted hereunder as performance-based compensation within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two or more outside directors within the meaning of Section 162(m) of the Code.
(ii)
Rule 16b-3
. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iii)
Other Administration
. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(iv)
Delegation of Authority for Day-to-Day Administration
. Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan. Such delegation may be revoked at any time.
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(b)
Powers of the Administrator
. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture or repurchase restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, will determine;
(vi) to institute an Exchange Program;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws and/or qualifying for preferred tax treatment under applicable foreign tax laws;
(ix) to modify or amend each Award (subject to Section 17(c) and 17(d) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards longer than is otherwise provided for in the Plan;
(x) to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares or cash to be issued upon exercise or vesting of an Award that number of Shares or cash having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of any Shares to be withheld will be determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares or cash withheld for this purpose will be made in such form and under such conditions as the Administrator may deem necessary or advisable;
(xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award;
(xiii) to implement an Award Transfer Program;
(xiv) to determine whether Awards will be settled in Shares, cash or in any combination thereof;
(xv) to determine whether Awards will be adjusted for Dividend Equivalents;
(xvi) to create Other Stock Based Awards for issuance under the Plan;
(xvii) to establish a program whereby Service Providers designated by the Administrator can reduce compensation otherwise payable in cash in exchange for Awards under the Plan;
(xviii) to impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers; and
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(xix) to make all other determinations deemed necessary or advisable for administering the Plan.
(c)
Effect of Administrators Decision
. The Administrators decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5.
Eligibility
. Nonstatutory Stock Options, Restricted Stock, Performance Units, Performance Shares, Restricted Stock Units and Other Stock Based Awards may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
6.
Limitations
.
(a)
ISO $100,000 Rule
. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the
order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.
(b)
No Rights as a Service Provider
. Neither the Plan nor any Award shall confer upon a Participant any right with respect to continuing his or her relationship as a Service Provider, nor shall they interfere in any way with the right of the Participant or the right of the Company or its Parent or Subsidiaries to terminate such relationship at any time, with or without cause.
(c)
162(m) Limitation
. For purposes of qualifying Awards as performance-based compensation under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Administrator on or before the latest date permissible to enable the Award to qualify as performance-based compensation under Section 162(m) of the Code. In granting Awards which are intended to qualify under Section 162(m) of the Code, the Administrator shall follow any procedures determined by it from time to
time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
7.
Stock Options
.
(a)
Term of Option
. The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant
or such shorter term as may be provided in the Award Agreement.
(b)
Option Exercise Price and Consideration
.
(i)
Exercise Price
. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.
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(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.
(3) Notwithstanding the foregoing, Incentive Stock Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.
(ii)
Waiting Period and Exercise Dates
. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(c)
Form of Consideration
. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration to the extent permitted by Applicable Laws may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which meet the conditions established by the Administrator to avoid adverse accounting consequences (as determined by the Administrator);
(v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participants participation in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.
(d)
Exercise of Option
.
(i)
Procedure for Exercise; Rights as a Stockholder
. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (x) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (y) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are
issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Awarded Stock, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan or the applicable Award Agreement.
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Exercising an Option in any manner will decrease the number of Shares thereafter available for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii)
Termination of Relationship as a Service Provider
. If a Participant ceases to be a Service Provider, other than upon the Participants death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participants termination.
Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan on the date one (1) month following the Participants termination. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii)
Disability of Participant
. If a Participant ceases to be a Service Provider as a result of the Participants Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participants termination. Unless otherwise provided by the
Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan on the date one (1) month following the Participants termination. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iv)
Death of Participant
. If a Participant dies while a Service Provider, the Option may be exercised following the Participants death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participants designated beneficiary, provided such beneficiary has been designated prior to Participants death in a form acceptable to the Administrator. If no such beneficiary has been
designated by the Participant, then such Option may be exercised by the personal representative of the Participants estate or by the person(s) to whom the Option is transferred pursuant to the Participants will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participants death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan on the date one (1) month following the Participants death. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(e)
Buyout Provisions
. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made.
8.
Restricted Stock
.
(a)
Grant of Restricted Stock
. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine. Subject to any restrictions specifically provided for in this Plan, the Administrator shall have complete discretion to determine (i) the number of Shares subject to a Restricted Stock award granted to any Participant, and (ii) the conditions, if any, that
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must be satisfied, which typically will be based principally or solely on continued provision of services but may include a performance-based component, upon which is conditioned the grant, vesting or issuance of Restricted Stock.
(b)
Restricted Stock Agreement
. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.
(c)
Transferability
. Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise
(d)
Other Restrictions
. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e)
Removal of Restrictions
. Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
(f)
Voting Rights
. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g)
Dividends and Other Distributions
. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h)
Return of Restricted Stock to Company
. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
9.
Performance Units and Performance Shares
.
(a)
Grant of Performance Units/Shares
. Subject to the terms and conditions of the Plan, Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. Subject to any restrictions specifically provided for in this Plan, the Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.
(b)
Value of Performance Units/Shares
. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c)
Performance Objectives and Other Terms
. The Administrator will set performance objectives in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives must be met will be called the Performance Period. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(d)
Earning of Performance Units/Shares
. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the
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extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit/Share.
(e)
Form and Timing of Payment of Performance Units/Shares
. Payment of earned Performance Units/Shares will be made as soon after the expiration of the applicable Performance Period at the time determined by the Administrator. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f)
Cancellation of Performance Units/Shares
. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
10.
Restricted Stock Units
. Restricted Stock Units shall consist of a Restricted Stock, Performance Share or Performance Unit Award that the Administrator, in its sole discretion permits to be paid out in installments or on a deferred basis, in accordance with rules and procedures established by the Administrator.
11.
Other Stock Based Awards
. Other Stock Based Awards may be granted either alone, in addition to, or in tandem with, other Awards granted under the Plan and/or cash awards made outside of the Plan. The Administrator shall have authority to determine the Service Providers to whom and the time or times at which Other Stock Based Awards shall be made, the amount of such Other Stock Based Awards, and all other conditions of the Other Stock Based Awards including any dividend and/or voting rights.
12.
Leaves of Absence
. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence and will resume on the date the Participant returns to work on a regular schedule as determined by the Company; provided, however, that no vesting credit will be awarded for the time vesting has been suspended during such leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any
Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three months following the 91
st
day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
13.
Non-Transferability of Awards
. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
14.
Adjustments; Dissolution or Liquidation; Merger or Change in Control
.
(a)
Adjustments
. In the event that any dividend (excluding an ordinary dividend) or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, then the Administrator shall appropriately adjust the number and class of Shares which may be delivered under the Plan, the 162(m) limits under Section
6(c) of the Plan, and the number, class, and price of Shares subject to outstanding Awards. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.
(b)
Dissolution or Liquidation
. In the event that any dividend (excluding an ordinary dividend) or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
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combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs then the Administrator shall appropriately adjust the number and class of Shares which may be delivered under the Plan, the 162(m) limits under Section 6(c) of the Plan, and the number, class, and price of Shares subject to outstanding Awards. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.
(c)
Merger or Change in Control
. In the absence of any specific language contained in the Award Agreement:
(i)
Stock Options
. In the event of a merger or Change in Control, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. With respect to Options granted to an Outside Director that are assumed or substituted for, if immediately prior to or after the merger or Change in Control the Participants status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant shall fully vest in and have the
right to exercise such Options as to all of the Awarded Stock, including Shares as to which it would not otherwise be vested or exercisable. Unless determined otherwise by the Administrator, in the event that the successor corporation refuses to assume or substitute for the Option, the Participant shall fully vest in and have the right to exercise the Option as to all of the Awarded Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option is not assumed or substituted in the event of a merger or Change in Control, the Administrator shall notify the Participant in writing or electronically that the Option shall be exercisable, to the extent vested, for a period of up to fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or Change in Control, the option confers the right to purchase or
receive, for each Share of Awarded Stock subject to the Option immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Awarded Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in
the merger or Change in Control. Notwithstanding anything herein to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participants consent; provided, however, a modification to such performance goals only to reflect the successor corporations post-merger or post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
(ii)
Restricted Stock, Performance Shares, Performance Units, Restricted Stock Units and Other Stock Based Awards
. In the event of a merger or Change in Control, each outstanding Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award and Restricted Stock Unit awards shall be assumed or an equivalent Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award and Restricted Stock Unit award substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. With respect to Awards granted to an Outside Director that are assumed or
substituted for, if immediately prior to or after the merger or Change in Control the Participants status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant shall fully vest in such Awards, including Shares as to which it would not otherwise be vested. Unless determined otherwise by the Administrator, in the event that the successor corporation refuses to
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assume or substitute for the Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award or Restricted Stock Unit award, the Participant shall fully vest in the Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award or Restricted Stock Unit including as to Shares which would not otherwise be vested. For the purposes of this paragraph, a Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award and Restricted Stock Unit award shall be considered assumed if, following the merger or Change in Control, the award confers the right to purchase or receive, for each Share
subject to the Award immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received, for each Share and each unit/right to acquire a Share subject to the Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control. Notwithstanding
anything herein to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participants consent; provided, however, a modification to such performance goals only to reflect the successor corporations post-merger or post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
15.
Date of Grant
. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
16.
Term of Plan
. Subject to Section 21 of the Plan, the Plan will become effective upon its adoption by the Board. It will continue in effect for a term of ten (10) years less one day from the date that the Plan was initially adopted, or July 11, 2020, unless terminated earlier under Section 17 of the Plan.
17.
Amendment and Termination of the Plan
.
(a)
Amendment and Termination
. The Board may at any time amend, alter, suspend or terminate the Plan.
(b)
Stockholder Approval
. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c)
Effect of Amendment or Termination
. Subject to Section 19 of the Plan, no amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrators ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
(d)
No Repricing
. Notwithstanding any other provision herein or in any agreement evidencing any Award, in no case (except due to an adjustment contemplated by Section 14 or any repricing that may be approved by shareholders) shall any action be taken with respect to the Plan or any Award hereunder that would constitute a repricing (by amendment, substitution, cancellation and regrant, exchange or other means) of the per share exercise price of any Award.
18.
Conditions Upon Issuance of Shares
.
(a)
Legal Compliance
. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
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(b)
Investment Representations
. As a condition to the exercise or receipt of an Award, the Company may require the person exercising or receiving such Award to represent and warrant at the time of any such exercise or receipt that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
19.
Severability
. Notwithstanding any contrary provision of the Plan or an Award to the contrary, if any one or more of the provisions (or any part thereof) of this Plan or the Awards shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan or Award, as applicable, shall not in any way be affected or impaired thereby.
20.
Inability to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Companys counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.
21.
Stockholder Approval
. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
22.
Nonexclusivity Of The Plan
. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
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