16. Executive Officer Agreements 

 

On December 19, 2013, the Company’s Board of Directors appointed Dr. Lindsay A. Rosenwald, as the Chairman, President and Chief Executive Officer. The Company does not intend to enter into any employment contract with Dr. Rosenwald addressing his officer positions with the Company. However, in connection with his appointment as President and Chief Executive Officer, the Company pays Dr. Rosenwald an annual base salary of $28,275. Dr. Rosenwald is also eligible for a discretionary bonus based on his achievement of performance goals and objectives as established by the Board of Directors. In addition, on December 19, 2013, the Company issued Dr. Rosenwald 1,979,346 shares of restricted stock for services to be rendered to the Company. The fair value was $3.8 million based upon a value of $1.93 per share calculated using a Monte Carlo Simulation model, and vests based upon the passage of time and certain pre-defined market conditions and continued employment with or service on the Company’s Board of Directors.

 

 

Mr. Weiss has served as a director of the Company since December 19, 2013 and from that time until February 19, 2014 served as the Co-Vice Chairman of the Board of Directors. On February 20, 2014, Mr. Weiss was appointed Executive Vice Chairman, Strategic Development. The Company does not intend to enter into any employment contract with Mr. Weiss addressing his officer positions with the Company and the Company pays Mr. Weiss an annual base salary of $28,275, the lowest salary permissible under New York State law. Mr. Weiss is eligible for a discretionary bonus based on his achievement of performance goals and objectives as established by the Board of Directors. On December 19, 2013, the Company issued Mr. Weiss 1,979,346 shares of restricted stock for services to be rendered to the Company. The fair value was $3.8 million based upon a value of $1.93 per share calculated using a Monte Carlo Simulation model, and vests based upon the passage of time and certain pre-defined market conditions. In addition, on February 20, 2014, the Company issued Mr. Weiss 3,958,692 shares of restricted stock as an inducement to employment and for services to be rendered to the Company. The fair value was $10.6 million and was based on a closing Common Stock price of $2.69 on the date of grant. Such shares shall vest at a rate of 16.67% for the first three annual anniversaries and the remaining 50% will vest in five equal installments of 10% upon certain events occurring. 

On February 20, 2014, the Company appointed Mr. Hoenlein to the vacant seat on its Board of Directors.  Mr. Hoenlein was granted 30,000 shares of restricted stock, of which one-third vests on each annual anniversary of grant. The fair value was $80,700 and was based on a closing Common Stock price of $2.69 per share on the date of grant.

 

On December 28, 2012, the Company’s Board of Directors appointed Dr. Harlan F. Weisman Chairman and Chief Executive Officer. On January 7, 2013, the Company entered into an employment agreement with Dr. Weisman, pursuant to which the Company granted Dr. Weisman an option to purchase 1,686,590 shares of Common Stock at an exercise price of $5.57 per share. One-third of the shares underlying the option were to vest on December 28, 2013 and each annual anniversary thereafter, subject to Dr. Weisman’s continued employment with the Company.

 

On December 19, 2013, Dr. Weisman resigned his position as Chairman and Chief Executive Officer and as a director of the Company and the Company entered into a separation and release agreement. The Company recorded a severance charge of $900,000, all of which had been paid as of December 31, 2014. In addition, the Company will reimburse Dr. Weisman for the cost of his COBRA premiums for 12 months and pay Dr. Weisman $3,450 per month until December 2014 for his living expenses. In accordance with the terms of his employment agreement, an additional one-third of each of Dr. Weisman’s outstanding stock awards became automatically vested. On December 19, 2013, the Company extended the exercise period of his vested options from 90 days to two years. The charge related to the modification was approximately $318,000. 

 

 Noah D. Beerman, Karin M. Hehenberger and Dale Ritter

 

On November 5, 2013, the Company terminated certain personnel, including Noah D. Beerman (Executive Vice President and Chief Operating Officer), Dr. Karin M. Hehenberger (Executive Vice President of Scientific Affairs) and Dale Ritter (Senior Vice President, Finance and Chief Accounting Officer), in connection with the Company’s effort to lower operating expenses and realign the organization to work more efficiently given the results of the Phase 2 TRUST-I clinical trial for TSO in CD.   In connection with these terminations, the Company recorded a severance charge of $479,000 in 2013 and had paid all of the severance obligations as of December 31, 2014. In addition, in accordance with the terms of their employment agreements, an additional one-third of each of Mr. Beerman, Dr. Hehenberger and Mr. Ritter’s outstanding stock awards became automatically vested. The charge related to the accelerated vesting of these awards was approximately $390,000.

 

On November 5, 2013, the Company entered into an executive employment agreement with Dr. Kevin Horgan, its then Chief Medical Officer. Pursuant to the employment agreement, the Company paid Dr. Horgan an annual base salary of $340,000. At the discretion of its Board of Directors, he was also eligible for an annual cash bonus of up to forty percent of his base salary then in effect depending on the attainment of financial, clinical development and/or business milestones to be established by its Board or Compensation Committee. In connection with the execution of the employment agreement, the Company also granted Dr. Horgan an option to purchase 200,000 shares of our Common Stock with an exercise price of $1.71. One-third of the shares underlying the option will vest on each annual anniversary of the grant date, subject to Dr. Horgan’s continued employment with the company (see Note 14). Effective January 28, 2014, Dr. Kevin Hogan, was separated from service from the Company. In connection therewith, the Company recorded a severance charge of $0.4 million.  

 

 

On December 28, 2012, Dr. Bobby W. Sandage, Jr. became President of the Company. This change in status from Chief Executive Officer and President to President entitled him to terminate his employment agreement for good reason, in which case the Company would be obligated to pay Dr. Sandage his salary for 12 months. In addition, under the terms of his employment agreement, any options that will vest on the next anniversary date of their respective grant date would automatically vest. Effective December 28, 2012, the Company entered into an amendment to Dr. Sandage’s employment agreement pursuant to which he will retain until June 28, 2013, the right to terminate his employment for good reason, be paid his severance allowance equal to his salary for 12 months and have any unvested options vest in full. Also, the amended employment agreement provided that in the event Dr. Sandage terminated his employment for good reason; he will have two years from such termination to exercise his options. In addition, if Dr. Sandage terminates his employment, the Company will be required to pay his COBRA premiums for 12 months after his termination. On April 22, 2013, Dr. Sandage, resigned as president and director of the Company. In accordance with Dr. Sandage’s employment agreement, as amended, Dr. Sandage is entitled to receive his salary and COBRA benefits for twelve months from the date of his resignation. The Company recorded a severance liability of $445,000 for these obligations in 2013 and had paid all of the severance obligation as of December 31, 2014.

 

The change to Dr. Sandage’s existing stock options that provided for full vesting of all unvested options in the event he terminated employment prior to June 28, 2013 as well as the extension of time to exercise his options after termination of employment constitutes a modification for accounting purposes. The Company assessed the probability that Dr. Sandage’s existing unvested options would vest under their original terms and concluded that it was probable that his unvested options would vest under their original terms. Since Dr. Sandage can choose to terminate his employment as of December 28, 2012 and have all options vest as a result, the Company determined that Dr. Sandage has no future service requirement or requisite service period for the stock options. As a result, all stock-based compensation cost was recognized immediately on December 28, 2012 and the Company recorded a charge to operations of approximately $135,000 representing the remaining unrecognized expense of the original fair value of the options. During 2012, the Company recognized a liability and charge to operations of $200,000 for Dr. Sandage’s 2012 performance bonus, all of which was paid as of December 31, 2013.

On February 20, 2014, the Board of Directors established a Strategic Transaction Committee composed of Messrs Lobell, Rowinsky, Harvey and Barrett.  In connection with their appointment to the Committee, each member was granted 50,000 shares of Restricted Stock vesting one third on each annual anniversary of grant.

 

 

On February 20, 2014, Drs. Harvey, Rosenwald and Rowinsky and Messrs. Barrett, Lobell and Weiss, entered into a Shareholders’ Agreement, pursuant to which they agreed that, until the end of the Company’s annual meeting held in calendar year 2016 and so long as Dr. Rosenwald and Mr. Weiss are on the proposed slate of directors to be nominated, they each will vote all of their shares of Company Common Stock in favor of electing those individuals, and only those individuals, to the Board of Directors whom the Company’s   Nominating and Corporate Governance Committee proposes. Until that time, they also agreed to not publicly or otherwise advocate for or encourage in any way (outside of fulfilling their director duties) the election of any individual to our board whom is not proposed by the Nominating and Corporate Governance Committee.