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Prospectus Supplement No. 1
(to Prospectus dated May 17, 2010)
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-166146
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6,054,900 Shares
Common Stock
This prospectus supplement supplements the prospectus dated May 17, 2010 (the
Prospectus), which forms a part of our Registration Statement on Form S-1 (Registration No.
333-166146). This prospectus supplement is being filed to update and supplement the information in
the Prospectus, with the information contained in our quarterly report on Form 10-Q filed with the
Securities and Exchange Commission (the Commission) on August 13, 2010 (the Quarterly Report),
our current reports on Form 8-K filed with the Commission on May 21, 2010 and July 20, 2010 (the
Current Reports, and collectively with the Quarterly Report, the Reports) and our definitive
proxy statement on Schedule 14A for our 2010 annual meeting of stockholders that was filed with the
Commission on June 1, 2010 (the Proxy Statement), excluding those portions of the Proxy Statement
that are not deemed to have been filed for the purposes of Section 18 of the Securities and
Exchange Act of 1934 (the Exchange Act), or otherwise subject to the liability of such section,
and not incorporated by reference in any filing under the Securities Act of 1933 or the Exchange
Act, regardless of any general incorporation language of such filing. Accordingly, we have
attached the Reports and the Proxy Statement, without exhibits, to this prospectus supplement.
This prospectus supplement relates to the offer and sale of 6,054,900 shares of our common
stock that are issuable upon the exercise of outstanding warrants, including 805,000 shares
issuable upon exercise of an outstanding warrant issued to Maxim Group LLC (Maxim), the
representative of the underwriters in our registered public offering to which the registration
statement relates. The securities to which this prospectus supplement relates comprise part of the
units sold in that registered public offering on May 21, 2010 and June 2, 2010 and shares issuable
upon the exercise of a warrant issued to Maxim in partial consideration for Maxims service as the
representative of the underwriters in the offering.
This prospectus supplement should be read in conjunction with the Prospectus, which is to be
delivered with this prospectus supplement. This prospectus supplement updates and supplements the
information in the Prospectus. If there is any inconsistency between the information in the
Prospectus and this prospectus supplement, you should rely on the information in this prospectus
supplement.
Our common stock is traded on the NYSE Amex stock exchange under the trading symbol RGN. On
August 19, 2010, the last reported sale price of our common stock was $0.26 per share.
Investing in our securities involves a high degree of risk. You should review carefully the
risks and uncertainties described under the heading Risk Factors beginning on page 7 of the
Prospectus and beginning on page 18 of the Quarterly Report, and under similar headings in any
further amendments or supplements to the Prospectus before you decide whether to invest in our
securities.
Neither the Commission nor any state securities commission has approved or disapproved of
these securities or determined if the Prospectus or this prospectus supplement is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August 20, 2010.
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
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þ
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended
June 30, 2010
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o
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
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Commission file number
001-15070
RegeneRx Biopharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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52-1253406
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(State of Incorporation)
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(IRS Employer I.D. Number)
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15245 Shady Grove Road
Suite 470
Rockville, Maryland 20850
(Address of Principal Executive Offices)
(301) 208-9191
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of accelerated filer,
large accelerated filer and smaller reporting company in Rule
12b-2 of the Securities Exchange
Act of 1934. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
73,531,578 shares of common stock, par value $0.001 per share, were outstanding as of August 10,
2010.
RegeneRx Biopharmaceuticals, Inc.
Form 10-Q
Quarterly Period Ended June 30, 2010
Index
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Page No.
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3
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4
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5
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6-9
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10
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18
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18
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18
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18
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35
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35
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35
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35
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35-37
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38
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2
Part I Financial Information
Item 1. Financial Statements
RegeneRx Biopharmaceuticals, Inc.
Balance Sheets
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June 30,
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December 31,
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2010
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2009
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(Unaudited)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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6,591,276
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$
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4,355,768
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Accounts receivable
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11,129
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Prepaid expenses and other current assets
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170,555
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196,546
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Total current assets
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6,772,960
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4,552,314
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Fixed assets, net of accumulated depreciation of $103,569 and $98,171
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25,500
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8,492
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Other non-current assets
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17,255
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22,948
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Total assets
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$
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6,815,715
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$
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4,583,754
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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271,809
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$
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140,206
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Accrued expenses
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606,864
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740,198
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Total current liabilities
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878,673
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880,404
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Commitments
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Stockholders equity
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Preferred stock, $.001 par value per share, 1,000,000 authorized;
no shares issued
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Common stock, par value $.001 per share, 200,000,000 shares
authorized, 73,531,578 issued and outstanding as of June 30, 2010;
100,000,000 authorized, 60,406,828 issued and outstanding as of
December 31, 2009
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73,531
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60,407
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Additional paid-in capital
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92,881,064
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88,144,347
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Accumulated deficit
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(87,017,553
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(84,501,404
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Total stockholders equity
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5,937,042
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3,703,350
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Total liabilities and stockholders equity
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$
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6,815,715
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$
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4,583,754
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The accompanying notes are an integral part of these financial statements.
3
RegeneRx Biopharmaceuticals, Inc.
Statements of Operations
(Unaudited)
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Three Months ended June 30,
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Six Months ended June 30,
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2010
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2009
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2010
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2009
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Sponsored research revenues
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$
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11,129
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$
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$
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11,129
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$
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Operating expenses:
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Research and development
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527,618
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754,230
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998,052
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2,415,830
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General and administrative
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855,671
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708,006
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1,533,739
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1,567,574
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Total operating expenses
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1,383,289
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1,462,236
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2,531,791
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3,983,404
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Loss from operations
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(1,372,160
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(1,462,236
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(2,520,662
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(3,983,404
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Interest income
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1,720
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2,532
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4,513
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9,050
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Net loss
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$
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(1,370,440
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$
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(1,459,704
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$
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(2,516,149
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$
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(3,974,354
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Basic and diluted net loss per common share
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$
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(0.02
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$
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(0.03
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$
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(0.04
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$
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(0.07
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Weighted average number of common shares outstanding
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66,105,924
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54,339,668
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63,272,119
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53,983,282
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The accompanying notes are an integral part of these financial statements.
4
RegeneRx Biopharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
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For the Six Months ended June 30,
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2010
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2009
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Operating activities:
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Net loss
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$
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(2,516,149
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$
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(3,974,354
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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5,398
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8,609
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Non-cash share-based compensation
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244,590
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403,863
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Gain on settlement of accrued liabilities
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(141,016
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Changes in operating assets and liabilities:
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Accounts receivable
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(11,129
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Prepaid expenses and other current assets
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25,991
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97,959
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Other non-current assets
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5,693
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Accounts payable
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131,603
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87,338
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Accrued expenses
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7,682
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22,662
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Net cash used in operating activities
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(2,247,337
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(3,353,923
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Investing activities:
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Purchase of fixed assets
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(22,406
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Net cash used in investing activities
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(22,406
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Financing activities:
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Net proceeds from issuance of common stock
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4,505,251
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573,683
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Net cash provided by financing activities
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4,505,251
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573,683
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Net increase (decrease) in cash and cash equivalents
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2,235,508
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(2,780,240
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Cash and cash equivalents:
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Beginning of period
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4,355,768
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5,655,367
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End of period
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$
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6,591,276
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$
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2,875,127
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The accompanying notes are an integral part of these financial statements.
5
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
For the three and six months ended June 30, 2010 and 2009 (Unaudited)
1.
organization, business overview and basis of presentation
Organization and Nature of Operations.
RegeneRx Biopharmaceuticals, Inc. (the Company, We,
Us, Our), a Delaware corporation, was incorporated in 1982. We are focused on the development
of a novel therapeutic peptide, Thymosin Beta 4 (Tß4), for tissue and organ protection, repair
and regeneration. Our operations are confined to one business segment: the development and
marketing of product candidates based on Tß4.
Management Plans to Address Operating Conditions.
We incurred net losses of $6.5 million for the
year ended December 31, 2009 and $2.5 million for the six months ended June 30, 2010. Since
inception, and through June 30, 2010, we have an accumulated deficit of $87.0 million and we had
cash and cash equivalents of $6.6 million as of June 30, 2010. Based on our operating plan, we
believe that our cash and cash equivalents as of June 30, 2010 will fund our operations into the
second quarter of 2011, without additional capital. We anticipate incurring substantial future
losses as we continue development of Tβ4-based product candidates. We will therefore need
substantial additional funds in order to fund our operations beyond the first quarter of 2011.
During the quarter ended June 30, 2010, we sold an aggregate of 13,124,750 shares of our common
stock and warrants to purchase an additional 5,249,900 shares of our common stock in a public
offering for net proceeds of approximately $4.5 million. In May 2010, we were awarded a grant
from the National Institutes of Health under which we may receive up to $3.0 million for
development expenses we may incur over a three-year period, as more fully described in Note 6
below. We intend to pursue other government funding. For example, in July 2010 we applied for a
federal grant of up to $5.0 million under a program for biotechnology companies established as part
of the recently enacted healthcare reform legislation. We expect to receive notice of whether we
will receive an award under this program at the end of October 2010.
We may explore other funding alternatives, including, without limitation, public or private
placements of our securities, debt financing, corporate collaborations and licensing arrangements
or the sale of our company or certain of our intellectual property rights. If we are unable to
obtain additional financing, we may not be able to continue as a going concern after our funds have
been exhausted, and we could be required to significantly curtail or cease operations, file for
bankruptcy or liquidate and dissolve.
These factors raise substantial doubt about our ability to continue as a going concern as of the
date of the accompanying financial statements. The accompanying financial statements have been
prepared assuming that we will continue as a going concern. This basis of accounting contemplates
the recovery of our assets and the satisfaction of our liabilities in the normal course of
business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be
necessary should we be forced to take any such actions.
Even if we are able to obtain sufficient funding, other factors including competition, dependence
on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of
peptides and technology obsolescence could have a significant impact on us and our operations.
6
To achieve profitability we, or a strategic partner, must successfully conduct pre-clinical studies
and clinical trials, obtain required regulatory approvals and successfully manufacture and market those
pharmaceutical products we wish to commercialize. The time required to reach profitability is
highly uncertain and there can be no assurance that we will be able to achieve sustained
profitability, if at all.
Basis of Presentation.
The accompanying unaudited interim financial statements reflect, in the
opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of our financial position, results of operations and cash flows for each
period presented. These statements have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP) and with the rules and regulations of the SEC for interim financial
statements. Accordingly, they do not include all of the information and footnotes required by
GAAP. The accounting policies underlying our unaudited interim financial statements are consistent
with those underlying our audited annual financial statements. These unaudited interim financial
statements should be read in conjunction with the audited annual financial statements as of and for
the year ended December 31, 2009, and related notes thereto, included in our Annual Report on Form
10-K for the year ended December 31, 2009 (the Annual Report).
The accompanying December 31, 2009 financial information was derived from our audited financial
statements. Operating results for the three- and six-month periods ended June 30, 2010 are not
necessarily indicative of the results to be expected for the year ending December 31, 2010 or any
other future period.
References in this Quarterly Report on Form 10-Q to authoritative guidance are to the Accounting
Standards Codification issued by the Financial Accounting Standards Board (FASB) in June 2009.
Subsequent events have been evaluated through the filing date of these unaudited financial
statements.
Use of Estimates.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
2.
Net Loss per Common Share
Net loss per common share for the three- and six-month periods ended June 30, 2010 and 2009,
respectively, is based on the weighted-average number of shares of common stock outstanding during
the periods. Basic and diluted loss per share are identical for all periods presented as
potentially dilutive securities have been excluded from the calculation of the diluted net loss per
common share because the inclusion of such securities would be antidilutive. The potentially
dilutive securities include 18,902,863 shares and 10,395,187 shares in 2010 and 2009, respectively,
reserved for the exercise of outstanding options and warrants.
3.
Stock-Based Compensation
We recognized $112,746 and $137,235 in stock-based compensation expense for the three months ended
June 30, 2010 and 2009, respectively. We recognized $244,590 and $403,863 in stock-based
compensation expense for the six months ended June 30, 2010 and 2009, respectively. Given our
current estimates of future forfeitures, we expect to recognize the compensation cost related to
non-vested options as of June 30, 2010 of $478,034 over the weighted average remaining recognition
period of 1.0 year.
7
We estimate the value of our stock option awards on the date of grant using the Black-Scholes
option pricing model. We did not grant any stock options during the six months ended June 30,
2010. We used the following forward-looking range of assumptions to value each stock option granted to employees
and directors during the six months ended June 30, 2009:
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Dividend yield
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0.0
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%
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Risk-free rate of return
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1.9
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%
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Expected life in years
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5.38
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Volatility
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72
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%
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Forfeiture rate
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2.6
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%
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4.
Income Taxes
As of June 30, 2010, there have been no material changes to our uncertain tax positions disclosures
as provided in Note 8 of the Annual Report. We do not anticipate that total unrecognized tax
benefits will significantly change prior to June 30, 2011.
5.
Fair Value Measurements
We have adopted authoritative guidance that defines fair value and establishes a framework for fair
value measurements. This authoritative guidance established a three-level hierarchy for fair value
measurements. The hierarchy is based upon the transparency of inputs and the valuation of an asset
or a liability as of the measurement date. The three levels of inputs are as follows:
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Level 1 Quoted prices in active markets for identical assets and liabilities.
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Level 2 Observable inputs other than quoted prices in active markets
for identical assets and liabilities.
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Level 3 Unobservable inputs.
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At June 30, 2010, we held no qualifying liabilities, and our only qualifying assets that required
measurement under the foregoing fair value hierarchy were money market funds included in Cash and
Cash Equivalents valued at $0.2 million using Level 1 inputs.
6.
NIH Grant
On May 13, 2010, we were awarded a grant from the National Institutes of Healths National Heart,
Lung and Blood Institute to support and accelerate the clinical development of our product
candidate RGN-352, an injectable formulation of Tß4, for patients who have suffered an acute
myocardial infarction, commonly known as a heart attack. The award was issued under the American
Reinvestment and Recovery Act of 2009. Subject to our compliance with the terms and conditions of
the award, we are eligible to receive up to $3.0 million over a three-year period in cost
reimbursements for direct costs incurred for the purposes set forth in the grant, as well as
allocable indirect costs. Revenue from the grant will be recorded during the same periods when we
incur eligible expenses.
8
7.
Public Offering
During the quarter ended June 30, 2010, we sold an aggregate of 13,124,750 shares of our common
stock and warrants to purchase an additional 5,249,900 shares of our common stock for net proceeds
of approximately $4.5 million. These securities were sold as units, with each unit consisting of
one share of common stock and a warrant to purchase 0.4 shares of our common stock. Each unit was
sold at a public offering price of $0.41.
Each warrant has a term of five years and represents the right to purchase one share of common
stock at an exercise price of $0.56 per share. In the event the closing sale price of our common
stock is at least $1.78 per share for any 20 trading days within a period of 30 consecutive trading
days, we may call these warrants for redemption, at a redemption price of $0.01 per warrant, by
providing at least 30 days notice to each warrant holder. The warrants were valued using the
Black-Scholes option-pricing model as of the closing date and accounted for in permanent equity.
The estimated fair value of the warrants at the date of issuance was approximately $725,000.
In addition, the representative of the underwriters in the public offering was granted a warrant to
purchase 805,000 shares of our common stock at an exercise price of $0.45 per share. This warrant
is exercisable beginning on November 17, 2010 and continuing until May 17, 2015. The
representatives warrant also provides for one demand registration until May 17, 2015. The
representatives warrant was also valued using the Black-Scholes option-pricing model as of the
closing date and accounted for as a cost of the offering. The estimated fair value of the
representatives warrant at the date of issuance was approximately $112,000.
The public offering was made pursuant to a registration statement on Form S-1 (Registration
No. 333-166146, which was declared effective by the Securities and Exchange Commission (the SEC)
on May 17, 2010, and a final prospectus filed with the SEC on May 18, 2010.
8.
Subsequent Event
On July 14, 2010, at the Companys Annual Meeting of Stockholders, the Companys stockholders
approved the 2010 Equity Incentive Plan (the 2010 Plan). The terms of the 2010 Plan provide for
the discretionary grant of incentive stock options, nonstatutory stock options, stock appreciation
rights, restricted stock awards, restricted stock unit awards, performance stock awards, other
stock awards and performance cash awards to our employees, directors and consultants. At inception
of the 2010 Plan, 5,000,000 shares of the Companys common stock were reserved for future issuance.
We previously adopted an equity incentive plan, known as the Amended and Restated 2000 Stock Option
and Incentive Plan (the 2000 Plan). The 2000 Plan has a term of ten years that will expire in
December 2010. Upon the adoption of the 2010 Plan, we anticipate that no further awards will be
granted under the 2000 Plan prior to its expiration, but all outstanding option awards granted
under the 2000 Plan will continue to be subject to the terms and conditions as set forth in the
agreements evidencing such option awards and the terms of the 2000 Plan. Shares remaining available
for issuance under the share reserve of the 2000 Plan will not be subject to future awards under
the 2010 Plan, and shares subject to outstanding awards under the 2000 Plan that are terminated or
forfeited in the future will not be subject to future awards under the 2010 Plan.
9
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on
Form 10-Q
, including this Part I., Item 2., Managements Discussion and
Analysis of Financial Condition and Results of Operations, contains forward-looking statements
regarding us and our business, financial condition, results of operations and prospects within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the words project, believe, anticipate, plan, expect, estimate, intend,
should, would, could, will, may or other similar expressions or their negatives. In
addition, any statements that refer to projections of our future financial performance, our
clinical development programs and schedules, our future capital resources and funding requirements,
our anticipated growth and trends in our business and other characterizations of future events or
circumstances are forward-looking statements. We cannot guarantee that we will achieve the plans,
intentions or expectations expressed or implied in our forward-looking statements. There are a
number of important factors that could cause actual results, levels of activity, performance or
events to differ materially from those expressed or implied in the forward-looking statements we
make, including those described under Risk Factors set forth below in Part II., Item 1A. In
addition, any forward-looking statements we make in this report speak only as of the date of this
report, and we do not intend to update any such forward-looking statements to reflect events or
circumstances that occur after that date.
Overview
We are a biopharmaceutical company focused on the development of a novel therapeutic peptide,
Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have
formulated Tß4 into three distinct product candidates currently in clinical development:
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RGN-352, an injectable product candidate to treat cardiovascular diseases,
central nervous system diseases, and other medical indications that may be
treated by systemic administration;
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RGN-259, a topical eye drop for regeneration of corneal tissues damaged by
injury, disease or other pathology; and
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RGN-137, a topically applied gel for dermal wounds and reduction of scar tissue.
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We have a fourth product candidate, RGN-457, in preclinical development. RGN-457 is an inhaled
formulation of Tß4 targeting cystic fibrosis and other pulmonary diseases.
We are continuing strategic partnership discussions with biotechnology and pharmaceutical
companies regarding the further clinical development of all of our product candidates.
During 2009, we completed a Phase 1 clinical trial evaluating the safety of RGN-352 in 60
healthy subjects. Based on the results of this Phase 1 trial and extensive preclinical efficacy
data published in peer-reviewed journals, we are initiating a Phase 2 clinical trial in the second
half of 2010 to evaluate RGN-352s ability to salvage and regenerate damaged cardiac tissue and
improve cardiac function after an acute myocardial infarction (AMI), or heart attack.
10
Additionally, recent preclinical research published in the scientific journals
Neuroscience
and the
Journal of Neurosurgery
indicate that RGN-352 may prove useful for patients with multiple
sclerosis, or MS, as well as stroke and traumatic brain injury. In these studies, the
administration of Tß4 resulted in regeneration of neuronal tissue and improvement of neurological
function. Based on this preclinical research, we intend to support a proposed Phase 1/2 clinical
trial to be conducted at a major U.S. medical center under a physician-sponsored investigational
new drug application, or IND, in order to evaluate the therapeutic potential of RGN-352 in patients
with MS. We are planning to supply RGN-352 and provide clinical and regulatory guidance for the
trial.
We are continuing to support the development of RGN-259 in ophthalmic indications under
compassionate use INDs and expect to report final patient data from these trials in the third
quarter of 2010. We are also planning to support a physician-sponsored clinical trial in patients
with dry eye secondary to graft versus host disease, or GvHD, in order to evaluate RGN-259s
ability to repair and regenerate damaged ophthalmic tissues. Our support includes manufacturing and
supplying RGN-259 for the trial and providing regulatory and clinical guidance. We are continuing
to collaborate with the U.S. military to evaluate the potential of RGN-259 to prevent or reduce eye
damage caused by chemical warfare agents.
We are evaluating the use of RGN-137 in the treatment of patients with epidermolysis bullosa,
or EB, which is a genetic defect that results in fragile skin and other epithelial tissues that can
blister at the slightest trauma or friction, creating a wound that at times does not heal or heals
poorly. A portion of this trial was funded by a grant from the U.S. Food and Drug Administration,
or FDA. Despite the small patient population with EB, we continue to enroll patients in this Phase
2 trial and expect to complete the trial in early 2011. Once we complete our Phase 2 EB trial, we
will analyze the data in conjunction with our two other completed Phase 2 trials of RGN-137, along
with preclinical data indicating Tß4s ability to reduce scarring, at which time we will further
evaluate our strategy for the clinical development of RGN-137. Additionally, we intend to discuss
with the FDA the possibility of converting the Phase 2 trial to a pivotal trial for marketing
approval, should the data from the Phase 2 trial warrant. We believe that there is precedent for
this process, particularly in cases of product candidates under development for ultra-orphan
indications, where patient accrual is limited but the clinical data confirms both safety and
efficacy.
In addition to our four pharmaceutical product candidates, we are also pursuing the commercial
development of peptide fragments and derivatives of Tß4 for potential cosmeceutical use. These
fragments are amino acid sequences, and variations thereof, within the Tß4 molecule that have
demonstrated activity in several
in vitro
preclinical research studies that we have sponsored. We
believe the biological activities of these fragments may be useful, for example, in developing
novel cosmeceutical products for the anti-aging market. Our strategy is to enter into a
collaboration with another company to develop cosmeceutical formulations based on these peptides.
As of the date of this report, we believe we have sufficient liquidity and capital resources
to fund our operations, including our ongoing clinical trials and other research initiatives, into
the second quarter of 2011, without considering any other sources of capital. During this time
period we believe that we will be able to complete our ongoing Phase 2 trial of RGN-137 in EB
patients and our support of the compassionate use studies of RGN-259. We also expect to be able to
initiate and conduct at least a portion of our Phase 2 AMI trial for RGN-352 and to support
portions of the physician-sponsored Phase 2 GvHD trial for RGN-259 and the proposed Phase 1/2 trial
of RGN-352 for MS patients. However, we will need substantial additional funds in
order to initiate and complete further clinical trials beyond those currently contemplated and to
continue to fund our operations.
11
Financial Operations Overview
We have never generated product revenues, and we do not expect to generate product revenues
until the FDA approves one of our product candidates, if ever, and we begin marketing it. Subject
to the availability of financing, we expect to invest increasingly significant amounts in the
furtherance of our current clinical programs and may add additional nonclinical studies and new
clinical trials as we explore the potential of our current product candidates in other indications
and explore new formulations of Tß4-based product candidates. As we expand our clinical development
initiatives, we expect to incur substantial and increasing losses. Accordingly, we will need to
generate significant product revenues in order to ultimately achieve and then maintain
profitability. Also, we expect that we will need to raise substantial additional capital in order
to meet product development requirements. We cannot assure investors that such capital will be
available when needed, on acceptable terms, or at all.
Most of our expenditures to date have been for research and development, or R&D, activities
and general and administrative, or G&A, activities. R&D costs include all of the wholly-allocable
costs associated with our various clinical programs passed through to us by our outsourced vendors.
Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product
candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology,
safety and pharmacokinetic studies, clinical trial management, medical oversight, laboratory
evaluations, statistical data analysis, regulatory compliance, quality assurance and other related
activities. R&D includes cash and non-cash compensation, employee benefits, travel and other
miscellaneous costs of our internal R&D personnel, seven persons in total, who are wholly dedicated
either on a full or part-time basis to R&D efforts. R&D also includes a proration of our common
infrastructure costs for office space and communications. We expense our R&D costs as they are
incurred.
R&D expenditures are subject to the risks and uncertainties associated with clinical trials
and the FDA review and approval process. As a result, these expenses could exceed our expectations,
possibly materially. We are uncertain as to what we will incur in future research and development
costs for our clinical studies, as these amounts are subject to the outcome of current studies,
managements continuing assessment of the economics of each individual research and development
project and the internal competition for project funding. As described below under Sources of
Liquidity, in May 2010 we were awarded a grant from the National Institutes of Health, or NIH, to
support the development of RGN-352. Subject to our compliance with the terms and conditions of the
grant, we are eligible to receive up to $3.0 million over a three-year period in cost
reimbursements related to the purposes set forth in the grant.
G&A costs include outside professional fees for legal, business development, audit and
accounting services, including the costs to maintain our intellectual property portfolio. G&A also
includes cash and non-cash compensation, employee benefits, travel and other miscellaneous costs of
our internal G&A personnel, three in total, who are wholly dedicated to G&A efforts. G&A also
includes a proration of our common infrastructure costs for office space, and communications.
12
Critical Accounting Policies
In Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, of our Annual Report on Form 10-K for the year ended December 31, 2009, which was
filed with the SEC on March 31, 2010, which we refer to as the Annual Report, we included a
discussion of the most significant accounting policies and estimates used in the preparation
of our financial statements. There has been no material change in the policies and estimates used
in the preparation of our financial statements since the filing of our Annual Report.
Results of Operations
Comparison of the three months ended June 30, 2010 and 2009
Revenue
. We recognized approximately $11,000 in revenue for the three months ended June 30,
2010 from the NIH grant awarded in May 2010. The revenue recognized was based on the costs
incurred during the period related to this grant. There were no revenue-generating grants or other
sources of revenue during 2009.
R&D Expenses
. For the three months ended June 30, 2010, our R&D expenses decreased by
approximately $226,000, or 30%, to $528,000, from approximately $754,000 for the same period in
2009. The decrease was directly related to the termination of our Phase 2 clinical trial
evaluating the safety and efficacy of RGN-259 to treat diabetic patients whose corneal epithelium
had been scraped during vitrectomy surgery. During the first quarter of 2009, the patients in this
trial completed treatment, and during the second quarter of 2009, trial wrap-up activities such as
data analysis were performed. During 2010 there were no activities related to this trial. During
both periods, we continued to enroll patients in our Phase 2 trial to evaluate the safety and
efficacy of RGN-137 to treat EB patients, along with other supportive development activities for
all of our drug candidates.
G&A Expenses.
For the three months ended June 30, 2010, our G&A expenses increased by
approximately $148,000, or 21%, to approximately $856,000, from approximately $708,000 for the same
period in 2009. This net increase was comprised of an increase in support of our intellectual
property portfolio of approximately $151,000 and personnel costs of approximately $64,000. These
cost increases were offset by reductions in the use of other outside professionals of approximately
$52,000 and miscellaneous costs of approximately $15,000. Costs increased to support our
intellectual property portfolio as the number of active patents increased between the periods.
While our personnel have not received salary increases, the recorded costs for the three months
ended June 30, 2010 as compared to the same period in 2009 increased as our costs in 2009 were
lower due to a 35% salary reduction in effect during that period. The reduction in the use of
outside professionals and other miscellaneous costs were due to overall reduced research activity
between the periods.
Comparison of the six months ended June 30, 2010 and 2009
Revenue
. We recognized approximately $11,000 in revenue for the six months ended June 30,
2010 from the NIH grant awarded in May 2010. The revenue recognized was based on the costs
incurred during the period related to this grant. There were no revenue-generating grants or other
sources of revenue during 2009.
R&D Expenses
. For the six months ended June 30, 2010, our R&D expenses decreased by
approximately $1.4 million, or 59%, to approximately $1.0 million, from approximately $2.4 million
for the same period in 2009. The decrease was primarily the result of reduced clinical activity in
2010 as compared to 2009. During the six months ended June 30, 2009, we concluded our Phase 2
clinical trials evaluating RGN-137 in patients with pressure ulcers and venous stasis ulcers, as
well as the clinical portion of our Phase 1 trial evaluating the safety of RGN-352 in healthy
subjects. We also terminated our Phase 2 clinical trial evaluating the safety and efficacy of
RGN-259 to treat diabetic
patients whose corneal epithelium had been scraped during vitrectomy surgery.
13
G&A Expenses.
For the six months ended June 30, 2010, our G&A expenses decreased by $34,000,
or 2%, to approximately $1.5 million from approximately $1.6 million for the same period in 2009.
This net decrease was comprised of an increase in support of our intellectual property portfolio of
approximately $225,000, offset by reductions in the use of other outside professionals of
approximately $216,000 and other miscellaneous costs of approximately $43,000. Costs increased to
support our intellectual property portfolio as the number of active patents increased between the
periods. The reduction in the use of outside professionals and other miscellaneous costs were due
to general cost reduction initiatives in place during the second half of 2009 and the first half of
2010.
Liquidity and Capital Resources
Overview
We have not commercialized any of our product candidates to date and have incurred significant
losses since inception. We have primarily financed our operations through the issuance of common
stock and common stock warrants in private and public financings, although as discussed below we
have recently been awarded a government grant, have applied for additional federal cash grants and
will continue to pursue other governmental funding sources. The report of our independent
registered public accounting firm regarding our financial statements for the year ended
December 31, 2009 contains an explanatory paragraph regarding our ability to continue as a going
concern based upon our history of net losses and dependence on future financing in order to meet
our planned operating activities.
We incurred net losses of $6.5 million for the year ended December 31, 2009 and $2.5 million
for the six months ended June 30, 2010. We had cash and cash equivalents totaling $6.6 million and
$4.4 million at June 30, 2010 and December 31, 2009, respectively. The increase during the six
months ended June 30, 2010 resulted from the sale of shares of our common stock and warrants to
purchase shares of our common stock, offset by our net operating loss during the period. As of
June 30, 2010, we had an accumulated deficit of $87.0 million. Based on our current operations, we
believe our cash resources will be adequate to fund our operations into the second quarter of 2011,
without considering any other sources of capital. Accordingly, we will continue to have a need for
financing, which we may not be able to complete either on favorable terms or at all.
Cash Flows for the Six Months Ended June 30, 2010 and 2009
Our net cash used in operating activities was approximately $2.2 million and $3.4 million for
the six months ended June 30, 2010 and 2009, respectively. In both periods, the net cash used in
operating activities was primarily the result of our net losses during the periods. Included in
these net losses were non-cash expenses related to employee stock compensation and depreciation of
$250,000 and $412,000 for the six months ended June 30, 2010 and 2009, respectively. Also included
in the net loss for the six months ended June 30, 2010 was a $141,000 non-cash gain upon the
settlement of accrued liabilities. Finally, changes in working capital resulted in net cash
inflows of approximately $160,000 during the six months ended June 30, 2010, as opposed to net cash
inflows of $208,000 during the six months ended June 30, 2009. During the six months ended June
30, 2010, we spent approximately $22,000 for the purchase of furniture and equipment, which was our
only investing activity during the period, and there were no investing activities during the same
period of 2009. During the six months ended June 30, 2010, we raised net cash proceeds of
approximately $4.5 million
from the sale of units in a public offering as described elsewhere in this report. During the
same period of 2009, we raised approximately $574,000 in net proceeds from a private placement of
our common stock and warrants.
14
Future Funding Requirements
The expenditures that will be necessary to execute our business plan are subject to numerous
uncertainties that may adversely affect our liquidity and capital resources. Currently, we are
actively enrolling patients in one Phase 2 trial, for RGN-137 in EB patients, while we are
supporting small compassionate use studies of RGN-259. We have also commenced planning for a Phase
2 clinical trial of RGN-352 for AMI patients and intend to begin enrolling patients in this trial
in the fourth quarter of 2010. In the second half of 2010 we will also support a
physician-sponsored Phase 2 clinical trial of RGN-259 in patients with dry eye secondary to GvHD,
and a Phase 1/2 clinical trial of RGN-352 for MS patients. We currently do not have sufficient
capital resources to continue clinical development beyond the first quarter of 2011 without
additional funding.
The length of time required for clinical trials varies substantially according to the type,
complexity, novelty and intended use of a product candidate. Some of the factors that could impact
our liquidity and capital needs include, but are not limited to:
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the progress of our clinical trials;
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the progress of our research activities;
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the number and scope of our research programs;
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the progress of our preclinical development activities;
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the costs involved in preparing, filing, prosecuting, maintaining, enforcing
and defending patent and other intellectual property claims;
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the costs related to development and manufacture of preclinical, clinical
and validation lots for regulatory purposes and commercialization of drug
supply associated with our product candidates;
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our ability to enter into corporate collaborations and the terms and success
of these collaborations;
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the costs and timing of regulatory approvals; and
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the costs of establishing manufacturing, sales and distribution capabilities.
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15
In addition, the duration and the cost of clinical trials may vary significantly over the life
of a project as a result of differences arising during the clinical trial protocol, including,
among others, the following:
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the number of patients that ultimately participate in the trial;
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the duration of patient follow-up that seems appropriate in view of the results;
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the number of clinical sites included in the trials; and
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the length of time required to enroll suitable patient subjects.
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Also, we test our potential product candidates in numerous preclinical studies to identify
indications for which they may be product candidates. We may conduct multiple clinical trials to
cover a variety of indications for each product candidate. As we obtain results from trials, we may
elect to discontinue clinical trials for certain product candidates or for certain indications in
order to focus our resources on more promising product candidates or indications.
Our proprietary product candidates also have not yet achieved FDA regulatory approval, which
is required before we can market them as therapeutic products. In order to proceed to subsequent
clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our
clinical data establish safety and efficacy. Historically, the results from preclinical studies and
early clinical trials have often not been predictive of results obtained in later clinical trials.
A number of new drugs and biologics have shown promising results in clinical trials, but
subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory
approvals.
In addition to our obligations under clinical trials, we are committed under an office space
lease through January 2013 that requires average base rental payments of approximately $7,300 per
month.
Sources of Liquidity
We have not commercialized any of our product candidates to date and have primarily financed
our operations through the issuance of common stock and common stock warrants in private and public
financings. Our largest stockholder group, which we refer to in this report as Sigma-Tau, has
historically provided significant equity capital to us. Since we began development of our
Tß4-based product candidates in 2000, we have raised approximately $52 million, of which Sigma-Tau
has contributed approximately $32 million. As described elsewhere in this report, during the first
half of 2010 we raised approximately $4.5 million from a public offering of our securities. During
2009, we raised approximately $3.7 million from a public offering of our securities and an
additional $1.6 million from private placements of our securities issued to Sigma-Tau.
We are also party to a license agreement with Sigma-Tau that provides the opportunity for us
to receive milestone payments upon specified events and royalty payments upon commercial sales of
Tß4 in Europe. However, we have not received any milestone payments to date, and there can be no
assurance that we will be able to attain such milestones and generate any such payments under the
agreement.
We are also aggressively pursuing government funding and were recently awarded a grant from
the NIHs National Heart, Lung and Blood Institute to support the requisite nonclinical development
of RGN-352 for patients who have suffered a heart attached. These nonclinical activities are being
conducted in parallel with our ongoing Phase 2 clinical trial of RGN-352. Subject to our
compliance with the terms and conditions of the grant, we are eligible to receive up to $3.0
million over a three-year period in cost reimbursements for our associated costs incurred for the
purposes set forth in the grant. Revenue from the grant will be recorded during the same periods
when we incur eligible expenses.
16
In the recently enacted Patient Protection and Affordable Care Act, a new incentive for
biotechnology companies like ours, known as the Qualifying Therapeutic Discovery Project Credit, or
Therapeutic Credit, was established. The Therapeutic Credit allows small businesses to apply for a
grant in an amount equal to 50% of their investment in qualifying therapeutic discovery projects
for 2009 and 2010. Qualifying therapeutic discovery projects include those designed to treat or
prevent diseases or conditions by conducting pre-clinical or clinical activities for the purpose of
securing FDA approval of a product. We believe that our entire Tß4 development program qualifies
for the Therapeutic Credit, and that 50% of our qualifying costs for 2009 and 2010 will approximate
the maximum award allowable of $5.0 million. In July 2010, we submitted award applications under
the Therapeutic Credit program for each of our three drug candidates under active development. We
believe that there will be many applicants under the Therapeutic Credit program, and given the
level of competition expected we cannot forecast what, if any, proceeds from the Therapeutic Credit
will be awarded to us. We expect to receive notice of whether we will receive an award under this
program at the end of October 2010.
Finally, the U.S. government is evaluating RGN-259, our sterile eye drop formulation, in
animals exposed to chemical warfare agents. We believe our other formulations may also be of
interest in healing damaged tissues for indications that result from battlefield or homeland
security situations. As such, we have engaged a consulting firm to help us identify other sources
of funding from U.S. government agencies. There can be no assurance, however, that we will be able
to secure additional funds from the U.S. government or other governmental sources.
Other potential sources of outside capital include entering into strategic business
relationships, additional issuances of equity securities, or debt financing or other similar
financial instruments. If we raise additional capital through a strategic business relationship,
we may have to give up valuable rights to our intellectual property. If we raise funds by selling
additional shares of our common stock or securities convertible into our common stock, the
ownership interest of our existing stockholders may be significantly diluted. In addition, if
additional funds are raised through the issuance of preferred stock or debt securities, these
securities are likely to have rights, preferences and privileges senior to our common stock and may
involve significant fees, interest expense, restrictive covenants and the granting of security
interests in our assets.
Our failure to successfully address ongoing liquidity requirements would have a materially
negative impact on our business, including the possibility of surrendering our rights to some
technologies or product opportunities, delaying our clinical trials, or ceasing operations. There
can be no assurance that we will be able to obtain additional capital in sufficient amounts, on
acceptable terms, or at all.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4)
of Regulation S-K.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our cash equivalents, which are generally comprised of federally insured bank deposits, are
subject to default, changes in credit rating and changes in market value. These investments are
also subject to interest rate risk and could decrease in value if market interest rates increase.
As of June 30, 2010, our cash and cash equivalents totaled $6.6 million. Due to the short-term
nature of our cash equivalents, if market interest rates differed by 10% from their levels as of
June 30, 2010, the change in fair value of our financial instruments would not have been material.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended) as of June 30, 2010. Based upon this
evaluation, management has concluded that, as of June 30, 2010, our disclosure controls and
procedures were effective to provide reasonable assurance that the information required to be
disclosed is recorded, processed, summarized and reported within the time periods specified under
applicable rules of the SEC, and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosures.
b) Changes in Internal Controls
There were no changes in our internal control over financial reporting during the quarter
ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Set forth below and elsewhere in this report and in other documents we file with the SEC are
risks and uncertainties that could cause actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report. The descriptions below
include any material changes to and supersede the description of the risk factors affecting our
business previously disclosed in Part II, Item 1A. Risk Factors of the Annual Report.
18
Risks Related to Our Liquidity and Need for Financing
We estimate that our existing capital resources will only be sufficient to fund our operations into
the second quarter of 2011.
We intend to use our existing capital resources to fund our ongoing research and development
activities; however, we may not be able to complete all of the trials we intend to initiate in 2010
without additional funding. Our research initiatives include support for a Phase 1/2 clinical trial
of RGN-352 in
patients with multiple sclerosis, supporting ongoing compassionate use studies of RGN-259 in
patients with corneal defects, supporting a physician-sponsored clinical trial in patients with dry
eye secondary to GvHD using RGN-259, and completing our ongoing Phase 2 trial of RGN-137 in
patients with EB. We also intend to initiate and conduct at least a portion of a Phase 2 clinical
trial of RGN-352 in patients who have suffered an acute myocardial infarction. We expect that the
Phase 2 trial design will allow for an interim review of patient data, which, if positive, we
believe will facilitate discussions with potential strategic partners.
Our forecast of the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors, including the factors discussed
elsewhere in this report. We have based this estimate on assumptions that may prove to be wrong,
and we could use our available capital resources sooner than we currently expect.
In addition to our current development objectives, we will need substantial additional capital for
the continued development of product candidates through marketing approval and for our longer-term
future operations.
Beyond our current liquidity needs, we anticipate that substantial new capital resources will
be required to continue our longer-term independent product development efforts, including any and
all follow-on trials that will result from our current clinical programs beyond those currently
contemplated, and to scale up manufacturing processes for our product candidates. The actual amount
of funds that we will need will be determined by many factors, some of which are beyond our
control. These factors include, without limitation:
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the scope of our clinical trials, which is significantly influenced by
the quality of clinical data achieved as trials are completed and the
requirements established by regulatory authorities;
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the speed with which we complete our clinical trials, which depends on
our ability to attract and enroll qualifying patients and the quality
of the work performed by our clinical investigators;
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the time required to prosecute, enforce and defend our intellectual
property rights, which depends on evolving legal regimes and
infringement claims that may arise between us and third parties;
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the ability to manufacture at scales sufficient to supply commercial
quantities of any of our product candidates that receive regulatory
approval, which may require levels of effort not currently
anticipated; and
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the successful commercialization of our product candidates, which will
depend on our ability to either create or partner with an effective
commercialization organization and which could be delayed or prevented
by the emergence of equal or more effective therapies.
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Emerging biotechnology companies like us may raise capital through corporate collaborations
and by licensing intellectual property rights to other biotechnology or pharmaceutical enterprises.
We intend to pursue this strategy, but there can be no assurance that we will be able to license
our intellectual property or product development programs on commercially reasonable terms, if at
all. There are substantial challenges and risks that will make it difficult to successfully
implement any of these alternatives. If we are successful in raising additional capital through
such a license or collaboration, we may have to give up valuable rights
to our intellectual property. In addition, the business priorities of a strategic partner may
change over time, which creates the possibility that the interests of the strategic partner in
developing our technology may diminish, which could have a potentially material negative impact on
the value of our interest in the licensed intellectual property or product candidates.
We have applied for federal cash grants set aside for small biotechnology companies under
recently enacted healthcare reform legislation. However, there can be no assurance that we will
qualify for or otherwise be able to obtain any such grants.
Further, if we raise additional funds by selling shares of our common stock or securities
convertible into our common stock, the ownership interest of our existing stockholders may be
significantly diluted. If additional funds are raised through the issuance of preferred stock or
debt securities, these securities are likely to have rights, preferences and privileges senior to
our common stock and may involve significant fees, interest expense, restrictive covenants or the
granting of security interests in our assets.
Our failure to successfully address long-term liquidity requirements would have a material
negative impact on our business, including the possibility of surrendering our rights to some
technologies or product opportunities, delaying our clinical trials or ceasing our operations.
We have incurred losses since inception and expect to incur significant losses in the foreseeable
future and may never become profitable.
We have not commercialized any product candidates to date and incurred net operating losses
every year since our inception in 1982. We believe these losses will continue for the foreseeable
future, and may increase, as we pursue our product development efforts related to Tß4. As of June
30, 2010, our accumulated deficit totaled approximately $87.0 million.
As we expand our research and development efforts and seek to obtain regulatory approval of
our product candidates to make them commercially viable, we anticipate substantial and increasing
operating losses. Our ability to generate additional revenues and to become profitable will depend
largely on our ability, alone or through the efforts of third-party licensees and collaborators, to
efficiently and successfully complete the development of our product candidates, obtain necessary
regulatory approvals for commercialization, scale-up commercial quantity manufacturing capabilities
either internally or through third-party suppliers, and market our product candidates. There can be
no assurance that we will achieve any of these objectives or that we will ever become profitable or
be able to maintain profitability. Even if we do achieve profitability, we cannot predict the level
of such profitability. If we sustain losses over an extended period of time and are not otherwise
able to raise necessary funds to continue our development efforts and maintain our operations, we
may be forced to cease operations.
We are currently not in compliance with NYSE Amex rules regarding the minimum stockholders equity
requirement and are at risk of being delisted from the NYSE Amex stock exchange, which may subject
us to the SECs penny stock rules and decrease the liquidity of our common stock.
Because of our historical losses from operations, NYSE Amex rules require that we maintain
minimum stockholders equity of $6 million, unless our market capitalization exceeds $50 million.
We are not currently in compliance with either of these continued listing standards. In the second
quarter of 2009, we submitted a compliance plan to the NYSE Amex that forecasted our ability to
regain compliance with the listing standards by October 2010. NYSE Amex has accepted our compliance
plan, which is subject to periodic review by NYSE Amex to determine whether we are making progress
consistent with the plan.
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If we do not achieve or maintain compliance with NYSE Amex listing rules or if NYSE Amex
determines that we are not making sufficient progress consistent with our plan to regain
compliance, it could take action to delist our stock from the NYSE Amex exchange at any time.
Following any such delisting, our common stock may be traded over-the-counter on the OTC
Bulletin Board or in the pink sheets. These alternative markets, however, are generally
considered to be less efficient than, and not as broad as, the NYSE Amex exchange. If our common
stock is delisted from NYSE Amex, there may be a limited market for our stock, trading in our stock
may become more difficult and our share price could decrease. Specifically, you may not be able to
resell your shares of common stock at or above the price you paid for such shares or at all.
In addition, if our common stock is delisted, our ability to raise additional capital may be
impaired because of the less liquid nature of the OTC Bulletin Board and the pink sheets. While we
cannot guarantee that we would be able to complete an equity financing on acceptable terms, or at
all, we believe that dilution from any equity financing while our shares are quoted on the OTC
Bulletin Board or the pink sheets would likely be substantially greater than if we were to complete
a financing while our common stock is traded on the NYSE Amex exchange.
In the event our common stock is delisted, it may also become subject to penny stock rules.
The SEC generally defines penny stock as an equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. We are not currently subject to the penny stock
rules because our common stock qualifies for an exception to the SECs penny stock rules for
companies that have an equity security that is quoted on an exchange. However, if we were delisted,
our common stock would become subject to the penny stock rules, which impose additional sales
practice requirements on broker-dealers who sell our common stock. If our common stock were
considered penny stock, the ability of broker-dealers to sell our common stock and the ability of
our stockholders to sell their shares in the secondary market would be limited and, as a result,
the market liquidity for our common stock would likely be adversely affected. We cannot assure you
that trading in our securities will not be subject to these or other regulations in the future.
The report of our independent registered public accounting firm contains explanatory language that
substantial doubt exists about our ability to continue as a going concern.
The report of our independent registered public accounting firm on our financial statements
for the year ended December 31, 2009 contains explanatory language that substantial doubt exists
about our ability to continue as a going concern, without raising additional capital. We estimate
that our existing capital resources will only be sufficient to fund our operations into the second
quarter of 2011. As a result, unless we obtain significant additional financing, the report of our
independent registered public accounting firm for the year ending December 31, 2010 will continue
to express substantial doubt about our ability to continue as a going concern.
Risks Related to Our Business and Operations
All of our drug candidates are based on a single compound that has yet to be proven effective in
human subjects.
Our current primary business focus is the development of Tß4, and its analogues, derivatives
and fragments, for the improvement of cardiac function, the acceleration of corneal healing, the
treatment of non-healing wounds and other conditions. Unlike many pharmaceutical companies that
have a number of unique chemical entities in development, we are dependent on a single molecule,
formulated for different routes of administration and different clinical indications, for our
potential commercial success. As a result, any common safety or efficacy concerns for Tß4-based
products that cross formulations would have a much greater impact on our business prospects than if
our product pipeline were more diversified.
21
We may never be able to commercialize our product candidates.
Although Tß4 has shown biological activity in
in vitro
and animal models, we cannot assure you
that our product candidates will exhibit activity or importance in humans. Our drug candidates are
still in research and development, and we do not expect them to be commercially available for the
foreseeable future, if at all. Only a small number of research and development programs ultimately
result in commercially successful drugs. Potential products that appear to be promising at early
stages of development may not reach the market for a number of reasons. These include the
possibility that the potential products may:
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be found ineffective or cause harmful side effects during preclinical
studies or clinical trials;
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fail to receive necessary regulatory approvals;
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be precluded from commercialization by proprietary rights of third parties;
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be difficult to manufacture on a large scale; or
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be uneconomical or otherwise fail to achieve market acceptance.
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If any of these potential problems occurs, we may never successfully market Tß4-based
products.
We are subject to intense government regulation, and we may not receive regulatory approvals for
our drug candidates.
Our product candidates will require regulatory approvals prior to sale. In particular,
therapeutic agents are subject to stringent approval processes, prior to commercial marketing, by
the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and
corresponding foreign approvals is costly and time-consuming, and we cannot assure you that such
approvals will be granted. Also, the regulations we are subject to change frequently and such
changes could cause delays in the development of our product candidates.
Three of our drug candidates are currently in the clinical stage, and we cannot be certain
that we or our collaborators will successfully complete the clinical trials necessary to receive
regulatory product approvals. The regulatory approval process is lengthy, unpredictable and
expensive. To obtain regulatory approvals in the United States, we or a collaborator must
ultimately demonstrate to the satisfaction of the U.S. Food and Drug Administration, or FDA, that
our product candidates are sufficiently safe and effective for their proposed administration to
humans. Many factors, known and unknown, can adversely impact clinical trials and the ability to
evaluate a product candidates safety and efficacy, including:
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the FDA or other health regulatory authorities, or institutional
review boards, or IRBs, do not approve a clinical trial protocol or
place a clinical trial on hold;
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suitable patients do not enroll in a clinical trial in sufficient
numbers or at the expected rate, for reasons such as the size of the
patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the perceptions of investigators
and patients regarding safety, and the availability of other treatment
options;
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clinical trial data is adversely affected by trial conduct or patient withdrawal
prior to completion of the trial;
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there may be competition with ongoing clinical trials and scheduling conflicts with
participating clinicians;
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patients experience serious adverse events, including adverse side effects of our
drug candidates, for a variety of reasons that may or may not be related to our
product candidates, including the advanced stage of their disease and other medical
problems;
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patients in the placebo or untreated control group exhibit greater than expected
improvements or fewer than expected adverse events;
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third-party clinical investigators do not perform the clinical trials on the
anticipated schedule or consistent with the clinical trial protocol and good
clinical practices, or other third-party organizations do not perform data
collection and analysis in a timely or accurate manner;
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service providers, collaborators or co-sponsors do not adequately perform their
obligations in relation to the clinical trial or cause the trial to be delayed or
terminated;
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we are unable to obtain a sufficient supply of manufactured clinical trial materials;
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regulatory inspections of manufacturing facilities, which may, among other things,
require us or a co-sponsor to undertake corrective action or suspend the clinical
trials;
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the interim results of the clinical trial are inconclusive or negative;
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the clinical trial, although approved and completed, generates data that is not
considered by the FDA or others to be sufficient to demonstrate safety and
efficacy; and
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changes in governmental regulations or administrative actions affect the conduct of
the clinical trial or the interpretation of its results.
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There can be no assurance that our clinical trials will in fact demonstrate, to the
satisfaction of the FDA and others, that our product candidates are sufficiently safe or effective.
The FDA or we may also restrict or suspend our clinical trials at any time if either believes that
we are exposing the subjects participating in the trials to unacceptable health risks.
Clinical trials for product candidates such as ours are often conducted with patients who have
more advanced forms of a particular condition or other unrelated conditions. For example, in
clinical trials for our product candidate RGN-137, we have studied patients who are not only
suffering from chronic epidermal wounds but who are also older and much more likely to have other
serious adverse conditions. During the course of treatment with our product candidates, patients
could die or suffer other adverse events for reasons that may or may not be related to the drug
candidate being tested. Further, and as a consequence of all of our drug candidates being based on
Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug
candidate, and that adverse event may have implications for our other trials and other drug
candidates. However, even if unrelated to our product candidates, such adverse events can
nevertheless negatively impact our clinical trials, and our business prospects would suffer.
23
These factors, many of which may be outside of our control, may have a negative impact on our
business by making it difficult to advance product candidates or by reducing or eliminating their
potential or perceived value. As a consequence, we may need to perform more or larger clinical
trials than planned. Further, if we are forced to contribute greater financial and clinical
resources to a study, valuable resources will be diverted from other areas of our business. If we
fail to complete or if we experience material delays in completing our clinical trials as currently
planned, or we otherwise fail to commence or complete, or
experience delays in, any of our other present or planned clinical trials, including as a
result of the actions of third parties upon which we rely for these functions, our ability to
conduct our business as currently planned could materially suffer.
We may not successfully establish and maintain development and testing relationships with
third-party service providers and collaborators, which could adversely affect our ability to
develop our product candidates.
We have only limited resources, experience with and capacity to conduct requisite testing and
clinical trials of our drug candidates. As a result, we rely and expect to continue to rely on
third-party service providers and collaborators, including corporate partners, licensors and
contract research organizations, or CROs, to perform a number of activities relating to the
development of our drug candidates, including the design and conduct of clinical trials, and
potentially the obtaining of regulatory approvals. For example, we currently rely on several
third-party contractors to manufacture and formulate Tß4 into the product candidates used in our
clinical trials, develop assays to assess Tß4s effectiveness in complex biological systems,
recruit clinical investigators and sites to participate in our trials, manage the clinical trial
process and collect, evaluate and report clinical results.
We may not be able to maintain or expand our current arrangements with these third parties or
maintain such relationships on favorable terms. Our agreements with these third parties may also
contain provisions that restrict our ability to develop and test our product candidates or that
give third parties rights to control aspects of our product development and clinical programs. In
addition, conflicts may arise with our collaborators, such as conflicts concerning the
interpretation of clinical data, the achievement of milestones, the interpretation of financial
provisions or the ownership of intellectual property developed during the collaboration. If any
conflicts arise with our existing or future collaborators, they may act in their self-interest,
which may be adverse to our best interests. Any failure to maintain our collaborative agreements
and any conflicts with our collaborators could delay or prevent us from developing our product
candidates. We and our collaborators may fail to develop products covered by our present and future
collaborations if, among other things:
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we do not achieve our objectives under our collaboration agreements;
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we or our collaborators are unable to obtain patent protection for the products
or proprietary technologies we develop in our collaborations;
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we are unable to manage multiple simultaneous product development collaborations;
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our collaborators become competitors of ours or enter into agreements with our
competitors;
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we or our collaborators encounter regulatory hurdles that prevent
commercialization of our product candidates; or
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we develop products and processes or enter into additional collaborations that
conflict with the business objectives of our other collaborators.
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We also have less control over the timing and other aspects of our clinical trials than if we
conducted the monitoring and supervision entirely on our own. Third parties may not perform their
responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical
trial protocol or applicable regulations. We also rely on clinical research organizations to
perform much of our data management and analysis. They may not provide these services as required
or in a timely manner. If any of these parties do not meet deadlines or follow proper procedures,
including procedures required by law, the preclinical studies and clinical trials may take longer
than expected, may be delayed or may be terminated, which
would have a materially negative impact on our product development efforts. If we were forced
to find a replacement entity to perform any of our preclinical studies or clinical trials, we may
not be able to find a suitable entity on favorable terms or at all. Even if we were able to find a
replacement, resulting delays in the tests or trials may result in significant additional
expenditures and delays in obtaining regulatory approval for drug candidates, which could have a
material adverse impact on our results of operations and business prospects.
We are subject to intense competition from companies with greater resources and more mature
products, which may result in our competitors developing or commercializing products before or more
successfully than we do.
We are engaged in a business that is highly competitive. Research and development activities
for the development of drugs to treat indications within our focus are being sponsored or conducted
by private and
public research institutions and by major pharmaceutical companies located in the United States and
a number of foreign countries. Most of these companies and institutions have financial and human
resources that are substantially greater than our own and they have extensive experience in
conducting research and development activities and clinical trials and in obtaining the regulatory
approvals necessary to market pharmaceutical products that we do not have. As a result, they may
develop competing products more rapidly that are safer, more effective, or have fewer side effects,
or are less expensive, or they may develop and commercialize products that render our product
candidates non-competitive or obsolete.
We have initially targeted our product candidate RGN-352 for cardiovascular indications. Most
large pharmaceutical companies and many smaller biomedical companies are vigorously pursuing the
development of therapeutics to treat patients after heart attacks and other cardiovascular
indications. With respect to our product candidate RGN-259 for corneal defects, there are also
numerous ophthalmic companies developing drugs for corneal wound healing and other
outside-of-the-eye diseases and injuries. Amniotic membranes have been successfully used to treat
corneal wounds in certain cases, as have topical steroids and antibacterial agents. With respect to
our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed
Regranex
TM
for this purpose in patients with diabetic foot ulcers. Other companies,
such as Novartis, are developing and marketing artificial skins, which we believe could also
compete with RGN-137. Moreover, wound healing is a large and highly fragmented marketplace
attracting many companies, large and small, to develop products for treating acute and chronic
wounds, including, for example, honey-based ointments, hyperbaric oxygen therapy, and low frequency
cavitational ultrasound.
We are also developing potential cosmeceutical products, which are loosely defined as products
that bridge the gap between cosmetics and pharmaceuticals, for example, by improving skin texture
and reducing the appearance of aging. This industry is intensely competitive, with potential
competitors ranging from large multinational companies to very small specialty companies. New
cosmeceutical products often have a short product life and are frequently replaced with newer
products developed to address the latest trends in appearance and fashion. We may not be able to
adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies.
Further, larger cosmetics companies have the financial and marketing resources to effectively
compete with smaller companies like us in order to sell products aimed at larger markets.
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Even if approved for marketing, our technologies and product candidates are unproven and they may
fail to gain market acceptance.
Our product candidates, all of which are based on the molecule Tß4, are new and unproven and
there is no guarantee that health care providers or patients will be interested in our product
candidates, even if they
are approved for use. If any of our product candidates are approved by the FDA, our success
will depend in part on our ability to demonstrate sufficient clinical benefits, reliability,
safety, and cost effectiveness of our product candidates relative to other approaches, as well as
on our ability to continue to develop our product candidates to respond to competitive and
technological changes. If the market does not accept our product candidates, when and if we are
able to commercialize them, then we may never become profitable. Factors that could delay, inhibit
or prevent market acceptance of our product candidates may include:
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the timing and receipt of marketing approvals;
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the safety and efficacy of the products;
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the emergence of equivalent or superior products;
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the cost-effectiveness of the products; and
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ineffective marketing.
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It is difficult to predict the future growth of our business, if any, and the size of the
market for our product candidates because the markets are continually evolving. There can be no
assurance that our product candidates will prove superior to products that may currently be
available or may become available in the future or that our research and development activities
will result in any commercially profitable products.
We have no marketing experience, sales force or distribution capabilities. If our product
candidates are approved, and we are unable to recruit key personnel to perform these functions, we
may not be able to commercialize them successfully.
Although we do not currently have any marketable products, our ability to produce revenues
ultimately depends on our ability to sell our product candidates if and when they are approved by
the FDA and other regulatory authorities. We currently have no experience in marketing or selling
pharmaceutical products, and we do not have a marketing and sales staff or distribution
capabilities. Developing a marketing and sales force is also time-consuming and could delay the
launch of new products or expansion of existing product sales. In addition, we will compete with
many companies that currently have extensive and well-funded marketing and sales operations. If we
fail to establish successful marketing and sales capabilities or fail to enter into successful
marketing arrangements with third parties, our ability to generate revenues will suffer.
If we enter markets outside the United States our business will be subject to political, economic,
legal and social risks in those markets, which could adversely affect our business.
There are significant regulatory and legal barriers to entering markets outside the United
States that we must overcome if we seek regulatory approval to market our product candidates in
countries other than the United States. We would be subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping and conflicting
laws. We also may experience difficulties adapting to new cultures, business customs and legal
systems. Any sales and operations outside the United States would be subject to political, economic
and social uncertainties including, among others:
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changes and limits in import and export controls;
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increases in custom duties and tariffs;
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changes in currency exchange rates;
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economic and political instability;
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changes in government regulations and laws;
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absence in some jurisdictions of effective laws to protect our
intellectual property rights; and
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currency transfer and other restrictions and regulations that may
limit our ability to sell certain product candidates or repatriate
profits to the United States.
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Any changes related to these and other factors could adversely affect our business if and to
the extent we enter markets outside the United States.
Governmental and third-party payors may subject any product candidates we develop to sales and
pharmaceutical pricing controls that could limit our product revenues and delay profitability.
The successful commercialization of our product candidates, if they are approved by the FDA,
will likely depend on our ability to obtain reimbursement for the cost of the product and
treatment. Government authorities, private health insurers and other organizations, such as health
maintenance organizations, are increasingly seeking to lower the prices charged for medical
products and services. Also, the trend toward managed health care in the United States, the growth
of healthcare maintenance organizations, and recently enacted legislation reforming healthcare and
proposals to reform government insurance programs could have a significant influence on the
purchase of healthcare services and products, resulting in lower prices and reducing demand for our
product candidates. The cost containment measures that healthcare providers are instituting and any
healthcare reform could reduce our ability to sell our product candidates and may have a material
adverse effect on our operations. We cannot assure you that reimbursement in the United States or
foreign countries will be available for any of our product candidates, and that any reimbursement
granted will be maintained, or that limits on reimbursement available from third-party payors will
not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of
third-party reimbursements for our product candidates would decrease the potential profitability of
our operations. We cannot forecast what additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what
effect the legislation or regulation would have on our business.
We have no manufacturing or formulation capabilities and are dependent upon third-party suppliers
to provide us with our product candidates. If these suppliers do not manufacture our product
candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we
are unable to identify suitable replacement suppliers if needed, our clinical development efforts
could be delayed, prevented or impaired.
We do not own or operate manufacturing facilities and have little experience in manufacturing
pharmaceutical products. We currently rely, and expect to continue to rely, primarily on peptide
manufacturers to supply us with Tß4 for further formulation into our product candidates. We have
engaged three separate smaller drug formulation contractors for the formulation of clinical grade
product candidates, one for each of our three product candidates in clinical development. We
currently do not have an alternative source of supply for either Tß4 or the individual drug
candidates. If these suppliers, together or individually, are not able to supply us with either Tß4
or individual product candidates on a timely basis, in sufficient quantities, at acceptable levels
of quality and at a competitive price, or if we are unable to identify a replacement manufacturer
to perform these functions on acceptable terms as needed, our development programs could be
seriously jeopardized.
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The risks of relying solely on single suppliers for each of our product candidates include:
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Their respective abilities to ensure quality and compliance with
regulations relating to the manufacture of pharmaceuticals;
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Their manufacturing capacity may not be sufficient or available to
produce the required quantities of our product candidates based on our
planned clinical development schedule, if at all;
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They may not have access to the capital necessary to expand their
manufacturing facilities in response to our needs;
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Commissioning replacement suppliers would be difficult and time-consuming;
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Individual suppliers may have used substantial proprietary know-how
relating to the manufacture of our product candidates and, in the event
we must find a replacement or supplemental supplier, our ability to
transfer this know-how to the new supplier could be an expensive and/or
time-consuming process;
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An individual supplier may experience events, such as a fire or natural
disaster, that force it to stop or curtail production for an extended
period;
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An individual supplier could encounter significant increases in labor,
capital or other costs that would make it difficult for them to produce
our products cost-effectively; or
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An individual supplier may not be able to obtain the raw materials or
validated drug containers in sufficient quantities, at acceptable costs
or in sufficient time to complete the manufacture, formulation and
delivery of our product candidates.
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Our suppliers may use hazardous and biological materials in their businesses. Any claims relating
to improper handling, storage or disposal of these materials could be time-consuming and costly to
us, and we are not insured against such claims.
Our product candidates and processes involve the controlled storage, use and disposal by our
suppliers of certain hazardous and biological materials and waste products. We and our suppliers
and other collaborators are subject to federal, state and local regulations governing the use,
manufacture, storage, handling and disposal of materials and waste products. Even if we and these
suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of
accidental contamination or injury from hazardous materials cannot be completely eliminated. In the
event of an accident, we could be held liable for any damages that result, and we do not carry
insurance for this type of claim. We may also incur significant costs to comply with current or
future environmental laws and regulations.
We face the risk of product liability claims, which could adversely affect our business and
financial condition.
We may be subject to product liability claims as a result of our testing, manufacturing, and
marketing of drugs. In addition, the use of our product candidates, when and if developed and sold,
will expose us to the risk of product liability claims. Product liability may result from harm to
patients using our product candidates, such as a complication that was either not communicated as a
potential side effect or was more extreme than anticipated. We require all patients enrolled in our
clinical trials to sign consents, which explain various risks involved with participating in the
trial. However, patient consents provide only a limited level of protection, and it may be alleged
that the consent did not address or did not adequately address a risk that the patient suffered.
Additionally, we will generally be required to indemnify our clinical
product manufacturers, clinical trial centers, medical professionals and other parties
conducting related activities in connection with losses they may incur through their involvement in
the clinical trials.
28
Our ability to reduce our liability exposure for human clinical trials and commercial sales,
if any, of Tß4 is dependent in part on our ability to obtain sufficient product liability insurance
or to collaborate with third parties that have adequate insurance. Although we intend to obtain and
maintain product liability insurance coverage if we gain approval to market any of our product
candidates, we cannot guarantee that product liability insurance will continue to be available to
us on acceptable terms, or at all, or that its coverage will be sufficient to cover all claims
against us. A product liability claim, even one without merit or for which we have substantial
coverage, could result in significant legal defense costs, thereby potentially exposing us to
expenses significantly in excess of our revenues, as well as harm to our reputation and distraction
of our management.
If any of our key employees discontinue their services with us, our efforts to develop our business
may be delayed.
We are highly dependent on the principal members of our management team. The loss of our
chairman and chief scientific advisor, Allan Goldstein, or our chief executive officer, J.J.
Finkelstein, could prevent or significantly delay the achievement of our goals. We have employment
agreements with Dr. Goldstein and Mr. Finkelstein. For part of 2009, we effected salary reductions
for certain of our employees, including Dr. Goldstein and Mr. Finkelstein. Although their salaries
were restored effective as of October 1, 2009, we cannot assure you that they, or other key
employees, may elect to terminate their employment as a result of the salary reductions or for
other reasons. In addition, we do not maintain a key man life insurance policy with respect to
Dr. Goldstein or Mr. Finkelstein. In the future, we anticipate that we may need to add additional
management and other personnel. Competition for qualified personnel in our industry is intense, and
our success will depend in part on our ability to attract and retain highly skilled personnel. We
cannot assure you that our efforts to attract or retain such personnel will be successful.
Mauro Bove, a member of our Board, is also a director and officer of entities affiliated with
Sigma-Tau, a relationship which could give rise to a conflict of interest involving Mr. Bove.
Mauro Bove, a member of our Board of Directors, is also a director and officer of entities
affiliated with Sigma-Tau, which collectively make up our largest stockholder group. Sigma-Tau has
provided us with significant funding, may continue doing so in the future, and is also our
strategic partner in Europe with respect to the development of certain of our drug candidates.
During 2008 and 2009, we issued shares of common stock and common stock warrants to Sigma-Tau in
four separate private placement financing transactions, but we retained the right to repurchase
some of these shares under certain circumstances.
We have licensed certain rights to our product candidates generally for the treatment of
dermal and internal wounds to Sigma-Tau. Under the license agreement, upon the completion of a
Phase 2 clinical trial of either of these product candidates that yields positive results in terms
of clinical efficacy and safety, Sigma-Tau is obligated to either make a $5 million milestone
payment to us or to initiate and fund a pivotal Phase 3 clinical trial of the product candidate. In
2009, we completed two Phase 2 clinical trials of RGN-137 in the treatment of pressure ulcers and
venous stasis ulcers. However, due to the lack of statistical significance of the reported efficacy
results, these trials are not sufficient to trigger the milestone obligation described above. There
can be no assurance that we will ever receive this payment or be able to initiate a pivotal Phase 3
clinical trial of RGN-137 that would be funded by Sigma-Tau. As a result of Mr. Boves relationship
with Sigma-Tau, there could be a conflict of interest between Sigma-Tau and our other stockholders
with respect to these and other agreements and circumstances that may require the exercise of the
Boards discretion with respect to Sigma-Tau. Any decision in the best interests of Sigma-Tau may
not be in the best interest of our other stockholders.
29
Risks Related To Our Intellectual Property
We are heavily reliant on our license from the National Institutes of Health for the rights to Tß4,
and any loss of these rights would adversely affect our business.
We have received an exclusive worldwide license to intellectual property discovered at the
National Institutes of Health, or NIH, pertaining to the use of Tß4 in wound healing and tissue
repair. The intellectual property rights from this license form the basis for our current
commercial development focus with Tß4. This license terminates upon the last to expire of the
patent applications that are filed, or any patents that may issue from such applications, in
connection with the license. This license requires us to pay a minimum annual royalty to the NIH,
regardless of the success of our product development efforts, plus certain other royalties upon the
sale of products created by the intellectual property granted under the license. This license may
be terminated for a number of reasons, including our non-payment of the royalty or lack of
continued product development, among others. While to date we believe that we have complied with
all requirements to maintain the license, the loss of this license would have a material adverse
effect on our business and business prospects and may require us to cease development of our
current line of Tß4-based product candidates.
If we are not able to maintain adequate patent protection for our product candidates, we may be
unable to prevent our competitors from using our technology or technology that we license.
Our success will depend in substantial part on our ability to obtain, defend and enforce
patents, maintain trade secrets and operate without infringing upon the proprietary rights of
others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the
NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents
covering our use of Tß4 have issued in some countries, we cannot guarantee whether or when
corresponding patents will be issued, or the scope of any patents that may be issued, in other
countries. We have attempted to create a substantial intellectual property portfolio, submitting
patent applications for various compositions of matter, methods of use and fragments and
derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties
that could be subject to the same risks as our own patents. If any of these patent applications do
not issue, or do not issue in certain countries, or are not enforceable, the ability to
commercialize Tß4 in various medical indications could be substantially limited or eliminated.
In addition, the patent positions of the products being developed by us and our collaborators
involve complex legal and factual uncertainties. As a result, we cannot assure you that any patent
applications filed by us, or by others under which we have rights, will result in patents being
issued in the United States or foreign countries. In addition, there can be no assurance that any
patents will be issued from any pending or future patent applications of ours or our collaborators,
that the scope of any patent protection will be sufficient to provide us with competitive
advantages, that any patents obtained by us or our collaborators will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents and other
proprietary rights we or our collaborators may hold. Unauthorized parties may try to copy aspects
of our product candidates and technologies or obtain and use information we consider proprietary.
Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no
harm or threat will be made to our or our collaborators intellectual property. In addition,
changes in, or different interpretations of, patent laws in the United States and other countries
may also adversely affect the scope of our patent protection and our competitive situation.
30
Due to the significant time lag between the filing of patent applications and the publication
of such patents, we cannot be certain that our licensors were the first to file the patent
applications we license or,
even if they were the first to file, also were the first to invent, particularly with regards
to patent rights in the United States. In addition, a number of pharmaceutical and biotechnology
companies and research and academic institutions have developed technologies, filed patent
applications or received patents on various technologies that may be related to our product
candidates. Some of these technologies, applications or patents may conflict with our or our
licensors technologies or patent applications. A conflict could limit the scope of the patents, if
any, that we or our licensors may be able to obtain or result in denial of our or our licensors
patent applications. If patents that cover our activities are issued to other companies, we may not
be able to develop or obtain alternative technology.
Additionally, there is certain subject matter that is patentable in the United States but not
generally patentable outside of the United States. Differences in what constitutes patentable
subject matter in various countries may limit the protection we can obtain outside of the United
States. For example, methods of treating humans are not patentable in many countries outside of the
United States. These and other issues may prevent us from obtaining patent protection outside of
the United States, which would have a material adverse effect on our business, financial condition
and results of operations.
Changes to U.S. patent laws could materially reduce any value our patent portfolio may have.
The value of our patents depends in part on their duration. A shorter period of patent
protection could lessen the value of our rights under any patents that may be obtained and may
decrease revenues derived from its patents. For example, the U.S. patent laws were previously
amended to change the term of patent protection from 17 years following patent issuance to 20 years
from the earliest effective filing date of the application. Because the time from filing to
issuance of biotechnology applications may be more than three years depending on the subject
matter, a 20-year patent term from the filing date may result in substantially shorter patent
protection. Future changes to patent laws could shorten our period of patent exclusivity and may
decrease the revenues that we might derive from the patents and the value of our patent portfolio.
We may not have adequate protection for our unpatented proprietary information, which could
adversely affect our competitive position.
In addition to our patents, we also rely on trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive position. However,
others may independently develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose our technology. To protect our trade
secrets, we may enter into confidentiality agreements with employees, consultants and potential
collaborators. However, we may not have such agreements in place with all such parties and, where
we do, these agreements may not provide meaningful protection of our trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information. Also, our trade
secrets or know-how may become known through other means or be independently discovered by our
competitors. Any of these events could prevent us from developing or commercializing our product
candidates.
31
We may be subject to claims that we or our employees have wrongfully used or disclosed alleged
trade secrets of former employers.
As is commonplace in the biotechnology industry, we employ now, and may hire in the future,
individuals who were previously employed at other biotechnology or pharmaceutical companies,
including competitors or potential competitors. Although there are no claims currently pending
against us, we may be subject to claims that we or certain employees have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of former employers.
Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in
substantial costs and would be a significant distraction to management.
Risks Related To Our Securities
Our common stock price is volatile and has had limited trading volume, and any investment in our
securities could decline substantially in value.
For the period from January 1, 2009 through July 31, 2010, our closing stock price has
fluctuated between prices of $0.26 to $1.75 per share, with an average daily trading volume of
approximately 106,000 shares. In light of our small size and limited resources, as well as the
uncertainties and risks that can affect our business and industry, our stock price is expected to
continue to be highly volatile and can be subject to substantial drops, with or even in the absence
of news affecting our business. The following factors, in addition to the other risk factors
described in this report, and the potentially low volume of trades in our common stock, may have a
significant impact on the market price of our common stock, some of which are beyond our control:
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results of preclinical studies and clinical trials;
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commercial success of approved products;
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corporate partnerships;
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technological innovations by us or competitors;
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changes in laws and government regulations both in the U.S. and overseas;
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changes in key personnel at our company;
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developments concerning proprietary rights, including patents and litigation matters;
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public perception relating to the commercial value or safety of any of our product
candidates;
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future sales of our common stock;
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future issuance of our common stock causing dilution;
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anticipated or unanticipated changes in our financial performance;
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general trends related to the biopharmaceutical and biotechnological industries; and
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general conditions in the stock market.
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The stock market in general has recently experienced relatively large price and volume
fluctuations. In particular, the market prices of securities of smaller biotechnology companies
have experienced dramatic fluctuations that often have been unrelated or disproportionate to the
operating results of these companies. Continued market fluctuations could result in extreme
volatility in the price of our common stock, which could cause a decline in its value. You should
also be aware that price volatility may be worse if the trading volume of the common stock remains
limited or declines.
32
Our principal stockholders have significant voting power and may take actions that may not be in
the best interests of our other stockholders.
As of July 31, 2010, our officers, directors and principal stockholders together controlled
approximately 43% of our outstanding common stock. Included in this group is Sigma-Tau, which held
approximately 36% of our outstanding common stock as of July 31, 2010. A portion of the shares
of common stock currently held by Sigma-Tau, representing approximately 13% of our outstanding
common stock, is subject to voting agreements under which we control the voting power of these
shares. We cannot assure you that these voting agreements would prevent Sigma-Tau from taking
actions not in your best interests and effectively exercising control over us. These voting
agreements are currently scheduled to expire between December 2010 and September 2012. After their
expiration, we will have no control over the voting of these shares controlled by Sigma-Tau,
including with respect to the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying or preventing a
change in control and might adversely affect the market price of our common stock, and therefore
may not be in the best interest of our other stockholders.
If securities or industry analysts do not publish research or reports or publish unfavorable
research about our business, the price of our common stock and other securities and their trading
volume could decline.
The trading market for our common stock and other securities will depend in part on the
research and reports that securities or industry analysts publish about us or our business. We do
not currently have and may never obtain research coverage by securities and industry analysts. If
securities or industry analysts do not commence or maintain coverage of us, the trading price for
our common stock and other securities would be negatively affected. In the event we obtain
securities or industry analyst coverage, if one or more of the analysts who covers us downgrades
our securities, the price of our securities would likely decline. If one or more of these analysts
ceases to cover us or fails to publish regular reports on us, interest in the purchase of our
securities could decrease, which could cause the price of our common stock and other securities and
their trading volume to decline.
Our rights to repurchase certain shares of stock held by Sigma-Tau expire over time, and we may
never be able or elect to exercise these rights.
We have the right to repurchase at any time until December 31, 2010, for $2.50 per share, up
to 5,000,000 shares of common stock issued to Sigma-Tau in connection with a private placement of
securities in February 2008. After December 31, 2010, our rights to repurchase common stock held by
Sigma-Tau will expire. These provisions could, under certain circumstances, allow us to reduce
dilution by repurchasing these shares at prices lower than the then-prevailing market price of our
common stock. However, we cannot assure you that our share price will increase sufficiently to make
such repurchases economically feasible or that we would avail ourselves of the opportunity to make
such repurchases even if our share price had risen to such a level.
The exercise of options and warrants and other issuances of shares of common stock or securities
convertible into common stock will dilute your interest.
As of July 31, 2010, there were outstanding options to purchase an aggregate of
4,914,112 shares of our common stock at exercise prices ranging from $0.28 per share to $3.82 per
share, of which options to purchase 3,802,027 shares were exercisable as of such date. As of July
31, 2010, there were warrants outstanding to purchase 13,988,751 shares of our common stock, at a
weighted average exercise price of $1.38 per share. The exercise of options and warrants at prices
below the market price of our common stock could adversely affect the price of shares of our common
stock. Additional dilution may result from the issuance of shares of our capital stock in
connection with collaborations or manufacturing arrangements or in connection with other financing
efforts.
33
Any issuance of our common stock that is not made solely to then-existing stockholders
proportionate to their interests, such as in the case of a stock dividend or stock split, will result in
dilution to each stockholder by reducing his, her or its percentage ownership of the total
outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the
future and those options or warrants are exercised or we issue restricted stock, stockholders may
experience further dilution. Holders of shares of our common stock have no preemptive rights that
entitle them to purchase their pro rata share of any offering of shares of any class or series.
In addition, certain warrants to purchase shares of our common stock currently contain an
exercise price above the current market price for the common stock, or above-market warrants. As a
result, these warrants may not be exercised prior to their expiration and we may not realize any
proceeds from their exercise.
Our certificate of incorporation, our stockholder rights plan and Delaware law contain provisions
that could discourage or prevent a takeover or other change in control, even if such a transaction
would be beneficial to our stockholders, which could affect our stock price adversely and prevent
attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation provides our Board with the power to issue shares of
preferred stock without stockholder approval. In addition, under our stockholder rights plan, our
Board has the discretion to issue certain rights to purchase our capital stock to our stockholders
when a person acquires in excess of 25% of our outstanding common shares. These provisions may make
it more difficult for stockholders to take corporate actions and may have the effect of delaying or
preventing a change in control, even if such actions or change in control would be in your best
interests. In addition, we are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Subject to specified exceptions, this section provides that a
corporation may not engage in any business combination with any interested stockholder, as defined
in that statute, during the three-year period following the time that such stockholder becomes an
interested stockholder. This provision could also have the effect of delaying or preventing a
change of control of our company. The foregoing factors could reduce the price that investors or an
acquirer might be willing to pay in the future for shares of our common stock.
We may become involved in securities class action litigation that could divert managements
attention and harm our business and our insurance coverage may not be sufficient to cover all costs
and damages.
The stock market has from time to time experienced significant price and volume fluctuations
that have affected the market prices for the common stock of pharmaceutical and biotechnology
companies. These broad market fluctuations may cause the market price of our common stock to
decline. In the past, following periods of volatility in the market price of a particular companys
securities, securities class action litigation has often been brought against that company. We may
become involved in this type of litigation in the future. Litigation often is expensive and diverts
managements attention and resources, which could hurt our business, operating results and
financial condition.
34
As a public company, we continue to be subject to the requirements of Section 404 of the
Sarbanes-Oxley Act. If we are unable to comply with Section 404 in a timely manner it may affect
the reliability of our internal control over financial reporting.
Assessing our staffing and training procedures to improve our internal control over financial
reporting is an ongoing process. We are currently required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 and to make an assessment of the effectiveness of our internal control
over financial reporting. However, our independent registered public accounting firm has not been
engaged to express, nor have they expressed, an opinion on the effectiveness of our internal
control over financial reporting.
We plan to continue to assess our internal controls and procedures and intend to take further
action as necessary or appropriate to address any other matters we identify. Under current SEC
rules, our independent registered public accounting firm will also be required to deliver an
attestation report on the operating effectiveness of our internal control over financial reporting
beginning with the year ending December 31, 2010.
We cannot be certain at this time that we will be able to successfully complete the
attestation requirements of Section 404 or that we or our independent registered public accounting
firm will not identify material weaknesses in our internal control over financial reporting. If we
fail to comply with the requirements of Section 404 or if we or our independent registered public
accounting firm identify and report a material weakness, it may affect the reliability of our
internal control over financial reporting, which could adversely affect our stock price.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Reserved
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit No.
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Description of Exhibit
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Reference*
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3.1
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Restated Certificate of Incorporation
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Exhibit 3.1 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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3.2
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Certificate of Amendment to Restated
Certificate of Incorporation
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Exhibit 3.2 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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3.3
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Certificate of Amendment to Restated
Certificate of Incorporation
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Exhibit 3.3 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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3.4
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Certificate of Amendment to Restated
Certificate of Incorporation
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Exhibit 3.4 to
Registration
Statement on Form
S-8
(File No.
333-168252) (filed
July 21, 2010)
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Exhibit No.
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Description of Exhibit
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Reference*
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3.5
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Certificate of Designation of
Series A Participating Cumulative
Preferred Stock
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Exhibit 3.4 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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3.6
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Amended and Restated Bylaws adopted
July 26, 2006
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Exhibit 3.4 to the
Companys Quarterly
Report on Form 10-Q
(filed August 14,
2006)
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3.7
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Amendment to Amended and Restated
Bylaws
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Exhibit 3.6 to the
Companys
Registration
Statement on Form
S-8 (File No.
333-152250) (filed
July 10, 2008)
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4.1
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Specimen Stock Certificate
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Exhibit 4.1 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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4.2
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Specimen Rights Certificate
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Exhibit 4.2 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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4.3
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Rights Agreement, dated April 29,
1994, between the Company and
American Stock Transfer & Trust
Company, as Rights Agent
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Exhibit 4.3 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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4.4
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Amendment No. 1 to Rights Agreement,
dated March 4, 2004, between the
Company and American Stock Transfer
& Trust Company, as Rights Agent
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Exhibit 4.4 to
Registration
Statement on Form
S-1
(File No.
333-166146) (filed
April 16, 2010)
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31.1
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Certification of Principal Executive
Officer pursuant to Rules 13a-14 and
15d-14 promulgated under the
Securities Exchange Act of 1934
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Filed herewith
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31.2
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Certification of Principal Financial
Officer pursuant to Rules 13a-14 and
15d-14 promulgated under the
Securities Exchange Act of 1934
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Filed herewith
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Exhibit No.
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Description of Exhibit
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Reference*
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32.1
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Certification of Principal Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
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Filed herewith**
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32.2
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Certification of Principal Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
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Filed herewith**
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Except where noted, the exhibits referred to in this column have
heretofore been filed with the Securities and Exchange Commission as
exhibits to the documents indicated and are hereby incorporated by
reference thereto. The Registration Statements referred to are
Registration Statements of the Company.
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**
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These certifications are being furnished solely to accompany this
quarterly report pursuant to 18 U.S.C. Section 1350, and are not being
filed for purposes of Section 18 of the Securities Exchange Act of
1934 and are not to be incorporated by reference into any filing of
the registrant, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
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Signatures
In accordance with the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
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RegeneRx Biopharmaceuticals, Inc.
(Registrant)
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Date: August 13, 2010
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/s/ J.J. Finkelstein
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J.J. Finkelstein
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President and Chief Executive Officer
(duly authorized officer)
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/s/ C. Neil Lyons
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C. Neil Lyons
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Chief Financial Officer
(principal financial officer)
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38
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 17, 2010
REGENERX BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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001-15070
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52-1253406
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(State or other Jurisdiction of
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(Commission File Number)
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(IRS Employer Identification No.)
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Incorporation)
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15245 Shady Grove Road, Suite
470, Rockville, MD
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20850
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants
telephone number, including area code:
(301) 208-9191
(Former name or former address if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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o
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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o
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
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Item 1.01. Entry into a Material Definitive Agreement.
On May 17, 2010, RegeneRx Biopharmaceuticals, Inc. (the Company) entered into an underwriting
agreement (the Underwriting Agreement) with Maxim Group LLC (the Representative), as
representative of the several underwriters named on Schedule A of the Underwriting Agreement,
providing for the offer and sale in a firm commitment underwritten public offering (the Offering)
of 11,500,000 units of its securities, consisting of an aggregate of 11,500,000 shares of its
common stock and warrants to purchase an aggregate of 4,600,000 shares of its common stock, at a
public offering price of $0.41 per unit (less an underwriting discount of $0.0328 per unit). Each
unit consists of one share of the Companys common stock and 0.4
of a warrant to purchase one share of common stock
(the Unit Warrants). Each Unit Warrant is exercisable
until May 21, 2015 and represents the right to
purchase one share of the Companys common stock at an exercise
price of $0.56 per whole share. The
Offering, which was subject to customary closing conditions, closed on May 21, 2010.
Pursuant to the Underwriting Agreement, the Company granted the Representative an option for a
period of 45 days to purchase up to an additional 1,725,000 units to cover over-allotments, if
any. In addition, pursuant to the Underwriting Agreement, the Company issued to the
Representative, at the closing of the Offering, a warrant to purchase 805,000 shares of
the Companys common stock at an exercise price of $0.45 per share (the Representatives
Warrant), which Representatives Warrant is exercisable
beginning on November 17, 2010 and continuing until May 17, 2015. The
Representatives Warrant also provides for one demand
registration until May 17, 2015 and unlimited piggyback registration
rights as of November 21, 2010 with respect to the underlying shares.
The net proceeds to the Company from the sale of the units, after deducting underwriting discounts
and commissions, including a corporate finance fee in the amount of 1% of the gross proceeds from
the Offering, and other estimated offering expenses, are expected to be approximately $3.9 million
(or $4.5 million if the over-allotment option is exercised in full).
In connection with the Offering, certain of the Companys officers, directors and significant
stockholders entered into 90-day lock-up agreements, whereby they have agreed, subject to certain
customary exceptions, to refrain from selling or otherwise disposing of securities of the Company
without the consent of the Representative, and the Company has agreed to a similar 90-day lock-up
period.
In connection with the offering, on May 21, the Company entered into a Warrant Agreement with
American Stock Transfer & Trust Company, LLC (AST), pursuant to which AST will act as warrant
agent for the Unit Warrants. The Warrant Agreement also sets forth the terms and conditions of the
Unit Warrants. Among other terms and conditions, the Warrant Agreement provides that, in the event
the closing sale price of the Companys common stock is at least $1.78 per share for any 20 trading
days within a period of 30 consecutive trading days, the Company may call the Unit Warrants for
redemption, at a redemption price of $0.01 per Unit Warrant, by providing at least 30 days notice
to each Unit Warrant holder.
The Offering is being made pursuant to a registration statement on Form S-1 (Registration
No. 333-166146, which was declared effective by the Securities and Exchange Commission (the SEC)
on May 17, 2010), and a final prospectus filed with the SEC on May 18, 2010. The foregoing descriptions of
the Underwriting Agreement, Warrant Agreement, Unit Warrants, Representatives Warrant
and other documents relating to the Offering do not purport to be complete and are qualified in
their entirety by reference to the full text of these documents and securities, forms or copies of
which are filed as exhibits hereto and incorporated herein by reference.
The Company issued a press release announcing the pricing of the Offering on May 18, 2010. A copy
of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
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Exhibit No.
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Description
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1.1
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Underwriting Agreement between RegeneRx Biopharmaceuticals,
Inc. and Maxim Group LLC, as representative of the
underwriters named on Schedule A thereto, dated May 17, 2010.
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4.1
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Warrant Agreement between RegeneRx Biopharmaceuticals, Inc.
and American Stock Transfer & Trust Company, LLC, as Warrant
Agent, dated May 21, 2010.
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4.2*
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Form of Warrant Certificate.
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4.3
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Representatives Warrant.
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99.1
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Press release dated May 18, 2010.
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*
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Incorporated by reference to Exhibit 4.6 to Amendment No. 2 to the Registrants Registration
Statement on Form S-1 (Registration No. 333-166146), filed with
the SEC on May 17, 2010.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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REGENERX BIOPHARMACEUTICALS, INC.
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Date: May 21, 2010
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By:
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/s/ C. Neil Lyons
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C. Neil Lyons
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Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No.
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Description
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1.1
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Underwriting Agreement between RegeneRx Biopharmaceuticals,
Inc. and Maxim Group LLC, as representative of the
underwriters named on Schedule A thereto, dated May 17, 2010.
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4.1
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Warrant Agreement between RegeneRx Biopharmaceuticals, Inc.
and American Stock Transfer & Trust Company, LLC, as Warrant
Agent, dated May 21, 2010.
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4.2 *
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Form of Warrant Certificate.
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4.3
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Representatives Warrant.
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99.1
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Press release dated May 18, 2010.
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*
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Incorporated by reference to Exhibit 4.6 to Amendment No. 2 to the Registrants Registration
Statement on Form S-1 (Registration No. 333-166146), filed with
the SEC on May 17, 2010.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 14, 2010
REGENERX BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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001-15070
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52-1253406
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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15245 Shady Grove Road, Suite 470,
Rockville, MD
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20850
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(301) 208-9191
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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o
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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o
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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o
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
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(e) Compensatory Arrangements of Certain Officers
1. Adoption of 2010 Equity Incentive Plan
At the 2010 Annual Meeting of Stockholders held on July 14, 2010, the stockholders of RegeneRx
Biopharmaceuticals, Inc. (the Company), upon the recommendation of the Companys Board of
Directors (the Board), approved the adoption of the Companys 2010 Equity Incentive Plan (the
2010 Plan). The 2010 Plan provides for the following types of awards: incentive stock options,
nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock
appreciation rights, performance stock awards, performance cash awards and other stock-based
awards. Awards may be granted under the 2010 Plan to the Companys employees, directors and
consultants, but only the Companys employees may receive incentive stock options. The following
is a summary of the material terms of the 2010 Plan:
Share Reserve.
Up to 5,000,000 shares of common stock may be issued pursuant to stock awards
granted under the 2010 Plan. The shares of common stock subject to stock awards granted under the
2010 Plan that are forfeited back to the Company because of the failure to meet a contingency or
condition required to vest will be available for issuance under the
2010 Plan. Any shares that are withheld to satisfy tax requirements or that are used to pay the exercise or purchase
price of a stock award may also be issued under the 2010 Plan.
Terms of Options.
Stock option grants may be incentive stock options or nonstatutory stock
options; however, no more than 5,000,000 shares of common stock may be issued under the 2010 Plan
pursuant to the exercise of incentive stock options. The Board determines the terms of a stock
option including the exercise price, the form of consideration to be paid on exercise, the vesting
schedule, restrictions on transfer and the term. The exercise price of a stock option may not be
less than 100% of the fair market value of the stock subject to the option on the date of grant
(110% for an incentive stock option if the optionee is a 10% holder). The term of an option will
not be longer than ten years (five years if the optionee is a 10% holder) and the option may be
subject to restrictions on transfer. Options generally terminate three months after termination of
an optionees service, or such longer or shorter period as set forth in the option agreement. As
set forth in the 2010 Plan, the optionee will generally, subject to the terms of the option
agreement, have longer to exercise when termination is due to disability (12 months) or death (18
months). No option may be exercised beyond the expiration of its term.
Terms of Restricted Stock Awards.
Each restricted stock award is evidenced by an award agreement
that sets forth the terms and conditions of the award. The Board sets the terms of the restricted
stock awards including the size of the restricted stock award, the price (if any) to be paid by the
recipient and the vesting schedule. The restricted stock award may vest based on continued
employment. If a participants service terminates before the restricted stock is fully vested, all
of the unvested shares may be forfeited to, or repurchased by, the Company, as provided for in the
restricted stock award agreement.
Terms of Restricted Stock Unit Awards.
A restricted stock unit is a right to receive stock or cash
equal to the value of a share of stock at the end of a set period. No stock is issued at the time
of grant. Each restricted stock unit award is evidenced by an agreement that sets forth the terms
and conditions of the award. The Board sets the terms of the restricted stock unit award,
including the size of the restricted stock unit award, the consideration (if any) to be paid by the
recipient, the vesting schedule and the form (stock or cash) in which the award will be settled.
When a participants service terminates, the unvested portion of the restricted stock unit award
will be forfeited unless otherwise provided in the restricted stock unit award agreement.
Terms of Stock Appreciation Rights.
A stock appreciation right, or SAR, is the right to receive
the appreciation in the fair market value of the Companys common stock between the date of grant
and the exercise date for the number of shares of the Companys common stock that are exercised.
Each SAR is evidenced by an agreement specifying the exercise price, vesting schedule, number of
shares granted and the other terms of the SAR. When a SAR is exercised, the holder is entitled to
an amount equal to the difference between (a) the fair market value of a share of the Companys
common stock on the date the SAR was granted and (b) the fair market value of a share of the
Companys common stock on the date the SAR is exercised. The Company may pay the amount of the
appreciation in cash or shares of the Companys common stock, a combination of both or in any other
form of consideration determined by the Board and set forth in the SAR agreement. SARs generally
terminate three months after termination of a holders service or as set forth in the SAR
agreement.
Terms of Performance Stock Awards
. A performance stock award may be granted, may vest, or may be
exercised upon achievement of pre-determined performance goals. A performance stock award may
require the completion of a specified period of continuous service. The length of any performance
period, the performance goals to be achieved during the performance period and the measure of
whether and to what degree such performance goals have been attained will be determined by the
Board or a committee of the Board. The maximum number of shares of the Companys common stock that
may be granted to any participant in a calendar year attributable to performance stock awards under
the 2010 Plan shall not exceed 1,000,000 shares of stock. In addition, to the extent permitted by
applicable law and the award agreement, the Board (or committee as applicable) may determine that
cash may be used in payment of performance stock awards.
Terms of Performance Cash Awards
. A performance cash award is a cash award that is paid upon the
achievement of performance goals during a performance period. A performance cash award may also
require the completion of a specified period of continuous service. The length of any performance
period, the performance goals to be achieved during the performance period and the measure of
whether and to what degree such performance goals have been attained will be determined by the
Board or a committee of the Board. The Board (or committee as applicable) may specify the form of
payment of performance cash awards, which may be cash or other property, or may provide for a
participant to have an election for his or her performance cash award, or such portion thereof as
the Board (or committee as applicable) may specify, to be paid in whole or in part in cash or other
property. The maximum value that may be granted to any participant in a calendar year attributable
to performance cash awards under the 2010 Plan shall not exceed $500,000.
Terms of Other Stock Awards.
The Board may grant other incentive awards that are based in whole or
in part by reference to the value of the Companys common stock. Subject to the provisions of the
2010 Plan, the Board has the authority to determine the persons to whom and the dates on which such
other stock awards will be granted, the number of shares of common stock (or cash equivalents) to
be subject to each award, and other terms and conditions of such awards. Such awards may be
granted either alone or in addition to other stock awards granted under the 2010 Plan.
Corporate Transactions.
In the event of a corporate transaction (as such term is defined in the
2010 Plan), outstanding stock awards under the 2010 Plan may be assumed, continued, or substituted
by the surviving corporation. If the surviving corporation does not assume, continue, or
substitute such stock awards, then the vesting and exercisability provisions of stock awards will
be accelerated in full and such stock awards will be terminated if not exercised prior to the
effective time of the corporate transaction. Notwithstanding the foregoing, if a stock award would
terminate if not exercised prior to the effective time of a corporate transaction, the Board, in
its sole discretion, may provide that the holder of such stock award may not exercise it but
instead will receive a payment, in such form as may be determined by the Board, equal in value to
the excess, if any, of the value of the property such holder would have received upon exercise of
the stock award over any exercise price payable by such holder in connection with such exercise.
Changes in Control.
In the event of a change in control (as such term is defined in the 2010
Plan), the vesting of all outstanding stock awards will be accelerated in full and any repurchase
rights held by the Company in respect to such stock awards will lapse.
Suspension or Termination.
The Board may suspend or terminate the 2010 Plan at any time. The 2010
Plan is scheduled to terminate on July 13, 2020. No awards may be granted under the 2010 Plan
while the 2010 Plan is suspended or after it is terminated.
A copy of the 2010 Plan is included as Exhibit 10.1 to this Form 8-K. This summary is qualified in
its entirety by the full text of the 2010 Plan, which is incorporated by reference herein.
2. Equity Awards to Named Executive Officers
On July 14, 2010, the Board approved the grant of stock options to purchase an aggregate of 322,000
shares of the Companys common stock under its 2010 Plan to its named executive officers, as
identified in the Companys Annual Report on Form 10-K for the year ended December 31, 2009, as
follows:
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Number of Shares
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Vesting
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Subject to Option
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Commencement
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Name
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Granted
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Date
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J.J. Finkelstein
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125,000
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July 14, 2010
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President and Chief
Executive Officer
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C. Neil Lyons
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98,500
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July 14, 2010
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Chief Financial Officer
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David R. Crockford
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98,500
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July 14, 2010
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V.P. Clinical and
Regulatory Affairs
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All of the above options have a term of seven years and an exercise price of $0.27 per share, which
was the closing price of the Companys common stock quoted on the NYSE Amex stock exchange on July
14, 2010, the date of grant.
The shares subject to the option awards vest in equal annual installments over four years, with 25%
of the shares subject to each option award vesting on each anniversary of the vesting commencement
date until all shares are fully vested, subject in each case to the officer continuing to be an
employee of the Company.
The remaining terms and conditions of the above awards are set forth in the 2010 Plan and the forms
of Option Agreement and Stock Option Grant Notice, included as Exhibits 10.1 and 10.2 to this Form
8-K, and are qualified in their entirety by reference thereto.
Item 5.07 Submission of Matters to a Vote of Security Holders.
The Company held its 2010 Annual Meeting of Stockholders on July 14, 2010. On June 1, 2010, the
Company filed its definitive proxy statement with the Securities and Exchange Commission that
described in detail each of the three proposals submitted to the Companys stockholders at the
meeting. Represented at the meeting, in person or by proxy, were shares representing 54,169,240
votes, or approximately 75.3% of the issued and outstanding shares entitled to vote. The final
results for the votes cast with respect to each proposal are set forth below.
Proposal 1: Election of Directors
Our stockholders elected each of the five directors nominated by our Board to serve until the next
annual meeting and until their successors are duly elected and qualified. The tabulation of votes
on this matter was as follows:
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Shares
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Shares
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Nominee
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Voted For
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Withheld
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Allan L. Goldstein
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33,383,407
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869,690
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J.J. Finkelstein
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33,352,117
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900,980
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Joseph C. McNay
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33,796,011
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457,086
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Mauro Bove
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33,742,642
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510,455
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L. Thompson Bowles
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33,775,024
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478,073
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There were also 19,916,143 shares as to which brokers indicated that they did not have the
authority to vote (broker non-votes).
Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm
The Companys stockholders ratified the selection of Reznick Group, P.C. as independent registered
public accounting firm for the fiscal year ending December 31, 2010. The tabulation of votes on
this matter was as follows: 52,386,189 votes for, to 1,647,251 votes against, with 135,800 votes
abstaining.
Proposal 3: Approval of the Companys 2010 Equity Incentive Plan
The Companys stockholders approved the Companys 2010 Equity Incentive Plan with the tabulation of
votes as follows: 32,888,385 votes for, to 1,282,348 votes against, with 82,364 votes abstaining
and 19,916,143 broker non-votes.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
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Exhibit No.
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Description
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10.1
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RegeneRx Biopharmaceuticals, Inc. 2010 Equity Incentive Plan
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10.2
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Forms of Stock Option Grant Notice and Option Agreement under
2010 Equity Incentive Plan
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* * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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REGENERX BIOPHARMACEUTICALS, INC.
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Date: July 20, 2010
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By:
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/s/ J.J. Finkelstein
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Name:
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J.J. Finkelstein
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Title:
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President and Chief Executive Officer
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EXHIBIT INDEX
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Exhibit No.
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Description
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10.1
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RegeneRx Biopharmaceuticals, Inc. 2010 Equity Incentive Plan
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10.2
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Forms of Stock Option Grant Notice and Option Agreement under
2010 Equity Incentive Plan
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant
þ
Filed by a Party other than the Registrant
o
Check the appropriate box:
o
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Preliminary Proxy Statement
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o
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
)
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þ
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Definitive Proxy Statement
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o
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Definitive Additional Materials
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o
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Soliciting Material Pursuant to §240.14a-12
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RegeneRx Biopharmaceuticals, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ
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No fee required.
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o
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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o
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Fee paid previously with preliminary materials.
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o
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Allan L. Goldstein, Ph.D.
Chairman and Chief Scientific Officer
June 1, 2010
Dear Fellow Stockholder:
You are cordially invited to attend the 2010 Annual Meeting (the Meeting) of Stockholders of
RegeneRx Biopharmaceuticals, Inc. (the Company), to be held at 11:00 a.m., Eastern Daylight Time,
on Wednesday, July 14, 2010, at the offices of Cooley LLP, One Freedom Square, Reston Town Center,
11951 Freedom Drive, Reston, VA 20190.
An important aspect of the Meeting process is the stockholder vote on corporate business
items. I urge you to exercise your rights as a stockholder to vote and participate in this process.
Stockholders are being asked to consider and vote upon: (i) the election of five directors of the
Company, (ii) the ratification of the appointment of Reznick Group, P.C. as the Companys
independent registered public accounting firm for the year ending December 31, 2010 and (iii)
approval of the 2010 Equity Incentive Plan.
The Board of Directors has determined that the matters to be considered at the Meeting are in
the best interests of the Company and its stockholders.
For the reasons set forth in the Proxy
Statement, the Board unanimously recommends that you vote FOR each of the Board of Directors
nominees as directors specified under Proposal 1; FOR the ratification of the appointment of the
independent registered public accounting firm specified under Proposal 2; and FOR the adoption of
the 2010 Equity Incentive Plan under Proposal 3.
I encourage you to attend the Meeting in person. Whether or not you plan to attend,
please
vote your shares and sign, date and return the proxy mailed to you, or vote over the telephone or
the Internet as instructed in these materials. as promptly as possible
. This will save the Company
additional expense in soliciting proxies and will ensure that your shares are represented at the
Meeting.
Your Board of Directors and management are committed to the success of the Company and the
enhancement of the value of your investment. I want to express my appreciation for your confidence
and support.
Very truly yours,
Allan L. Goldstein, Ph.D.
Chairman of the Board
RegeneRx Biopharmaceuticals, Inc. | 15245 Shady Grove Road, Suite 470, Rockville, MD 20850
PHONE 301.208.9191 | FAX 301.208.9194 | WEB www.regenerx.com
2
REGENERX BIOPHARMACEUTICALS, INC.
15245 Shady Grove Road, Suite 470
Rockville, Maryland 208150
(301) 208-9191
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On July 14, 2010
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of RegeneRx
Biopharmaceuticals, Inc., a Delaware corporation (the Company). The meeting will be held on
Wednesday, July 14, 2010 at 11:00 a.m. local time at the offices of Cooley LLP, One Freedom Square,
Reston Town Center, 11951 Freedom Drive, Reston, VA 20190, for the following purposes:
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1.
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To elect the Boards five nominees for director to serve until the 2011 Annual
Meeting of Stockholders and until their successors are elected and qualified.
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2.
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To ratify the selection by the Audit Committee of the Board of Directors of
Reznick Group, P.C. (Reznick) as independent registered public accounting firm of the
Company for its fiscal year ending December 31, 2010.
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3.
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To approve the
Companys 2010 Equity Incentive Plan.
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4.
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To conduct any other business properly brought before the meeting.
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These items of business are more fully described in the Proxy Statement accompanying this
Notice.
The record date for the Annual Meeting is May 24, 2010. Only stockholders of record at the
close of business on that date may vote at the meeting or any adjournment thereof.
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By Order of the Board of Directors
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Allan L. Goldstein, Ph.D.
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Chairman of the Board
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Bethesda, Maryland
June 1, 2010
You are cordially invited to attend the meeting in person. Whether or not you expect to attend
the meeting, please complete, date, sign and return the proxy that we may mail to you, or vote over
the telephone or the Internet as instructed in these materials, as promptly as possible in order to
ensure your representation at the meeting. Even if you have voted by proxy, you may still vote in
person if you attend the meeting. Please note, however, that if your shares are held of record by a
broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued
in your name from that record holder.
3
REGENERX BIOPHARMACEUTICALS, INC.
15245 Shady Grove Road, Suite 470
Rockville, Maryland 208150
(301) 208-9191
PROXY STATEMENT
FOR THE 2010 ANNUAL MEETING OF STOCKHOLDERS
July 14, 2010
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING
Why did I receive a notice regarding the availability of proxy materials on the Internet?
Pursuant to rules adopted by the Securities and Exchange Commission (the SEC), we have
elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a
Notice of Internet Availability of Proxy Materials (the Notice) to our stockholders of record.
All stockholders will have the ability to access the proxy materials on the website referred to in
the Notice or request to receive a printed set of the proxy materials. Instructions on how to
access the proxy materials over the Internet or to request a printed copy may be found in the
Notice.
We intend to mail the Notice on or about June 1, 2010 to all stockholders of record entitled
to vote at the annual meeting.
Will I receive any other proxy materials by mail?
We may send you a proxy card, along with a second Notice, on or after June 11, 2010.
How do I attend the annual meeting?
The meeting will be held on Wednesday, July 14, 2010 at 11:00 a.m. local time at the offices
of Cooley LLP, One Freedom Square, Reston Town Center, 16th Floor, 11951 Freedom Drive, Reston,
Virginia 20190. Directions to the annual meeting may be found at:
http://www.cooley.com/about/office_detail.aspx?OfficeID=000036907003
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Information on how to vote in person at the annual meeting is discussed below.
Who can vote at the annual meeting?
Only stockholders of record at the close of business on May 24, 2010 will be entitled to vote
at the annual meeting. On this record date, there were 71,906,828 shares of Common Stock
outstanding and entitled to vote.
Stockholder of Record: Shares Registered in Your Name
If on May 24, 2010 your shares were registered directly in your name with our transfer agent,
American Stock Transfer & Trust, then you are a stockholder of record. As a stockholder of record,
you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the
meeting, we urge you to fill out and return a proxy card or vote by proxy over the telephone or on
the Internet as instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on May 24, 2010 your shares were held, not in your name, but rather in an account at a
brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of
shares held in street name and the Notice is being forwarded to you by that organization. The
organization holding your account is considered to be the stockholder of record for purposes of
voting at the annual meeting. As a beneficial owner, you have the right to direct your broker or
other agent regarding how to vote the shares in your account. You are also invited to attend the
annual meeting. However, since you are not the stockholder of record, you may not vote your shares
in person at the
meeting unless you request and obtain a valid proxy from your broker, bank or other agent.
4
What am I voting on?
There are three matters scheduled for a vote:
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Election of five directors;
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Ratification of the selection of Reznick Group, P.C., or Reznick, by our Audit
Committee as our independent registered public accounting firm for the fiscal year
ending December 31, 2010; and
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Approval of our 2010 Equity Incentive Plan.
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What if another matter is properly brought before the meeting?
The Board of Directors knows of no other matters that will be presented for consideration at
the Annual Meeting. If any other matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote on those matters in accordance
with their best judgment.
How do I vote?
You may either vote For all the nominees to the Board or you may Withhold your vote for
any nominee you specify. For each of the other matters to be voted on, you may vote For or
Against or abstain from voting. The procedures for voting are fairly simple:
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at the annual meeting, vote by
proxy over the telephone, vote by proxy on the Internet or vote by proxy using a proxy card that
you may request as set forth above or that we may deliver at a later time. Whether or not you plan
to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person even if you have already voted by proxy.
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To vote in person, come to the annual meeting and we will give you a ballot when you
arrive.
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To vote using the proxy card, simply complete, sign and date the proxy card that may
be delivered and return it promptly in the envelope provided. If you return your signed
proxy card to us before the annual meeting, we will vote your shares as you direct.
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To vote over the telephone, dial toll-free 800-690-6903 using a touch-tone phone and
follow the recorded instructions. You will be asked to provide the company number and
control number from the Notice. Your vote must be received by 11:59 p.m. Eastern time
on July 13, 2010 to be counted.
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To vote on the Internet, go to http://www.proxyvote.com to complete an electronic
proxy card. You will be asked to provide the company number and control number from the
Notice. Your vote must be received by 11:59 p.m. Eastern time on July 13, 2010 to be
counted.
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Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank, or other
agent, you should have received a Notice containing voting instructions from that organization
rather than from us. Simply follow the voting instructions in the Notice to ensure that your vote
is counted. To vote in person at the annual meeting, you must obtain a valid proxy from your
broker, bank, or other agent. Follow the instructions from your broker or bank included with these
proxy materials, or contact your broker or bank to request a proxy form.
We provide Internet proxy voting to allow you to vote your shares online, with procedures
designed to ensure the authenticity and correctness of your proxy vote instructions. However,
please be aware that you must bear any costs associated with your Internet access, such as usage
charges from Internet access providers and telephone companies.
5
How many votes do I have?
On each matter to be voted upon, you have one vote for each share of Common Stock you own as
of May 24, 2010.
What if I return a proxy card or otherwise vote but do not make specific choices?
If you return a signed and dated proxy card or otherwise vote without marking voting
selections, your shares will be voted, as applicable, For the election of all five nominees for
director, For the ratification of the appointment of Reznick as our independent registered public
accounting firm for the year ending December 31, 2010 and For approval of the 2010 Equity
Incentive Plan. If any other matter is properly presented at the meeting, your proxyholder (one of
the individuals named on the proxy card) will vote your shares using his best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these proxy materials,
our directors and employees may also solicit proxies in person, by telephone, or by other means of
communication. Directors and employees will not be paid any additional compensation for soliciting
proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding
proxy materials to beneficial owners.
What does it mean if I receive more than one Notice?
If you receive more than one Notice, your shares may be registered in more than one name or in
different accounts. Please follow the voting instructions on the Notices to ensure that all of your
shares are voted.
Can I change my vote after submitting my proxy or revoke my proxy?
Yes. You can revoke your proxy at any time before the final vote at the meeting. If you are
the record holder of your shares, you may revoke your proxy in any one of the following ways:
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You may submit another properly completed proxy card with a later date.
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You may grant a subsequent proxy by telephone or on the Internet.
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You may send a timely written notice that you are revoking your proxy to the
Companys Secretary at 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850.
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You may attend the annual meeting and vote in person. Simply attending the meeting
will not, by itself, revoke your proxy.
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Your most current proxy card or telephone or Internet proxy is the one that is counted.
If your shares are held by your broker or bank as a nominee or agent, you should follow the
instructions provided by your broker or bank.
When are stockholder proposals due for next years annual meeting?
To be considered for inclusion in next years proxy materials, your proposal must be submitted
in writing by February 1, 2011, to the Companys Secretary at 15245 Shady Grove Road, Suite 470,
Rockville, Maryland 20850. If you wish to bring a matter before the stockholders at next years
annual meeting outside of our proxy materials and you do not notify us before April 17, 2011, for
all proxies we receive, the proxyholders will have discretionary authority to vote on the matter,
including discretionary authority to vote in opposition to the matter. If you wish to nominate a
director for election at next years annual meeting, any such nomination shall be made by notice,
in writing, to the Companys Secretary not less than 14 days, nor more than 50 days, prior to the
meeting. You are also advised to review our bylaws, which contain additional requirements about
advance notice of director nominations.
6
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will
separately count For and Withhold and, with respect to proposals other than the election of
directors, Against votes, abstentions and broker non-votes. Abstentions will be counted towards
the vote total for each proposal, and will have the same effect as Against votes. Broker
non-votes have no effect and will not be counted towards the vote total for any proposal.
What are broker non-votes?
Broker non-votes occur when a beneficial owner of shares held in street name does not give
instructions to the broker or nominee holding the shares as to how to vote on matters deemed
non-routine. Generally, if shares are held in street name, the beneficial owner of the shares is
entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial
owner does not provide voting instructions, the broker or nominee can still vote the shares with
respect to matters that are considered to be routine, but not with respect to non-routine
matters. Under the rules and interpretations of the New York Stock Exchange (NYSE), non-routine
matters are matters that may substantially affect the rights or privileges of stockholders, such as
mergers, shareholder proposals and, for the first time under a recent amendment to the NYSE rules,
elections of directors, even if not contested. Even though we are listed on the NYSE Amex stock
exchange, the NYSE rules apply to brokers who are NYSE members voting on matters being submitted to
stockholders at our annual meeting.
How many votes are needed to approve each proposal?
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For the election of directors, the five nominees receiving the most For votes
(from the holders of votes of shares present in person or represented by proxy and
entitled to vote on the election of directors) will be elected. Only votes For or
Withheld will affect the outcome.
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To be approved, Proposal No. 2, the ratification of the appointment of Reznick as
our independent registered public accounting firm for the year ending December 31,
2010, must receive For votes from the holders of a majority of shares present and
entitled to vote either in person or by proxy. If you Abstain from voting, it will
have the same effect as an Against vote. Broker non-votes will have no effect.
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To be approved, Proposal No. 3, the approval of the 2010 Equity Incentive Plan, must
receive For votes from the holders of a majority of shares present and entitled to
vote either in person or by proxy. If you Abstain from voting, it will have the same
effect as an Against vote. Broker non-votes will have no effect.
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What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if
stockholders holding at least a majority of the outstanding shares entitled to vote are present at
the meeting in person or represented by proxy. On the record date, there were 71,906,828 shares
outstanding and entitled to vote. Thus, the holders of 35,953,415 shares must be present in person
or represented by proxy at the meeting to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is
submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the
meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there
is no quorum, the holders of a majority of shares present at the meeting in person or represented
by proxy may adjourn the meeting to another date.
How can I find out the results of the voting at the annual meeting?
Preliminary voting results will be announced at the annual meeting. In addition, final voting
results will be published in a current report on Form 8-K that we expect to file within four
business days after the annual meeting. If final voting results are not available to us in time to
file a Form 8-K within four business days after the meeting, we intend to file a Form 8-K to
publish preliminary results and, within four business days after the final results are known to us,
file an additional Form 8-K to publish the final results.
7
PROPOSAL 1
ELECTION OF DIRECTORS
The Companys Board of Directors currently consists of six directors. The Board of Directors
has approved a reduction in the authorized size of the board from six members to five members,
effective as of the conclusion of the annual meeting. As a result, there are five nominees for
director this year. One of our current directors, Richard J. Hindin, has not been nominated for
re-election at the annual meeting, and his term will expire at that time. Each director to be
elected and qualified will hold office until the next Annual Meeting of Stockholders and until his
successor is elected and qualified, or, if sooner, until the directors death, resignation or
removal. Each of the nominees listed below is currently a director of the Company who was
previously elected by the stockholders. It is the Companys policy to encourage nominees for
directors to attend the Annual Meeting. Four of our six current directors attended the 2009 Annual
Meeting of Stockholders.
Directors are elected by a plurality of the votes of the holders of shares present in person
or represented by proxy and entitled to vote on the election of directors. The five nominees
receiving the highest number of affirmative votes will be elected. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election of the five nominees
named below. If any nominee becomes unavailable for election as a result of an unexpected
occurrence, your shares may be voted for the election of a substitute nominee proposed by the
Company. Each person nominated for election has agreed to serve if elected. The Companys
management has no reason to believe that any nominee will be unable to serve.
Nominees
The following is a brief biography of each nominee for director and a discussion of the
specific experience, qualifications, attributes or skills of each nominee that led the board to
recommend that person as a nominee for director, as of the date of this proxy statement. Ages are
as of May 24, 2010.
We seek to assemble a board that, as a whole, possesses the appropriate balance of
professional and industry knowledge. financial expertise and high-level management experience
necessary to oversee and direct our business. To that end, our board intends to maintain membership
of directors who complement and strengthen the skills of other members and who also exhibit
integrity, collegiality, sound business judgment and other qualities that we view as critical to
effective functioning of the board. The brief biographies below include information, as of the date
of this proxy statement, regarding the specific and particular experience, qualifications,
attributes or skills of each director or nominee that led the board to believe that the director
should serve on the board.
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Director
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Name
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Age
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Principal Occupation/Position Held
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since
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Allan L. Goldstein
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72
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Former Chairman, Department of Biochemistry
and Molecular Biology, The George Washington
University School of Medicine and Health
Sciences; Founder, Chairman of the Board and
Chief Scientific Advisor
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1982
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J.J. Finkelstein
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58
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President, Chief Executive Officer and Director
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2002
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Joseph C. McNay
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76
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Chairman, Chief Investment Officer and
Managing Principal, Essex Investment
Management Company
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1987
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Mauro Bove
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55
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Head of Corporate and Business Development and
Director, Sigma-Tau Finanziaria S.p.A and
certain of its affiliates
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2004
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L. Thompson Bowles
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78
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Retired, former thoracic surgeon and former
Dean of Medicine and Professor of Surgery, The
George Washington University School of
Medicine and Health Sciences
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2006
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8
Dr. Goldstein
has served as the Chairman of our Board of Directors and our Chief Scientific
Advisor since he founded our company in 1982. Dr. Goldstein has been a Professor of Biochemistry
since 1978 and served as Chairman of the Department of Biochemistry and Molecular Biology at the
George Washington University School of Medicine and Health Sciences until 2009. Dr. Goldstein is
a recognized expert in the field of immunology and protein chemistry, having authored over 430
scientific articles in professional journals. He is also the inventor on over 25 issued and/or
pending patents in biochemistry, immunology, cardiology, cancer and wound healing. Dr. Goldstein
discovered several important compounds, including T
a
1, which is marketed worldwide, and
T
b
4, which is the basis for RegeneRxs clinical program. Dr. Goldstein has served on the
Board of Trustees of the Sabin Vaccine Institute since 2000 and on the Board of Directors of the
Richard B. and Lynne V. Cheney Cardiovascular Institute since 2006. Dr. Goldstein has also done
pioneering work in the area of medical education, developing distance learning programs offered
through Frontiers in Medicine, a medical education series that Dr. Goldstein developed. The
Board believes that Dr. Goldsteins scientific expertise, industry background and prior
experience as our founder all position him to make an effective contribution to the medical and
scientific understanding of the Board, which the Board believes to be particularly important as
we continue our T
b
4 development efforts.
Mr. Finkelstein
has served as our President and Chief Executive Officer and a member of our
Board of Directors since 2002. Mr. Finkelstein also served as our Chief Executive Officer from
1984 to 1989 and as the Vice Chairman of our Board of Directors from 1989 to 1991.
Mr. Finkelstein has worked as an executive officer and consultant in the bioscience industry for
the past 28 years, including serving from 1989 to 1996 as chief executive officer of Cryomedical
Sciences, Inc., a publicly-traded medical device company. Mr. Finkelstein has significant
experience in developing early-stage companies. He has been responsible for the regulatory
approval and marketing of several medical devices in the U.S. and abroad. Mr. Finkelstein has
served on the executive committee of the Board of Directors of the Technology Council of Maryland
since 2006, MdBio, Inc. since 1998 and currently chairs the MdBio Foundation, all of which are
non-profit entities that support bioscience development and education in the State of Maryland.
Mr. Finkelstein received a business degree in finance from the University of Texas. The Board
believes that Mr. Finkelsteins history and long tenure as our Chief Executive Officer positions
him to contribute to the Board his extensive knowledge of our company and to provide Board
continuity. In addition, the Board believes that his experience at prior companies has provided
him with operational and industry expertise, as well as leadership skills that are important to
the Board.
Mr. McNay
has served as a member of our Board of Directors since 2002. He is currently
Chairman, Chief Investment Officer and Managing Principal of Essex Investment Management Company,
LLC, positions he has held since 1976 when he founded Essex. He has direct portfolio management
responsibilities for a variety of funds and on behalf of private clients. He is also a member of
the firms Management Board. Prior to founding Essex, Mr. McNay was Executive Vice President and
Director of Endowment Management & Research Corp. from 1967. Prior to that, Mr. McNay was Vice
President and Senior Portfolio Manager at the Massachusetts Company. Currently he is serving as
Trustee of National Public Radio, Trustee of the Dana Farber Cancer Institute, and is a Trustee
and member of the Childrens Hospital Investment Committee. He received his A.B. degree from Yale
University and his M.B.A. degree in finance from the Wharton School of the University of
Pennsylvania. The Board believes that Mr. McNays extensive financial experience is valuable to
our business and also positions him to contribute to the Audit Committees understanding of
financial matters.
Mr. Bove
has served as a member of our Board of Directors since 2004 and has more than 25
years of business and management experience within the pharmaceutical industry. Mr. Bove is
currently the Head of Corporate & Business Development and serves on the board of Sigma-Tau
Finanziaria S.p.A., the holding company of Sigma-Tau Group, a leading international
pharmaceutical company, and certain Sigma-Tau affiliates, positions he has held since 1993.
Sigma-Tau Finanziaria S.p.A. and its affiliates are collectively our largest stockholder.
Mr. Bove has also held a number of senior positions in business, licensing and corporate
development within Sigma-Tau Group, which has subsidiaries in most European countries and the
United States. Mr. Bove obtained his law degree at the University of Parma, Italy, in 1980. In
1985, he attended the Academy of American and International Laws at the International and
Comparative Law Center, Dallas, Texas. The Board believes that Mr. Boves extensive business and
management experience within the pharmaceutical industry allows him to recognize and advise the
Board with respect to recent industry developments.
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Dr. Bowles
has served as a member of our Board of Directors since 2006. He retired from his
career as a thoracic surgeon in 1988. Dr. Bowles served as Dean of Medicine and Professor of
Surgery at The George Washington University (GWU) School of Medicine and Health Sciences from
1976 to 1988 and as Vice President for Medical Affairs and Executive Dean of the GWU Medical
Center from 1988 to 1992. Dr. Bowles previously served as President of the National Board of
Medical Examiners, a medical accrediting organization, from 1992 to 2000. He has also been a
member of the National Academy of Sciences Institute of Medicine since 1988 and currently serves
as a member of several other national medical societies including: The American College of
Surgeons, The American Association for Thoracic Surgery, The Society of Thoracic Surgeons, The
American College of Chest Physicians, The American Gerontological Society, The Society of Medical
Administrators, The College of Physicians of Philadelphia, and The Washington Academy of
Surgeons. Dr. Bowles has served on the editorial board of a number of medical journals, including
the Journal of Medical Education and continued on as chairman of its newly revised updated
version, Academic Medicine. Dr. Bowles has been President of the District of Columbias medical
licensing board called the Healing Arts Commission (1977-1979), and was a member of the National
Library of Medicines Board of Regents (1982-1986), chairman (1984-1986), member of the Special
Medical Advisory Group of Veterans Administration (now Dept. of Veterans Affairs) 1984-1992,
chairman 1992-1994. Dr. Bowles was also chairman of the National Committee on Foreign Medical
Education and Accreditation, 1994-1996. Dr. Bowles received his medical degree from Duke
University and his Ph.D. in higher education from New York University. The Board believes that
Dr. Bowles distinguished medical career positions him to bring extensive medical and clinical
trial experience to the Board. The Board expects that this experience will permit Dr. Bowles to
provide leadership and insight as we translate our laboratory discoveries into human clinical
trials and advance our product candidates through clinical development toward commercialization.
The Board of Directors Recommends
A Vote In Favor Of Each Named Nominee.
10
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Independence of the Board of Directors
As required under the NYSE Amex LLC (AMEX) listing standards, a majority of the members of a
listed companys board of directors must qualify as independent, as affirmatively determined by
the Board. The Board consults with the Companys outside counsel to ensure that the Boards
determinations are consistent with relevant securities and other laws and regulations regarding the
definition of independent, including those set forth in pertinent listing standards of the AMEX,
as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or
relationships between each director, or any of his family members, and the Company, its senior
management and its independent auditors, the Board has affirmatively determined that the following
four directors are independent directors within the meaning of the applicable AMEX listing
standards: Mr. Hindin, Mr. Bove, Mr. McNay and Dr. Bowles. In making this determination, the Board
found that none of these directors had a material or other disqualifying relationship with the
Company. Mr. Finkelstein, the Companys President and Chief Executive Officer, and Dr. Goldstein,
the Companys Chief Scientific Advisor, are not independent directors by virtue of their employment
with the Company. In determining the independence of Mr. Bove, the board of directors took into
account the significant ownership of our common stock by Sigma-Tau and its affiliates. The board of
directors does not believe that any of the transactions with Sigma-Tau and its affiliates described
would interfere with Mr. Boves exercise of independent judgment in carrying out his
responsibilities as a director of our company.
Board Leadership Structure
The Board has a chairman, Dr. Goldstein, who has authority, among other things, to call and
preside over Board meetings, to set meeting agendas and to determine materials to be distributed to
the Board. Accordingly, the Chairman has substantial ability to shape the work of the Board. We
believe that separation of the positions of Chairman and Chief Executive Officer reinforces the
independence of the Board in its oversight of our business and affairs. In addition, we believe
that having a separate Chairman creates an environment that is more conducive to objective
evaluation and oversight of managements performance, increasing management accountability and
improving the ability of the Board to monitor whether managements actions are in our best
interests and those of our stockholders.
Role of the Board in Risk Oversight
One of the Boards key functions is informed oversight of our risk management process. The
Board does not have a standing risk management committee, but rather administers this oversight
function directly through the Board as a whole, as well as through various Board standing
committees that address risks inherent in their respective areas of oversight. Our audit committee
has the responsibility to consider and discuss our major financial risk exposures and the steps our
management has taken to monitor and control these exposures, including guidelines and policies to
govern the process by which risk assessment and management is undertaken. Our compensation
committee assesses and monitors whether any of our compensation policies and programs has the
potential to encourage excessive risk-taking.
Meetings of the Board of Directors
The Board met eight times during the last fiscal year. Each Board member attended 75% or more
of the aggregate number of meetings of the Board and of the committees on which he served.
11
Information Regarding Committees of the Board of Directors
The Board has two standing committees: an Audit Committee and a Compensation Committee. The
Board does not have a separate nominating and corporate governance committee. Rather, the
independent members of the full Board perform the functions of a nominating and corporate
governance committee. The following table provides membership and meeting information for fiscal
2009 for each of the Boards standing committees:
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Name
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Audit
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|
Compensation
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Richard Hindin
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|
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X
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*
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|
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X
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*
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Joseph McNay
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X
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|
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|
X
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|
Mauro Bove
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|
|
|
|
|
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X
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|
L. Thompson Bowles
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|
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X
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|
|
|
X
|
|
Total meetings in fiscal 2009
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7
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|
|
|
5
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|
Below is a description of each committee of the Board. Each of the committees has authority to
engage legal counsel or other experts or consultants, as it deems appropriate to carry out its
responsibilities. The Board has determined that each member of each committee meets the applicable
AMEX rules and regulations regarding independence and that each member is free of any
relationship that would impair his individual exercise of independent judgment with regard to the
Company.
Audit Committee
The Audit Committee of the Board currently consists of Messrs. Hindin and McNay and
Dr. Bowles, with Mr. Hindin acting as the Chairman of the committee. Following the annual meeting,
the Audit Committee will consist of two members, and we expect that Mr. McNay will become the
chairman of the Audit Committee. We intend to rely on Section 803B(2)(c) of the NYSE Amex Company
Guide, which permits issuers that satisfy the SECs definition of smaller reporting company to
maintain an audit committee of two members, comprised solely of independent directors determined in
accordance with Section 803A of the AMEX Company Guide and who also satisfy the requirements of
Rule 10A-3 of the Exchange Act. The Board has determined that each of Mr. McNay and Dr. Bowles
satisfy such requirements and, furthermore, that Mr. McNay qualifies as an audit committee
financial expert as defined under SEC rules.
The Audit Committee meets no less than quarterly with management and the independent
registered public accounting firm, both jointly and separately, has sole authority to hire and fire
the Companys independent registered public accounting firm, and reviews its financial reporting
process on behalf of the Board. The Audit Committee met seven times during the 2009 fiscal year.
The Audit Committee operates under a formal written charter available on the Companys website at
www.regenerx.com.
The Audit Committee pre-approves all audit and non-audit engagement fees, and terms and
services. On an ongoing basis, management communicates specific projects and categories of services
for which advance approval of the Audit Committee is required. The Audit Committee reviews these
requests and advises management and the independent auditors if the Audit Committee pre-approves
the engagement of the independent auditors for such projects and services. On a periodic basis, the
independent auditors report to the Audit Committee the actual spending for such projects and
services compared to the approved amounts.
12
Report of the Audit Committee of the Board of Directors
The Audit Committee has reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2009, with management of the Company. The Audit Committee has discussed
with the independent auditors the matters required to be discussed by Statement on Auditing
Standards No. 61, as amended
(AICPA, Professional Standards,
Vol. 1. AU section 380), as adopted
by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Audit Committee has
also received the written disclosures and the letter from the independent accountants required by
the applicable requirements of the PCAOB regarding the independent accountants communications with
the audit committee concerning independence, and has discussed with the independent accountants the
independent accountants independence. Based on the foregoing, the Audit Committee has recommended
to the Board that the audited financial statements be included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2009.
Mr. Rick Hindin, Chairman
Mr. Joseph McNay
Dr. L. Thompson Bowles
Compensation Committee
The Compensation Committee is currently composed of four directors: Messrs. Hindin, McNay,
Bove and Dr. Bowles. Following the annual meeting, the Compensation Committee will consist of three
members, and we expect that Dr. Bowles will become the chairman of the Compensation Committee. All
members of the Companys Compensation Committee are independent, as independence is currently
defined in Section 803A of the AMEX Company Guide. The Compensation Committee met five times during
the fiscal year. The Compensation Committee has adopted a written charter that is available to
stockholders on the Companys website at www.regenerx.com.
The Compensation Committee of the Board acts on behalf of the Board to review, adopt and
oversee the Companys compensation strategy, policies, plans and programs, including:
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establishment of corporate and individual performance objectives relevant to the
compensation of the Companys chief executive officer, other executive officers and
Board members and evaluation of performance in light of these stated objectives;
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review and approval of the compensation and other terms of employment or service,
including severance and change-in-control arrangements, of the Companys Chief
Executive Officer and the other executive officers; and
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administration of the Companys equity compensation plans and other similar plan and
programs.
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Compensation Committee Processes and Procedures
Typically, the Compensation Committee meets at least two times annually and with greater
frequency if necessary. The agenda for each meeting is usually developed by the Chairman of the
Compensation Committee, in consultation with certain executive officers, including the Chief
Financial Officer. The Compensation Committee meets regularly in executive session. However, from
time to time, various members of management and other employees as well as outside advisors or
consultants may be invited by the Compensation Committee to make presentations, to provide
financial or other background information or advice or to otherwise participate in Compensation
Committee meetings. The Chief Executive Officer may not participate in, or be present during, any
deliberations or determinations of the Compensation Committee regarding his compensation or
individual performance objectives. The charter of the Compensation Committee grants the
Compensation Committee authority to obtain, at the expense of the Company, advice and assistance
from internal and external legal, accounting or other advisors and consultants and other external
resources that the Compensation Committee considers necessary or appropriate in the performance of
its duties. In particular, the Compensation Committee has the authority to retain compensation
consultants to assist in its evaluation of executive and director compensation, including the
authority to approve the consultants reasonable fees and other retention terms.
13
Historically, the Compensation Committee has made most of the significant adjustments to
annual compensation, determined bonus and equity awards and established new performance objectives
at one or more meetings held during the first half of the year. Generally, the Compensation
Committees process comprises two related elements: the determination of compensation levels and
the establishment of performance objectives for the current year. For executives other than the
Chief Executive Officer, the Compensation Committee solicits and considers evaluations and
recommendations submitted to the Compensation Committee by the Chief Executive Officer. In the case
of the Chief Executive Officer, the evaluation of his performance is conducted by the Compensation
Committee, which determines any adjustments to his compensation as well as awards to be granted.
For all executives and directors, as part of its deliberations, the Compensation Committee may
review and consider, as appropriate, materials such as financial reports and projections,
operational data, tax and accounting information, tally sheets that set forth the total
compensation that may become payable to executives in various hypothetical scenarios, executive and
director stock ownership information, company stock performance data and analyses of historical
executive compensation levels and current Company-wide compensation levels.
Nominating and Corporate Governance
The Board does not have a standing nominating and corporate governance committee. Instead,
pursuant to Section 804 of the AMEX Company Guide, the independent members of the Board, currently
consisting of Messrs. Hindin, McNay and Bove and Dr. Bowles, are responsible for performing key
nominating and corporate governance activities on behalf of the Board, including identifying,
reviewing and evaluating candidates to serve as directors of the Company, reviewing and evaluating
incumbent directors, selecting candidates for election to the Board, making recommendations to the
Board regarding the membership of the committees of the Board, assessing the performance of
management and developing and maintaining a set of corporate governance principles for the Company.
All members of the Board performing the role of a nominating and corporate governance committee are
independent (as independence is currently defined in Section 803A of the AMEX Company Guide).
In identifying and evaluating nominees for director, the Board considers whether the candidate
has the highest ethical standards and integrity and sufficient education, experience and skills
necessary to understand and wisely act upon the complex issues that arise in managing a publicly
held company. The Board also believes that it is essential that the Board members represent diverse
viewpoints. To the extent the Board does not have sufficient information to evaluate a candidate
the Board may send a questionnaire to the candidate for completion with sufficient time for Board
consideration. The Board will annually assess the qualifications, expertise, performance and
willingness to serve of existing directors. If at this time or at any other time during the year
the Board determines a need to add a new director with specific qualifications or to fill a vacancy
on the Board, a director designated by the Board will then initiate the search, seeking input from
other directors and senior management, and will also consider any nominees previously submitted by
stockholders. After identifying an initial slate of candidates satisfying the qualifications set
forth above, the Board will then prioritize the candidates and determine if other directors or
senior management have relationships with the preferred candidates and can initiate contacts. To
the extent feasible, all of the members of the Board will interview the prospective candidates.
Evaluations and recommendations of the interviewers will be submitted to the whole Board for final
evaluation. The Board will meet to consider such information and to select candidates for
appointment to the Board at the annual meeting. The independent members of the Board nominated the
five directors set forth in Proposal 1 for election at the 2010 annual meeting.
14
Nominations For Election To The Board
While the Board will consider nominees recommended by stockholders, the Board has not actively
solicited such nominations. The Board does not intend to alter the manner in which it evaluates
candidates based on whether or not the candidate was recommended by a stockholder. Pursuant to the
Companys bylaws, nominations for election as directors by stockholders at a meeting of
stockholders called for the election of directors must be made in writing and delivered to the
Companys Secretary not less than fourteen days nor more than fifty days prior to the date of the
meeting. If, however, notice of the meeting is given to stockholders less than twenty-one days
prior to the meeting, the nominations must be received by the close of business on the seventh day
following the day on which notice of the meeting was mailed to stockholders. Each such notice shall
set forth, with respect to each nominee, (i) his or her name, age, business address and, if known,
residence address, (ii) his or her principal occupation or employment, and (iii) the number of
shares of stock of the Company beneficially owned by the nominee. As of the
date of this proxy statement, the Company has not received any such nominations from
stockholders in connection with the annual meeting.
Stockholder Communications With The Board Of Directors
The Company has established procedures for its security holders to communicate directly with
the Board on a confidential basis. Security holders who wish to communicate with the Board or with
a particular director may send a letter to the Secretary of the Company at 15245 Shady Grove Road,
Suite 470, Rockville, Maryland 20850. The mailing envelope must contain a clear notation indicating
that the enclosed letter is a Security Holder-Board Communication or Security Holder-Director
Communication. All such letters must identify the author as a security holder and clearly state
whether the intended recipients are all members of the Board or specified individual directors. The
Secretary will make copies of all such letters and circulate them to the directors addressed. If a
security holder wishes the communication to be confidential, such security holder must clearly
indicate on the envelope that the communication is confidential. The Secretary will then forward
such communication, unopened, to the individual indicated.
Code Of Ethics
We have adopted a corporate code of conduct and ethics that applies to all of our employees,
officers and directors, as well as a separate code of ethics that applies specifically to our
principal executive officer and principal financial officer. The corporate code of conduct and
ethics and the code of ethics for our principal executive and financial officers are available on
our corporate website at www.regenerx.com. If we make any substantive amendments to the corporate
code of conduct and ethics or the code of ethics for our principal executive and financial
officers, or grant any waivers from a provision of these codes to any executive officer or
director, we will promptly disclose the nature of the amendment or waiver on our website.
15
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has selected Reznick Group, P.C. as the Companys independent
registered public accounting firm for the fiscal year ending December 31, 2010, and has further
directed that management submit the selection of the independent registered public accounting firm
for ratification by the stockholders at the Annual Meeting. Reznick has audited the Companys
financial statements since 2000. Representatives of Reznick are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Neither the Companys Bylaws nor other governing documents or law require stockholder
ratification of the selection of Reznick as the Companys independent auditors. However, the Audit
Committee is submitting the selection of Reznick to the stockholders for ratification as a matter
of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee
will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit
Committee in its discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote at the annual meeting will be required to ratify the
selection of Reznick. Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes. Broker non-votes are
counted towards a quorum, but are not counted for any purpose in determining whether this matter
has been approved.
Principal Accountant Fees and Services
The following table represents aggregate fees billed to us for the fiscal years ended December
31, 2009 and 2008 by Reznick Group, P.C., our independent registered public accounting firm. All
such fees described below were approved by the audit committee.
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2009
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2008
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Audit fees
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$
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76,000
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$
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51,000
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Audit-related fees
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Tax fees(1)
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25,000
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11,650
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All other fees
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Total Fees
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$
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101,000
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$
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62,650
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(1)
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Tax fees include the preparation and filing of our corporate federal and state income tax returns.
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16
Pre-Approval Policies and Procedures
Our audit committee has adopted a policy and procedures for the pre-approval of audit and
non-audit services rendered by our independent registered public accounting firm, Reznick Group,
P.C. The policy generally pre-approves specified services in the defined categories of audit
services, audit-related services, and tax services up to specified amounts. Pre-approval may also
be given as part of the audit committees approval of the scope of the engagement of the
independent registered public accounting firm or on an individual explicit case-by-case basis
before the independent registered public accounting firm is engaged to provide each service. On a
periodic basis, the independent registered public accounting firm reports to the audit committee on
the status of actual costs for approved services against the approved amounts.
The audit committee has determined that the rendering of the services other than audit
services by Reznick Group P.C. is compatible with maintaining that firms independence.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 2
.
17
PROPOSAL 3
APPROVAL OF THE 2010 EQUITY INCENTIVE PLAN
In May 2010, the Board adopted our 2010 Equity Incentive Plan, or the 2010 Plan, with such
adoption to be effective as the date of the 2010 annual meeting of our stockholders, provided that
the 2010 Plan is approved by our stockholders at the annual meeting. The total number of shares of
our common stock reserved for issuance under the 2010 Plan is 5,000,000 shares. No awards will be
granted under the 2010 Plan until after the annual meeting, if it is approved.
We have previously adopted an equity incentive plan, known as the Amended and Restated 2000
Stock Option and Incentive Plan, or the 2000 Plan. The 2000 Plan has a term of ten years that is
scheduled to expire in December 2010, and no further awards may be granted under the 2000 Plan
after the expiration date. If the 2010 Plan is approved by our stockholders, no further awards will
be granted under the 2000 Plan as of the effective date of the 2010 Plan, but all outstanding
option awards granted under the 2000 Plan will continue to be subject to the terms and conditions
as set forth in the agreements evidencing such option awards and the terms of the 2000 Plan. Shares
remaining available for issuance under the share reserve of the 2000 Plan will not be subject to
future awards under the 2010 Plan, and shares subject to outstanding awards under the 2000 Plan
that are terminated or forfeited in the future will not be subject to future awards under the 2010
Plan.
The approval of the 2010 Plan will allow us to continue to grant stock options and permit us
to grant other equity awards at levels determined appropriate by the Board. The 2010 Plan will also
provide us with flexibility in designing equity incentives in an environment where a number of
companies have moved from traditional option grants to other stock-based awards, including stock
appreciation rights, restricted stock awards, restricted stock unit awards and performance stock
awards. Further, the 2010 Plan will allow us, if deemed appropriate by the Board, to implement an
annual cash incentive program as a plan that qualifies under Section 162(m) of the Internal Revenue
Code of 1986, as amended, which we refer to in this proxy statement as the Code. Accordingly, the
2010 Plan will allow us to utilize multiple types of equity incentives and performance cash
incentives to secure and retain the services of our employees, consultants and directors, and to
provide long-term incentives that align the interests of our employees, consultants and directors
with the interests of our stockholders.
In this Proposal 3, we request that stockholders approve the 2010 Plan. The affirmative vote
of the holders of a majority of the shares present in person or represented by proxy and entitled
to vote at the meeting will be required to approve the 2010 Plan. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders and will have the
same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted
for any purpose in determining whether this matter has been approved.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 3.
18
Description of the 2010 Equity Incentive Plan
The material features of the 2010 Plan are outlined below. This summary is qualified by
reference to the complete text of the 2010 Plan. Stockholders are urged to read the actual text of
the 2010 Plan in its entirety, which is appended to this proxy statement as Appendix A.
General
The 2010 Plan provides for the grant of incentive stock options, nonstatutory stock options,
restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock
awards and other forms of equity compensation, which we refer to collectively in this proxy
statement as stock awards. Additionally, the 2010 Plan provides for the grant of performance
cash awards. Incentive stock options granted under the 2010 Plan are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code. Nonstatutory stock options
granted under the 2010 Plan are not intended to qualify as incentive stock options under the Code.
Incentive stock options may be granted only to our employees or to employees of certain of our
affiliates. All other awards may be granted to our employees, including officers, non-employee
directors, and consultants. See Federal Income Tax Information below for a discussion of the tax
treatment of awards.
Purpose
The Board adopted the 2010 Plan to provide a means by which employees, directors and
consultants of ours and certain of our affiliates may be given an opportunity to purchase our
stock, to assist us in retaining the services of such persons, to secure and retain the services of
persons capable of filling such positions and to provide incentives for such persons to exert
maximum efforts for our success and for the success of our affiliates.
Shares Available for Awards Under the 2010 Plan
If this Proposal 3 is approved, the total number of shares of our common stock reserved for
issuance under the 2010 Plan will be 5,000,000 shares.
If a stock award granted under the 2010 Plan expires or otherwise terminates without being
exercised in full, or is settled in cash, the shares of our common stock not acquired pursuant to
the stock award will again become available for issuance under the 2010 Plan. Additionally, the
following types of shares will be available for the grant of new stock awards under the 2010 Plan:
(i) shares that are forfeited to or repurchased by us prior to becoming fully vested; (ii) shares
withheld to satisfy income and employment withholding taxes; and (iii) shares tendered to us to pay
the exercise price of an option.
Eligibility
All of our employees, directors and consultants, and those of our affiliates, are eligible to
participate in the 2010 Plan and may receive all types of awards other than incentive stock
options. Incentive stock options may be granted only to our employees and to employees of certain
of our affiliates.
Administration
The Board administers the 2010 Plan. Subject to the provisions of the 2010 Plan, the Board has
the power to construe and interpret the 2010 Plan and to determine the persons to whom and the
dates on which awards will be granted, the number of shares of our common stock subject to each
award, the time or times during the term of each award within which all or a portion of such award
may be exercised, the exercise price, the type of consideration and other terms of the award.
19
The Board has the power to delegate its authority to administer the 2010 Plan to a committee
consisting solely of two or more non-employee directors within the meaning of Rule 16b-3 of the
Exchange Act, and solely of two or more outside directors within the meaning of Section 162(m) of
the Code. The Board has delegated
administration of the 2010 Plan to the Compensation Committee. As used in this proxy
statement, except as explicitly stated otherwise, with respect to the 2010 Plan, the Board refers
to any committee the Board appoints (including the Compensation Committee) as well as to the Board
itself.
Repricing; Cancellation and Re-Grant of Stock Awards
Under the 2010 Plan, the Board does not have the authority to reprice any outstanding equity
awards by reducing the exercise price of the stock award or to cancel any outstanding stock awards
in exchange for cash or other stock awards without obtaining the approval of our stockholders
within 12 months prior to the repricing or cancellation and re-grant event.
Options
Options may be granted pursuant to stock option agreements. The 2010 Plan permits the grant of
options that qualify as incentive stock options and nonstatutory stock options. Individual stock
option agreements may be more restrictive as to any or all of the permissible terms described in
this section.
Exercise Price; Consideration.
The exercise price of incentive stock options may not be less
than 100% of the fair market value of the stock subject to the option on the date of the grant and,
in some cases (see Limitations below), may not be less than 110% of such fair market value. The
exercise price of nonstatutory stock options may not be less than 100% of the fair market value of
the stock on the date of grant. As of May 25, 2010, the closing price of the Companys common stock
as reported on NYSE Amex stock exchange was $0.34 per share.
The Board will determine the acceptable forms of consideration for the purchase of common
stock issued upon the exercise of a stock option, which may include cash or check, a
broker-assisted cashless exercise, the tender of common stock previously owned by the participant,
a net exercise of the option if it is a nonstatutory stock option, and other legal consideration
approved by the Board.
Option Exercise.
Options granted under the 2010 Plan may become exercisable in cumulative
increments, or vest, at the rate specified in the option agreement as determined by the Board.
Shares covered by different options granted under the 2010 Plan may be subject to different vesting
schedules as the Board may determine. Vesting can be time-based or performance-based or can be a
hybrid of performance-based and time-based vesting. The Board also has flexibility to provide for
accelerated vesting of options and other equity awards as it deems appropriate.
Term.
The maximum term of options granted under the 2010 Plan is ten years, except that in
certain cases (see Limitations below) the maximum term is five years. Unless the terms of a
participants stock option agreement provide otherwise, if a participants service relationship
with us, or any of our affiliates, ceases for any reason other than a termination for cause or a
termination because of disability or death, the participant may exercise the vested portion of any
option for a period of three months following termination of service. If a participants service
relationship with us, or any of our affiliates, ceases due to disability or death or a participant
dies within a specified period following termination of service, the participant or a beneficiary
may exercise the vested portion of any option for a period of 12 months in the event of disability
and 18 months in the event of death. Under the 2010 Plan, the option term may be further extended
in the event that exercise of the option following termination of service is prohibited by
applicable securities laws, or the sale of any common stock received upon exercise of the option
would violate our insider trading policy. In no event, however, may an option be exercised beyond
the expiration of its term. In the event of a termination of a participants service for cause,
as defined in the 2010 Plan, the option will terminate on the termination date and the participant
may not exercise the option following such termination.
20
Limitations
. The aggregate fair market value, determined at the time of grant, of shares of
our common stock with respect to incentive options that are exercisable for the first time by a
participant during any calendar year under all of our stock plans may not exceed $100,000. The
options or portions of options that exceed this limit are treated as nonstatutory stock options. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of our total combined voting
power or that of any affiliate unless:
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the option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant; and
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the term of the incentive stock option does not exceed five years from the date
of grant.
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The aggregate maximum number of shares of our common stock that may be issued in respect of
incentive stock options is 5,000,000.
In addition, no person may be granted stock awards covering more than 1,000,000 shares of our
common stock under the 2010 Plan during any calendar year pursuant to stock options, stock
appreciation rights and other equity awards whose value is determined by reference to an increase
over an exercise or strike price of at least 100% of the fair market value on the date the stock
award is granted.
Restricted Stock Awards
A restricted stock award is the grant of shares of our common stock to a participant that may,
but need not, be subject to forfeiture or to a share repurchase option in our favor in accordance
with a vesting scheduled determined by the Board. For example, some or all of the shares of common
stock granted pursuant to a restricted stock award may be repurchased by us if a participants
service with us or with any of our affiliates terminates before a specified date (that is, before
the restricted stock award is fully vested). Restricted stock awards are granted pursuant to
restricted stock award agreements. Restricted stock awards may be granted in consideration for
cash, past or future services rendered to us or an affiliate or any other form of legal
consideration.
Restricted Stock Unit Awards
A restricted stock unit award is a promise by us to issue shares of our common stock, or to
pay cash equal to the value of shares of our common stock, equivalent to the number of units
covered by the award at the time of vesting of the units or thereafter. Restricted stock unit
awards are granted pursuant to restricted stock unit award agreements. Restricted stock unit awards
may be granted in consideration for any form of legal consideration. A restricted stock unit award
entitles the recipient to receive cash, stock, a combination of cash and stock as deemed
appropriate by the Board or any other form of consideration set forth in the restricted stock unit
award agreement at a specified date (typically, upon vesting of the restricted stock units).
Additionally, dividend equivalents may be credited in respect of shares covered by a restricted
stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock
units that have not vested will be forfeited upon the termination of the participants service for
any reason.
Stock Appreciation Rights
A stock appreciation right entitles the participant to a payment equal in value to the
appreciation in the value of the underlying shares of our common stock for a predetermined number
of shares over a specified period. Stock appreciation rights are granted pursuant to stock
appreciation right agreements. Each stock appreciation right is denominated in common stock share
equivalents. The board determines the strike price of each stock appreciation right, which may not
be less than 100% of the fair market value of our common stock on the date of grant. A stock
appreciation right entitles the recipient to receive cash, stock, a combination of cash and stock
as determined by the Board or any other form of consideration set forth in the stock appreciation
right agreement upon exercise. Upon the exercise of a stock appreciation right, we will pay the
participant an amount equal to the product of (a) the excess of the per share fair market value of
our common stock on the date of exercise over the strike price, multiplied by (b) the number of
shares of common stock with respect to which the stock appreciation right is exercised. A stock
appreciation right vests at the rate specified in the stock appreciation right agreement as
determined by the Board. Stock appreciation rights are subject to the same conditions upon
termination of a participants service and the same restrictions on transfer as stock options under
the 2010 Plan.
21
Performance Awards
The 2010 Plan permits the grant of performance-based stock and cash awards that may qualify as
performance-based compensation that is not subject to the $1,000,000 limitation on the income tax
deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the
Code. To assure that the compensation attributable to performance-based awards will so qualify, the
Compensation Committee can structure such awards so that the stock or cash will be issued or paid
pursuant to such award only following the achievement of certain pre-established performance goals
during a performance period designed by the Compensation Committee. The maximum amount covered by a
performance award that may be granted to any individual in a calendar year (whether the grant,
vesting or exercise is contingent upon the attainment during a performance period of the
performance goals) may not exceed 1,000,000 shares of our common stock in the case of performance
stock awards, or $500,000 in the case of performance cash awards.
In granting a performance award, the Compensation Committee will set a period of time (a
performance period) over which the attainment of one or more goals (performance goals) will be
measured for the purpose of determining whether the award recipient has a vested right in or to
such award. Within the time period prescribed by Section 162(m) of the Code, at a time when the
achievement of the performance goals remains substantially uncertain (typically before the 90th day
of a performance period or the date on which 25% percent of the performance period has elapsed),
the Compensation Committee will establish the performance goals, based upon one or more criteria
(performance criteria) enumerated in the 2010 Plan and described below. As soon as
administratively practicable following the end of the performance period, the Compensation
Committee will certify in writing whether the performance goals have been satisfied.
The Compensation Committee may establish performance goals by selecting from one or more of
the following performance criteria: (1) earnings (including earnings per share and net earnings);
(2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes,
depreciation and amortization; (4) total stockholder return; (5) return on equity or average
stockholders equity; (6) return on assets, investment, or capital employed; (7) stock price; (8)
margin (including gross margin); (9) income (before or after taxes); (10) operating income; (11)
operating income after taxes; (12) pre-tax profit; (13) operating cash flow; (14) sales or revenue
targets; (15) increases in revenue or product revenue; (16) expenses and cost reduction goals; (17)
improvement in or attainment of working capital levels; (18) economic value added (or an equivalent
metric); (19) market share; (20) cash flow; (21) cash flow per share; (22) share price performance;
(23) debt reduction; (24) implementation or completion of projects or processes; (25) customer
satisfaction; (26) stockholders equity; (27) capital expenditures; (28) debt levels; (29)
operating profit or net operating profit; (30) workforce diversity; (31) growth of net income or
operating income; (32) billings; (33) achievement of clinical trial milestones, such as patient
enrollment or successful completion of the trial; (34) execution of a new license agreement; (35)
receipt of a milestone payment under a license agreement; or (36) to the extent that an award is
not intended to comply with Section 162(m) of the Code, other measures of performance selected by
the Board or the Compensation Committee.
The Compensation Committee may establish performance goals on a company-wide basis, with
respect to one or more business units, divisions, affiliates, or business segments, and in either
absolute terms or relative to the performance of one or more comparable companies or the
performance of one or more relevant indices. Unless specified otherwise (a) in the award agreement
at the time the award is granted or (b) in such other document setting forth the performance goals
at the time the goals are established, the Compensation Committee will appropriately make
adjustments in the method of calculating the attainment of the performance goals as follows: (1) to
exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects, as
applicable, for non-U.S. dollar denominated goals; (3) to exclude the effects of changes to
generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments
to corporate tax rates; and (5) to exclude the effects of any extraordinary items as determined
under generally accepted accounting principles.
Compensation attributable to performance-based awards under the 2010 Plan will qualify as
performance-based compensation, provided that: (i) the award is granted by a compensation committee
comprised solely of outside directors, (ii) the award is granted (or exercisable) only upon the
achievement of an objective performance goal established in writing by the compensation committee
while the outcome is substantially uncertain, and (iii) the
compensation committee certifies in writing prior to the granting, payment or exercisability
of the award that the performance goal has been satisfied.
22
Withholding Obligations
Unless prohibited in an individual award agreement, we may satisfy any federal, state or local
tax withholding obligation relating to an award by causing the
recipient to tender a cash payment, by withholding shares of common stock from the shares otherwise issuable, by withholding cash from an
award settled in cash, by withholding payment from amounts otherwise payable, or by such other
method as specified in the award agreement or by a combination of these means.
Changes to Capital Structure
In the event that there is a specified type of change in our capital structure, such as a
stock split, the Board will make appropriate adjustments to (a) the class and maximum number of
shares reserved under the 2010 Plan, (b) the class and maximum number of shares of our common stock
that may be issued upon the exercise of incentive stock options, (c) the class and maximum number
of shares of our common stock subject to equity awards that can be granted in a calendar year (as
established under the 2010 Plan pursuant to Section 162(m) of the Code), and (d) the class, number
of securities and the exercise price or strike price, if applicable, of all outstanding equity
awards.
Corporate Transactions
In the event of certain significant corporate transactions, the following will occur with
respect to outstanding stock awards under the 2010 Plan:
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The Board will arrange for assumption, continuation, or substitution of a stock
award by a surviving or acquiring entity (or its parent company) and assign any
reacquisition or repurchase rights held by us in respect of common stock issued
pursuant to awards to our successor (or its parent).
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With respect to stock awards that have not been assumed, continued or
substituted, the vesting of such stock awards will be accelerated in full to a date
prior to the effective date of the corporate transaction and any reacquisition or
repurchase right held by us in respect of common stock issuable pursuant to such
stock awards will lapse, and such stock awards will terminate if not exercised (if
applicable) at or prior to the time of the corporate transaction.
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With respect to stock awards that have not been assumed, continued or
substituted, such outstanding stock awards will terminate if not exercised at or
prior to the time of the corporate transaction, and the Board may, in its
discretion, make a payment, in such form as the Board may determine, equal in value
to the excess, if any, of (a) the value of the property the holder would have
received upon the exercise of the stock award, over (b) any exercise price payable
by such holder in connection with such exercise.
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The Board need not take the same action with respect to all stock awards or portions of stock
awards or with respect to all participants. The Board may take different actions with respect to
the vested and unvested portions of a stock award.
For purposes of the 2010 Plan, a corporate transaction includes the consummation of any one or
more of the following events: (i) a sale of all or substantially all of our consolidated assets;
(ii) a sale of at least 50% of our outstanding securities; (iii) a merger or consolidation in which
we are not the surviving corporation; or (iv) a merger or consolidation in which we are the
surviving corporation but shares of our outstanding common stock are converted into other property
by virtue of the transaction.
23
Change in Control
As of the effective time of a change in control, the vesting of all outstanding stock awards
(and the exercisability of options and stock appreciation rights) will be accelerated in full and
any reacquisition or repurchase rights held by us with respect to outstanding stock awards will
lapse.
For purposes of the 2010 Plan, a change in control includes any one or more of the following
events: (a) a person or group becomes the owner of more than 50% of the combined voting power of
our outstanding securities; (b) a consummated merger or consolidation in which our stockholders
immediately prior to the transaction do not own more than 50% of the combined voting power of the
surviving entity or its parent company in substantially the same proportions as their ownership in
us immediately prior to the transaction; (c) a consummated sale, lease, exclusive license or
disposition of all or substantially all of our consolidated assets to an entity more than 50% of
the combined voting power of which is not owned by our stockholders in substantially the same
proportions as their ownership in us immediately prior to the transaction; or (d) certain changes
in the composition of the Board. A change in control excludes: (i) the sale of securities to an
investor or group for the primary purpose of obtaining financing through our issuance of securities
(including offering stock to the general public through a registration statement filed with the
SEC); (ii) a change in the level of ownership held by a person or group beyond the designated
threshold in section (a) above as a result of our repurchase or other acquisition of our voting
securities; and (iii) a transaction for the purpose of changing our domicile.
Plan Amendments
The Board will have the authority to amend or terminate the 2010 Plan. However, no amendment
or termination of the plan will adversely affect any rights under awards already granted to a
participant unless agreed to by the affected participant. We will obtain stockholder approval of
any amendment to the 2010 Plan as required by applicable law.
Plan Termination
If the 2010 Plan is approved by our stockholders at the annual meeting, then unless sooner
terminated by the Board, the 2010 Plan will automatically terminate on July 13, 2020, the day
before the tenth anniversary of the date the 2010 Plan is adopted by our stockholders.
U.S. Federal Income Tax Consequences
The information set forth below is only a summary and does not purport to be complete. The
information is based upon current federal income tax rules and therefore is subject to change when
those rules change. Because the tax consequences to any participant may depend on his or her
particular situation, each participant should consult the participants tax adviser regarding the
federal, state, local, and other tax consequences of the grant or exercise of an award or the
disposition of stock acquired as a result of an award. The 2010 Plan is not qualified under the
provisions of Section 401(a) of the Code, and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974. Our ability to realize the benefit of any tax
deductions described below depends on our generation of taxable income as well as the requirement
of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of our tax
reporting obligations.
Nonstatutory Stock Options
Generally, there is no taxation upon the grant of a nonstatutory stock option where the option
is granted with an exercise price equal to the fair market value of the underlying stock on the
grant date. On exercise, a participant will recognize ordinary income equal to the excess, if any,
of the fair market value on the date of exercise of the option over the exercise price. If the
participant is employed by us, that income will be subject to withholding tax. The participants
tax basis in those shares will be equal to their fair market value on the date of exercise of the
option, and the participants capital gain holding period for those shares will begin on that date.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction
equal to the taxable
ordinary income realized by the participant.
24
Incentive Stock Options
The 2010 Plan provides for the grant of stock options that qualify as incentive stock
options, as defined in Section 422 of the Code. Under the Code, a participant generally is not
subject to ordinary income tax upon the grant or exercise of an incentive stock option. If the
participant holds a share of our common stock received on exercise of an incentive stock option for
more than two years from the date the stock option was granted and more than one year from the date
the stock option was exercised, which is referred to as the required holding period, the
difference, if any, between the amount realized on a sale or other taxable disposition of that
share and the participants tax basis in that share will be long-term capital gain or loss.
If, however, a participant disposes of a share acquired on exercise of an incentive stock
option before the end of the required holding period, which is referred to as a disqualifying
disposition, the participant generally will recognize ordinary income in the year of the
disqualifying disposition equal to the excess, if any, of the fair market value of the share on the
date the incentive stock option was exercised over the exercise price. However, if the sales
proceeds are less than the fair market value of the share on the date of exercise of the stock
option, the amount of ordinary income recognized by the participant will not exceed the gain, if
any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair
market value of the share on the date of exercise of the stock option, that excess will be
short-term or long-term capital gain, depending on whether the holding period for the share exceeds
one year.
For purposes of the alternative minimum tax, the amount by which the fair market value of a
share of stock acquired on exercise of an incentive stock option exceeds the exercise price of that
stock option generally will be an adjustment included in the participants alternative minimum
taxable income for the year in which the stock option is exercised. If, however, there is a
disqualifying disposition of the share in the year in which the stock option is exercised, there
will be no adjustment for alternative minimum tax purposes with respect to that share. In computing
alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive
stock option is increased by the amount of the adjustment taken into account with respect to that
share for alternative minimum tax purposes in the year the stock option is exercised.
We are not allowed an income tax deduction with respect to the grant or exercise of an
incentive stock option or the disposition of a share acquired on exercise of an incentive stock
option after the required holding period. If there is a disqualifying disposition of a share,
however, we are allowed a deduction in an amount equal to the ordinary income includible in income
by the participant, subject to Section 162(m) of the Code, and provided that amount constitutes an
ordinary and necessary business expense for us and is reasonable in amount, and either the employee
includes that amount in income or we timely satisfy our reporting requirements with respect to that
amount.
Restricted Stock Awards
Generally, the recipient of a restricted stock award will recognize ordinary compensation
income at the time the stock is received equal to the excess, if any, of the fair market value of
the stock received over any amount paid by the recipient in exchange for the stock. If, however,
the stock is not vested when it is received (for example, if the employee is required to work for a
period of time in order to have the right to sell the stock), the recipient generally will not
recognize income until the stock becomes vested, at which time the recipient will recognize
ordinary compensation income equal to the excess, if any, of the fair market value of the stock on
the date it vests over any amount paid by the recipient in exchange for the stock. A recipient may,
however, file an election with the Internal Revenue Service, within 30 days of his or her receipt
of the stock award, to recognize ordinary compensation income as of the date the recipient receives
the award equal to the excess, if any, of the fair market value of the stock on the date the award
is granted over any amount paid by the recipient in exchange for the stock.
The recipients tax basis for the determination of gain or loss upon the subsequent
disposition of shares acquired from stock awards will be the amount paid for such shares plus any
ordinary income recognized either
when the stock is received or when the stock becomes vested.
25
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction
equal to the taxable ordinary income realized by the recipient of the stock award.
Stock Appreciation Rights
If a stock appreciation right is granted under the 2010 Plan with a strike price equal to the
fair market value of the underlying stock on the date of grant and the recipient may receive only
the appreciation inherent in the stock appreciation right in shares of our common stock, the
recipient will recognize ordinary compensation income equal to the fair market value of the stock
received upon exercise of the stock appreciation right. If the recipient may receive the
appreciation inherent in the stock appreciation right in cash or other property and the stock
appreciation right has been structured to conform with the requirements of Section 409A of the
Code, then the cash will be taxable as ordinary compensation income to the recipient at the time
that the cash is received.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code,
and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax
deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation
right.
Restricted Stock Units
Generally, the recipient of a restricted stock unit that is structured to conform to the
requirements of Section 409A of the Code or an exception to Section 409A of the Code will recognize
ordinary compensation income at the time the stock is received equal to the excess, if any, of the
fair market value of the shares of our common stock received over any amount paid by the recipient
in exchange for such shares. To conform to the requirements of Section 409A of the Code, the shares
of our common stock subject to a restricted stock unit award may generally be delivered only upon
one of the following events: a fixed calendar date (or dates), separation from service, death,
disability or a change in control. If delivery occurs on another date, unless the restricted stock
units otherwise comply with or qualify for an exception to the requirements of Section 409A of the
Code, in addition to the tax treatment described above, the recipient will owe an additional 20%
federal tax plus interest on any taxes owed.
The recipients tax basis for the determination of gain or loss upon the subsequent
disposition of shares acquired from restricted stock units, will be the amount paid for such shares
plus any ordinary income recognized when the stock is received.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction
equal to the taxable ordinary income realized by the recipient of the stock award.
26
Section 162 Limitations
Compensation of persons who are our covered employees is subject to the tax deduction limits
of Section 162(m) of the Code. Awards that qualify as performance-based compensation are exempt
from Section 162(m), thereby permitting us to claim the full federal tax deduction otherwise
allowed for such compensation. The 2010 Plan is intended to enable the Board or the Compensation
Committee to make awards, including cash performance awards, that will be exempt from the deduction
limits of Section 162(m). Under Section 162(m), compensation attributable to stock options and
stock appreciation rights will qualify as performance-based compensation if (a) such awards are
approved by a compensation committee composed solely of outside directors, (b) the plan contains
a per-employee limitation on the number of shares for which such awards may be granted during a
specified period, (c) the per-employee limitation is approved by
the shareholders, and (d) the
exercise or strike price of the award is no less than the fair market value of the stock on the
date of grant. Compensation attributable to restricted stock awards, restricted stock unit awards,
performance awards and other
stock-based awards will qualify as performance-based compensation, provided that (i) the award
is approved by a compensation committee composed solely of outside directors, (ii) the award is
granted, becomes vested or is settled, as applicable, only upon the achievement of an objective
performance goal established in writing by the compensation committee while the outcome is
substantially uncertain, (iii) a committee of outside directors certifies in writing prior to the
granting (or vesting or settlement) of the award that the performance goal has been satisfied, and
(iv) prior to the granting (or vesting or settlement) of the award, the shareholders have approved
the material terms of the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount, or formula used
to calculate the maximum amount, payable upon attainment of the performance goal).
Interest of Certain Persons in the 2010 Plan
Stockholders should understand that our directors, executive officers and other employees may
be considered as having an interest in the approval of the 2010 Plan because they may, in the
future, receive awards under the 2010 Plan. Nevertheless, the Board believes that it is important
to our growth and long-term success to be able to continue to offer these incentives.
Equity Compensation Plan Information
The following table provides information as of December 31, 2009 about the securities
authorized for issuance to our employees, directors and other eligible participants under our
equity compensation plans, consisting solely of the 2000 Plan. Under the 2000 Plan, the Board of
Directors, or the compensation committee thereof, may grant options to purchase shares of our
common stock. Options may only be granted to our directors, officers, employees, consultants or
advisors, and no single participant can receive options for more than 750,000 shares in any one
year under the 2000 Plan. The exercise price and term of any grant is determined at the time of
grant but may not be less than the fair market value of our common stock on the date of the grant,
and the term of an option may not exceed ten years. There are currently 6,500,000 shares authorized
for issuance under the 2000 Plan.
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Number of securities
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Number of securities
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to
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remaining available for
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be issued upon
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|
|
|
|
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future issuance under
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exercise
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Weighted-average exercise
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equity compensation
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of outstanding
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price of outstanding
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plans
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options,
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options,
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(excluding securities
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warrants and rights
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warrants and rights
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reflected in column (a))
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Plan Category
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(a)
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(b)
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(c)
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Equity compensation
plans approved by
security holders
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4,914,112
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$
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1.53
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1,550,888
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Equity compensation
plans not approved
by security holders
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Total
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4,914,112
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$
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1.53
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1,550,888
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27
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of our common stock
as of May 24, 2010 by (i) each director; (ii) each of the named executive officers; (iii) all
executive officers and directors as a group; and (iv) all those known by us to be beneficial owners
of more than five percent of our common stock. The address for all directors and executive officers
is c/o RegeneRx Biopharmaceuticals, Inc., 15245 Shady Grove Road, Suite 470, Rockville, MD 20850.
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Beneficial Ownership
(1)
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Beneficial Owner
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Number of Shares
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Percent of Total
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5% Stockholders:
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Entities affiliated with Sigma-Tau Finanziaria, S.p.A.
Via Sudafrica, 20, Rome, Italy 00144
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30,478,859
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(2)
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40.1
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%
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Named Executive Officers and Other Directors:
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J.J. Finkelstein
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2,299,636
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(3)
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3.2
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%
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Allan L. Goldstein
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2,152,538
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(4)
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3.0
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%
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Richard J. Hindin
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1,175,459
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(5)
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1.6
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%
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Joseph C. McNay
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1,537,135
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(6)
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2.1
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%
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Mauro Bove
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197,155
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(7)
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*
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L. Thompson Bowles
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124,843
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(8)
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*
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C. Neil Lyons
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348,250
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(9)
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*
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David R. Crockford
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396,250
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(8)
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*
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All directors and executive officers as a group (8 persons)
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8,231,159
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(10)
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11.0
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%
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*
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Less than one percent.
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(1)
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This table is based upon information supplied by officers, directors and principal stockholders. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in
this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages
are based on 71,906,828 shares of common stock outstanding on May 24, 2010, as described further in these footnotes, adjusted as
required by rules promulgated by the Securities and Exchange Commission (the SEC).
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28
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(2)
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Consists of 984,615 shares of common stock held of record by Sigma-Tau Finanziaria, S.p.A. (Sigma-Tau); 12,011,185 shares of common
stock held of record and 589,481 shares of common stock issuable upon exercise of warrants held by Defiante Farmaceutica S.A., a
subsidiary of Sigma-Tau, that are exercisable within 60 days of May 24, 2010; 5,052,582 shares of common stock held of record and
1,228,486 shares of common stock issuable upon exercise of warrants held by Inverlochy-Consultadoria e Servicos (S.U.) LDA, an entity
wholly owned by Claudio Cavazza, who directly and indirectly owns 57% of Sigma-Tau, that are exercisable within 60 days of May 24,
2010; 8,175,110 shares of common stock held of record and 2,101,400 shares of common stock issuable upon exercise of warrants held by
Chaumiere-Consultadoria e Servicos SDC Unipessoal LDA, a direct wholly-owned subsidiary of Sinaf SA (Sinaf) and an indirect
wholly-owned subsidiary of Aptafin S.p.A. (Aptafin), which is owned by Paolo Cavazza and members of his family, that are
exercisable within 60 days of May 24, 2010; and 240,000 shares of common stock held of record and 96,000 shares of common stock
issuable upon exercise of warrants held by Sinaf, a direct wholly-owned subsidiary of Aptafin, that are exercisable within 60 days of
May 24, 2010. Paolo Cavazza directly and indirectly owns 38% of Sigma-Tau.
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(3)
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Consists of 1,377,638 shares of common stock held of record by Mr. Finkelstein and 51,000 shares of common stock held of record by
Mr. Finkelsteins minor daughter over which Mr. Finkelstein shares voting and dispositive power. Also includes 870,998 shares of
common stock issuable upon exercise of options exercisable within 60 days of May 24, 2010.
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(4)
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Consists of 1,586,846 shares of common stock held of record by Dr. Goldstein and 565,692 shares of common stock issuable upon
exercise of options exercisable within 60 days of May 24, 2010.
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(5)
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Consists of 967,710 shares of common stock held of record by Mr. Hindin and 207,749 shares of common stock
issuable upon exercise of options exercisable within 60 days of May 24, 2010.
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(6)
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Consists of 1,339,111 shares of common stock held of record by Mr. McNay and 198,024 shares of common stock
issuable upon exercise of options exercisable within 60 days of May 24, 2010.
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(7)
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Consists of shares of common stock issuable upon exercise of options exercisable within 60 days of May 15,
2010. Mr. Bove is an officer of Sigma-Tau, but he has no beneficial ownership over the reported securities
as he has no voting or dispositive power with respect to the securities held by Sigma-Tau and its
affiliates described in Note 2 above.
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(8)
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Consists of shares of common stock issuable upon exercise of options exercisable within 60 days of May 15,
2010.
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(9)
|
|
Consists of 10,000 shares of common stock held of record by Mr. Lyons and 338,143 shares of common stock
issuable upon exercise of options exercisable within 60 days of May 24, 2010.
|
|
(10)
|
|
Consists of 5,332,305 shares of common stock held of record and 2,898,854 shares of common stock issuable
upon exercise of options exercisable within 60 days of May 24, 2010.
|
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Companys directors and executive officers, and
persons who own more than 10% of a registered class of our equity securities, to file with the SEC
initial reports of their ownership of our equity securities and reports of any subsequent changes
in that ownership. Specific due dates for these reports have been established by the SEC and the
Company is required to disclose any late filings or failures to file. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file. To the knowledge of the Company, based solely on its review of
the copies of such reports furnished to the Company, and written representations that no other
reports were required, the Company believes that during the past fiscal year its officers,
directors and greater than ten percent beneficial owners complied with all Section 16(a) filing
requirements.
29
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows, for the fiscal years ended December 31, 2009 and 2008, compensation
awarded to or paid to, or earned by, our chief executive officer and our two other most highly
compensated executive officers during 2009 who were serving as executive officers at December 31,
2009. For purposes of this proxy statement, we refer to these officers as the named executive
officers.
Of note, our annual rates of compensation for our named executive officers in effect at
December 31, 2008 and 2009 remain the same. However, given our limited cash resources during 2009,
the named executive officers other than Mr. Crockford had their annual base salaries reduced by 35%
for the period from April 1 to September 30, 2009. Consequently, the salary amounts set forth in
the following table may differ from the disclosed annual base salaries currently in effect.
In return for the 35% salary reduction, Mr. Finkelstein and Mr. Lyons received options to
purchase shares of our common stock at an exercise price of $0.57 per share. Effective October 1,
2009, their salaries were restored to the levels in effect at December 31, 2008 and, therefore, the
options ceased vesting as of September 30, 2009 but remain exercisable in accordance with the terms
of the 2000 Plan. The number of shares vested and outstanding from these option grants are set
forth in the table within the Outstanding Equity Awards at December 31, 2009 section below.
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Non-Equity
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Incentive
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Option
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Plan
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All Other
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Salary
(1)
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Bonus
(2)
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Awards
(3)
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Compensation
(4)
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Compensation
(5)
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Total
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Name and Principal Position
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Year
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($)
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($)
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($)
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($)
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($)
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($)
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Mr. J.J. Finkelstein, President and
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2009
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244,608
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18,720
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116,198
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13,005
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392,531
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Chief Executive Officer
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2008
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299,520
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22,464
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86,137
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14,976
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17,690
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440,787
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|
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Mr. C. Neil Lyons,
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2009
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167,093
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11,140
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74,395
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4,999
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257,627
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Chief Financial Officer
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2008
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200,817
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12,152
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|
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68,848
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|
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10,127
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8,508
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300,452
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Mr. David R. Crockford, Vice
President,
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2009
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210,223
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5,781
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6,818
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222,822
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Clinical and Regulatory Affairs
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2008
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209,203
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12,613
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51,682
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10,511
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11,681
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295,690
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(1)
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Reflects base salary before pretax contributions and therefore includes compensation deferred under
our 401(k) plan.
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(2)
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Reflects the discretionary portion of our bonus plan.
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(3)
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These amounts reflect the aggregate full grant date fair values (computed in accordance with FASB ASC
Topic 718) of options granted to executives during the respective fiscal years. For Messrs.
Finkelstein and Lyons, the amounts shown for 2009 include the grant date fair value of options issued
in conjunction with the salary reduction as described above. However, as noted above, these options
ceased vesting upon the restoration of their salaries effective as of October 1, 2009.
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(4)
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Reflects amounts earned under our bonus plan subject to the achievement of corporate performance goals.
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(5)
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Primarily reflects our match of executive compensation deferrals into our 401(k) plan, along with
supplemental life and disability insurance premiums. None of the individual items exceeded $10,000.
|
30
Outstanding Equity Awards at December 31, 2009
The following table shows certain information regarding outstanding equity awards at
December 31, 2009 for the named executive officers, all of which were stock options.
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Number of
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Number of
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Shares
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Shares
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Underlying
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Underlying
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Unexercised
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Unexercised
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Option Exercise
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Options (#)
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Options (#)
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Price
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Option
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Name
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Exercisable
|
|
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Unexercisable
|
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($)
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Expiration Date
|
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Note
|
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Mr. Finkelstein
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500,000
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0.33
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1/1/2012
|
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100,000
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|
|
|
|
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3.21
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4/1/2015
|
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62,500
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|
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62,500
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2.34
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3/15/2014
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(1)
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31,250
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93,750
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|
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1.15
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4/15/2015
|
|
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(1)
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114,748
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0.57
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4/10/2019
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|
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|
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125,000
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|
|
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0.76
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10/11/2016
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(1)
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Mr. Lyons
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|
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133,332
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66,668
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3.10
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4/7/2015
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(2)
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|
|
|
|
37,500
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|
|
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37,500
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|
|
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2.34
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|
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3/15/2014
|
|
|
|
(1)
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|
|
|
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18,750
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|
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56,250
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|
|
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1.50
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|
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6/15/2015
|
|
|
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(1)
|
|
|
|
|
77,728
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|
|
|
|
|
|
|
0.57
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|
|
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4/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
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|
|
|
0.76
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|
|
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10/11/2016
|
|
|
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(1)
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Mr. Crockford
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|
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15,000
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|
|
|
|
|
|
|
1.07
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|
|
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7/1/2013
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
0.86
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|
|
|
1/1/2014
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
30,000
|
|
|
|
3.21
|
|
|
|
4/1/2015
|
|
|
|
(3)
|
|
|
|
|
17,500
|
|
|
|
7,500
|
|
|
|
3.82
|
|
|
|
5/25/2015
|
|
|
|
(3)
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
2.15
|
|
|
|
1/16/2014
|
|
|
|
(1)
|
|
|
|
|
37,500
|
|
|
|
37,500
|
|
|
|
2.34
|
|
|
|
3/15/2014
|
|
|
|
(1)
|
|
|
|
|
18,750
|
|
|
|
56,250
|
|
|
|
1.15
|
|
|
|
4/15/2015
|
|
|
|
(1)
|
|
|
|
|
(1)
|
|
This option vests in equal installments on the first four
anniversaries of the grant date. In each case these options
were granted seven years prior to the listed expiration
dates.
|
|
(2)
|
|
This option vests in equal installments on the first six
anniversaries of the grant date which was April 7, 2005.
|
|
(3)
|
|
This option vests on the first five anniversaries of the
grant date in the following installments: 10%, 15%, 20%,
25%, 30%. In each case these options were granted ten years
prior to the listed expiration dates.
|
Employment Agreements; Potential Payments Upon Termination or Change in Control
We are party to written employment agreements with our named executive officers. These
employment agreements contain severance and other provisions that may provide for payments to the
named executive officers following termination of employment with us in specified circumstances.
The following is a summary of the material terms of these employment agreements with our named
executive officers.
J.J. Finkelstein
. We entered into an employment agreement with Mr. Finkelstein in January 2002
for him to serve as our president and chief executive officer. Mr. Finkelsteins employment
agreement had an initial three-year term, which is automatically renewed for additional one-year
periods unless either we or Mr. Finkelstein elect not to renew it. This agreement was amended and
restated during 2008 and again in 2009. Mr. Finkelsteins annual base salary is $299,520.
Mr. Finkelsteins salary may not be adjusted downward without his written consent, except in a
circumstance which is part of a general reduction or other concessionary arrangement affecting all
employees or affecting senior executive officers. Mr. Finkelstein is also eligible to receive an
annual bonus in an amount established by the board of directors and is entitled to participate in
and receive all standard employee benefits and to participate in all of our applicable incentive
plans, including stock option, stock, bonus, savings and retirement plans. We also provide him with
$5 million in life and disability insurance.
31
Mr. Finkelstein is eligible to receive options to purchase common stock under our Amended and
Restated 2000 Stock Option and Incentive Plan (the 2000 Plan). The decision to grant any such
options and the terms of such options are within the discretion of our board of directors or the
compensation committee thereof. All vested options are exercisable for a period of time following
any termination of Mr. Finkelsteins employment as may be
set forth in the 2000 Plan or in any option agreement between Mr. Finkelstein and us.
In the event that Mr. Finkelsteins employment is terminated by us without cause or by Mr.
Finkelstein for good reason, each as defined in his employment agreement, or if Mr. Finkelstein
voluntarily terminates his employment within 12 months following a change in control, as defined
in his employment agreement, then in each case, subject to Mr. Finkelsteins entering into and not
revoking a release of claims in a form acceptable to us, Mr. Finkelstein will be entitled to
receive (i) a lump sum severance payment equal to his annual base salary then in effect (or if his
base salary is less than the amount in effect as of March 31, 2009, the base salary in effect as of
March 31, 2009), plus (ii) any earned bonus, and (iii) if he timely elects and remains eligible for
continuation of healthcare benefits, that portion of the continued healthcare premiums that we were
paying prior to the date of termination for a period of 12 months, in each case less applicable
taxes and withholdings. If Mr. Finkelsteins employment had been terminated for any of the reasons
described in this paragraph as of December 31, 2009, he would have been entitled to receive a lump
sum payment of $299,520, less taxes and withholdings, plus continuation of healthcare benefits with
a value of $8,772.
In addition, if Mr. Finkelsteins employment is terminated without cause, or if there is a
change in control event, in each case as defined in either the 2000 Plan or in Mr. Finkelsteins
employment agreement, then the unvested portion of Mr. Finkelsteins options outstanding as of
December 31, 2009 would accelerate in full.
C. Neil Lyons
. We entered into an employment agreement with Mr. Lyons in April 2007 for him to
serve as our chief financial officer. Mr. Lyons employment agreement had an initial one-year term,
which is automatically renewed for additional one-year periods unless either we or Mr. Lyons elect
not to renew it. The agreement was amended and restated during 2008 and again in 2009. Under the
employment agreement, as amended to date, Mr. Lyons base salary is $202,537. Mr. Lyons is also
eligible to receive an annual bonus in an amount established by the board of directors and chief
executive officer and is entitled to participate in and receive all standard employee benefits and
to participate in all of our applicable incentive plans, including stock option, stock, bonus,
savings and retirement plans. We also reimburse Mr. Lyons for two-thirds of his annual term life
insurance premium, for term life insurance coverage not to exceed two times his annual base salary.
Mr. Lyons is eligible to receive options to purchase common stock under the 2000 Plan. The
decision to grant any such options and the terms of such options are within the discretion of our
board of directors or the compensation committee thereof. All vested options are exercisable for a
period of time following any termination of Mr. Lyons employment as may be set forth in the 2000
Plan or in any option agreement between Mr. Lyons and us.
In the event that Mr. Lyons employment is terminated by us without cause as defined in his
employment agreement, or if Mr. Lyons voluntarily terminates his employment within 12 months
following a change in control, as defined in his employment agreement, then in each case, subject
to Mr. Lyons entering into and not revoking a release of claims in a form acceptable to us,
Mr. Lyons will be entitled to receive (i) severance payments equal to his annual base salary then
in effect, plus (ii) any earned bonus, and (iii) if he timely elects and remains eligible for
continuation of healthcare benefits, that portion of the continued healthcare premiums that we were
paying prior to the date of termination for a period of 12 months, in each case less applicable
taxes and withholdings. If Mr. Lyonss employment had been terminated for any of the reasons
described in this paragraph as of December 31, 2009, he would have been entitled to receive
severance payments of $202,537, less taxes and withholdings, plus continuation of healthcare
benefits with a value of $17,208.
In addition, if Mr. Lyons employment is terminated without cause, or if there is a change
in control event, in each case as defined in either the 2000 Plan or in Mr. Lyons employment
agreement, then the unvested portion of Mr. Lyons options outstanding as of December 31, 2009
would accelerate in full.
32
David R. Crockford
. We entered into an employment agreement with Mr. Crockford in March 2005
for him to serve as our vice president of clinical and regulatory affairs. Mr. Crockfords
employment agreement had an initial one-year term, which is automatically renewed for additional
one-year periods unless either we or Mr. Crockford elect not to renew it. The agreement was amended
and restated during 2008 and again in 2009. Under the employment agreement, as amended to date,
Mr. Crockfords base salary is $210,223. Mr. Crockford is also
eligible to receive an annual bonus in an amount established by the board of directors and
chief executive officer and is entitled to participate in and receive all standard employee
benefits and to participate in all of our applicable incentive plans, including stock option,
stock, bonus, savings and retirement plans. We also reimburse Mr. Crockford for two-thirds of his
annual term life insurance premium, for term life insurance coverage not to exceed two times his
annual base salary.
Mr. Crockford is eligible to receive options to purchase common stock under the 2000 Plan. The
decision to grant any such options and the terms of such options are within the discretion of our
board of directors or the compensation committee thereof. All vested options are exercisable for a
period of time following any termination of Mr. Crockfords employment as may be set forth in the
2000 Plan or in any option agreement between Mr. Crockford and us.
In the event that Mr. Crockfords employment is terminated by us without cause as defined in
his employment agreement, or if Mr. Crockford voluntarily terminates his employment within 12
months following a change in control, as defined in his employment agreement, then in each case,
subject to Mr. Crockfords entering into and not revoking a release of claims in a form acceptable
to us, Mr. Crockford will be entitled to receive (i) severance payments equal to his annual base
salary then in effect, plus (ii) any earned bonus, and (iii) if he timely elects and remains
eligible for continuation of healthcare benefits, that portion of the continued healthcare premiums
that we were paying prior to the date of termination for a period of 12 months, in each case less
applicable taxes and withholdings. If Mr. Crockfords employment had been terminated for any of the
reasons described in this paragraph as of December 31, 2009, he would have been entitled to receive
severance payments of $210,223, less taxes and withholdings, plus continuation of healthcare
benefits with a value of $14,664. In addition, upon a change in control, all of Mr. Crockfords
unvested options will accelerate in full, but there is no such acceleration upon a termination
without cause.
Post-Employment Compensation
We do not maintain any plans providing for payment or other benefits at, following, or in
connection with retirement other than a 401(k) plan made available to all employees. In addition,
we do not maintain any non-qualified deferred compensation plans.
2009 Director Compensation
The following table set forth certain information for the fiscal year ended December 31, 2009
with respect to the compensation of our directors. Mr. Finkelsteins compensation is disclosed in
the Summary Compensation Table above, and he does not receive any additional compensation for his
service as a director. Dr. Goldstein is an employee of our company and his compensation as an
employee is set forth in the table below. He does not receive any additional compensation for his
service as a director.
Each non-employee director is eligible to receive an annual cash retainer of $13,905. The
chairman of each of our audit committee and compensation committee is eligible to receive a
supplemental annual cash retainer of $10,300. Mr. Richard Hindin currently serves as the chairman
of each of these committees, although his service in such capacity will cease as of the annual
meeting.
Directors also receive $1,288 for each board meeting attended in person and $412 for each
Board meeting attended by telephone. Additionally, members of each committee of the board of
directors are eligible to receive $515 for each committee meeting attended, whether in person or by
telephone.
33
Additionally, non-employee directors receive a nonqualified stock option to purchase 15,000
shares of common stock upon their re-election as a director at each annual meeting of stockholders.
Newly elected or appointed non-employee directors receive a nonqualified stock option to purchase
35,000 shares of common stock. All options granted to directors under this policy vest over four
years, with 25% of the shares underlying the option vesting on the first through fourth
anniversaries of the date of grant.
We also reimburse directors for expenses incurred in attending meetings of the board and other
events
attended on our behalf and at our request.
Of note, our annual rates of director compensation in effect at December 31, 2008 and 2009
remain the same. However, given our limited cash resources during most of 2009, the Board elected
to reduce the cash fees payable to the Board for their services by 35% for the period from April 1
to September 30, 2009. Consequently, the following charts of actual compensation may differ from
the disclosed annual rates of compensation currently in effect.
In return for the 35% director fee reduction, each director received options to purchase
shares of our common stock at an exercise price of $0.57 per share. Effective October 1, 2009,
their fees were restored to the levels in effect at December 31, 2008 and, therefore, the options
ceased vesting as of September 30, 2009 but remain exercisable to the extent vested as of
September 30, 2009 in accordance with the 2000 Plan. The number of shares vested and outstanding
from these option grants are included within the amounts set forth in Footnote 1 to the table
below.
34
Director Compensation for Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)
(1)
|
|
|
($)
|
|
|
($)
|
|
Dr. Goldstein
|
|
|
|
|
|
|
71,348
|
|
|
|
162,466
|
(2)
|
|
|
233,814
|
|
Mr. Hindin
|
|
|
37,877
|
|
|
|
16,039
|
|
|
|
|
|
|
|
53,916
|
|
Dr. Bowles
|
|
|
21,105
|
|
|
|
11,875
|
|
|
|
|
|
|
|
32,980
|
|
Mr. McNay
|
|
|
18,028
|
|
|
|
10,917
|
|
|
|
|
|
|
|
28,945
|
|
Mr. Bove
|
|
|
16,292
|
|
|
|
10,459
|
|
|
|
|
|
|
|
26,751
|
|
|
|
|
(1)
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|
These amounts reflect the aggregate full grant date fair
values (computed in accordance with FASB ASC Topic 718) of
options granted to directors during 2009, a portion of
which vested during 2009 as described above. Options held
by each Board member as of December 31, 2009, are as
follows:
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Dr. Goldstein
|
|
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696,942
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Mr. Hindin
|
|
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237,749
|
|
Dr. Bowles
|
|
|
154,843
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|
Mr. McNay
|
|
|
228,024
|
|
Mr. Bove
|
|
|
227,155
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|
|
|
|
(2)
|
|
In addition to being Chairman of our
Board of Directors, Dr. Goldstein also
serves as our Chief Scientific
Advisor. In this capacity,
Dr. Goldstein received a base salary
of $153,093 for 2009, and a
discretionary cash bonus of $9,373.
Under Dr. Goldsteins employment
agreement, in the event that his
employment is terminated by us without
cause, as defined in his employment
agreement, or if he voluntarily
terminates his employment within
12 months following a change in
control, as defined in his employment
agreement, then in each case, subject
to Dr. Goldsteins entering into and
not revoking a release of claims in a
form acceptable to us, Dr. Goldstein
will be entitled to receive a lump sum
severance payment equal to his annual
base salary then in effect, plus any
earned bonus as of the date of
termination, in each case less
applicable taxes and withholdings.
Dr. Goldstein is not entitled to
receive any continuing health and
welfare benefits as part of our
severance obligation to him. If
Dr. Goldsteins employment had been
terminated for any of the reasons
described in this paragraph as of
December 31, 2009, he would have been
entitled to receive a lump sum payment
of $187,460, less taxes and
withholdings. Dr. Goldstein is
eligible to receive options to
purchase common stock under the 2000
Plan. The decision to grant any such
options and the terms of such options
are within the discretion of our board
of directors or the compensation
committee. In addition, if
Dr. Goldsteins employment is
terminated without cause, or if
there is a change in control event,
in each case as defined in either the
2000 Plan or in Dr. Goldsteins
employment agreement, then the
unvested portion of Dr. Goldsteins
options would accelerate in full. All
vested options are exercisable for a
period of time following any
termination of Dr. Goldsteins
employment as may be set forth in the
2000 Plan or in any option agreement
between Dr. Goldstein and us.
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35
TRANSACTIONS WITH RELATED PERSONS
Since January 1, 2008, we have entered into five financing transactions in which affiliates of
Sigma-Tau Finanziaria S.p.A., or Sigma-Tau, have participated as described below. Mauro Bove, one
of our directors, is an officer of Sigma-Tau. Each of the private placement financing transactions
was approved by our Board of Directors and our audit committee, following disclosure of Mr. Boves
potential interests in the transaction in his capacity as a
representative of Sigma-Tau.
On February 29, 2008, pursuant to Securities Purchase Agreements dated as of February 27, 2008
(the February 2008 Purchase Agreements) between us and each of Chaumiere Consultadoria e Servicos
SDC Unipessoal LDA (Chaumiere) and Inverlochy-Consultadoria e Servicos (S.U.) LDA (Inverlochy,
and collectively with Chaumiere, the Purchasers), Chaumiere purchased 2,500,000 shares of our
common stock and Inverlochy purchased 2,500,000 shares of our common stock for a purchase price of
$1.00 per share in a private placement. The February 2008 Purchase Agreements provide that (i) the
Purchasers may not transfer the shares through December 31, 2010, except for transfers to
Affiliates (as defined therein), (ii) we, rather than the Purchasers, have all voting rights in
respect of the shares until December 31, 2010, and (iii) we had the right to repurchase the shares
until December 31, 2009 at a price of $2.00 per share and have the continuing right to repurchase
the shares at a price of $2.50 per share until December 31, 2010. In consideration for the purchase
of such shares, on February 29, 2008, we issued warrants (i) to Inverlochy to purchase 500,000
shares of common stock and (ii) to Chaumiere to purchase 500,000 shares of common stock, in each
case exercisable at a price of $1.60 per share. One-third of the warrants vested on February 29,
2008, one-third vested on December 31, 2008, and one-third vested on December 31, 2009.
Inverlochy is wholly owned by Claudio Cavazza, who directly and indirectly owns 57% of
Sigma-Tau. Chaumiere is a direct wholly-owned subsidiary of Sinaf SA (Sinaf) and an indirect
wholly-owned subsidiary of Aptafin S.p.A. (Aptafin). Aptafin is owned by Paolo Cavazza and
members of his family. Paolo Cavazza directly and indirectly owns 38% of Sigma-Tau. Claudio
Cavazza and Paolo Cavazza are brothers.
On December 10, 2008, pursuant to Securities Purchase Agreements dated as of December 10, 2008
(the December 2008 Purchase Agreements) between us and each of Chaumiere and Inverlochy,
Chaumiere purchased 1,034,482 shares of common stock and Inverlochy purchased 1,034,482 shares of
common stock for a purchase price of $1.45 per share in a private placement. The December 2008
Purchase Agreements provide that (i) the Purchasers may not transfer the shares through December
31, 2011, except for transfers to Affiliates (as defined therein) and (ii) we, rather than the
Purchasers, have all voting rights in respect to the shares through December 31, 2011. In
consideration for the purchase of such shares, on December 10, 2008 we issued warrants (i) to
Inverlochy to purchase 372,552 shares of common stock and (ii) to Chaumiere to purchase 372,552
shares of common stock, in each case vested upon issuance and exercisable at a price of $1.74 per
share, in whole or in part, at any time and from time to time until December 31, 2011.
On April 30, 2009, pursuant to a Securities Purchase Agreement (the April 2009 Purchase
Agreement) between us and Chaumiere, Chaumiere purchased 1,052,631 shares of common stock for a
purchase price of $0.57 per share in a private placement. The April 2009 Purchase Agreement
provides that (i) Chaumiere may not transfer the shares through April 30, 2012, except for
transfers to Affiliates (as defined therein) and (ii) we, rather than Chaumiere, have all voting
rights in respect to any shares issued under the April 2009 Purchase Agreement through April 30,
2012. In consideration for the purchase of such shares, on April 30, 2009, we issued a fully vested
warrant to Chaumiere to purchase 263,158 shares of common stock, exercisable at a price of $0.91
per share, in whole or in part, at any time and from time to time until April 30, 2012.
On October 15, 2009, pursuant to a Securities Purchase Agreement (the October 2009 Purchase
Agreement) between us and Chaumiere, Chaumiere purchased 1,219,512 shares of common stock and
warrants to purchase 609,756 shares of our common stock for a purchase price of $0.82 per share in
a private placement. In consideration for the purchase of such shares, on October 15, 2009, we
issued a warrant to Chaumiere to purchase 609,756 shares of common stock, exercisable at a price of
$1.12 per share, in whole or in part, at any time from April 15, 2010 until September 30, 2014.
36
On May 21, 2010, we completed a public offering of units, consisting of shares of our common
stock and
warrants to purchase common stock. Sinaf purchased 240,000 units, consisting of 240,000
shares of common stock and warrants to purchase 96,000 shares of our common stock, for a purchase
price of $0.41 per unit, in the public offering on the same terms and conditions as other investors
participating in the public offering.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy
the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual
Meeting materials with respect to two or more stockholders sharing the same address by delivering a
single Notice of Internet Availability or other Annual Meeting materials addressed to those
stockholders. This process, which is commonly referred to as householding, potentially means
extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are stockholders of the Company will
be householding the Companys proxy materials. A single Notice of Internet Availability of Proxy
Materials will be delivered to multiple stockholders sharing an address unless contrary
instructions have been received from the affected stockholders. Once you have received notice from
your broker that they will be householding communications to your address, householding will
continue until you are notified otherwise or until you revoke your consent. If, at any time, you no
longer wish to participate in householding and would prefer to receive a separate Notice of
Internet Availability of Proxy Materials, please notify your broker. Direct your written request to
the Companys Secretary at 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850.
Stockholders who currently receive multiple copies of the Notices of Internet Availability of Proxy
Materials at their addresses and would like to request householding of their communications
should contact their brokers.
OTHER MATTERS
The Board knows of no other matters that will be presented for consideration at the Annual
Meeting. If any other matters are properly brought before the meeting, it is the intention of the
persons named in the accompanying proxy to vote on such matters in accordance with their best
judgment.
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By Order of the Board of Directors
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Allan L. Goldstein, Ph.D.
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Chairman of the Board
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Rockville, Maryland
June 1, 2010
37
Appendix
A
RegeneRx Biopharmaceuticals, Inc.
2010 Equity Incentive Plan
Adopted by the Board of Directors Effective as of &
Approved by the Stockholders:
, 2010
Termination Date:
, 2020
1.
General.
(a) Eligible Award Recipients.
The persons eligible to receive Awards are Employees,
Directors and Consultants.
(b) Available Awards.
The Plan provides for the grant of the following Awards: (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted
Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance
Cash Awards, and (viii) Other Stock Awards.
(c) Purpose.
The Company, by means of the Plan, seeks to secure and retain the services of
the group of persons eligible to receive Awards as set forth in Section 1(a), to provide incentives
for such persons to exert maximum efforts for the success of the Company and any Affiliate and to
provide a means by which such eligible recipients may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Awards.
2.
Administration.
(a) Administration by Board.
The Board shall administer the Plan unless and until the Board
delegates administration of the Plan to a Committee or Committees, as provided in Section 2(c).
(b) Powers of Board.
The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i)
To determine from time to time (A) which of the persons eligible under the Plan shall be
granted Awards; (B) when and how each Award shall be granted; (C) what type or combination of types
of Award shall be granted; (D) the provisions of each Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive cash or Common Stock
pursuant to a Stock Award; (E) the number of shares of Common Stock with respect to which a Stock
Award shall be granted to each such person; and (F) the Fair Market Value applicable to a Stock
Award.
(ii)
To construe and interpret the Plan and Awards granted under it, and to establish, amend
and revoke rules and regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement or in
the written terms of a Performance Cash Award, in a manner and to the extent it shall deem
necessary or expedient to make the Plan or Award fully effective.
1
(iii)
To settle all controversies regarding the Plan and Awards granted under it.
(iv)
To accelerate the time at which an Award may first be exercised or the time during which
an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions
in the Award stating the time at which it may first be exercised or the time during which it will
vest.
(v)
To suspend or terminate the Plan at any time. Suspension or termination of the Plan shall
not impair rights and obligations under any Award granted while the Plan is in effect except with
the written consent of the affected Participant.
(vi)
To amend the Plan in any respect the Board deems necessary or advisable. However, except
as provided in Section 9(a) relating to Capitalization Adjustments, to the extent required by
applicable law or listing requirements, stockholder approval shall be required for any amendment of
the Plan that either (A) materially increases the number of shares of Common Stock available for
issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards
under the Plan, (C) materially increases the benefits accruing to Participants under the Plan or
materially reduces the price at which shares of Common Stock may be issued or purchased under the
Plan, (D) materially extends the term of the Plan, or (E) expands the types of Awards available for
issuance under the Plan. Except as provided above, rights under any Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (1) the Company requests the
consent of the affected Participant, and (2) such Participant consents in writing.
(vii)
To submit any amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code
regarding the exclusion of performance-based compensation from the limit on corporate deductibility
of compensation paid to Covered Employees, (B) Section 422 of the Code regarding incentive stock
options or (C) Rule 16b-3.
(viii)
To approve forms of Award Agreements for use under the Plan and to amend the terms of
any one or more Awards, including, but not limited to, amendments to provide terms more favorable
to the Participant than previously provided in the Award Agreement, subject to any specified limits
in the Plan that are not subject to Board discretion;
provided however
, that except with respect to
amendments that disqualify or impair the status of an Incentive Stock Option, a Participants
rights under any Award shall not be impaired by any such amendment unless (A) the Company requests
the consent of the affected Participant, and (B) such Participant consents in writing.
Notwithstanding the foregoing, subject to the limitations of applicable law, if any, the Board may
amend the terms of any one or more Awards without the affected Participants consent if necessary
to maintain the qualified status of the Award as an Incentive Stock Option or to bring the Award
into compliance with Section 409A of the Code.
(ix)
Generally, to exercise such powers and to perform such acts as the Board deems necessary
or expedient to promote the best interests of the Company and that are not in conflict with the
provisions of the Plan or Awards.
2
(x)
To adopt such procedures and sub-plans as are necessary or appropriate to permit
participation in the Plan by Employees, Directors or Consultants who are foreign nationals or
employed outside the United States.
(c) Delegation to Committee.
(i) General.
The Board may delegate some or all of the administration of the Plan to a
Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers theretofore possessed by
the Board that have been delegated to the Committee, including the power to delegate to a
subcommittee of the Committee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the
Plan, as may be adopted from time to time by the Board. The Committee may, at any time, abolish
the subcommittee and/or revest in the Committee any powers delegated to the subcommittee. The
Board may retain the authority to concurrently administer the Plan with the Committee and may, at
any time, revest in the Board some or all of the powers previously delegated.
(ii) Section
162(m)
and Rule 16b-3 Compliance.
The Committee may consist solely of two or
more Outside Directors, in accordance with Section 162(m) of the Code, and solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3.
(d) Delegation to an Officer.
The Board may delegate to one (1) or more Officers the
authority to do one or both of the following (i) designate Employees who are providing Continuous
Service to the Company or any of its Subsidiaries who are not Officers to be recipients of Options
and Stock Appreciation Rights (and, to the extent permitted by applicable law, other Stock Awards)
and the terms thereof, and (ii) determine the number of shares of Common Stock to be subject to
such Stock Awards granted to such Employees;
provided, however
, that the Board resolutions
regarding such delegation shall specify the total number of shares of Common Stock that may be
subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock
Award to himself or herself. Notwithstanding the foregoing, the Board may not delegate authority
to an Officer to determine the Fair Market Value pursuant to Section 13(w)(iii) below.
(e) Effect of Boards Decision.
All determinations, interpretations and constructions made by
the Board in good faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.
(f) Cancellation and Re-Grant of Stock Awards
. Neither the Board nor any Committee shall have
the authority to: (i) reduce the exercise price of any outstanding Options or Stock Appreciation
Rights under the Plan, or (ii) cancel any outstanding Options or Stock Appreciation Rights that
have an exercise price or strike price greater than the current Fair Market Value of the Common
Stock in exchange for cash or other Stock Awards under the Plan, unless the stockholders of the
Company have approved such an action within twelve (12) months prior to such an event.
3
3.
Shares Subject to the Plan.
(a) Share Reserve.
Subject to Section 9(a) relating to Capitalization Adjustments, the
aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards from and
after the Effective Date shall not exceed five million (5,000,000) shares. For clarity, the Share
Reserve in this Section 3(a) is a limitation on the number of shares of the Common Stock that may
be issued pursuant to the Plan and does not limit the granting of Stock Awards except as provided
in Section 7(a). Shares may be issued in connection with a merger or acquisition as permitted by,
as applicable, NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section
303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance shall not
reduce the number of shares available for issuance under the Plan. Furthermore, if a Stock Award
or any portion thereof (i) expires or otherwise terminates without all of the shares covered by
such Stock Award having been issued or (ii) is settled in cash (
i.e.
, the Participant receives cash
rather than stock), such expiration, termination or settlement shall not reduce (or otherwise
offset) the number of shares of Common Stock that may be available for issuance under the Plan.
(b) Reversion of Shares to the Share Reserve.
If any shares of Common Stock issued pursuant
to a Stock Award are forfeited back to the Company because of the failure to meet a contingency or
condition required to vest such shares in the Participant, then the shares that are forfeited shall
revert to and again become available for issuance under the Plan. Any shares reacquired by the
Company pursuant to Section 8(g) or as consideration for the exercise of an Option shall again
become available for issuance under the Plan.
(c) Incentive Stock Option Limit.
Notwithstanding anything to the contrary in this Section 3
and, subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the
aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of
Incentive Stock Options shall be five million (5,000,000) shares of Common Stock.
(d) Section
162(m)
Limitation on Annual Grants
. Subject to the provisions of Section 9(a)
relating to Capitalization Adjustments, at such time as the Company may be subject to the
applicable provisions of Section 162(m) of the Code, a maximum of one million (1,000,000) shares of
Common Stock subject to Options, Stock Appreciation Rights and Other Stock Awards whose value is
determined by reference to an increase over an exercise or strike price of at least one hundred
percent (100%) of the Fair Market Value on the date any such Stock Award is granted may be granted
to any Participant during any calendar year. Notwithstanding the foregoing, if any additional
Options, Stock Appreciation Rights or Other Stock Awards whose value is determined by reference to
an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair
Market Value on the date the Stock Award are granted to any Participant during any calendar year,
compensation attributable to the exercise of such additional Stock Awards shall not satisfy the
requirements to be considered qualified performance-based compensation under Section 162(m) of
the Code unless such additional Stock Award is approved by the Companys stockholders.
(e) Source of Shares.
The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the Company on the open market
or otherwise.
4
4.
Eligibility.
(a) Eligibility for Specific Stock Awards
. Incentive Stock Options may be granted only to
employees of the Company or a parent corporation or subsidiary corporation thereof (as such
terms are defined in Sections 424(e) and (f) of the Code). Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants;
provided, however
, Nonstatutory
Stock Options and SARs may not be granted to Employees, Directors and Consultants who are providing
Continuous Service only to any parent of the Company, as such term is defined in Rule 405
promulgated under the Securities Act, unless the stock underlying such Stock Awards is treated as
service recipient stock under Section 409A of the Code because the Stock Awards are granted
pursuant to a corporate transaction (such as a spin off transaction) or unless such Stock Awards
comply with the distribution requirements of Section 409A of the Code.
(b) Ten Percent Stockholders.
A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of
the Fair Market Value on the date of grant and the Option is not exercisable after the expiration
of five (5) years from the date of grant.
5.
Provisions Relating to Options and Stock Appreciation Rights.
Each Option or SAR shall be in such form and shall contain such terms and conditions as the
Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate
certificate or certificates shall be issued for shares of Common Stock purchased on exercise of
each type of Option. If an Option is not specifically designated as an Incentive Stock Option, then
the Option shall be a Nonstatutory Stock Option. The provisions of separate Options or SARs need
not be identical;
provided, however
, that each Option Agreement or Stock Appreciation Right
Agreement shall conform to (through incorporation of provisions hereof by reference in the
applicable Award Agreement or otherwise) the substance of each of the following provisions:
(a) Term.
Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no
Option or SAR shall be exercisable after the expiration of ten (10) years from the date of its
grant or such shorter period specified in the Award Agreement.
(b) Exercise Price.
Subject to the provisions of Section 4(b) regarding Ten Percent
Stockholders, the exercise price (or strike price) of each Option or SAR shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option or SAR on
the date the Option or SAR is granted. Notwithstanding the foregoing, an Option or SAR may be
granted with an exercise price (or strike price) lower than one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Option or SAR if such Option or SAR is granted
pursuant to an assumption of or substitution for another option or stock appreciation right
pursuant to a Corporate Transaction and in a manner consistent with the provisions of Sections 409A
and, if applicable, 424(a) of the Code. Each SAR will be denominated in shares of Common Stock
equivalents.
5
(c) Purchase Price for Options.
The purchase price of Common Stock acquired pursuant to the
exercise of an Option shall be paid, to the extent permitted by applicable law and as determined by
the Board in its sole discretion, by any combination of the methods of payment set forth below.
The Board shall have the authority to grant Options that do not permit all of the following methods
of payment (or otherwise restrict the ability to use certain methods) and to grant Options that
require the consent of the Company to utilize a particular method of payment. The permitted
methods of payment are as follows:
(i)
by cash, check, bank draft or money order payable to the Company;
(ii)
pursuant to a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of the stock subject to the Option, results in either the receipt
of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(iii)
by delivery to the Company (either by actual delivery or attestation) of shares of
Common Stock;
(iv)
if the option is a Nonstatutory Stock Option, by a net exercise arrangement pursuant to
which the Company will reduce the number of shares of Common Stock issuable upon exercise by the
largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise
price;
provided, however
, that the Company shall accept a cash or other payment from the
Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by
such reduction in the number of whole shares to be issued;
provided, further,
that shares of Common
Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent
that (A) shares issuable upon exercise are reduced to pay the exercise price pursuant to the net
exercise, (B) shares are delivered to the Participant as a result of such exercise, and (C) shares
are withheld to satisfy tax withholding obligations; or
(v)
in any other form of legal consideration that may be acceptable to the Board.
(d) Exercise and Payment of a SAR.
To exercise any outstanding Stock Appreciation Right, the
Participant must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. The
appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater
than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number
of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right,
and with respect to which the Participant is exercising the Stock Appreciation Right on such date,
over (B) the strike price that will be determined by the Board at the time of grant of the Stock
Appreciation Right. The appreciation distribution in respect to a Stock Appreciation Right may be
paid in Common Stock, in cash, in any combination of the two or in any other form of consideration,
as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such
Stock Appreciation Right.
6
(e) Transferability of Options and SARs.
The Board may, in its sole discretion, impose such
limitations on the transferability of Options and SARs as the Board shall determine. In the
absence of such a determination by the Board to the contrary, the following restrictions on the
transferability of Options and SARs shall apply:
(i) Restrictions on Transfer.
An Option or SAR shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant;
provided, however
, that the Board may, in its sole discretion,
permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and
securities laws upon the Participants request. Except as explicitly provided herein, neither an
Option nor a SAR may be transferred for consideration.
(ii) Domestic Relations Orders.
Notwithstanding the foregoing, an Option or SAR may be
transferred pursuant to a domestic relations order;
provided, however
, that if an Option is an
Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of
such transfer.
(iii) Beneficiary Designation.
Notwithstanding the foregoing, the Participant may, by
delivering written notice to the Company, in a form provided by or otherwise satisfactory to the
Company, designate a third party who, in the event of the death of the Participant, shall
thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other
consideration resulting from such exercise. In the absence of such a designation, the executor or
administrator of the Participants estate shall be entitled to exercise the Option or SAR and
receive the Common Stock or other consideration resulting from such exercise.
(f) Vesting Generally.
The total number of shares of Common Stock subject to an Option or SAR
may vest and therefore become exercisable in periodic installments that may or may not be equal.
The Option or SAR may be subject to such other terms and conditions on the time or times when it
may or may not be exercised (which may be based on the satisfaction of Performance Goals or other
criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs
may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions
governing the minimum number of shares of Common Stock as to which an Option or SAR may be
exercised.
(g) Termination of Continuous Service.
Except as otherwise provided in the applicable Award
Agreement or other agreement between the Participant and the Company, if a Participants Continuous
Service terminates (other than for Cause or upon the Participants death or Disability), the
Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled
to exercise such Award as of the date of termination of Continuous Service) but only within such
period of time ending on the earlier of (i) the date three (3) months following the termination of
the Participants Continuous Service (or such longer or shorter period specified in the applicable
Award Agreement), or (ii) the expiration of the term of the Option or SAR as set forth in the Award
Agreement. If, after termination of Continuous Service, the Participant does not exercise his or
her Option or SAR within the time specified herein or in the Award Agreement (as applicable), the
Option or SAR shall terminate.
7
(h) Extension of Termination Date.
If the exercise of an Option or SAR following the
termination of the Participants Continuous Service (other than for Cause or upon the Participants
death or Disability) would be prohibited at any time solely because the issuance of shares of
Common Stock would violate the registration requirements under the Securities Act, then the Option
or SAR shall terminate on the earlier of (i) the expiration of a total period of three (3) months
(that need not be consecutive) after the termination of the Participants Continuous Service during
which the exercise of the Option or SAR would not be in violation of such registration
requirements, or (ii) the expiration of the term of the Option or SAR as set forth in the
applicable Award Agreement. In addition, unless otherwise provided in a Participants Award
Agreement, if the sale of any Common Stock received upon exercise of an Option or SAR following the
termination of the Participants Continuous Service (other than for Cause) would violate the
Companys insider trading policy, then the Option or SAR shall terminate on the earlier of (i) the
expiration of a period equal to the applicable post-termination exercise period after the
termination of the Participants Continuous Service during which the sale of the Common Stock
received upon exercise of the Option or SAR would not be in violation of the Companys insider
trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the
applicable Award Agreement.
(i) Disability of Participant.
Except as otherwise provided in the applicable Award Agreement
or other agreement between the Participant and the Company, if a Participants Continuous Service
terminates as a result of the Participants Disability, the Participant may exercise his or her
Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of
the date of termination of Continuous Service), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination of Continuous Service (or
such longer or shorter period specified in the Award Agreement), or (ii) the expiration of the term
of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous
Service, the Participant does not exercise his or her Option or SAR within the time specified
herein or in the Award Agreement (as applicable), the Option or SAR (as applicable) shall
terminate.
(j) Death of Participant.
Except as otherwise provided in the applicable Award Agreement or
other agreement between the Participant and the Company, if (i) a Participants Continuous Service
terminates as a result of the Participants death, or (ii) the Participant dies within the period
(if any) specified in the Award Agreement for exercisability after the termination of the
Participants Continuous Service (for a reason other than death), then the Option or SAR may be
exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date
of death) by the Participants estate, by a person who acquired the right to exercise the Option or
SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the
Participants death, but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified in the Award
Agreement), or (ii) the expiration of the term of such Option or SAR as set forth in the Award
Agreement. If, after the Participants death, the Option or SAR is not exercised within the time
specified herein or in the Award Agreement (as applicable), the Option or SAR shall terminate.
(k) Termination for Cause.
Except as explicitly provided otherwise in a Participants Award
Agreement or other individual written agreement between the Company or
any Affiliate and the Participant, if a Participants Continuous Service is terminated for
Cause, the Option or SAR shall terminate immediately upon such Participants termination of
Continuous Service, and the Participant shall be prohibited from exercising his or her Option or
SAR from and after the time of such termination of Continuous Service.
8
(l) Non-Exempt Employees
. No Option or SAR, whether or not vested, granted to an Employee who
is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be
first exercisable for any shares of Common Stock until at least six months following the date of
grant of the Option or SAR. Notwithstanding the foregoing, consistent with the provisions of the
Worker Economic Opportunity Act, (i) in the event of the Participants death or Disability, (ii)
upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted,
(iii) upon a Change in Control, or (iv) upon the Participants retirement (as such term may be
defined in the Participants Award Agreement or in another applicable agreement or in accordance
with the Companys then current employment policies and guidelines), any such vested Options and
SARs may be exercised earlier than six months following the date of grant. The foregoing provision
is intended to operate so that any income derived by a non-exempt employee in connection with the
exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay.
6.
Provisions of Stock Awards other than Options and SARs.
(a) Restricted Stock Awards.
Each Restricted Stock Award Agreement shall be in such form and
shall contain such terms and conditions as the Board shall deem appropriate. To the extent
consistent with the Companys Bylaws, at the Boards election, shares of Common Stock may be (i)
held in book entry form subject to the Companys instructions until any restrictions relating to
the Restricted Stock Award lapse; or (ii) evidenced by a certificate, which certificate shall be
held in such form and manner as determined by the Board. The terms and conditions of Restricted
Stock Award Agreements may change from time to time, and the terms and conditions of separate
Restricted Stock Award Agreements need not be identical;
provided, however
, that each Restricted
Stock Award Agreement shall conform to (through incorporation of the provisions hereof by reference
in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration.
A Restricted Stock Award may be awarded in consideration for (A) cash,
check, bank draft or money order payable to the Company, (B) past services to the Company or an
Affiliate, or (C) any other form of legal consideration (including future services) that may be
acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting.
Shares of Common Stock awarded under the Restricted Stock Award Agreement may
be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) Termination of Participants Continuous Service.
If a Participants Continuous Service
terminates, the Company may receive through a forfeiture condition or a repurchase right any or all
of the shares of Common Stock held by the Participant that have not
vested as of the date of termination of Continuous Service under the terms of the Restricted
Stock Award Agreement.
9
(iv) Transferability.
Rights to acquire shares of Common Stock under the Restricted Stock
Award Agreement shall be transferable by the Participant only upon such terms and conditions as are
set forth in the Restricted Stock Award Agreement, as the Board shall determine in its sole
discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains
subject to the terms of the Restricted Stock Award Agreement.
(v) Dividends.
A Restricted Stock Award Agreement may provide that any dividends paid on
Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the
shares subject to the Restricted Stock Award to which they relate.
(b) Restricted Stock Unit Awards.
Each Restricted Stock Unit Award Agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem appropriate. The terms
and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the
terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical;
provided, however
, that each Restricted Stock Unit Award Agreement shall conform to (through
incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of
each of the following provisions:
(i) Consideration.
At the time of grant of a Restricted Stock Unit Award, the Board will
determine the consideration, if any, to be paid by the Participant upon delivery of each share of
Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by
the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid
in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and
permissible under applicable law.
(ii) Vesting.
At the time of the grant of a Restricted Stock Unit Award, the Board may impose
such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its
sole discretion, deems appropriate.
(iii) Payment
. A Restricted Stock Unit Award may be settled by the delivery of shares of
Common Stock, their cash equivalent, any combination thereof or in any other form of consideration,
as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iv) Additional Restrictions.
At the time of the grant of a Restricted Stock Unit Award, the
Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery
of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award
to a time after the vesting of such Restricted Stock Unit Award.
(v) Dividend Equivalents.
Dividend equivalents may be credited in respect of shares of Common
Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the
Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend
equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock
Unit Award in such manner as determined by the Board. Any additional shares covered by the
Restricted Stock Unit Award credited by reason of such
dividend equivalents will be subject to all of the same terms and conditions of the underlying
Restricted Stock Unit Award Agreement to which they relate.
10
(vi) Termination of Participants Continuous Service.
Except as otherwise provided in the
applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award
that has not vested will be forfeited upon the Participants termination of Continuous Service.
(c) Performance Awards
.
(i) Performance Stock Awards
. A Performance Stock Award is a Stock Award that may vest or may
be exercised contingent upon the attainment during a Performance Period of certain Performance
Goals. A Performance Stock Award may, but need not, require the completion of a specified period
of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved
during the Performance Period, and the measure of whether and to what degree such Performance Goals
have been attained shall be conclusively determined by the Committee, in its sole discretion. The
maximum number of shares covered by an Award that may be granted to any Participant in a calendar
year attributable to Stock Awards described in this Section 6(c)(i) (whether the grant, vesting or
exercise is contingent upon the attainment during a Performance Period of the Performance Goals)
shall not exceed one million (1,000,000) shares of Common Stock. The Board may provide for or,
subject to such terms and conditions as the Board may specify, may permit a Participant to elect
for, the payment of any Performance Stock Award to be deferred to a specified date or event. In
addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board
may determine that cash may be used in payment of Performance Stock Awards.
(ii) Performance Cash Awards
. A Performance Cash Award is a cash award that may be paid
contingent upon the attainment during a Performance Period of certain Performance Goals. A
Performance Cash Award may also require the completion of a specified period of Continuous Service.
At the time of grant of a Performance Cash Award, the length of any Performance Period, the
Performance Goals to be achieved during the Performance Period, and the measure of whether and to
what degree such Performance Goals have been attained shall be conclusively determined by the
Committee, in its sole discretion. In any calendar year, the Committee may not grant a Performance
Cash Award that has a maximum value that may be paid to any Participant in excess of five hundred
thousand dollars ($500,000). The Board may provide for or, subject to such terms and conditions as
the Board may specify, may permit a Participant to elect for, the payment of any Performance Cash
Award to be deferred to a specified date or event. The Committee may specify the form of payment
of Performance Cash Awards, which may be cash or other property, or may provide for a Participant
to have the option for his or her Performance Cash Award, or such portion thereof as the Board may
specify, to be paid in whole or in part in cash or other property.
(iii) Board Discretion
. The Board retains the discretion to reduce or eliminate the
compensation or economic benefit due upon attainment of Performance Goals and to define the manner
of calculating the Performance Criteria it selects to use for a Performance Period.
11
(iv) Section
162(m)
Compliance
. Unless otherwise permitted in compliance with the
requirements of Section 162(m) of the Code with respect to an Award intended to qualify as
performance-based compensation thereunder, the Committee shall establish the Performance Goals
applicable to, and the formula for calculating the amount payable under, the Award no later than
the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance
Period, or (b) the date on which twenty-five percent (25%) of the Performance Period has elapsed,
and in either event at a time when the achievement of the applicable Performance Goals remains
substantially uncertain. Prior to the payment of any compensation under an Award intended to
qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall
certify the extent to which any Performance Goals and any other material terms under such Award
have been satisfied (other than in cases where such relate solely to the increase in the value of
the Common Stock). Notwithstanding satisfaction of any completion of any Performance Goals, to the
extent specified at the time of grant of an Award to covered employees within the meaning of
Section 162(m) of the Code, the number of shares of Common Stock, Options, cash or other benefits
granted, issued, retainable and/or vested under an Award on account of satisfaction of such
Performance Goals may be reduced by the Committee on the basis of such further considerations as
the Committee, in its sole discretion, shall determine.
(d) Other Stock Awards
. Other forms of Stock Awards valued in whole or in part by reference
to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options
or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of
the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards
provided for under Section 5 and the preceding provisions of this Section 6. Subject to the
provisions of the Plan, the Board shall have sole and complete authority to determine the persons
to whom and the time or times at which such Other Stock Awards will be granted, the number of
shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock
Awards and all other terms and conditions of such Other Stock Awards.
7.
Covenants of the Company.
(a) Availability of Shares.
During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of Common Stock reasonably required to satisfy such
Stock Awards.
(b) Securities Law Compliance.
The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to grant
Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards;
provided, however
, that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority that counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and
until such authority is obtained. A Participant shall not be eligible for the grant of a Stock
Award or the subsequent issuance of Common Stock pursuant
to the Stock Award if such grant or issuance would be in violation of any applicable
securities law.
12
(c) No Obligation to Notify or Minimize Taxes.
The Company shall have no duty or obligation
to any Participant to advise such holder as to the time or manner of exercising such Stock Award.
Furthermore, the Company shall have no duty or obligation to warn or otherwise advise such holder
of a pending termination or expiration of a Stock Award or a possible period in which the Stock
Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences
of a Stock Award to the holder of such Stock Award.
8.
Miscellaneous.
(a) Use of Proceeds from Sales of Common Stock.
Proceeds from the sale of shares of Common
Stock pursuant to Stock Awards shall constitute general funds of the Company.
(b) Corporate Action Constituting Grant of Stock Awards.
Corporate action constituting a
grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date
of such corporate action, unless otherwise determined by the Board, regardless of when the
instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually
received or accepted by, the Participant.
(c) Stockholder Rights.
No Participant shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award
unless and until (i) such Participant has satisfied all requirements for exercise of the Stock
Award pursuant to its terms, if applicable, and (ii) the issuance of the Common Stock subject to
such Stock Award has been entered into the books and records of the Company.
(d) No Employment or Other Service Rights.
Nothing in the Plan, any Award Agreement or any
other instrument executed thereunder or in connection with any Award granted pursuant thereto shall
confer upon any Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice and with or without
cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with
the Company or an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of the state in which
the Company or the Affiliate is incorporated, as the case may be.
(e) Incentive Stock Option $100,000 Limitation.
To the extent that the aggregate Fair Market
Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by any Optionholder during any calendar year (under all
plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof that exceed such limit (according to the order in which they were
granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of
the applicable Option Agreement(s).
13
(f) Investment Assurances.
The Company may require a Participant, as a condition of
exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances
satisfactory to the Company as to the Participants knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably satisfactory to the Company
who is knowledgeable and experienced in financial and business matters and that he or she is
capable of evaluating, alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating
that the Participant is acquiring Common Stock subject to the Stock Award for the Participants own
account and not with any present intention of selling or otherwise distributing the Common Stock.
The foregoing requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock
under the Stock Award has been registered under a then currently effective registration statement
under the Securities Act, or (B) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the circumstances under the then
applicable securities laws. The Company may, upon advice of counsel to the Company, place legends
on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to, legends restricting the
transfer of the Common Stock.
(g) Withholding Obligations.
Unless prohibited by the terms of a Stock Award Agreement, the
Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation
relating to an Award by any of the following means or by a combination of such means: (i) causing
the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares
of Common Stock issued or otherwise issuable to the Participant in connection with the Award;
provided, however,
that no shares of Common Stock are withheld with a value exceeding the minimum
amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid
classification of the Stock Award as a liability for financial accounting purposes); (iii)
withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise
payable to the Participant; or (v) by such other method as may be set forth in the Award Agreement.
(h) Electronic Delivery
. Any reference herein to a written agreement or document shall
include any agreement or document delivered electronically or posted on the Companys intranet (or
other shared electronic medium controlled by the Company to which the Participant has access).
(i) Deferrals.
To the extent permitted by applicable law, the Board, in its sole discretion,
may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting
or settlement of all or a portion of any Award may be deferred and may establish programs and
procedures for deferral elections to be made by Participants. Deferrals by Participants will be
made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the
Board may provide for distributions while a Participant is still an employee or otherwise providing
services to the Company. The Board is authorized to make deferrals of Awards and determine when,
and in what annual percentages, Participants may receive payments, including lump sum payments,
following the Participants termination of Continuous Service, and implement such other terms and
conditions consistent with the provisions of the Plan and in accordance with applicable law.
14
(j) Compliance with Section 409A.
To the extent that the Board determines that any Award
granted hereunder is subject to Section 409A of the Code, the Award Agreement evidencing such Award
shall incorporate the terms and conditions necessary to avoid the consequences specified in Section
409A(a)(1) of the Code. To the extent applicable, the Plan and Award Agreements shall be
interpreted in accordance with Section 409A of the Code. Notwithstanding anything to the contrary
in this Plan (and unless the Award Agreement specifically provides otherwise), if the shares of
Common Stock are publicly traded and a Participant holding an Award that constitutes deferred
compensation under Section 409A of the Code is a specified employee for purposes of Section 409A
of the Code, no distribution or payment of any amount shall be made upon a separation from
service before a date that is six (6) months following the date of such Participants separation
from service (as defined in Section 409A of the Code without regard to alternative definitions
thereunder) or, if earlier, the date of the Participants death.
9.
Adjustments upon Changes in Common Stock; Other Corporate Events.
(a) Capitalization Adjustments
. In the event of a Capitalization Adjustment, the Board shall
appropriately and proportionately adjust: (i) the class(es) and maximum number of securities
subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities
that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c),
(iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to
Sections 3(d) and 6(c)(i), and (iv) the class(es) and number of securities and price per share of
stock subject to outstanding Stock Awards. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive.
(b) Dissolution or Liquidation
. Except as otherwise provided in the Stock Award Agreement, in
the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than
Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a
forfeiture condition or the Companys right of repurchase) shall terminate immediately prior to the
completion of such dissolution or liquidation, and the shares of Common Stock subject to the
Companys repurchase rights or subject to a forfeiture condition may be repurchased or reacquired
by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous
Service;
provided, however
, that the Board may, in its sole discretion, cause some or all Stock
Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to
the extent such Stock Awards have not previously expired or terminated) before the dissolution or
liquidation is completed but contingent on its completion.
15
(c) Corporate Transaction.
The following provisions shall apply to Stock Awards in the event
of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award
or any other written agreement between the Company or any Affiliate and the Participant or unless
otherwise expressly provided by the Board at the time of grant of a Stock Award.
(i) Stock Awards May Be Assumed, Continued or Substituted.
In the event of a Corporate
Transaction, any surviving corporation or acquiring corporation (or the surviving or acquiring
corporations parent company) may assume or continue any or all Stock
Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards
outstanding under the Plan (including but not limited to, awards to acquire the same consideration
paid to the stockholders of the Company pursuant to the Corporate Transaction), and any
reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant
to Stock Awards may be assigned by the Company to the successor of the Company (or the successors
parent company, if any), in connection with such Corporate Transaction. A surviving corporation or
acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock
Award or substitute a similar stock award for only a portion of a Stock Award, or may choose to
assume or continue the Stock Awards held by some, but not all Participants. The terms of any
assumption, continuation or substitution shall be set by the Board.
(ii) Stock Awards Not Assumed, Continued or Substituted.
In the event of a Corporate
Transaction in which the surviving corporation or acquiring corporation (or its parent company)
does not assume or continue such outstanding Stock Awards or substitute similar stock awards for
such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed,
continued or substituted, the vesting of such Stock Awards (and, with respect to Options and Stock
Appreciation Rights, the time when such Stock Awards may be exercised) shall be accelerated in full
to a date prior to the effective time of such Corporate Transaction (contingent upon the
effectiveness of the Corporate Transaction) as the Board shall determine (or, if the Board shall
not determine such a date, to the date that is five (5) days prior to the effective time of the
Corporate Transaction), and such Stock Awards shall terminate if not exercised (if applicable) at
or prior to the effective time of the Corporate Transaction, and any reacquisition or repurchase
rights held by the Company with respect to such Stock Awards shall lapse (contingent upon the
effectiveness of the Corporate Transaction);
provided, however
, that the Board may require
Participants to complete and deliver to the Company a notice of exercise before the effective date
of a Corporate Transaction, which is contingent upon the effectiveness of such Corporate
Transaction.
(iii) Payment for Stock Awards in Lieu of Exercise.
Notwithstanding the foregoing, in the
event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or
its parent company) does not assume or continue such outstanding Stock Awards or substitute similar
stock awards for such outstanding Stock Awards and the Stock Award will terminate if not exercised
at or prior to the effective time of a Corporate Transaction in accordance with Section 9(c)(ii),
the Board may provide, in its sole discretion, that the holder of such Stock Award may not exercise
such Stock Award but will receive a payment, in such form as may be determined by the Board, equal
in value, at the effective time, to the excess, if any, of (A) the value of the property the
Participant would have received upon the exercise of the Stock Award, over (B) any exercise price
payable by such holder in connection with such exercise. For purposes of clarity, this payment may
be zero ($0) if the value of the property is equal to or less than the exercise price. Payments
under this provision may be delayed to the same extent that payment of consideration to the holders
of the Companys Common Stock in connection with the Corporate Transaction is delayed as a result
of escrows, earn outs, holdbacks, or any other contingencies.
16
The Board need not take the same action or actions with respect to all Stock Awards or portions
thereof or with respect to all Participants. The Board may take different actions with respect to
the vested and unvested portions of a Stock Award.
(d) Change in Control.
In the event of a Change in Control, then, as of the effective time of
such Change in Control, the vesting of all outstanding Stock Awards (and, with respect to Options
and Stock Appreciation Rights, the time when such Stock Awards may be exercised) shall be
accelerated in full and any reacquisition or repurchase rights held by the Company with respect to
such Stock Awards shall lapse.
10.
Termination or Suspension of the Plan.
(a) Plan Term.
The Board may suspend or terminate the Plan at any time. Unless terminated
sooner by the Board, the Plan shall automatically terminate on the day before the tenth (10th)
anniversary of the Effective Date. No Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) No Impairment of Rights.
Suspension or termination of the Plan shall not impair rights
and obligations under any Award granted while the Plan is in effect except with the written consent
of the affected Participant.
11.
Effective Date of Plan.
This Plan shall become effective on the Effective Date.
12.
Choice of Law.
The law of the State of Delaware shall govern all questions concerning the construction, validity
and interpretation of this Plan, without regard to that states conflict of laws rules.
13.
Definitions.
As used in the Plan, the following definitions shall apply to the
capitalized terms indicated below:
(a)
Affiliate
means, at the time of determination, any parent or subsidiary of the
Company as such terms are defined in Rule 405 promulgated under the Securities Act. The Board
shall have the authority to determine the time or times at which parent or subsidiary status is
determined within the foregoing definition.
(b)
Award
means a Stock Award or a Performance Cash Award.
(c)
Award Agreement
means a written agreement between the Company and a Participant
evidencing the terms and conditions of an Award.
(d)
Board
means the Board of Directors of the Company.
17
(e)
Capitalization Adjustment
means any change that is made in, or other events that occur
with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the
Effective Date without the receipt of consideration by the Company through merger,
consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, large nonrecurring cash dividend, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or any similar equity
restructuring transaction, as that term is used in Statement of Financial Accounting Standards No.
123 (revised). Notwithstanding the foregoing, the conversion of any convertible securities of the
Company shall not be treated as a Capitalization Adjustment.
(f)
Cause
shall have the meaning ascribed to such term in any written agreement between the
Participant and the Company in effect at the time of the termination of the Participants
Continuous Service defining such term and, in the absence of such agreement, such term shall mean,
with respect to a Participant, the occurrence of any of the following events that has a material
negative impact on the business or reputation of the Company: (i) such Participants commission of
any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United
States or any state thereof; (ii) such Participants attempted commission of, or participation in,
a fraud or act of dishonesty against the Company; (iii) such Participants intentional, material
violation of any contract or agreement between the Participant and the Company or of any statutory
duty owed to the Company; (iv) such Participants unauthorized use or disclosure of the Companys
confidential information or trade secrets; or (v) such Participants gross misconduct. The
determination that a termination of the Participants Continuous Service is either for Cause or
without Cause shall be made by the Company in its sole discretion. Any determination by the
Company that the Continuous Service of a Participant was terminated with or without Cause for the
purposes of outstanding Awards held by such Participant shall have no effect upon any determination
of the rights or obligations of the Company or such Participant for any other purpose.
(g)
Change in Control
means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:
(i)
any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power of the Companys
then outstanding securities other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of
the acquisition of securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person that acquires the Companys securities in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the Company through the
issuance of equity securities (which includes an offering of Common Stock to the general public
through a registration statement filed with the Securities and Exchange Commission), or (B) solely
because the level of Ownership held by any Exchange Act Person (the
Subject Person
) exceeds the
designated percentage threshold of the outstanding voting securities as a result of a repurchase or
other acquisition of voting securities by the Company reducing the number of shares outstanding,
provided that if a Change in Control would occur (but for the operation of this subsection (B)) as
a result of the acquisition of voting securities by the Company, and after such share acquisition,
the Subject Person becomes the Owner of any additional voting securities that, assuming the
repurchase or other acquisition had not occurred, increases the percentage of the then outstanding
voting securities Owned by the Subject Person over the designated percentage threshold, then a
Change in Control shall be deemed to occur;
18
(ii)
there is consummated a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such merger, consolidation or
similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly
or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%)
of the combined outstanding voting power of the surviving Entity in such merger, consolidation or
similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power
of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each
case in substantially the same proportions as their Ownership of the outstanding voting securities
of the Company immediately prior to such transaction;
(iii)
there is consummated a sale, lease, exclusive license or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries, other than a
sale, lease, license or other disposition of all or substantially all of the consolidated assets of
the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting
power of the voting securities of which are Owned by stockholders of the Company in substantially
the same proportions as their Ownership of the outstanding voting securities of the Company
immediately prior to such sale, lease, license or other disposition; or
(iv)
individuals who, on the date the Plan is adopted by the Board, are members of the Board
(the
Incumbent Board
) cease for any reason to constitute at least a majority of the members of
the Board;
provided, however
, that if the appointment or election (or nomination for election) of
any new Board member was approved or recommended by a majority vote of the members of the Incumbent
Board then still in office, such new member shall, for purposes of this Plan, be considered as a
member of the Incumbent Board.
Notwithstanding the foregoing or any other provision of this Plan, the term Change in Control
shall not include a sale of assets, merger or other transaction effected exclusively for the
purpose of changing the domicile of the Company.
(h)
Code
means the Internal Revenue Code of 1986, as amended, including any applicable
regulations and guidance thereunder.
(i)
Committee
means a committee of one or more Directors to whom authority has been
delegated by the Board in accordance with Section 2(c).
(j)
Common Stock
means the common stock of the Company.
(k)
Company
means RegeneRx Biopharmaceuticals, Inc., a Delaware corporation.
(l)
Consultant
means any natural person, including an advisor, who is (i) engaged by the
Company or an Affiliate to render consulting or advisory services and is compensated for such
services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated
for such services. However, service solely as a Director, or payment of a fee for such service,
shall not cause a Director to be considered a Consultant for purposes of the Plan.
Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form
S-8 Registration Statement under the Securities Act is available to register either the offer or
the sale of the Companys securities to such person.
19
(m)
Continuous Service
means that the Participants service with the Company or an
Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A
change in the capacity in which the Participant renders service to the Company or an Affiliate as
an Employee, Consultant or Director or a change in the entity for which the Participant renders
such service, provided that there is no interruption or termination of the Participants service
with the Company or an Affiliate, shall not terminate a Participants Continuous Service;
provided,
however,
if the Entity for which a Participant is rendering services ceases to qualify as an
Affiliate, as determined by the Board, in its sole discretion, such Participants Continuous
Service shall be considered to have terminated on the date such Entity ceases to qualify as an
Affiliate. To the extent permitted by law, the Board or the chief executive officer of the
Company, in that partys sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of (i) any leave of absence approved by the Board or chief
executive officer, including sick leave, military leave or any other personal leave, or (ii)
transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a
leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award
only to such extent as may be provided in the Companys leave of absence policy, in the written
terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise
required by law.
(n)
Corporate Transaction
means the consummation, in a single transaction or in a series of
related transactions, of any one or more of the following events:
(i)
a sale or other disposition of all or substantially all, as determined by the Board, in
its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii)
a sale or other disposition of at least fifty percent (50%) of the outstanding securities
of the Company;
(iii)
a merger, consolidation or similar transaction following which the Company is not the
surviving corporation; or
(iv)
a merger, consolidation or similar transaction following which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately preceding the merger,
consolidation or similar transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property, whether in the form of securities, cash
or otherwise.
(o)
Covered Employee
shall have the meaning provided in Section 162(m)(3) of the Code.
(p)
Director
means a member of the Board.
(q)
Disability
means, with respect to a Participant, the inability of such Participant to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months, as provided in Sections
22(e)(3) and 409A(a)(2)(c)(i) of the Code, and shall be determined by the Board on the basis of
such medical evidence as the Board deems warranted under the circumstances.
20
(r)
Effective Date
means the effective date of this Plan document, which is the date of the
annual meeting of stockholders of the Company held in 2010 provided this Plan is approved by the
Companys stockholders at such meeting.
(s)
Employee
means any person employed by the Company or an Affiliate. However, service
solely as a Director, or payment of a fee for such services, shall not cause a Director to be
considered an Employee for purposes of the Plan.
(t)
Entity
means a corporation, partnership, limited liability company or other entity.
(u)
Exchange Act
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
(v)
Exchange Act Person
means any natural person, Entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person shall not include
(i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or
any Subsidiary of the Company or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter
temporarily holding securities pursuant to a registered public offering of such securities, (iv) an
Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or
group (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the
Effective Date, is the Owner, directly or indirectly, of securities of the Company representing
more than fifty percent (50%) of the combined voting power of the Companys then outstanding
securities.
(w)
Fair Market Value
means, as of any date, the value of the Common Stock determined as
follows:
(i)
If the Common Stock is listed on any established stock exchange or traded on any
established market, the Fair Market Value of a share of Common Stock, unless otherwise determined
by the Board, shall be the closing sales price for such stock as quoted on such exchange or market
(or the exchange or market with the greatest volume of trading in the Common Stock) on the date of
determination, as reported in a source the Board deems reliable.
(ii)
Unless otherwise provided by the Board, if there is no closing sales price for the Common
Stock on the date of determination, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(iii)
In the absence of such markets for the Common Stock, the Fair Market Value shall be
determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of
the Code.
(x)
Incentive Stock Option
means an option granted pursuant to Section 5 of the Plan that is
intended to be, and qualifies as, an incentive stock option within the meaning of Section 422 of
the Code.
21
(y)
Non-Employee Director
means a Director who either (i) is not a current employee or
officer of the Company or an Affiliate, does not receive compensation, either directly or
indirectly, from the Company or an Affiliate for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(
Regulation S-K
)), does not possess an interest in any other transaction for which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged in a business
relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or
(ii) is otherwise considered a non-employee director for purposes of Rule 16b-3.
(z)
Nonstatutory Stock Option
means any option granted pursuant to Section 5 of the Plan
that does not qualify as an Incentive Stock Option.
(aa)
Officer
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act.
(bb)
Option
means an Incentive Stock Option or a Nonstatutory Stock Option to purchase
shares of Common Stock granted pursuant to the Plan.
(cc)
Option Agreement
means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to
the terms and conditions of the Plan.
(dd)
Optionholder
means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.
(ee)
Other Stock Award
means an award based in whole or in part by reference to the Common
Stock which is granted pursuant to the terms and conditions of Section 6(d).
(ff)
Other Stock Award Agreement
means a written agreement between the Company and a holder
of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each
Other Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(gg)
Outside Director
means a Director who either (i) is not a current employee of the
Company or an affiliated corporation (within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an affiliated
corporation who receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or
an affiliated corporation, and does not receive remuneration from the Company or an affiliated
corporation, either directly or indirectly, in any capacity other than as a Director, or (ii) is
otherwise considered an outside director for purposes of Section 162(m) of the Code.
(hh)
Own,
Owned,
Owner,
Ownership
A person or Entity shall be deemed to Own, to
have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or
Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power, which includes the power to vote or to direct the voting,
with respect to such securities.
22
(ii)
Participant
means a person to whom an Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.
(jj)
Performance Cash Award
means an award of cash granted pursuant to the terms and
conditions of Section 6(c)(ii).
(kk)
Performance Criteria
means the one or more criteria that the Committee shall select for
purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria
that shall be used to establish such Performance Goals may be based on any one of, or combination
of, the following as determined by the Committee: (i) earnings (including earnings per share and
net earnings); (ii) earnings before interest, taxes and depreciation; (iii) earnings before
interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity
or average stockholders equity; (vi) return on assets, investment, or capital employed; (vii)
stock price; (viii) margin (including gross margin); (ix) income (before or after taxes); (x)
operating income; (xi) operating income after taxes; (xii) pre-tax profit; (xiii) operating cash
flow; (xiv) sales or revenue targets; (xv) increases in revenue or product revenue; (xvi) expenses
and cost reduction goals; (xvii) improvement in or attainment of working capital levels; (xviii)
economic value added (or an equivalent metric); (xix) market share; (xx) cash flow; (xxi) cash flow
per share; (xxii) share price performance; (xxiii) debt reduction; (xxiv) implementation or
completion of projects or processes; (xxv) customer satisfaction; (xxvi) stockholders equity;
(xxvii) capital expenditures; (xxviii) debt levels; (xxix) operating profit or net operating
profit; (xxx) workforce diversity; (xxxi) growth of net income or operating income; (xxxii)
billings; (xxxiii) achievement of clinical trial milestones, such as patient enrollment or
successful completion of the trial; (xxxiv) execution of a new licensor agreement; (xxxv) receipt
of a milestone payment under a licensor agreement and (xxxvi) to the extent that an Award is not
intended to comply with Section 162(m) of the Code, other measures of performance selected by the
Board or the Committee.
(ll)
Performance Goals
means, for a Performance Period, the one or more goals established by
the committee for the Performance Period based upon the Performance Criteria. Performance Goals
may be based on a Company-wide basis, with respect to one or more business units, divisions,
Affiliates, or business segments, and in either absolute terms or relative to the performance of
one or more comparable companies or the performance of one or more relevant indices. Unless
specified otherwise by the Committee (i) in the Award Agreement at the time the Award is granted or
(ii) in such other document setting forth the Performance Goals at the time the Performance Goals
are established, the Committee shall appropriately make adjustments in the method of calculating
the attainment of Performance Goals for a Performance Period as follows: (1) to exclude
restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects, as
applicable, for non-U.S. dollar denominated Performance Goals; (3) to exclude the effects of
changes to generally accepted accounting principles; (4) to exclude the effects of any statutory
adjustments to corporate tax rates; and (5) to exclude the effects of any extraordinary items as
determined under generally accepted accounting principles.
(mm)
Performance Period
means the period of time selected by the Committee over which the
attainment of one or more Performance Goals will be measured for the purpose of determining a
Participants right to and the payment of a Stock Award or a Performance Cash
Award. Performance Periods may be of varying and overlapping duration, at the sole discretion
of the Board.
23
(nn)
Performance Stock Award
means a Stock Award granted under the terms and conditions of
Section 6(c)(i).
(oo)
Plan
means this RegeneRx Biopharmaceuticals, Inc. 2010 Equity Incentive Plan.
(pp)
Restricted Stock Award
means an award of shares of Common Stock which is granted
pursuant to the terms and conditions of Section 6(a).
(qq)
Restricted Stock Award Agreement
means a written agreement between the Company and a
holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award
grant. Each Restricted Stock Award Agreement shall be subject to the terms and conditions of the
Plan.
(rr)
Restricted Stock Unit Award
means a right to receive shares of Common Stock which is
granted pursuant to the terms and conditions of Section 6(b).
(ss)
Restricted Stock Unit Award Agreement
means a written agreement between the Company and
a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock
Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and
conditions of the Plan.
(tt)
Rule 16b-3
means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.
(uu)
Securities Act
means the Securities Act of 1933, as amended.
(vv)
Stock Appreciation Right
or
SAR
means a right to receive the appreciation on Common
Stock that is granted pursuant to the terms and conditions of Section 5.
(ww)
Stock Appreciation Right Agreement
means a written agreement between the Company and a
holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation
Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions
of the Plan.
(xx)
Stock Award
means any right to receive Common Stock granted under the Plan, including
an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted
Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.
(yy)
Stock Award Agreement
means a written agreement between the Company and a Participant
evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
24
(zz)
Subsidiary
means, with respect to the Company, (i) any corporation of which more than
fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether, at the time, stock
of any other class or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company,
and (ii) any partnership, limited liability company or other entity in which the Company has a
direct or indirect interest (whether in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%).
(aaa)
Ten Percent Stockholder
means a person who Owns (or is deemed to Own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Affiliate.
25
REGENERX BIOPHARMACEUTICALS, INC.
15245 SHADY GROVE RD, SUITE 470
ROCKVILLE, MD 20850
VOTE BY INTERNET www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern
Time the day before the cut-off date or
meeting date. Have your proxy card in hand
when you access the web site and follow the
instructions to obtain your records and to
create an electronic voting instruction
form.
Electronic Delivery of Future PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you
can consent to receiving all future proxy statements, proxy cards and annual reports
electronically via
e-mail
or the Internet. To sign up for electronic delivery, please follow
the instructions above to vote using the Internet and, when prompted, indicate that you agree
to receive or access proxy materials electronically in future years.
VOTE BY PHONE 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59
P.M. Eastern Time the day before the
cut-off date or meeting date. Have your
proxy card in hand when you call and then
follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and
return it in the postage-paid envelope we
have provided or return it to Vote
Processing, c/o Broadridge, 51 Mercedes
Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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For
All
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Withhold
All
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For All
Except
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To withhold
authority to vote for any individual nominee(s), mark For All Except
and write the number(s) of the nominee(s) on the line below.
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The Board of Directors recommends that you vote FOR the following:
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o
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1.
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Election of Directors
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Nominees
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01
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J.J. Finkelstein
02 Allan L. Goldstein 03 Joseph C. McNay
04 L. Thompson Bowles 05 Mauro Bove
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The
Board of Directors recommends you vote FOR the following
proposal(s):
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For
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Against
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Abstain
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2
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Ratify the selection by the Audit
Committee of Reznick Group, P.C., as the Independent Registered Public Accounting Firm for RegeneRx Biopharmaceuticals, Inc., for the fiscal year ending December 31, 2010.
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3
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Approval of the 2010 Equity Incentive Plan.
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NOTE:
In their discretion, the proxies are authorized to vote upon such other business as may
properly come before the meeting or any postponement or adjournment thereof.
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or
other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice &
Proxy Statement, Annual Report is/are available at
www.proxyvote.com
.
PROXY
2010 Annual Meeting of Stockholders-July 14, 2010
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
REGENERX BIOPHARMACEUTICALS, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the Notice of the Annual
Meeting of Stockholders to be held on July 14, 2010 and the Proxy Statement and appoints J.J.
Finkelstein and C. Neil Lyons and each of them, the attorneys and proxies of the undersigned, each
with full power of substitution, to vote all the shares of common stock of RegeneRx
Biopharmaceuticals, Inc., which the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the 2010 Annual Meeting of Stockholders to be
held at the offices of Cooley LLP, One Freedom Square, 15th Floor, Reston Town Center, 11951
Freedom Drive, Reston, VA, and at any adjournment or postponements thereof, with the same force and
effect as the undersigned might or could do if personally present thereat. The shares represented
by this proxy shall be voted in the manner set forth on the reverse side of this card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES
LISTED ON THE REVERSE SIDE AND A VOTE FOR PROPOSAL 2 AND A VOTE FOR PROPOSAL 3. IF NO INSTRUCTION
TO THE CONTRARY IS INDICATED. THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES FOR DIRECTOR AND
FOR PROPOSALS 2 AND 3.
Items to be voted appear on reverse side
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