Part
III
Item
10. Directors and Executive Officers of the Registrant
Executive
Officers and Directors
Currently,
our Board of Directors is comprised of five members. Each director has been elected to hold office until the next annual meeting
of shareholders or special meeting in lieu of such annual meeting or until his or her successor has been duly elected and qualified,
or until his or her earlier death, resignation or removal.
Our
Board of Directors may consider a broad range of factors relating to the qualifications and background of nominees, which may
include diversity, which is not only limited to race, gender or national origin. We have no formal policy regarding Board diversity.
Our Board of Directors’ priority in selecting Board members is identification of persons who will further the interests
of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively
to the collaborative culture among Board members, knowledge of our business, understanding of the competitive landscape and professional
and personal experiences and expertise relevant to our growth strategy.
The
following table provides information regarding our executive officers and directors as of March 22, 2021:
Name
|
|
Age
|
|
Position
|
Executive
Officers:
|
|
|
|
|
David
Young, Pharm.D, Ph.D.
|
|
68
|
|
Chairman
of the Board of Directors and Chief Executive Officer
|
Sian
Bigora, Pharm.D.
|
|
60
|
|
Chief
Development Officer
|
Michael
Floyd
|
|
65
|
|
Chief
Operations Officer
|
Wendy
Guy
|
|
56
|
|
Chief
Administrative Officer
|
Patrick
Lin
|
|
55
|
|
Chief
Business and Strategy Officer
|
James
Stanker
|
|
63
|
|
Chief
Financial Officer
|
|
|
|
|
|
Non-Employee
Directors:
|
|
|
|
|
Dr.
Khalid Islam
|
|
65
|
|
Director
|
Geraldine
Pannu
|
|
51
|
|
Director
|
Virgil
Thompson
|
|
81
|
|
Director
|
Justin
Yorke
|
|
55
|
|
Director
|
Executive
Officers
David
Young, Pharm.D., Ph.D. – Dr. Young has served as our Chairman and Chief Executive Officer since October
4, 2017 and has over 30 years of pharmaceutical research, drug development, and corporate experience. He was a Founder and Chief
Executive Officer (CEO) of Promet Therapeutics, LLC (“Promet”) since its formation in August 2015. He served as our
interim CFO from October 4, 2017 to September 1, 2018. From 2006 to 2009, prior to joining the Questcor executive management team,
Dr. Young served as an independent Director on the Questcor Board of Directors. As an independent director, Dr. Young, representing
Questcor, worked with the FDA in developing a process to obtain approval for Acthar (the only commercial product owned by Questcor)
in Infantile Spasms (IS), a deadly and debilitating very rare orphan indication. In 2009, Dr. Young joined the Questcor executive
management team as Chief Scientific Officer (CSO) in order to obtain IS FDA approval and market exclusivity by completing the
New Drug Application (NDA) process, working with FDA on modernizing the label, and leading all aspects of approval including the
Advisory Committee Meeting that voted to approve the NDA for IS. During the eight years that Dr. Young was involved with Questcor
as an independent director and as its CSO, Questcor transitioned to an orphan drug specialty pharmaceutical company, moving from
an outdated Acthar label and near bankruptcy in 2007 to a modernized Acthar label that helped it to achieve sales greater than
$750 million per year and the ultimate sale of the company for approximately $5.6 billion in 2014. While serving on Questcor’s
Board of Directors, Dr. Young was Executive Director & President, U.S. Operations of AGI Therapeutics plc. Dr. Young has also
served as the Executive Vice President of the Strategic Drug Development Division of ICON plc, an international CRO, and was the
Founder and CEO of GloboMax LLC, a CRO specializing in FDA drug development, purchased by ICON plc in 2003. Prior to forming GloboMax,
Dr. Young was a Tenured Associate Professor at the School of Pharmacy, University of Maryland at Baltimore (UMAB), where he led
a group of 30 faculty, scientists, postdocs, graduate students and technicians in evaluating the biological properties of drugs
and drug delivery systems in animals and humans.
Dr.
Young is an expert in small molecule and protein non-clinical and clinical drug development. He has served on FDA Advisory Committees,
was Co-Principal Investigator on a FDA-funded Clinical Pharmacology contract, was responsible for the analytical and pharmacokinetic
evaluation of all oral products manufactured in the UMAB-FDA contract which led to the Scale-up and Post-Approval Changes (SUPAC)
and in-vitro in-vivo correlation (IVIVC) FDA Guidance, taught FDA reviewers as part of the UMAB-FDA contract for five years, has
served on National Institutes of Health (NIH) grant review committees, and was Co-Principal Investigator on a National Cancer
Institute contract to evaluate new oncology drugs. Dr. Young has met with the FDA over 100 times on more than 50 drug products
and has been a key team member on more than 30 NDA/supplemental NDA approvals. Dr. Young has more than 150 presentations-authored
publications-book chapters, including formal presentations to the FDA, FDA Advisory Committees, and numerous invited presentations
at both scientific and investment meetings. Dr. Young received his B.S. in Physiology from the University of California at Berkeley,
his M.S. in Medical Physics from the University of Wisconsin at Madison, and his Pharm.D. - Ph.D. with emphasis in Pharmacokinetics
and Pharmaceutical Sciences from the University of Southern California. We believe Dr. Young is qualified to serve on our Board
due to his pharmaceutical experience and as the founder of Promet.
Sian
Bigora, Pharm.D. – Dr. Bigora has served as our Chief Development Officer since October 4, 2017 and has
over 20 years of pharmaceutical research, regulatory strategy and drug development experience working closely with Dr. Young.
She was Co-Founder, Director, and Chief Development Officer at Promet Therapeutics, LLC. Prior to Promet, Dr. Bigora was Vice
President of Regulatory Affairs at Questcor Pharmaceuticals (acquired by Mallinckrodt Pharmaceuticals in 2014) from 2009-2015,
including leading efforts on modernizing the Acthar Gel label and in obtaining FDA approval in Infantile Spasms, events of material
importance to Questcor’s subsequent success. During her time at Questcor, she assisted in building an expert regulatory
group to address both commercial and development needs for complex products such as Acthar. Dr. Bigora’s role at Questcor
included heading up the development of a safety pharmacovigilance group and a clinical quality group. Prior to her position at
Questcor, Dr. Bigora was Vice President of Clinical and Regulatory Affairs, U.S. Operations of AGI Therapeutics, plc. In this
role, she was responsible for the development and implementation of Global Phase 3 studies and interactions with regulatory authorities.
Previously, she operated her own consulting company, serving as the regulatory and drug development expert team member for multiple
small and mid-sized pharmaceutical companies. Dr. Bigora held multiple positions in regulatory affairs, operations and project
management ending as VP of Regulatory Affairs at the Strategic Drug Development Division of ICON, plc, an international CRO, and
at GloboMax LLC, a CRO specializing in FDA drug development, purchased by ICON plc in 2003. Prior to GloboMax, she worked in the
Pharmacokinetics and Biopharmaceutics Laboratory at the School of Pharmacy, University of Maryland on the FDA funded Clinical
Pharmacology contract and UMAB-FDA contract as a clinical scientist and instructor for FDA reviewers. Dr. Bigora received a Pharm.D.
from the School of Pharmacy at the University of Maryland at Baltimore. She also completed a Fellowship in Pharmacokinetics and
Pediatric Infectious Diseases at the University of Maryland at Baltimore
Michael
Floyd – Mr. Floyd has served as our Chief Operating Officer since October 6, 2020. Mr. Floyd has been a serial entrepreneur
with over 15 years of experience with early-stage biopharma businesses in infectious diseases, oncology and rare diseases. In
1996, he founded Neurologic, an early-stage enterprise that in-licensed technology from the National Institutes of Health for
a diagnostic test for Alzheimer’s disease. Mr. Floyd was the co-author of the plan that created the Blanchette Rockefeller
Neurosciences Institute in 1998 with the Honorable Jay Rockefeller and Johns Hopkins University. In 2006, Mr. Floyd was the Chief
Executive Officer for the North American subsidiary of Arpida Ltd. where he organized the Phase 3 program for an MRSA drug and
organized the NDA submission. Mr. Floyd subsequently led the US efforts to remediate the NDA for Gentium, SpA for defibrotide
beginning in 2011. Mr. Floyd was the Founder of Bio-AIM, which is developing monoclonal antibodies for Acinetobacter baumannii
and a Co-Founder of Exbaq, which is developing therapies for Gram negative pathogens. In 2016, Mr. Floyd co-founded Elion Oncology
and served as its Chief Executive officer until joining Processa. Mr. Floyd received a BSBA in Accounting from Georgetown University
and is a CPA (inactive).
Wendy
Guy – Ms. Guy has served as our Chief Administrative Officer since October 4, 2017 and has more than 20
years of experience in business operations. She has worked closely with Dr. Young in the past in corporate management and operations,
human resources, and finance roles. She was Co-Founder, Director, and Chief Administrative Officer of Promet Therapeutics, LLC.
Prior to Promet, Ms. Guy was employed at Questcor Pharmaceuticals (acquired by Mallinckrodt Pharmaceuticals in 2014) as Senior
Manager, Business Operation in charge of the Maryland Office for Questcor. During the five years she spent at Questcor, she built
a dynamic administrative and contracts team, grew the Maryland Office from two employees to just under 100, and expanded the facility
from 1,200 sq. ft. to 15,000 sq. ft. Prior to her position at Questcor, Ms. Guy was Senior Manager, U.S. Operations of AGI Therapeutics,
plc. In this role, she was responsible for the day to day business and administrative operations of the company. Previously, she
held multiple senior level positions with the Strategic Drug Development Division of ICON, GloboMax, and Mercer Management Consulting.
Ms. Guy received an A.A. from Mount Wachusett Community College.
Patrick
Lin – Mr. Lin has served as our Chief Business & Strategy Officer since October 4, 2017, served as a director
from October 2017 to November 2020 and has over 20 years of financing and investing experience in the Biopharm Sector. He was
Co-Founder and Chairman of the Board of Promet Therapeutics, LLC. He is Founder and, for more than 15 years, Managing Partner
of Primarius Capital, a family office that manages public and private investments focused on small capitalization companies. For
10 years prior to forming Primarius Capital, Mr. Lin worked at several Wall Street banking and brokerage firms including Robertson
Stephens & Co., E*Offering, and Goldman Sachs & Co. Mr. Lin was Co-Founding Partner of E*Offering. Mr. Lin received an
MBA from Kellogg Graduate School of Management, a Master of Engineering Management, and a Bachelor of Science in Business Administration
from the University of Southern California.
James
Stanker – Mr. Stanker has served as our Chief Financial Officer since September 5, 2018. Mr. Stanker has over
30 years of financial and executive leadership experience in the areas of accounting principles and audit standards, regulatory
reporting, and fiscal management and strategy. He has served in a financial leadership role as an audit partner at Grant Thornton
from February 2000 until his retirement in August 2016. His responsibilities included managing the audit quality in the Atlantic
Coast Market Territory. From 2009 to 2012, he served as the Global Head of Audit Quality for Grant Thornton International. Prior
to joining Grant Thornton, Mr. Stanker served as the Chief Financial Officer for a Nasdaq listed company and for a privately held
life science company. Mr. Stanker is a Certified Public Accountant (inactive). He has a bachelor’s degree in Aeronautics
from San Jose State University and a Master’s in Business Administration from California State University, East Bay. He
previously served on the Board of Directors of GSE Systems, Inc. Mr. Stanker is also a visiting professor in the George B. Delaplaine
School of Business at Hood College.
Non-Employee
Directors
Dr.
Khalid Islam – Dr. Islam has served as a Director since November 3, 2020. Dr. Islam is an advisor to the venture
group Kurma Biofund (Paris). He is currently chairman of the Boards of Directors of Fennec Pharmaceuticals Inc. (NASDAQ: FENC),
Gain Therapeutics Inc. and Minoryx Therapeutics SL. He also serves on the Board of Immunomedics Inc. (NASDAQ: IMMU) and previously
served as the chairman and CEO of Gentium S.p.A. (a Nasdaq-listed company) from 2009-2014. Dr. Islam is also a director and shareholder
of Elion Oncology, Inc. (“Elion”). We believe Dr. Islam is qualified to serve on our Board because of his pharmaceutical
industry knowledge and extensive experience in public company governance and strategy.
Geraldine
Liu Pannu – Ms. Pannu has served as a Director since February 13, 2020. Ms. Pannu has over 25 years of experience
in investment and financial management, fund operations, consulting and marketing. Since January 2020, she has been the Founding
and Managing Partner of GLTJ Pioneer Capital, a firm that specializes in land acquisition, entitlement and vertical development
of multifamily, student and senior housing in the San Francisco Bay Area. From March 2007 to December 2016, Ms. Pannu was the
COO and Managing Partner for ChinaRock Capital Management, a leading hedge and venture capital fund company. She previously worked
at McKinsey & Co, Monitor Company as management consultant. She had successfully raised capital for several hedge, venture
capital and real estate funds. She also helped start-up companies expand and diversify business categories, client verticals and
grow revenue. Ms. Pannu was born in Shanghai and grew up in Hong Kong. She received her Bachelor of Business Administration degree
from the Chinese University of Hong Kong and an MBA from Harvard Business School. She is fluent in English, Mandarin, Cantonese
and Shanghainese. We believe Ms. Pannu is qualified to serve on our Board because of her extensive investment experience.
Virgil
Thompson – Mr. Thompson has served as a Director since October 2017 and previously served on the Board
of Directors at Promet Therapeutics, LLC. He served as a Director of Mallinckrodt Pharmaceuticals (formerly Questcor Pharmaceuticals),
and Director of GenZ Corporation, both companies he resigned from in 2017. From July 2009 to July 2015, he served as Chief Executive
Officer and Director of Spinnaker Biosciences, Inc., and now serves as Chairman of the Board. Mr. Thompson also served as Chairman
of the Board of Aradigm Corporation, as well as of Questcor Pharmaceuticals, Inc. until Questcor was acquired by Mallinckrodt
in August 2014. Mr. Thompson served as the Chief Executive Officer and as a Director of Angstrom Pharmaceuticals, Inc. from 2002
until 2007. From 2000 until 2002, Mr. Thompson was Chief Executive Officer and a Director of Chimeric Therapies, Inc. From 1999
until 2000, Mr. Thompson was President, Chief Operating Officer and, from 1994, a Director of Bio-Technology General Corporation
(subsequently Savient Pharmaceuticals, Inc.). Mr. Thompson obtained a bachelor’s degree in Pharmacy from the University
of Kansas and a J.D. degree from the George Washington University Law School. We believe Mr. Thompson is qualified to serve on
our Board because of his extensive industry knowledge and board experience with publicly traded biotechnology companies.
Justin
W. Yorke – Mr. Yorke has served as a Director since October 2017. Mr. Yorke has over 25 years of experience as
an institutional equity fund manager and senior financial analyst for investment funds and investment banks and was appointed
as a Director in August 2017. For more than the past 10 years, he has been a manager of the San Gabriel Fund, JMW Fund and the
Richland Fund whose primary activity is investing in public and private companies in the United States. Mr. Yorke served as non-executive
Chairman of Jed Oil and a Director/CEO at JMG Exploration. Mr. Yorke was a Fund Manager and Senior Financial Analyst, based in
Hong Kong, for Darier Henstch, S.A., a private Swiss bank, where he managed their $400 million Asian investment portfolio. Mr.
Yorke was an Assistant Director and Senior Financial Analyst with Peregrine Asset Management, which was a unit of Peregrine Securities,
a regional Asian investment bank. Mr. Yorke was a Vice President and Senior Financial Analyst with Unifund Global Ltd., a private
Swiss Bank, as a manager of its $150 million Asian investment portfolio. Mr. Yorke has a B.A. from University of California, Los
Angeles. We believe Mr. Yorke is qualified to serve on our Board because of his extensive investment experience.
Director
Independence
The
Nasdaq Marketplace Rules require a majority of a listed company’s Board of Directors to be comprised of independent directors.
In addition, the Nasdaq Marketplace Rules require that, subject to specified exceptions, each member of a listed company’s
audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy
independence criteria set forth in Rule 10A-3 under the Exchange Act.
Under
Rule 5605(a)(2) of the Nasdaq Marketplace Rules, a director will only qualify as an “independent director” if, in
the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3
of the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member
of the audit committee, the Board of Directors, or any other Board committee, accept, directly or indirectly, any consulting,
advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of
the listed company or any of its subsidiaries.
Our
Board of Directors has reviewed the composition of our Board of Directors and the independence of each director. Based upon information
requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships,
our Board of Directors has determined that each of Geraldine Pannu, Virgil Thompson and Justin Yorke is an “independent
director” as defined under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. Our Board of Directors also determined that
the directors who serve on our audit committee, our compensation committee, and our nominating and corporate governance committee
satisfy the independence standards for such committees established by the SEC and the Nasdaq Marketplace Rules, as applicable.
In making such determinations, our Board of Directors considered the relationships that each such non-employee director has with
our company and all other facts and circumstances our Board of Directors deemed relevant in determining independence, including
the beneficial ownership of our capital stock by each non-employee director.
There
are no family relationships among any of our directors or executive officers.
Committees
of the Board of Directors
Each
of the below committees has a written charter approved by our Board of Directors located at website: www.processapharmaceuticals.com.
Each of the committees report to our Board of Directors as such committee deems appropriate and as our Board of Directors may
request. Copies of each charter are posted on the investor relations section of our website. Members serve on these committees
until their resignation or until otherwise determined by our Board of Directors. In addition, from time to time, special committees
may be established under the direction of our Board of Directors when necessary to address specific issues.
Audit
Committee
Our
audit committee is comprised of Geraldine Pannu, Virgil Thompson and Justin Yorke
with Justin Yorke serving as chairman of the committee. Our Board of Directors has determined that each member of the audit committee
meets the independence requirements of Rule 10A-3 under the Exchange Act and the applicable Nasdaq Listing Rules and has sufficient
knowledge in financial and auditing matters to serve on the audit committee. Our Board of Directors has determined that Justin
Yorke is an “audit committee financial expert” within the meaning of the SEC regulations and the applicable Nasdaq
Listing Rules. The audit committee’s responsibilities include:
|
●
|
selecting
a firm to serve as the independent registered public accounting firm to audit our financial statements;
|
|
●
|
ensuring
the independence of the independent registered public accounting firm;
|
|
●
|
discussing
the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management
and that firm, our interim and year-end operating results;
|
|
●
|
establishing
procedures for employees to anonymously submit concerns about questionable accounting or audit matters;
|
|
●
|
considering
the effectiveness of our internal controls and internal audit function;
|
|
●
|
reviewing
material related-party transactions or those that require disclosure; and
|
|
●
|
approving
or, as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting
firm.
|
Compensation
Committee
Our
compensation committee is comprised of Geraldine Pannu, Virgil Thompson and Justin Yorke with Geraldine Pannu serving as chairman of the committee. Each member of this committee is a non-employee
director, as defined by Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Our Board of Directors has determined that each
member of the compensation committee is “independent” as defined in the Nasdaq Listing Rules. The composition of our
compensation committee meets the requirements for independence under the Nasdaq Listing Rules, including the applicable transition
rules. The compensation committee’s responsibilities include:
|
●
|
reviewing
and approving, or recommending that our Board of Directors approve, the compensation of our executive officers;
|
|
●
|
reviewing
and recommending to our Board of Directors the compensation of our directors;
|
|
●
|
reviewing
and recommending to our Board of Directors the terms of any compensatory agreements with our executive officers;
|
|
●
|
administering
our stock and equity incentive plans;
|
|
●
|
reviewing
and approving or making recommendations to our Board of Directors with respect to incentive compensation and equity plans;
and
|
|
●
|
reviewing
all overall compensation policies and practices.
|
Nominating
and Governance Committee
Our
nominating and governance committee is comprised of Geraldine Pannu, Virgil Thompson and Justin Yorke with Virgil Thompson as the chairman of the committee. Our Board of Directors has determined that
each member of the nominating and corporate governance committee is “independent” as defined in the applicable Nasdaq
Listing Rules. The nominating and corporate governance committee’s responsibilities include:
|
●
|
identifying
and recommending candidates for membership on our Board of Directors;
|
|
●
|
recommending
directors to serve on Board committees;
|
|
●
|
reviewing
and recommending our corporate governance guidelines and policies;
|
|
●
|
reviewing
proposed waivers of the code of conduct for directors and executive officers;
|
|
●
|
evaluating,
and overseeing the process of evaluating, the performance of our Board of Directors and individual directors; and
|
|
●
|
assisting
our Board of Directors on corporate governance matters.
|
Leadership
Structure and Risk Oversight
Our
Board of Directors is currently chaired by David Young, Pharm.D, Ph.D., who also serves as our Chief Executive Officer. Our Board
of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board
of Directors, as our Board of Directors believes it is in our best interest to make that determination based on our position and
direction and the membership of the Board of Directors. Our Board of Directors has determined that having an employee director
serve as Chairman is in the best interest of our stockholders at this time because of the efficiencies achieved in having the
role of Chief Executive Officer and Chairman combined, and because the detailed knowledge of our day-to-day operations and business
that the Chief Executive Officer possesses greatly enhances the decision-making processes of our Board of Directors as a whole.
We have a governance structure in place, including independent directors, designed to ensure the powers and duties of the dual
role are handled responsibly. We do not have a lead independent director.
Our
Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our business
strategies. Our Board of Directors performs this oversight role by using several different levels of review. In connection with
its reviews of our operations and corporate functions, our Board of Directors addresses the primary risks associated with those
operations and corporate functions. In addition, our Board of Directors reviews the risks associated with our business strategies
periodically throughout the year as part of its consideration of undertaking any such business strategies.
Each
of our Board committees also oversees the management of our risks that fall within the committee’s areas of responsibility.
In performing this function, each committee has full access to management, as well as the ability to engage advisors. Our Chief
Executive Officer reports to the audit committee and is responsible for identifying, evaluating and implementing risk management
controls and methodologies to address any identified risks. In connection with its risk management role, our audit committee meets
privately with representatives from our independent registered public accounting firm and our Chief Executive Officer. The audit
committee oversees the operation of our risk management program, including the identification of the primary risks associated
with our business and periodic updates to such risks, and reports to our Board of Directors regarding these activities.
Compensation
Committee Interlocks and Insider Participation
None
of the members of our compensation committee has at any time during the prior three years been one of our officers or employees.
None of our executive officers currently serves, or in the past fiscal year has served, as a member of the Board of Directors
or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or compensation
committee.
Code
of Business Conduct and Ethics
We
maintain a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers
responsible for financial reporting. Our code of business conduct and ethics is available on our website at www.processapharmaceuticals.com.
We intend to disclose any amendments to the code, or any waivers of its requirements, on our website or in a Current Report on
Form 8-K.
Item
11. Executive Compensation
This
section describes the material elements of compensation awarded to, earned by, or paid to each of our named executive officers,
whom we refer to as our “named executive officers,” during 2020 and describes our policies and decisions made with
respect to the information contained in the following tables, related footnotes and narrative for 2020. The named executive officers
are identified below in the table titled “Summary Compensation Table.”
Overview
of Our Executive Compensation Philosophy and Design
We
believe that a skilled, experienced and dedicated executive and senior management team is essential to the future performance
of our Company and to building stockholder value. We have sought to establish competitive compensation programs that enable us
to attract and retain executive officers with these qualities. The other objectives of our compensation programs for our executive
officers are the following:
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●
|
to
motivate our executive officers to achieve strong financial performance;
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|
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●
|
to
attract and retain executive officers who we believe have the experience, temperament, talents and convictions to contribute
significantly to our future success; and
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|
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|
|
●
|
to
align the economic interests of our executive officers with the interests of our stockholders.
|
Setting
Executive Compensation
Our
compensation committee has primary responsibility for, among other things, determining our compensation philosophy, evaluating
the performance of our named executive officers, setting the compensation and other benefits of our named executive officers and
administering our equity compensation plans.
It
is our CEO’s responsibility to provide recommendations to the compensation committee for most compensation matters related
to executive compensation. The recommendations are based on a general analysis of market standards and trends and an evaluation
of the contribution of each executive officer to the Company’s performance. Our compensation committee considers, but retains
the right to accept, reject or modify such recommendations and has the right to obtain independent compensation advice. Neither
the CEO nor any other members of management is present during executive sessions of the compensation committee. The CEO is not
present when decisions with respect to his compensation are made. Our Board of Directors appoints the members of our compensation
committee and delegates to the compensation committee the direct responsibility for overseeing the design and administration of
our executive compensation program.
We
have not historically utilized a compensation consultant to set the compensation of our named executive officers.
Elements
of Executive Compensation
We
believe the most effective compensation package for our named executive officers is one designed to reward achievement of individual
and corporate objectives; provide for short-term, medium-term and long-term financial and strategic goals; and align the interest
of management with those of the stockholders by providing incentives for improving stockholder value. Compensation for our named
executive officers currently consists of base salary and equity awards.
Base
Salary. We pay our named executive officers a base salary to compensate them for services rendered and to provide them with
a steady source of income for living expenses throughout the year.
Equity
Awards. We have used equity awards, either through stock options or restricted stock, to align of interest of our
named executive officers with those of our stockholders, as the value of the awards granted thereunder is linked to the value
of our common stock, which, in turn, is indirectly attributable to the performance of our executive officers. We believe these
equity-based award opportunities align the interests of our named executive officers with those of our stockholders as
they indirectly influence the performance of the Company’s common stock.
Retirement
and Other Benefits. We maintain a defined contribution employee retirement plan for our employees, including our named executive
officers. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions to the 401(k) plan, and income
earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan (except in the
case of contributions under the 401(k) plan designated as Roth contributions). Under the 401(k) plan, each employee is fully vested
in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee as directed
by participants. The 401(k) plan provides us with the discretion to match employee contributions. We currently do not match employee
contributions.
On
March 15, 2021, the compensation committee recommended and the Board of Directors approved the following compensation for each
of our named executive officers for 2021:
|
●
|
a
base salary of $250,000, of which $87,500 is payable in monthly installments of cash and the remaining $162,500 payable in
restricted stock units to be granted ratably over the year; and
|
|
●
|
a
combination, of which will be determined by the compensation committee, of time-based and performance-based vesting
restricted stock totaling $150,000. The time-based awards will vest ratably over two years and the performance-based awards
vest when specified conditions are met.
|
All
of the stock-based compensation described above is subject to shareholder approval of an increase in the shares available under
the 2019 Omnibus Incentive Plan.
Summary
Compensation Table
The
following table and footnotes show information regarding the total compensation paid or accrued during the years ended December
31, 2020 and 2019 to our Chief Executive Officer and each of our named executive officers (our “named executive officers”).
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
|
Stock Awards ($) (1)
|
|
|
Option Awards ($) (1)
|
|
|
All Other Compensation ($) (2)
|
|
|
Total ($)
|
|
David Young
|
|
2020
|
|
|
58,333
|
|
|
|
380,052
|
|
|
|
-
|
|
|
|
-
|
|
|
|
438,385
|
|
Chief Executive Officer
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
163,202
|
|
|
|
-
|
|
|
|
163,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sian Bigora
|
|
2020
|
|
|
75,833
|
|
|
|
380,052
|
|
|
|
-
|
|
|
|
24,629
|
|
|
|
480,514
|
|
Chief Development Officer
|
|
2019
|
|
|
52,500
|
|
|
|
-
|
|
|
|
163,202
|
|
|
|
26,863
|
|
|
|
215,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Floyd (3)
|
|
2020
|
|
|
21,875
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
5,576
|
|
|
|
77,451
|
|
Chief Operations Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy Guy
|
|
2020
|
|
|
87,500
|
|
|
|
380,052
|
|
|
|
-
|
|
|
|
907
|
|
|
|
468,459
|
|
Chief Administrative Officer
|
|
2019
|
|
|
87,500
|
|
|
|
-
|
|
|
|
163,202
|
|
|
|
4,948
|
|
|
|
250,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick Lin
|
|
2020
|
|
|
75,492
|
|
|
|
380,052
|
|
|
|
-
|
|
|
|
20,684
|
|
|
|
476,228
|
|
Chief Business and Strategy Officer
|
|
2019
|
|
|
52,500
|
|
|
|
-
|
|
|
|
163,202
|
|
|
|
19,569
|
|
|
|
215,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Stanker
|
|
2020
|
|
|
87,500
|
|
|
|
380,052
|
|
|
|
-
|
|
|
|
-
|
|
|
|
467,552
|
|
Chief Financial Officer
|
|
2019
|
|
|
87,500
|
|
|
|
-
|
|
|
|
163,202
|
|
|
|
-
|
|
|
|
250,702
|
|
(1)
Reflects the aggregate grant date fair value of restricted stock and stock options awarded in 2020 and 2019, calculated in accordance
with FASB ASC Topic 718. Refer to “Note 5 – Stock-Based Compensation” in our December 31, 2020 consolidated
financial statements appearing in our Annual Report on Form 10-K, which was originally filed on March 25, 2021, for a discussion
of the assumptions used underlying the valuation of the equity awards.
(2)
Represents health insurance premiums paid.
(3)
Mr. Floyd joined the Company as our Chief Operating Officer in October 2020.
Employment
Agreements
We
do not currently have any executive employment agreements with any of our named executive officers in connection with their employment
with us other than our employment agreement with Michael Floyd, as described below. We expect to enter into similar employment
agreements with our other named executive officers during 2021.
|
●
|
Floyd
Employment Agreement. Pursuant to the employment agreement with Mr. Floyd, he will receive an annual base salary of $87,500.
We granted Mr. Floyd 12,500 Restricted Stock Awards (RSAs) of our common stock and agreed to grant Mr. Floyd 37,500 RSAs in
2021, following our annual meeting and subject to shareholder approval, in each instance subject to vesting. In the event
Mr. Floyd is terminated without Cause (as defined in the Agreement), or for Good Reason (as defined in the Agreement), we
are required to provide 52 weeks’ notice in writing. The RSAs shall fully vest upon Change in Control (as defined in
the Agreement) if Mr. Floyd is terminated without Cause or for Good Reason. He may also receive a severance payment at our
discretion. Mr. Floyd is entitled to participate in all employee benefits available to employees of the Company. The employment
agreement also includes confidentiality provisions.
|
Processa
Pharmaceuticals, Inc. 2019 Omnibus Incentive Plan
We
maintain an Omnibus Plan that provides us with the authority to issue up to 500,000 shares of our common stock to eligible participants.
The two complementary goals of the Omnibus Plan are to attract and retain outstanding individuals to serve as our officers, directors,
employees and consultants, and to increase stockholder value by providing participants incentives to increase stockholder value
by offering the opportunity to acquire shares of our common stock, receive monetary payments based on the value of our common
stock and receive other incentive compensation on the potentially favorable terms that the Plan provides. The following is a summary
of the material provisions of the Omnibus Plan:
Administration.
The Omnibus Plan is administered by our Board of Directors, the compensation committee of the Board of Directors, any other
committee of the Board, any subcommittee of the compensation committee or one or more of our officers to whom the Board or compensation
committee has delegated authority, which are collectively referred to as the “Administrator.” The Administrator has
the authority to interpret the Omnibus Plan or award agreements entered into with respect to the Omnibus Plan; make, change, and
rescind rules and regulations relating to the Omnibus Plan; make changes to, or reconcile any inconsistency in, the Omnibus Plan
or any award or agreement covering an award; and take any other action needed to administer the Omnibus Plan.
Eligibility;
Participant Award Limits. The Administrator may designate any of the following as a participant under the Omnibus Plan: any
officer or employee, or individuals engaged to become an officer or employee, of our company or our affiliates; consultants of
our company or our affiliates; and our directors, including our non-employee directors.
Types
of Awards. The Omnibus Plan permits the Administrator to grant stock options, stock appreciation rights, performance units,
shares of common stock, restricted stock, restricted stock units, cash incentive awards, dividend equivalent units, or any other
type of award permitted under the Omnibus Plan. The Administrator may grant any type of award to any participant it selects, but
only our employees or our subsidiaries’ employees may receive grants of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the “Code”). Awards may be granted alone or in addition to,
in tandem with, or (subject to the repricing prohibition described below) in substitution for any other award (or any other award
granted under another plan of our company or any affiliate, including the plan of an acquired entity).
Shares
Reserved under the Omnibus Plan. An aggregate of 500,000 shares of our common stock, adjusted for the one for seven reverse
stock split completed on December 23, 2019, were initially available for issuance under the Omnibus Plan. We may issue all reserved
shares pursuant to the exercise of incentive stock options. The number of shares reserved for issuance under the Omnibus Plan
will be reduced on the date of the grant of any award by the maximum number of shares, if any, that may become payable with respect
to which such award is granted. However, an award that may be settled solely in cash will not deplete the Omnibus Plan’s
share reserve at the time the award is granted. If (a) an award lapses, expires, is canceled, or terminates without issuance of
shares or is settled in cash, (b) the Administrator determines that the shares granted under an award will not be issuable because
the conditions for issuance will not be satisfied, (c) shares are forfeited under an award, or (d) shares are issued under any
award and we reacquire them pursuant to our reserved rights upon the issuance of the shares, then those shares are added back
to the reserve and may again be used for new awards under the Omnibus Plan. Shares that are tendered or withheld in payment of
the exercise price of a stock option or as a result of the net settlement of an outstanding stock appreciation right, shares we
purchase using proceeds from stock option exercises and shares tendered or withheld to satisfy any federal, state, or local tax
withholding obligations may or may not be made available for re-issuance under the Omnibus Plan.
Transferability.
Awards are not transferable other than by will or the laws of descent and distribution, unless the Administrator allows a
participant to (i) designate in writing a beneficiary to exercise the award or receive payment under the award after the participant’s
death, (ii) transfer an award to a former spouse as required by a domestic relations order incident to a divorce, or (iii) otherwise
transfer an award without receiving any consideration.
Adjustments.
If (i) we are involved in a merger or other transaction in which our shares of common stock are changed or exchanged; (ii)
we subdivide or combine shares of common stock or declare a dividend payable in shares of common stock, other securities, or other
property (other than stock purchase rights issued pursuant to a stockholder rights agreement); (iii) we effect a cash dividend
that exceeds 10% of the fair market value of a share of common stock or any other dividend or distribution in the form of cash
or a repurchase of shares of common stock that our Board determines is special or extraordinary, or that is in connection with
a recapitalization or reorganization; or (iv) any other event occurs that in the Administrator’s judgment requires an adjustment
to prevent dilution or enlargement of the benefits intended to be made available under the Omnibus Plan, then the Administrator
will, in a manner it deems equitable, adjust any or all of (A) the number and type of shares subject to the Omnibus Plan and which
may, after the event, be made the subject of awards; (B) the number and type of shares of common stock subject to outstanding
awards; (C) the grant, purchase, or exercise price with respect to any award; and (D) the performance goals of an award.
In
any such case, the Administrator may also provide for a cash payment to the holder of an outstanding award in exchange for the
cancellation of all or a portion of the award, subject to the terms of the Omnibus Plan.
The
Administrator may, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, authorize
the issuance or assumption of awards upon terms and conditions we deem appropriate without affecting the number of shares of common
stock otherwise reserved or available under the Omnibus Plan.
Change
of Control. To the extent a participant has an employment, retention, change of control, severance, or similar agreement with
us or any of our affiliates that discusses the effect of a change of control (as defined in the Omnibus Plan) on the participant’s
awards, such agreement will control. Otherwise, unless otherwise provided in an award agreement or by the Administrator prior
to the change of control, in the event of a change of control, if the purchaser, successor or surviving entity (or parent thereof)
(the “Successor”) agrees, then some or all outstanding awards will be assumed or replaced with the same type of award
with similar terms and conditions. If applicable, each award that is assumed must be appropriately adjusted, immediately after
such change of control, to apply to the number and class of securities that would have been issuable to a participant upon the
consummation of such change of control had the award been exercised, vested, or earned immediately prior to such change of control,
and other appropriate adjustment to the terms and conditions of the award may be made.
If
a participant is terminated from employment without cause (as defined in the Omnibus Plan) or the participant resigns employment
for good reason (as defined in the Omnibus Plan) within 24 months following the change of control, then upon such termination,
all of the participant’s awards in effect on the date of such termination will vest in full or be deemed earned in full.
Term
of Omnibus Plan. Unless earlier terminated by our Board of Directors, the Omnibus Plan will remain in effect until the date
all shares reserved for issuance have been issued, except that no incentive stock options may be issued if the term of the Omnibus
Plan extends beyond 10 years from the effective date without stockholder approval of such extension.
Outstanding
Equity Awards at Fiscal Year-End
The
following table lists the outstanding equity awards held by each of our named executive officers as of December 31, 2020:
|
|
Stock Option Awards(1,2)
|
|
Stock Awards
|
|
Name
|
|
Grant Date
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
|
|
Option Exercise Price
|
|
|
Number of shares of stock not vested(1)
|
|
|
Market value of shares not vested ($)(4)
|
|
David Young (3)
|
|
08/05/20
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,202
|
|
|
|
100,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick Lin
|
|
08/05/20
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,202
|
|
|
|
100,181
|
|
|
|
06/20/19
|
|
|
3,930
|
|
|
|
3,929
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
5,198
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sian Bigora
|
|
08/05/20
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,202
|
|
|
|
100,181
|
|
|
|
06/20/19
|
|
|
3,930
|
|
|
|
3,929
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
5,198
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy Guy
|
|
08/05/20
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,202
|
|
|
|
100,181
|
|
|
|
06/20/19
|
|
|
3,930
|
|
|
|
3,929
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
5,198
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Stanker
|
|
08/05/20
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,202
|
|
|
|
100,181
|
|
|
|
06/20/19
|
|
|
3,930
|
|
|
|
3,929
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
1,733
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
06/20/19
|
|
|
5,198
|
|
|
|
-
|
|
|
|
16.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
09/01/18
|
|
|
26,367
|
|
|
|
18,833
|
|
|
|
19.88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
09/01/18
|
|
|
2,572
|
|
|
|
-
|
|
|
|
19.88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike Floyd
|
|
10/06/20
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,500
|
|
|
|
82,375
|
|
(1)
The stock options granted on June 20, 2019 vest over three years. Options granted to Mr. Stanker on September 1, 2018 vested 2,572
shares over one year and 45,200 shares vest 25% after one year with the remaining options vesting ratably over the subsequent
36-month period. Stock awards granted on August 5, 2020 vest over two years. The stock awards granted to Mr. Floyd vest over one
year.
(2)
Options for the purchase of 16,523 shares of our common stock were granted to each of Dr. David Young, Patrick Lin, Dr. Sian Bigora,
Wendy Guy and James Stanker on June 20, 2019 contained either service or performance vesting conditions, have a contractual term
of five years and an exercise price equal to the closing price of our common stock on the OTCQB on the date of grant of $16.80.
Stock options for the purchase of 7,859 shares of common stock vested one-third on the first anniversary date of the grant, with
the remaining options vesting ratably over the subsequent two years. Stock options for the purchase of 8,664 shares vested upon
meeting the following performance criteria: (i) 1,733 shares vested on August 29, 2019 when we in-licensed an additional drug
asset; (ii) 1,733 shares vested on December 31, 2020 when we completed our Phase 2A clinical trial for PCS499; and (iii) 5,198
shares vested on October 6, 2020 when we up-listed from the OTCQB to the Nasdaq market.
(3)
On October 1, 2020, Dr. David Young voluntarily forfeited all stock options that had previously been granted to him in 2019.
(4)
Market value is based on $6.59 per share, which is the closing market price of the common stock on December 31, 2020, the last
trading day of the year.
Employee
Non-Competition, Non-Solicitation, Invention and Non-Disclosure Agreements
Each
of our named executive officers has entered into standard form agreements with respect to non-competition, non-solicitation, invention
and non-disclosure. Under these agreements, each of our named executive officers has agreed not to compete with us during his
or her employment and for a period of one year after the termination of his or her employment, not to solicit our employees, consultants,
customers, business or prospective customers during his or her employment and for a period of one year after the termination of
his or her employment, and to protect our confidential and proprietary information indefinitely. In addition, under these agreements,
each named executive officer has agreed that we own all inventions that are developed by such named executive officer during his
or her employment with us that (i) are related to our business or our customers or suppliers or any of our products or services
being researched, developed, manufactured or sold by us or which may be used with such products or services; (ii) result from
tasks assigned to the executive officer by us; or (iii) result from the use of our premises or personal property (whether tangible
or intangible) owned, leased or contracted for by us.
DIRECTOR
COMPENSATION
On
March 15, 2021, our compensation committee recommended, and our Board of Directors approved, an amendment to our compensation
plan for non-employee directors. Effective January 1, 2021, each non-employee director will receive an annual cash retainer of
$10,000, payable in quarterly installments and an annual restricted stock grant equal to $30,000 total value. The number of shares
of restricted stock issued will be determined by dividing $30,000 by the closing price per share of the common stock on the last
trading day prior to the grant, with vesting occurring on the 12-month anniversary dates of the grant.
Prior
to the change described above, each non-employee director received an annual cash retainer of $20,000, payable quarterly and an
equity award. Our directors waived any cash compensation and director’s fees until we completed our up-list to Nasdaq in
October 2020. As such, they did not earn or receive any cash compensation until the fourth quarter of 2020. We granted 6,876 restricted
stock awards to each of Justin Yorke, Virgil Thompson and Geraldine Pannu on August 5, 2020, of which 4,538 restricted stock awards
vested on October 6, 2020 when we successfully completed our underwritten public offering and up-listed to the Nasdaq Capital
Market. The remaining 2,338 restricted stock awards vest on the first and second anniversary of the grant date.
New
directors will continue to receive an initial stock option grant upon their appointment to the Board of Directors. Our directors
are also reimbursed for any reasonable out-of-pocket expenses incurred in connection with service as a director.
The
table below shows all compensation paid to our non-employee directors during the year ended December 31, 2020.
Name
|
|
Fees Earned or Paid in Cash ($)
|
|
|
Equity Awards ($) (1)
|
|
|
Total ($)
|
|
Dr. Khalid Islam(2)
|
|
|
3,333
|
|
|
|
-
|
|
|
|
3,333
|
|
Geraldine Pannu
|
|
|
5,000
|
|
|
|
58,446
|
|
|
|
63,446
|
|
Virgil Thompson
|
|
|
5,000
|
|
|
|
58,446
|
|
|
|
63,446
|
|
Justin Yorke
|
|
|
5,000
|
|
|
|
58,446
|
|
|
|
63,446
|
|
(1)
Reflects the aggregate grant date fair value of restricted stock and stock options awarded calculated in accordance with FASB
ASC Topic 718. Refer to “Note 5 – Stock-Based Compensation” in our December 31, 2020 consolidated financial
statements appearing in our annual report on Form 10-K, which was originally filed on March 25, 2021, for a discussion of the
assumptions underlying the valuation of the equity awards.
(2)
Dr. Islam was appointed to our Board of Directors on November 3, 2020.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth certain information with respect to the beneficial ownership of our common stock at March 22, 2021
for:
|
●
|
Each
of our directors;
|
|
●
|
Each
of our named executive officers;
|
|
●
|
All
of our current directors and executive officers as a group; and
|
|
●
|
Each
person, or group of affiliated persons, who beneficially owned more than 5% of our common stock.
|
The
number of shares of our common stock beneficially owned by each entity, person, director or executive officer is determined in
accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power
or investment power as well as any shares that the individual has the right to acquire within 60 days of March 22, 2021, through
the exercise of any stock option, warrants or other rights. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock
held by that person.
The
percentage of shares beneficially owned is computed on the basis of 15,392,584 shares of our common stock outstanding (excluding
129,032 issued but unvested shares of restricted stock) as of March 22, 2021. Shares of our common stock that a person has the
right to acquire within 60 days of March 22, 2021, are deemed outstanding for purposes of computing the percentage ownership of
the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other
person, except with respect to the percentage ownership of all directors and executive officers as a group.
Certain
of our officers, directors and existing stockholders have indicated an interest in purchasing shares in this offering on the same
terms as those offered to the public. However, because indications of interest are not binding agreements or commitments to purchase,
the underwriters may determine to sell more, fewer or no shares in this offering to any of these officers, directors or stockholders,
or any of these officers, directors or stockholders may determine to purchase more, fewer or no shares in this offering. The underwriters
will receive the same underwriting discounts and commissions on any shares purchased by these officers, directors and stockholders
as they will on any other shares sold to the public in this offering. The below ownership percentages do not reflect the potential
purchase of any shares of common stock in this offering by these officers, directors or stockholders.
|
|
Shares beneficially owned
|
|
|
|
Shares
|
|
|
Percent
|
|
Name and address of beneficial owner (1)
|
|
|
|
|
|
|
|
|
Officers and Directors
|
|
|
|
|
|
|
|
|
David Young
(2), (11)
|
|
|
1,723,950
|
|
|
|
11.2
|
%
|
Sian Bigora (3)
|
|
|
534,851
|
|
|
|
3.5
|
%
|
Michael Floyd (4)
|
|
|
94,331
|
|
|
|
*
|
|
Wendy Guy (5)
|
|
|
356,957
|
|
|
|
2.3
|
%
|
Patrick Lin (6)
|
|
|
427,443
|
|
|
|
2.8
|
%
|
James Stanker (7)
|
|
|
82,842
|
|
|
|
*
|
|
Khalid Islam (4)
|
|
|
171,912
|
|
|
|
1.1
|
%
|
Geraldine Pannu
|
|
|
4,538
|
|
|
|
*
|
|
Virgil Thompson (8)
|
|
|
93,643
|
|
|
|
*
|
|
Justin Yorke (9)
|
|
|
539,842
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
Total for all Officers and Directors
|
|
|
4,030,310
|
|
|
|
25.7
|
%
|
|
|
|
|
|
|
|
|
|
More than 5% Stockholders:
|
|
|
|
|
|
|
|
|
Manchester Management Company, LLC
|
|
|
1,533,571
|
|
|
|
9.7
|
%
|
Yuhan Corporation
|
|
|
1,250,000
|
|
|
|
7.9
|
%
|
CorLyst, LLC (10),
(11)
|
|
|
1,149,640
|
|
|
|
7.3
|
%
|
*
represents less than 1%
(1)
Unless otherwise indicated, the address for each beneficial owner listed is c/o Processa Pharmaceuticals, Inc., 7380 Coca Cola
Drive, Suite 106, Hanover, Maryland 21076.
(2)
Consists of (i) 364,363 shares of common stock held directly by Dr. Young; (ii) 506,841 shares held by family entities; (iii)
849,599 shares held by CorLyst, LLC (“CorLyst”) (773,763 shares held on behalf of entities controlled by
Dr. Young, 55,527 shares held on behalf of unrelated stockholders, and stock purchase warrants to purchase 20,309 shares); and
(iv) 3,147 shares issuable upon the exercise of stock purchase warrants. Dr. Young is the Chief Executive Officer and Managing
Member of CorLyst. Dr. Young disclaims beneficial ownership of a portion of CorLyst shares.
(3)
Consists of (i) 387,817 shares of common stock held directly by Dr. Bigora; (ii) 133,349 shares held by CorLyst; and (iii) 13,685
shares of common stock issuable pursuant to options held directly by Dr. Bigora exercisable within 60 days of March 22, 2021.
(4)
The shares reported for Mr. Floyd and Dr. Islam are held directly by Elion Oncology, Inc. and are based on their ownership interest
in Elion Oncology, Inc.
(5)
Consists of (i) 176,580 shares of common stock held directly
by Ms. Guy; (ii) 166,692 shares held by CorLyst; and (iii) 13,685 shares of common stock issuable pursuant to options held directly
by Ms. Guy exercisable within 60 days of March 22, 2021.
(6)
Consists of (i) 409,289 shares of common stock held by Mr. Lin;
(ii) 13,685 shares of common stock issuable pursuant to options held directly by Mr. Lin exercisable within 60 days of March 22,
2021; and (iii) 4,469 shares issuable upon the exercise of stock purchase warrants.
(7)
Consists of (i) 35,510 shares of common stock held directly
by Mr. Stanker and (ii) 47,332 shares of common stock issuable pursuant to options held directly by Mr. Stanker exercisable within
60 days of March 22, 2021.
(8)
Consists of (i) 91,967 shares of common stock held directly
by the Thompson Family Trust, of which Mr. Thompson is a trustee and has investment and disposition power over the shares of common
stock; and (ii) 1,676 shares of common stock issuable pursuant to options held directly by Mr. Thompson exercisable within 60
days of March 22, 2021.
(9)
Justin Yorke, a member of our Board of Directors, is a manager
of the San Gabriel Fund, LLC, JMW Fund, LLC and the Richland Fund, LLC. The shares of common stock reported for Mr. Yorke include
the shares held by these Funds and 73,657 shares issuable upon the exercise of stock purchase warrants. Also included are 1,676
shares of common stock issuable pursuant to options held directly by Mr. Yorke exercisable within 60 days of March 22, 2021.
(10)
CorLyst is the beneficial holder of 1,149,640 shares. This beneficial
ownership is allocated in the above table as follows: Dr. Young-related entities – 773,763, Dr. Bigora – 133,349;
Ms. Guy – 166,692; other unrelated stockholders – 55,527; and stock purchase warrants to purchase 20,309 shares.
(11)
Although Dr. Young confers with all other members or parties
associated with CorLyst, Dr. Young has voting and investment control of this entity.
Equity
Compensation Plan Information
The
following table sets forth information as of December 31, 2020, with respect to the Company’s compensation plans under which
its Common Stock is authorized for issuance:
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
Number of securities to be
issued upon exercise of outstanding options, warrants and rights
|
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by security holders
|
|
|
105,034
|
(1)
|
|
$
|
17.31
|
|
|
|
75,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not approved by security holders
|
|
|
47,772
|
|
|
$
|
19.88
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
152,806
|
|
|
|
|
|
|
|
75,660
|
|
(1)
Consists of shares under the 2019 Omnibus Incentive Plan.
Item
13. Certain Relationships and Related Transactions
The
audit committee has adopted written policies and procedures for the committee to review and approve, or ratify related party transactions.
These transactions include:
|
●
|
transactions
that must be disclosed in proxy statements under SEC rules, and
|
|
|
|
|
●
|
transactions
that potentially could cause a non-employee director to cease to qualify as an independent director under Nasdaq Stock Market
listing requirements.
|
Transactions
that are deemed immaterial under applicable disclosure requirements are generally deemed pre-approved under these written policies
and procedures, including transactions with an entity with which a director’s sole relationship is as a non-employee director
and the total amount involved does not exceed 1% of the entity’s total annual revenues.
Criteria
for committee approval or ratification of a related party transaction, in addition to factors that the committee otherwise deems
appropriate under the circumstances, include:
|
●
|
whether
terms of the transaction are no less favorable than terms generally available from an unaffiliated third party; and
|
|
●
|
in
the case of a non-employee director, whether the transaction would disqualify the director from (1) being independent under
Nasdaq Stock Market listing requirements, or (2) from serving on the audit committee, compensation committee or nominating
and governance committee under Nasdaq Stock Market and other regulatory requirements.
|
With
the exception of the transactions set forth below, we were not a party to any transaction (in which the amount involved exceeded
the lesser of $120,000 or one percent of the average of our assets for the last two fiscal years) in which a director, executive
officer, holder of more than five percent of our common stock, or any member of the immediate family of any such person has or
will have a direct or indirect material interest and no such transactions are currently proposed.
CorLyst,
LLC and DKBK Enterprises, LLC
CorLyst
was a related party to Promet as one of the largest investors in Promet. As a result of the transaction with Heatwurx, all of
Promet’s assets were purchased in exchange for equity in the company. Promet has since distributed the shares to its stockholders
and CorLyst is now considered a related party. We share certain administrative expenses with CorLyst (salaries, healthcare and
office space). David Young, our CEO and Chairman of our Board of Directors, is also the CEO and Managing Member of CorLyst. David
Young spends a nominal amount of effort related to CorLyst activities and averages more than 40 hours per week on Processa activities.
On
September 20, 2019, we entered into two separate LOC Agreements (“LOC Agreements”) with DKBK Enterprises, LLC (“DKBK”)
and CorLyst, LLC (“CorLyst”, and, together with DKBK, collectively, “Lenders”), both related parties,
which provide a revolving commitment of up to $700,000 each ($1.4 million total). Our Chief Executive Officer (CEO) is also the
CEO and Managing Member of both lenders. Under the LOC Agreements, all funds borrowed bear interest at an annual rate of 8%. The
promissory notes issued in connection with the LOC Agreements provided the Lenders with the right to convert all or any portion
of the principal and accrued and unpaid interest into our common stock on the same terms as our 2019 Senior Convertible Notes.
By
the third quarter of 2020, we had drawn the full $700,000 under the LOC Agreement with DKBK. On October 6, 2020, in connection
with the closing of our underwritten public offering, DKBK converted the $700,000 principal amount and related accrued interest
into 199,537 shares of our common stock at a conversion price of $3.60 per share. In October 2020, we terminated the LOC Agreements
with DKBK and CorLyst. As of December 31, 2020, DKBK directly held 215,703 shares of our common stock and CorLyst beneficially
owns 1,129,331 shares of our common stock.
License
Agreement with Yuhan Corporation
Yuhan
Corporation owns 7.9% of our common stock. On August 19, 2020, we entered into a License Agreement with Yuhan Corporation (“Yuhan
License Agreement”), pursuant to which we acquired an exclusive license to develop, manufacture and commercialize PCS12852
(formerly known as YH12852) globally, excluding South Korea.
As
consideration for the Yuhan License Agreement and related Share Issuance Agreement, we issued to Yuhan 500,000 shares of common
stock. As additional consideration, we will pay Yuhan development and regulatory milestone payments (a portion of which are payable
in shares of our common stock based on the volume weighted average trading price during the period prior to such achievement and
a portion of which are payable in cash) upon the achievement of certain milestones, based on a Yuhan affiliate purchasing 750,000
shares of common stock for $3,000,000 in our October 2020 underwritten public offering. The milestones primarily consist of dosing
a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country.
In addition, we must pay Yuhan one-time sales milestone payments based on the achievement during a calendar year of one or more
thresholds for annual sales for products made and pay royalties based on annual licensing sales. We are also required to split
any milestone payments received with Yuhan based on any sub-license agreement we may enter into.
In
conjunction with a joint Processa-Yuhan Board to oversee such commercialization efforts, we are required to use commercially reasonable
efforts, at our sole cost and expense, to research, develop and commercialize products in one or more countries, including meeting
specific diligence milestones that consist of: (i) preparing a first draft of the product development plan within 90 days; (ii)
requesting an FDA pre-IND meeting for a product within 6 months; (iii) dosing a first patient in a Phase 2A clinical trial with
a product within 24 months; and (iv) dosing a first patient with a product in a Phase 2B clinical trial, Phase 3 clinical trial
or other pivotal clinical trial with a product within 48 months. Either party may terminate the agreement in the event of a material
breach of the agreement that has not been cured following written notice and a 60-day opportunity to cure such breach (which is
shortened to 15 days for a payment breach).
License
Agreement with Elion Oncology, Inc.
Mr.
Floyd and Dr. Islam hold equity interests totaling 65.14% of Elion Oncology, Inc., which owns 2.7% of our common stock.
On August 23, 2020, we entered into a condition precedent License Agreement with Elion Oncology (“Elion License Agreement”),
pursuant to which we acquired an exclusive license to develop, manufacture and commercialize PCS6422 globally. The grant of license
was conditioned on the following being satisfied by October 30, 2020: (i) our closing on an equity financing of at least $15 million
in gross proceeds and (ii) successful up-listing to Nasdaq.
On
October 6, 2020, all conditions were satisfied, resulting in the addition of PCS6422 to the Processa portfolio, and we paid $100,000
cash and issued 825,000 shares of our common stock to Elion. Such shares are subject to a lock-up, with 50% of such shares released
from such lock up after six months and the remaining 25% tranches to be released following 9 months and 12 months, respectively.
As
part of the Elion License Agreement, we have agreed to issue to Elion 100,000 shares of our common stock on each of the first
and second anniversary dates of the Elion License Agreement. We believe the payment of these amounts is probable and represent
seller financing since the only condition related to their payment is the passage of time, which management does not believe is
substantive. We valued the shares at $4.00 per share based on the underwritten public offering price on October 6, 2020, which
is the date the conditions precedent in the license agreement were met.
As
additional consideration, we will pay Elion development and regulatory milestone payments (a portion of which are payable in shares
of our common stock and a portion of which are payable in cash) upon the achievement of certain milestones, which include FDA
or other regulatory approval and dosing a patient. In addition, we must pay Elion one-time sales milestone payments based on the
achievement during a calendar year of one or more thresholds for annual sales for products made and pay royalties based on annual
licensing sales. We are also required to split any milestone payments received with Elion based on any sub-license agreement we
may enter into.
We
are required to use commercially reasonable efforts, at our sole cost and expense, to research, develop and commercialize products
in one or more countries, including meeting specific diligence milestones that consist of: (i) dosing a first patient in a Phase
1B clinical trial with a product within 12 months; and (ii) dosing a first patient with a product in a Phase 2 or 3 clinical trial
within 48 months. Either party may terminate the agreement in the event of a material breach of the agreement that has not been
cured following written notice and a 90-day opportunity to cure such breach (which is shortened to 15 days for a payment breach).
Item
14. Principal Accounting Fees and Services
The
following table sets forth the aggregate fees billed to Processa for the years ended December 31, 2020 and 2019 by our independent
auditor, BD & Company:
Service Type
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
59,600
|
|
|
$
|
57,000
|
|
|
|
|
|
|
|
|
|
|
Audit-Related Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
61,150
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
120,750
|
|
|
$
|
64,000
|
|
Audit
Fees. These fees were for professional services rendered for 2020 and 2019 in connection with the audit of our annual financial
statements on Form 10-K and review of the financial statements included in our Quarterly Reports on Form 10-Q. The amounts also
include fees for services that are normally provided by BD & Company Inc. in connection with statutory and regulatory filings
and engagements for the years identified.
All
Other Fees. These fees were primarily for services related to our Registration Statements on Form S-1 in 2020 and 2019.
Audit
Committee Policies and Procedures for Pre-Approval of Independent Auditor Services
The
following describes the Audit Committee’s policies and procedures regarding pre-approval of the engagement of the Company’s
independent auditor to perform audit as well as permissible non-audit services for the Company.
For
audit services and audit-related fees, the independent auditor will provide the Committee with an engagement letter during the
March-May quarter of each year outlining the scope of the audit services proposed to be performed in connection with the audit
of the current fiscal year. If agreed to by the Committee, the engagement letter will be formally accepted by the Committee at
an Audit Committee meeting held as soon as practicable following receipt of the engagement letter. The independent auditor will
submit to the Committee for approval an audit services fee proposal after acceptance of the engagement letter.
For
non-audit services and other fees, Company management may submit to the Committee for approval (during May through September of
each fiscal year) the list of non-audit services that it recommends the Committee engage the independent auditor to provide for
the fiscal year. The list of services must be detailed as to the particular service and may not call for broad categorical approvals.
Company management and the independent auditor will each confirm to the Audit Committee that each non-audit service on the list
is permissible under all applicable legal requirements. In addition to the list of planned non-audit services, a budget estimating
non-audit service spending for the fiscal year may be provided. The Committee will consider for approval both the list of permissible
non-audit services and the budget for such services. The Committee will be informed routinely as to the non-audit services actually
provided by the independent auditor pursuant to this pre-approval process.
To
ensure prompt handling of unexpected matters, the Audit Committee delegates to its Chairman the authority to amend or modify the
list of approved permissible non-audit services and fees. The Chairman will report any action taken pursuant to this delegation
to the Committee at its next meeting.
All
audit and non-audit services provided to the Company are required to be pre-approved by the Committee.