Committee evaluated several alternatives to the Option Exchange for remaining competitive within our industry and with our employees, including granting additional stock options or restricted
stock unit awards, exchanging underwater options for full value shares or exchanging underwater options for a cash payment, or some combination thereof. In addition, we carefully evaluated whether or not to include executive officers as eligible
participants in the Option Exchange and, following consultation with certain of our largest investors, we elected not to propose including executive officers as eligible participants in the Option Exchange.
After careful consideration, upon the recommendation of our Compensation Committee, our Board of Directors determined that the Option Exchange was the most attractive
alternative for Sage, its stockholders, and its employees for the reasons set forth in more detail in the section below entitled Rationale for Option Exchange. On November 27, 2023, our Board of Directors authorized the
Option Exchange, subject to stockholder approval, pursuant to which we would give eligible employees the opportunity to exchange eligible stock options for new stock options with an exercise price equal to the fair market value of our common stock
at the time the new stock options are granted. Any stock option held by an eligible employee that has an exercise price equal to or greater than $35.00 per share pursuant to our 2014 Stock Option and Incentive Plan, or our 2014 Plan, and the Amended
and Restated 2016 Inducement Equity Plan, or the 2016 Inducement Plan, and together with the 2014 Plan, the Equity Plans, is an eligible stock option under the Option Exchange. All non-executive officer
employees who are employed by us and hold eligible stock options as of the commencement of the Option Exchange shall be eligible employees. Members of our Board of Directors and our executive officers are not eligible to participate in the Option
Exchange.
As of November 1, 2023, stock options held by employees, other than our executive officers, to purchase 3,779,949 shares of our common stock
were outstanding, with a weighted average exercise price of $78.69 per share. Of these stock options, 3,543,074 have an exercise price equal to or greater than $35.00 per share and would therefore be eligible for the Option Exchange, if approved by
stockholders. These eligible stock options have a weighted average exercise price of $82.10 per share. The $35.00 per share threshold exercise price of the eligible stock options is approximately 83% above the $19.11 per share closing price of our
common stock on The Nasdaq Global Market on November 27, 2023, the date on which our Board of Directors authorized the Option Exchange.
Rationale for Option
Exchange
Restoration of Performance Incentives
We face
significant competition for experienced and talented personnel in our industry, and stock options are an important part of our incentive compensation. We believe that significantly underwater stock options are less effective as performance
incentives because they provide less or no perceived value to employee option holders, as stock options cannot be sold and only provide value to the holder when there is a positive spread between the exercise price and the current stock price.
On November 27, 2023, approximately 99.3% of our outstanding stock options held by employees, other than our executive officers, were underwater. We believe that
failure to address this issue in the near to medium term will make it more difficult for us to motivate employees, which could negatively impact our business and results of operations. We believe that granting our
non-executive officer employees the opportunity to exchange their underwater stock options for new stock options at the current market price of our common stock would be far more effective in incentivizing
eligible participants than the existing significantly underwater options.
Employee Retention
Given the number of stock options held by our non-executive officer employees that are significantly underwater, we may face a
considerable challenge in retaining such employees, and there is a possibility that our competitors may be able to offer equity incentives that are more attractive and that, in some cases, could make the terms of employment at a new employer more
attractive than what we are able to offer to our existing employees. The Option Exchange is designed to address these concerns as well as improve morale among our employees generally and emphasize the importance of equity compensation as a component
of our overall compensation package and a meaningful part of our pay-for-performance philosophy.
As discussed in more detail below, none of the new stock options issued under the Option Exchange will be vested on the date of grant. Stock options issued in the
Option Exchange will vest over an 18-month period following the date of
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