Item 3.02. Unregistered Sale of Equity Securities.
The information contained below in Item 5.02 related to the contemplated option
grants is hereby incorporated by reference into this Item 3.02.
To the extent the grant of such options, is deemed a "sale" or "offer to sell"
under the Securities Act of 1933, as amended, such options (including the shares
issuable upon exercise of the options), were and will be sold and issued without
registration under the Securities Act in reliance on the exemptions provided by
Section 4(a)(2) of the Securities Act as transactions not involving a public
offering and Rule 506 promulgated under the Securities Act as sales to an
accredited investor, and in reliance on similar exemptions under applicable
state laws.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
Effective as of March 1, 2023, the Biostage, Inc., or the Company, implemented a
transition of its Chairman and Chief Executive Officer roles. In connection
therewith, the Company's existing director, Junli (Jerry) He, was appointed
Chairman and Chief Executive Officer of the Company, in replacement of David
Green in such roles. Mr. Green will remain on the Board of Directors of the
Company and also will provide support to Mr. He during his transition to the
Chief Executive Officer role.
Following such appointment, on March 14, 2023, the Company entered into an
Employment Agreement (the Employment Agreement) with Mr. He. The Employment
Agreement has a commencement date of March 1, 2023 (the Commencement Date) and
an initial term of one year, which such term shall automatically be extended for
one additional year on each anniversary of the end of the term then in effect
unless proper notice of non-renewal is timely provided under the Employment
Agreement. Pursuant to the Employment Agreement, Mr. He's initial compensation
as Chief Executive Officer will include base salary, incentive compensation and
the nonqualified stock option grants described below. Mr. He shall also be
eligible to participate in such incentive compensation plans as the Board or a
Committee thereof shall determine from time to time for employees of the same
status within the hierarchy of the Company.
Mr. He's annual base salary is set at $300,000, and is subject to annual review,
provided that such base salary shall not be decreased without Mr. He's consent,
and shall be increased to $500,000 in the event that the Company's initial
private placement following March 14, 2023 raises $4,000,000 or more in gross
proceeds. In the event that such placement does not raise at least such
threshold amount, then in addition and in lieu of the additional cash salary,
(i) on the first trading date following the Company's announcement of such
placement (the Grant Date), Mr. He will receive a nonqualified stock option to
purchase a share amount determined based on Black-Scholes value of $200,000 as
of the Grant Date, which subject to continued employment, shall vest in twelve
substantially equal amounts monthly on each monthly anniversary of the Grant
Date for twelve months following the Grant Date, and (ii) thereafter, following
each anniversary of the Commencement Date so long as Mr. He continues to be
employed as Chief Executive Officer, the Company will grant Mr. He on the first
trading day following such anniversary an option to purchase shares of Common
Stock in a share amount determined based on Black-Scholes value of $200,000 as
of the grant date. Subject to continued employment, each such additional annual
grant shall vest monthly in twelve substantially equal monthly installments on
each monthly anniversary of the respective grant date. In the event that Mr.
He's base salary is increased during the term of employment, the grant amount of
$200,000 shall be reviewed by the Company's Board of Directors to determine if
such amount shall be adjusted as determined in its discretion.
Mr. He is also eligible to receive cash incentive compensation on an annual
basis of up to a one hundred percent (100%) of his Base Salary upon meeting
objectives as determined by the Board of Directors of the Company or the
Compensation Committee thereof.
In addition, on the Grant Date, Mr. He will also receive, as a long term
incentive grant, a nonqualified stock option to purchase shares of Common Stock
as follows: (i) an option to purchase 732,384 shares of Common Stock (the "Time
Based Grant") and (ii) an option to purchase up to 488,256 shares (the
"Milestone Grant"). With respect to the Time Based Grant, the option shall vest
monthly in thirty-six substantially equal monthly installments on each monthly
anniversary of the Grant Date. With respect to the Milestone Grant, the option
shall vest in two increments, each for 244,128 shares, with such vesting subject
to certain performance milestones as determined by the Board.
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Each option described above shall have an exercise price equal to the closing
price of the Company's common stock on the date of grant, and portions of the
option are subject to acceleration of vesting and extended post-termination
exercise period under certain circumstances, including in relation to the
Company terminating Mr. He without cause.
The Employment Agreement also provides that if the Company terminates Mr. He's
employment without Cause (as defined in the Employment Agreement), or if Mr. He
terminates his employment for Good Reason (as defined in the Employment
Agreement), in addition to any accrued and unpaid base salary through the date
of his termination, and to the extent required by law, any accrued and unused
vacation and any bonuses or other compensation actually earned for periods ended
prior to the date of his termination, Mr. He will be entitled, subject to his
execution of a release of claims in favor of the Company, to his earned annual
bonus in the event that the termination occurs after December 31st but before
payment of such annual bonus, and (I) if the termination was in connection with
the hiring by the Company of a replacement Chief Executive Officer, if the
termination is within twelve (12) months following the initial Grant Date, the
remaining unvested portion of the Time Based Grant that would have vested within
the twelve (12) months following the initial Grant Date if Mr. He had continued
to be employed shall accelerate and become fully vested or non-forfeitable, and
(II) if the termination was not in connection with the hiring by the Company of
a replacement Chief Executive Officer, a severance amount equal to $300,000 and
a non-qualified option to purchase shares of Common Stock in a share amount
determined based on Black-Scholes value of $200,000 as of the grant date, which
such option shall be fully vested as of the grant date and have an exercise
price equal to the closing price of the stock on the grant date.
The foregoing description of the Employment Agreement is qualified in its
entirety by reference to the full text of the Employment Agreement, which is
filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by
reference into this Item 5.02.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Title
10.1# Employment Agreement between Biostage, Inc. and Jerry He
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
# Management contract or compensatory plan or arrangement.
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