UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a)
of
the Securities Exchange Act of 1934
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by the Registrant ☒
Filed
by a Party other than the Registrant ☐
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the Appropriate Box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Under Rule 14a-12
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Citius
Pharmaceuticals, Inc.
(Name
of Registrant as Specified in Its Charter)
(Name
of Person(s) Filing Proxy Statement if other than the Registrant)
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of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title
of each class of securities to which transaction applies:
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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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Proposed
maximum aggregate value of transaction:
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Fee paid previously with preliminary materials:
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identify the filing for which the offsetting fee was paid previously. Identify the previous
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Form,
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Citius
Pharmaceuticals, Inc.
11
Commerce Drive, 1st Floor
Cranford,
NJ 07016
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held On February 10, 2020
Dear
Stockholder:
You
are cordially invited to attend the Annual Meeting of Stockholders of Citius Pharmaceuticals, Inc. The meeting will be held on
February 10, 2020 at 8:00 a.m. (local time) at the Company’s headquarters at 11 Commerce Drive, First Floor, Cranford, New
Jersey 07016, for the following purposes:
1.
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To
elect seven directors to serve until the 2021 Annual Meeting of Stockholders and until
their successors are duly elected and qualified;
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2.
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To
ratify the selection of Wolf & Company, P.C., an independent registered public accounting
firm, as the auditor of the Company for the year ending September 30, 2020;
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3.
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To
approve the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan; and
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4.
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To
transact such other business as may properly come before the meeting or any adjournment
thereof.
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The
record date for the Annual Meeting is December 12, 2019. 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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/s/
Myron Holubiak
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Director,
Chief Executive Officer and President
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You
are cordially invited to attend the meeting in person. However, to assure your representation at the Annual Meeting, you are urged
to vote by proxy by following the instructions contained in the accompanying proxy statement. You may revoke your proxy in the
manner described in the proxy statement at any time before it has been voted at the Annual Meeting. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy. 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. Your vote is important, no matter how many shares you owned on the record date. Whether or not you plan
to attend the Annual Meeting, we hope that you will vote as soon as possible.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON FEBRUARY 10, 2020.
Our
proxy statement and Annual Report on Form 10-K for the year ended September 30, 2019 are available at https://materials.proxyvote.com/17322U.
We
are pleased to take advantage of the Securities and Exchange Commission, or SEC, rules that allow us to furnish proxy materials,
including this notice, and the proxy statement (including an electronic proxy card for the meeting) for the Annual Meeting via
the Internet. Taking advantage of these rules allows us to lower the cost of delivering annual meeting materials to our stockholders
and reduce the environmental impact of printing and mailing these materials.
Citius
Pharmaceuticals, Inc.
11
Commerce Drive, 1st Floor
Cranford,
NJ 07016
PROXY
STATEMENT
FOR
2020 ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY
10, 2020
This
proxy statement is furnished to stockholders in connection with the solicitation of proxies by the Board of Directors of Citius
Pharmaceuticals, Inc. (“Citius”, the “Company”, “we”, “our”, or “us”)
in connection with the 2020 Annual Meeting of stockholders of the Company to be held on February 10, 2020 at 8:00 a.m. (local
time) at the Company’s headquarters located at 11 Commerce Drive, First Floor, Cranford, New Jersey 07016 (the “Annual
Meeting”).
In
accordance with the rules of the SEC, instead of mailing a printed copy of our proxy materials to each stockholder of record,
we are furnishing proxy materials, including the notice of meeting, this proxy statement, and a proxy card for the meeting, by
providing access to them on the Internet to save printing costs and benefit the environment. These materials were first available
on the Internet on or about December 20, 2019. We mailed a Notice of Internet Availability of Proxy Materials on or about December
20, 2019 to our stockholders of record and beneficial owners as of December 12, 2019, the record date for the meeting. This proxy
statement and the Notice of Internet Availability of Proxy Materials contain instructions for accessing and reviewing our proxy
materials on the Internet and for voting by proxy over the Internet. You will need to obtain your own Internet access if you choose
to access the proxy materials and/or vote over the Internet. If you prefer to receive printed copies of our proxy materials, the
Notice of Internet Availability of Proxy Materials contains instructions on how to request the materials by mail. You will not
receive printed copies of the proxy materials unless you request them. If you elect to receive the materials by mail, you may
also vote by proxy on the proxy card or voter instruction card that you will receive in response to your request. The proxy materials
and the accompanying Annual Report on Form 10-K are available at https://materials.proxyvote.com/17322U.
VOTING
SECURITIES
The
close of business on December 12, 2019 has been fixed as the record date for determination of the stockholders entitled to notice
of, and to vote at, the Annual Meeting. On that date there were outstanding and entitled to vote 28,930,493 shares of common stock,
each of which is entitled to one vote on each matter at the Annual Meeting.
Pursuant
to the Company’s bylaws the vote of a majority of shares of common stock either present in person or represented by proxy
and entitled to vote will be required to (i) elect directors, (ii) ratify the selection of the independent auditors for the fiscal
year ending September 30, 2020, and (iii) approve the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan.
The
presence, in person or by properly executed proxy, of the holders of shares of common stock entitled to cast a majority of all
the votes entitled to be cast at the Annual Meeting is necessary to constitute a quorum. Holders of shares of common stock represented
by a properly signed, dated and returned proxy will be treated as present at the Annual Meeting for purposes of determining a
quorum. Proxies relating to “street name” shares that are voted by brokers will be counted as shares present for purposes
of determining the presence of a quorum, but will not be treated as votes cast at the Annual Meeting as to any proposal as to
which the brokers do not have voting instructions or discretion to vote on routine matters. These missing votes are known as “broker
non-votes.”
Cost
of this Proxy Solicitation
We
will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, our directors and employees might solicit
proxies personally and by telephone. None of these individuals will receive any compensation for solicitation activities. We plan
to retain a proxy solicitor to assist in the solicitation of proxies for a fee. We will, upon request, reimburse banks, brokerage
firms and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING
Why
am I receiving these materials?
We
mailed a Notice of Internet Availability of Proxy Materials and provided access to these proxy materials because the board of
directors of Citius Pharmaceuticals, Inc. is soliciting your proxy to vote at the 2020 Annual Meeting of stockholders. We invite
you to attend the Annual Meeting and request that you vote on the proposals described in this proxy statement. The meeting will
be held on February 10, 2020 at 8:00 a.m. (local time) at the Company’s headquarters located at 11 Commerce Drive, First
Floor, Cranford, New Jersey 07016. However, you do not need to attend the meeting to vote your shares. Instead, you may follow
the instructions in the Notice of Internet Availability of Proxy Materials to vote via the Internet, by telephone or by mail.
Who
can vote at the Annual Meeting?
Only
stockholders of record at the close of business on December 12, 2019, the record date for the Annual Meeting, will be entitled
to vote at the Annual Meeting. On December 12, 2019, there were 28,930,493 shares of common stock (each entitled to one vote)
outstanding.
Stockholder
of Record: Shares Registered in Your Name
If
on December 12, 2019, your shares of our common stock were registered directly in your name with our transfer agent, Vstock Transfer,
LLC, then you are a stockholder of record. As a stockholder of record, you may vote in person at the Annual Meeting, or vote by
proxy via the Internet, by telephone, or by mail. Whether or not you plan to attend the meeting, we urge you to vote, in whatever
manner you prefer, to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or Bank
If
on December 12, 2019, your shares of our common stock were held 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 these proxy materials are being
forwarded to you by that organization. The organization holding your account is considered 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 on 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 Annual Meeting unless you request and obtain a signed letter or other valid proxy
from your broker or other agent.
What
am I voting on?
There
are three matters scheduled for a vote at the Annual Meeting:
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1.
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to
elect seven directors to serve until the 2021 Annual Meeting of Stockholders and until
their successors are duly elected and qualified;
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2.
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to
ratify the selection of Wolf & Company, P.C., an independent registered public accounting
firm, as the auditor of the Company for the fiscal year ending September 30, 2020; and
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3.
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to
approve the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan.
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We
will also consider any other business that properly comes before the meeting. As of the record date, we are not aware of any other
matters to be submitted for consideration at the meeting. If any other matters are properly brought before the meeting, the persons
named in the proxy card or voter instruction card will vote the shares they represent using their best judgment.
How
many votes do I have?
On
each matter to be voted upon, you have one vote for each share of common stock you owned as of December 12, 2019.
What
is the quorum requirement?
A
majority of our outstanding shares of common stock entitled to vote as of the record date must be present at the
Annual Meeting in order for us to hold the meeting and conduct business. This is called a quorum. Your shares will be counted
as present at the Annual Meeting if you:
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are
present and entitled to vote in person at the Annual Meeting;
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properly
submitted a proxy card or voter instruction card in advance of or at the Annual Meeting;
or
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do
not provide your broker with instructions on how to vote, but the broker submits the
proxy nonetheless (a broker non-vote).
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If
you are present in person or by proxy at the Annual Meeting, but abstain from voting on any or all proposals, your shares are
still counted as present and entitled to vote. The proposals listed in this proxy statement identify the votes needed to approve
or ratify the proposed actions. See also “How many votes are needed to approve each Proposal?”
How
do I vote?
The
procedures for voting are set forth below:
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 via the Internet, by telephone or
by mail. Whether or not you plan to attend the Annual Meeting, we urge you to vote, in whatever manner you prefer, to ensure your
vote is counted. You may still attend the Annual Meeting and vote in person if you have already voted via the Internet, by telephone
or by mail. You may vote as follows:
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Via
the Internet by accessing the proxy materials on the secure website https://www.proxyvote.com
and following the voting instructions on that website;
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Via
telephone by calling toll free 1-800-690-6903 in the United States or outside the United
States and following the recorded instructions;
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By
requesting that printed copies of the proxy materials be mailed to you pursuant to the
instructions provided in the Notice of Internet Availability of Proxy Materials and completing,
dating, signing and returning the proxy card that you receive in response to your request;
or
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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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Beneficial
Owner: Shares Registered in the Name of Broker or Bank
If
you hold your shares in “street name” and thus are a beneficial owner of shares registered in the name of your broker,
bank or other agent, you must vote your shares in the manner prescribed by your broker or other nominee. Your broker or other
nominee has provided to you a voting instruction card for you to use in directing the broker or nominee how to vote your shares.
Check the voting form used by that organization to see if it offers internet or telephone voting. 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.
How
are votes counted?
You
may vote “FOR”, “AGAINST”, “ABSTAIN” or “WITHHOLD”, as the case may be, to
(i) to elect seven directors to serve until the 2021 Annual Meeting of Stockholders; (ii) ratify the selection of Wolf &
Company, P.C., an independent registered public accounting firm, as the auditor of the Company for the fiscal year ending
September 30, 2020; and (iii) approve the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan.
If
you mail your proxy, vote via the Internet or by telephone, but withhold or abstain from voting on one or more matters,
your shares will be counted as present at the Annual Meeting for the purpose of determining a quorum. Your shares also will
be counted as present at the meeting for the purpose of calculating the vote on the particular matter with respect to which
you withheld or abstained from voting. If you abstain or withhold from voting on a proposal, your abstention or withheld vote
has the same effect as a vote against that proposal. See “How many votes are needed to approve each
Proposal?”
If
you hold your shares in street name and do not provide voting instructions to your brokerage firm, your brokerage firm may still
be able to vote your shares with respect to “discretionary” (or routine) items, but it will not be allowed to vote
your shares with respect to “non-discretionary” items. In the case of non-discretionary items, for which no instructions
are received, the shares will be treated as “broker non-votes”. Shares that constitute broker non-votes will be counted
as present at the Annual Meeting for the purpose of determining a quorum, but will not be considered entitled to vote on the proposal
in question. Your broker does not have discretionary authority to vote shares for the election of directors or for the approval
of the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan, but will have discretionary authority to vote on the proposal
relating to the ratification of the selection of the accounting firm. As a result, if you do not vote your street name shares,
your broker has the authority to vote on your behalf with respect to Proposal 2 (the ratification of the selection of the accounting
firm).
How
many votes are needed to approve each Proposal?
Proposal
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Vote
Required
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Broker
Discretionary
Vote
Allowed
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Election
of seven members to our Board of Directors
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A
majority of the votes represented at the meeting and entitled to vote.
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No
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Ratification
of the selection of Wolf & Company, P.C., an Independent Registered Public Accounting Firm, as the auditor for our Fiscal
Year Ending September 30, 2020
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A
majority of the votes represented at the meeting and entitled to vote.
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Yes
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Approval
of the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan
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A
majority of the votes represented at the meeting and entitled to vote.
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No
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Can
I change my vote after submitting my proxy, voting via the Internet or by telephone?
Yes.
You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are a stockholder of record, you may
revoke your proxy in any one of four ways:
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If
you voted by telephone or via the Internet, voting again by the same means prior to 11:59
PM Eastern Time on February 9, 2020.
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You
may submit another properly completed proxy card with a later date.
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You
may send a written notice that you are revoking your proxy to our Corporate Secretary,
Citius Pharmaceuticals, Inc., 11 Commerce Drive, 1st Floor, Cranford, New
Jersey 07016.
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You
may attend the Annual Meeting and vote in person. Simply attending the Annual Meeting
will not, by itself, revoke your proxy.
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If
you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker, or other holder
of record. You may also vote in person at the Annual Meeting if you obtain a legal proxy from them as described in the answer
to a previous question.
How
can I find out the results of the voting at the Annual Meeting?
Preliminary
voting results will be announced at the Annual Meeting. Final voting results will be published in a Current Report on Form 8-K
within four business days after the Annual Meeting.
What
does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?
If
you receive more than one Notice of Internet Availability of Proxy Materials, your shares are registered in more than one name
or are registered in different accounts. Please vote your shares via the Internet, by telephone or by mail for each Notice of
Internet Availability of Proxy Materials you received to ensure that all of your shares are voted.
Who
is paying for this proxy solicitation?
All
of the expenses involved in preparing, assembling and mailing the proxy materials and all costs of soliciting proxies will be
paid by us. In addition to the delivery of the Notice of Internet Availability of Proxy Materials, our directors, officers and
employees may also solicit proxies in person, by telephone, by facsimile, by electronic mail or by other means of communication.
We will not pay our directors, officers and employees any compensation for soliciting proxies. We may also reimburse brokerage
firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
PROPOSAL
1
ELECTION
OF DIRECTORS
Our
bylaws provide that the number of directors constituting the Board of Directors shall be not less than six and may consist of
such larger number as may be determined from time to time by the Board. There are seven directors presently serving on our Board,
and the number of directors to be elected at the Annual Meeting is seven. Each elected director will serve until the Company’s
2021 Annual Meeting of Stockholders or until a successor is elected and qualified. All of the nominees currently serve on the
Board.
The
Board of Directors has determined that directors Suren Dutia, Carol Webb, Dr. William Kane, Howard Safir and Dr. Eugene Holuka
are independent under the applicable NASDAQ listing standards. The Board has determined that director Leonard Mazur, the Executive
Chairman and Secretary, and Myron Holubiak, the Chief Executive Officer and President, are not independent under that definition
due to being employed by the Company. In addition to the specific bars to independence set forth in the applicable rules, we also
consider whether a director or his or her affiliates have provided any services to, worked for or received any compensation from
us or any of our subsidiaries in the past three years. None of the nominees is related by blood, marriage or adoption to any other
nominee or any of our executive officers.
All
nominees have consented to serve if elected. We expect that each of the nominees will be available for election, but if any of
them is not a candidate at the time the election occurs, a proxy will be voted for the election of another nominee to be designated
by the Board to fill any such vacancy.
Biographical
and certain other information concerning the Company’s nominees for election to the Board of Directors is set forth below.
Except as indicated below, none of our directors is a director in any other reporting company. We are not aware of any proceedings
to which any of our directors or any associate of any such director is a party adverse to us or any of our subsidiaries or has
a material interest adverse to us or any of our subsidiaries.
Director
Nominees with Terms Expiring in 2020
The
following sets forth information concerning our director nominees as of November 30, 2019:
Name
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Age
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Myron Holubiak
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72
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Leonard Mazur
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74
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Suren Dutia
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77
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Carol Webb
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73
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Dr. William Kane
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76
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Howard Safir
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73
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Dr. Eugene Holuka
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60
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Myron
Holubiak
Myron
Holubiak is the President, Chief Executive Officer and has been a member of the Board since October 2015. Mr. Holubiak has extensive
experience in managing and advising large and emerging pharmaceutical and life sciences companies. Mr. Holubiak was the President
of Roche Laboratories, Inc. (“Roche”), a major research-based pharmaceutical company, from December 1998 to August
2001. Prior to that, he held sales and marketing positions at Roche during his 19-year tenure. From September 2002 to July 2016,
Mr. Holubiak served on the board of directors and for the last two years was the Chairman of the board of directors of BioScrip,
Inc. (“BioScrip”) (Nasdaq: BIOS). BioScrip is a leading national provider of infusion and home care management solutions.
Since July 2010, Mr. Holubiak has served as a member of the board of directors of Assembly Biosciences, Inc. (“Assembly”)
(Nasdaq: ASMB) and its predecessor Ventrus Biosciences, Inc. Assembly is a biopharmaceutical company developing innovative treatments
for hepatitis B virus infection (HBV) and C. difficile-associated diarrhea (CDAD). Additionally, Mr. Holubiak serves as a director
for bioAffinity Technologies Inc., a privately held company. In March 2013, Mr. Holubiak founded Leonard-Meron Biosciences, Inc.
(“LMB”), the Company’s wholly-owned subsidiary, and he served as the Chief Executive Officer and President of
LMB until March 2016. In addition, Mr. Holubiak was also a trustee of the Academy of Managed Care Pharmacy Foundation from April
2013 to April 2015. Mr. Holubiak received a B.S. in Molecular Biology and Biophysics from the University of Pittsburgh; he received
advanced business training from the Harvard Business School and the University of London; and advanced training in health economics
from the University of York’s Centre for Health Economics.
The
Board believes that Mr. Holubiak is qualified to serve as a director because of his industry knowledge and experience managing
both large and small pharmaceutical companies.
Leonard
Mazur
Leonard
Mazur is the Executive Chairman and Secretary of the Company and has been a member of the Board since September 2014. Mr. Mazur
is the co-founder and Vice Chairman of Akrimax Pharmaceuticals, LLC (“Akrimax”), a privately held pharmaceutical company
specializing in producing cardiovascular and general pharmaceutical products. Akrimax was founded in September 2008 and has successfully
launched prescription drugs while acquiring drugs from major pharmaceutical companies. From January 2005 to May 2012, Mr. Mazur
co-founded and served as the Chief Operating Officer of Triax Pharmaceuticals LLC (“Triax”), a specialty pharmaceutical
company producing prescription dermatological drugs. Prior to joining Triax, he was the founder and, from 1995 to 2005, Chief
Executive Officer of Genesis Pharmaceutical, Inc. (“Genesis”), a dermatological products company that marketed its
products through dermatologists’ offices as well as co-promoting products for major pharmaceutical companies. In 2003, Mr.
Mazur successfully sold Genesis to Pierre Fabre, a leading pharmaceutical company. Mr. Mazur has extensive sales, marketing and
business development experience from his tenures at Medicis Pharmaceutical Corporation as executive vice president, ICN Pharmaceuticals,
Inc. as vice president, sales & marketing, Knoll Pharma (a division of BASF), and Cooper Laboratories, Inc. Mr. Mazur is a
member of the Board of Trustees of Manor College, is a recipient of the Ellis Island Medal of Honor and was previously the chairman
of the board of directors of LMB, the Company’s wholly-owned subsidiary. Mr. Mazur received both his B.A. and M.B.A. from
Temple University and has served in the U.S. Marine Corps Reserves.
The
Board believes that Mr. Mazur is qualified to serve as a director because of his entrepreneurial experience and marketing knowledge
in the pharmaceutical industry.
Suren
Dutia
Suren
Dutia has been a member of the Board since October 2015. Mr. Dutia has served as Senior Fellow of the Ewing Mario Kauffman Foundation
since March 2011 and as Senior Fellow of Skandalaris Center for Entrepreneurial Studies at Washington University, St. Louis since
2013. He has served as a member of the advisory board of Center for Digital Transformation, University of California, Irvine since
May 2012 and as chairman of the board of directors of AccelPath, LLC since October 2009. From February 2006 to May 2010, Mr. Dutia
served as the Chief Executive Officer of TiE Global, a non-profit organization involved in globally fostering entrepreneurship.
From February 2011 to May 2013, Mr. Dutia served as a director of LifeProof Cases and from July 2000 to December 2011, he served
as a director of Anvita Health. From 1989 to 1998, Mr. Dutia served as the Chief Executive Officer and chairman of the board of
directors of Xscribe Corporation. Prior to his positions with Xscribe Corporation, Mr. Dutia held several positions with Dynatech
Corporation, and in addition, he was the president of a medical instruments company. Previously, Mr. Dutia worked for the U.S.
Department of Education. Mr. Dutia received his B.S. and M.S. degrees in chemical engineering and B.A. in political science from
Washington University, St. Louis. In addition, he obtained an M.B.A. from University of Dallas.
The
Board believes that Mr. Dutia is qualified to serve as a director because of his financial management background, his involvement
with start-up companies and his management skills.
Carol
Webb
Carol
Webb has served as a director of LMB since March 17, 2014 and, upon LMB’s acquisition by the Company in March 2016, a director
of the Company. From 2000 to 2005, she served as Company Group Chairman of Johnson & Johnson. From 1987 to 2000 she served
in various capacities at Ortho Biotech, including President, Vice President, Executive Director, Product Management and Senior
Product Director. From 1972 to 1983, Ms. Webb worked in various positions at Roche Laboratories, including Sales Representative,
Sales Trainer, Product Manager and Manager of Public Policy. Ms. Webb received her B.S. in Biology from Bowling Green State University.
The
Board believes that Ms. Webb is qualified to serve as a director because she brings over 40 years of pharmaceutical sales, marketing
and business development experience to our Board of Directors.
Dr.
William Kane
Dr.
William (Terry) Kane served as a director of LMB from March 28, 2014 until LMB’s acquisition by the Company in March 2016.
Since the acquisition of LMB by the Company, Dr. Kane has served as a director of the Company. He has served as a Clinical Professor
at Duke University Medical Center since 2003. From 2008 to 2012, Dr. Kane was on the Board of the First Flight Venture Center
(“FFVC”) in Research Triangle Park, North Carolina and chaired the FFVC Board from 2012 to 2016. From 2006 to 2009,
he served as the Chief Executive Officer of RadarFind Corporation, and from 2002 to 2003, he served as the Interim Chief Medical
Officer of Mercy Fitzgerald Hospital. From 1996 until 2002, Dr. Kane served as the President and Chief Executive Officer of InteCardia,
Inc., and from 1995 until 1996, he was a healthcare consultant. From 1993 to 1995, Dr. Kane served in various capacities at Sharp
Healthcare including Executive Vice President, Operations and Executive Vice President, Community Care. From 1992 to 1993, he
was the Senior Vice President, Medical Affairs at Independence Blue Cross, and from 1990 to 1992, he served in various capacities
at CentraState Medical Center including President, Chief Executive Officer, Executive Vice President and Chief Operating Officer.
From 1989 to 1990, Dr. Kane was with Cain Brothers, Shattuck & Co., and from 1988 to 1989, he was the Senior Vice President,
Health Services Division of American International Healthcare (formerly JBI). From 1986 to 1987, Dr. Kane was the Executive Vice
President and Corporate Medical Director of CIGNA Healthplan, Inc., and from 1984 to 1986, he was at U.S. Healthcare, Inc. and
served in various capacities including Senior Vice President Medical Delivery, President and Senior Medical Director. Dr. Kane
is currently the chair of the board of directors of Research Triangle Park and was a past member of the board of directors of
Pisacano Leadership Foundation and Make-A-Wish Foundation. In addition, he previously served on the Management Advisory Committee
of Cornucopia House Cancer Support Center. Dr. Kane received his B.S. in Biology from the University of Scranton and his M.D.
with Honors from the Temple University School of Medicine.
The
Board believes that Dr. Kane is qualified to serve as a director because of his extensive experience and leadership in the healthcare
industry.
Howard
Safir
Howard
Safir served as a director of LMB from April 2014 until LMB’s acquisition by the Company in March 2016. Since the acquisition
of LMB by the Company, Mr. Safir has served as a director of the Company. He has served as Chairman and Chief Executive Officer
of VRI Technologies LLC, a security consulting and law enforcement integrator since July 2010. From 2001 until 2010, Mr. Safir
served as the Chairman and Chief Executive Officer of Safir Rosetti, a provider of security and investigation services and a wholly-owned
subsidiary of Global Options Group Inc. Mr. Safir served as the Vice Chairman of Global Options Group Inc. from its 2005 acquisition
of Safir Rosetti until 2010. He served as Chief Executive Officer of Bode Technology, also a wholly-owned subsidiary of Global
Options Group Inc., from 2007 to 2010. Mr. Safir served as a director of Implant Sciences Corporation (OTCQB: IMSC), an explosives
device detection company, until its acquisition by L3 Technologies. Mr. Safir currently serves as a director of LexisNexis Special
Services, Inc., a leading provider of information and technology solutions to governments, as well as Verint Systems Inc (NASDAQ:
VRNT), a provider of software and hardware products for customer engagement management, security, surveillance, and business intelligence.
During his career, Mr. Safir served as the 39th Police Commissioner of the City of New York, as Associate Director
for Operations, U.S. Marshals Service and as Assistant Director of the Drug Enforcement Administration.
The
Board believes that Mr. Safir is qualified to serve as a director because of his background of serving on public company boards
and his business experience.
Dr.
Eugene Holuka
Dr.
Eugene Holuka has served as a director of the Company since June 2016. Dr. Holuka is an internist and has practiced in critical
care medicine for almost 30 years. He is presently an attending physician at the Staten Island University Hospital where he has
practiced since 1991. Dr. Holuka has also served as an Adjunct Clinical Assistant Professor at the Touro College of Osteopathic
Medicine since 2011. From April 2014 until the acquisition of LMB by the Company in March 2016, he was a member of the LMB Scientific
Advisory Board. Dr. Holuka received the Ellis Island Medal of Honor in 2000 and has served on the NECO Committee Board since 2005.
He was an Executive Committee Member on the Forum’s Children Foundation from 2000 until 2008.
The
Board believes that Dr. Holuka is qualified to serve as a director because of his extensive experience in the healthcare industry.
Required
Vote
Provided
there is a quorum for the meeting, pursuant to the terms of our Bylaws, the election of each director requires the
affirmative vote of a majority of the votes represented at the Annual Meeting in person or by proxy and entitled to vote on
this Proposal No. 1. Broker non-votes, if any, are not entitled to vote, and therefore will have no effect on the election of
directors. Withheld votes, if any, are entitled to vote, and therefore will have the same effect as a vote against the election of
directors.
Recommendation
Our
Board unanimously recommends that stockholders vote FOR the election of the seven nominees for election to the Board for
a one-year term.
PROPOSAL
2
RATIFICATION
OF THE SELECTION OF WOLF & COMPANY, P.C.,
AN
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, AS THE AUDITOR OF THE COMPANY
FOR
THE FISCAL YEAR ENDING SEPTEMBER 30, 2020
The
Company’s stockholders are being asked to ratify the Board of Directors’ selection of Wolf & Company, P.C. (“Wolf”),
an independent registered public accounting firm, as the auditor of the Company for fiscal year ending September 30, 2020. While
the Audit Committee is solely responsible for the appointment, compensation, retention and oversight of the independent registered
public accounting firm, the Committee and the Board are requesting that the stockholders ratify this appointment. If the stockholders
ratify this appointment, the Audit Committee, in its discretion, may appoint a different independent registered public accounting
firm at any time during the year if it believes that doing so would be in the best interests of the Company and our stockholders.
If the stockholders do not ratify this appointment, the Audit Committee may reconsider, but might not change, its appointment.
A
representative of Wolf is not expected to be present in person but will attend telephonically the Annual Meeting and will have
an opportunity to make a statement if he or she desires to do so. It is also expected that such representative will be available
to respond to appropriate questions.
Required
Vote
Provided
there is a quorum for the meeting, ratification of the appointment of Wolf as our auditor for the fiscal year ending September
30, 2020 requires the affirmative vote of a majority of the votes represented at the Annual Meeting in person or by proxy and
entitled to vote on this Proposal No. 2. Broker non-votes and abstentions, if any, are entitled to vote, and therefore will have
the same effect as a vote against this Proposal No. 2.
Recommendation
Our
Board unanimously recommends that stockholders vote FOR the ratification of the Board of Directors’ appointment of
Wolf & Company, P.C., an independent registered public accounting firm, as the auditor of the Company for fiscal year 2020.
PROPOSAL
3
APPROVAL
OF THE CITIUS PHARMACEUTICALS, INC.
2020
OMNIBUS STOCK INCENTIVE PLAN
On
December 10, 2019, our Board adopted the Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan, or the 2020 Plan, subject
to stockholder approval. Pursuant to the 2020 Plan, we may grant up to a maximum of 3,135,000 shares (subject to adjustment as
described below) of our common stock as long-term equity incentives in the form of stock options, stock appreciation rights, restricted
stock, restricted stock units, dividend equivalent rights, or other stock awards, or collectively, stock rights, to employees,
consultants, and directors of our Company, or collectively, participants. We believe that the effective use of long-term equity
incentives is essential to attract, motivate, and retain employees of our Company, to further align participants’ interests
with those of our stockholders, and to provide participants incentive compensation opportunities that are competitive with those
offered by other companies in the same industry and location as ours.
In
this Proposal No. 3, we are asking our stockholders to approve the 2020 Plan. The full text of the 2020 Plan is attached as Appendix
A to this proxy statement.
As
of November 30, 2019, approximately 9 employees, 7 consultants and advisors as well as five non-executive directors were eligible
to participate in the Plan. The closing price of our Company’s common stock on the NASDAQ Capital Market on December 16,
2019 was $0.64.
Vote
Required
Provided
there is a quorum for the meeting, approval of the 2020 Plan requires the affirmative vote of a majority of the votes represented
at the Annual Meeting in person or by proxy and entitled to vote on this Proposal No. 3. Broker non-votes, if any, are not entitled
to vote, and therefore will have no effect on this Proposal No. 3 to approve our 2020 Plan. Abstentions, if any, are entitled
to vote, and therefore will have the same effect as a vote against this Proposal No. 3.
Recommendation
Our
Board unanimously recommends that stockholders vote FOR the 2020 Plan.
Summary
of the 2020 Plan
Following
is a summary of the principal features of the 2020 Plan. For additional information, please refer to the specific provision of
the full text of the 2020 Plan set forth in Appendix A to this proxy statement.
Administration
The
2020 Plan is administered by the Compensation Committee of the Company’s Board of Directors, but the Board of Directors
may exercise any of the powers and authority of the Committee. The Committee has the authority to determine, within the limits
of the express provisions of the 2020 Plan, the individuals to whom awards will be granted, the nature, amount and terms of such
awards and the objectives and conditions for earning such awards. The Committee generally has discretion to delegate its authority
under the 2020 Plan to a subcommittee of the Committee, or to officers or employees of the Company, as the Committee deems appropriate.
Shares
Subject to the 2020 Plan
The
maximum number of shares of the Company’s common stock reserved for issuance and available for awards under the 2020 Plan,
including incentive stock options granted under the 2020 Plan, will be equal to the sum of (i) 3,000,000 shares plus (ii) the
number of shares available for grant under the 2018 Omnibus Stock Incentive Plan (up to a maximum of 135,000 shares, which is
the number available under the 2018 Omnibus Stock Incentive Plan as of November 30, 2019) as of the effective date of the 2020
Plan, for a maximum of 3,135,000 shares.
With
respect to awards made under the 2020 Plan, shares of common stock underlying awards that are forfeited or canceled (as a result,
for example, of the lapse of an option or a forfeiture of restricted stock), as well as any shares surrendered to or withheld
by the Company in payment or satisfaction of the exercise price of a stock option or tax withholding obligations with respect
to an award, will be available for additional grants under the 2020 Plan. On the exercise of a SAR, only the number of shares
actually issued will be counted against the number of shares reserved for grant under the 2020 Plan. Shares to be issued or purchased
under the 2020 Plan will be authorized but unissued shares of common stock. Shares issued with respect to awards assumed by the
Company in connection with acquisitions do not count against the total number of shares available for new awards under the 2020
Plan.
Eligibility
and Limitation on Awards
The
Committee may grant awards to any employee, director or consultant providing services to the Company or its affiliates.
The
maximum awards that can be granted under the 2020 Plan to a single participant in any calendar year will be 2,000,000 shares of
common stock (whether through grants of options or SARs or other awards of common stock or rights with respect thereto).
Types
of Awards
Awards
under the 2020 Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”),
restricted shares of common stock, restricted stock units, performance share or unit awards, other stock-based awards and cash-based
incentive awards.
Stock
Options. The Committee may grant to a participant options to purchase Company common stock that qualify as incentive stock
options for purposes of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (“incentive
stock options”), options that do not qualify as incentive stock options (“non-qualified stock options”) or a
combination thereof. The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other
conditions on exercise will be determined by the Committee.
The
exercise price for stock options will be determined by the Committee in its discretion, but in the case of incentive stock options
may not be less than 100% of the fair market value of one share of the Company’s common stock on the date when the stock
option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined
voting power of all classes of stock of the Company on the date of grant, the exercise price may not be less than 110% of the
fair market value of one share of common stock on the date the stock option is granted.
Stock
options must be exercised within a period fixed by the Committee that in the case of incentive stock options may not exceed ten
years from the date of grant, except that in the case of incentive stock options granted to a holder of more than 10% of the total
combined voting power of all classes of stock of the Company on the date of grant, the exercise period may not exceed five years
The 2020 Plan provides for earlier termination of stock options upon the participant’s termination of service, unless extended
by the Committee, but in no event may the options be exercised after the scheduled expiration date of the options.
At
the Committee’s discretion, payment for shares of common stock on the exercise of stock options may be made in cash, shares
of the Company’s common stock held by the participant or in any other form of consideration acceptable to the Committee
(including one or more forms of “cashless” or “net” exercise).
Stock
Appreciation Rights. The Committee may grant to a participant an award of SARs, which entitles the participant to receive,
upon its exercise, a payment equal to (i) the excess of the fair market value of a share of common stock on the exercise date
over the SAR exercise price, times (ii) the number of shares of common stock with respect to which the SAR is exercised.
The
exercise price for a SAR will be determined by the Committee in its discretion. Upon exercise of a SAR, payment to the participant
may be made in cash or in shares of the Company’s common stock having a value equal to the amount of the payment, or in
a combination of cash and such shares, as determined by the Committee. SARs must be exercised within a period fixed by the Committee.
The 2020 Plan provides for earlier termination of SARs upon the participant’s termination of service, unless extended by
the Committee, but in no event may a SAR be exercised after its fixed expiration date.
Restricted
Shares and Restricted Stock Units. The Committee may award to a participant shares of the Company’s common stock subject
to specified restrictions (“restricted shares”). The participant owns restricted shares upon the date of grant, but
such restricted shares are subject to forfeiture if the participant does not meet certain conditions such as continued employment
over a specified forfeiture period and/or the attainment of specified performance targets over the forfeiture period.
The
Committee also may award to a participant units representing the right to receive shares of common stock in the future subject
to the achievement of one or more goals relating to the completion of service by the participant and/or the achievement of performance
or other objectives (“restricted stock units”). The terms and conditions of restricted share and restricted stock
unit awards are determined by the Committee.
Performance-Based
Awards. The Committee may grant performance awards to participants under such terms and conditions as the Committee deems
appropriate. The awards will be subject to the achievement of certain performance criteria as the Committee may determine. The
performance criteria established by the Committee may be based on any one of, or combination of, the following criteria:
|
(A)
|
Regulatory,
clinical or manufacturing milestones;
|
|
|
|
|
(B)
|
Improvement
in or attainment of working capital levels;
|
|
|
|
|
(D)
|
Improvement
in or attainment of expense levels;
|
|
|
|
|
(E)
|
Consummation
of acquisitions, dispositions, projects or other specific events or transactions;
|
|
|
|
|
(G)
|
Net
earnings or net income (before or after taxes);
|
|
|
|
|
(J)
|
Net
operating profit;
|
|
|
|
|
(K)
|
Return
measures (including, but not limited to, return on assets, capital, equity, or sales);
|
|
|
|
|
(L)
|
Cash
flow (including, but not limited to, operating cash flow, free cash flow, and cash flow
return on capital);
|
|
|
|
|
(N)
|
Earnings
before or after taxes, interest, depreciation, and/or amortization;
|
|
|
|
|
(O)
|
Gross
or operating margins;
|
|
|
|
|
(Q)
|
Share
price (including, but not limited to, growth measures and total stockholder return);
|
|
|
|
|
(R)
|
Expense
targets or ratios;
|
|
|
|
|
(T)
|
Improvement
in or attainment of revenue levels;
|
|
|
|
|
(V)
|
Operating
efficiency;
|
|
|
|
|
(W)
|
Operating
expenses; and
|
|
|
|
|
(X)
|
Economic
value added.
|
The
Committee may provide in any grant of an award that any evaluation of performance may include or exclude any of the following
events that occurs during a performance period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the
effect of changes in tax laws, accounting principles or regulations, or other laws or provisions affecting reported results, (d)
any reorganization and restructuring programs, (e) “extraordinary items” for the applicable performance period, (f)
mergers, acquisitions or divestitures, and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions
affect awards to employees, any such inclusions or exclusions shall be prescribed in the grant in a form that meets the requirements
of Code Section 162(m) for deductibility. For this purpose “extraordinary items” means extraordinary, unusual, and/or
nonrecurring items of gain or loss as defined under United States generally accepted accounting principles.
Award
periods will be established at the discretion of the Committee. The performance targets will also be determined by the Committee.
With respect to participants subject to Section 162(m) of the Code, the applicable performance targets will be established, in
the Committee’s discretion, based on one or more of the performance goals described above and under the section of the 2020
Plan titled “Restricted Shares and Restricted Stock Units.” To the extent that a participant is not subject to Section
162(m) of the Code, when circumstances occur that cause predetermined performance targets to be an inappropriate measure of achievement,
the Committee, at its discretion, may adjust the performance targets or the amount or value of the performance award.
Other
Stock-Based Awards. The Committee may grant equity-based or equity-related awards, referred to as “other stock-based
awards,” other than options, SARs, restricted shares, restricted stock units, or performance awards. The terms and conditions
of each other stock-based award will be determined by the Committee. Payment under any other stock-based awards will be made in
common stock or cash, as determined by the Committee.
Dividend
Equivalents. The Committee may provide for the payment of dividends or dividend equivalents with respect to any shares of
common stock subject to an award under the 2020 Plan.
Awards
Granted Under the 2020 Plan
As
of the date of this proxy statement, no specific awards have been granted or are contemplated under the 2020 Plan. In addition,
the exact types and amounts of any future awards to be made to any eligible participants pursuant to the 2020 Plan are not presently
determinable. As a result of the discretionary nature of the 2020 Plan, it is not possible to state who the participants in the
2020 Plan will be in the future or the number of options or other awards to be received by a person or group.
Anti-Dilution
Protection
In
the event of any corporate event or transaction that results in a change in the capital structure of the Company, including a
change resulting from a stock dividend or stock split, or combination or reclassification of shares, the Committee is empowered
to make such equitable adjustments with respect to awards or any provisions of the 2020 Plan as it deems necessary and appropriate,
including, if necessary, any adjustments in the kind of shares issuable under the 2020 Plan, the maximum number of shares of common
stock subject to the 2020 Plan, the number of shares of common stock subject to and the exercise price of an outstanding award,
or the maximum number of shares that may be subject to one or more awards granted to any one recipient during a calendar year.
Amendment
and Termination
The
Board may at any time amend or terminate the 2020 Plan, provided that no such action may be taken that adversely affects any rights
or obligations with respect to any awards theretofore made under the 2020 Plan without the consent of the recipient. No awards
may be made under the 2020 Plan after the tenth anniversary of its effective date. Certain provisions of the 2020 Plan intended
to allow for performance-based awards under Section 162(m) of the Code must be renewed by the fifth anniversary of the effective
date in order for such awards granted thereafter to qualify as performance-based under Section 162(m) of the Code.
Surrender
of Awards and Authority to Reprice
In
its discretion, and on terms agreed to between the Company and the participant, the Company may accept the surrender or cancellation
of any award outstanding under the 2020 Plan. In addition, provided that stockholder approval is obtained, the Committee may substitute
or otherwise grant a new award under the 2020 Plan in connection with the surrender or cancellation of an existing award, including
the substitution or grant of (i) an option or SAR with a lower exercise price than the option or SAR being surrendered, (ii) a
different type of award upon the surrender or cancellation of an option or SAR with an exercise price above the market value of
the underlying stock on the date of such substitution or grant, or (iii) any other award constituting a repricing of an option
or SAR.
Federal
Income Tax Consequences
The
federal income tax consequences of the issuance and exercise of awards under the 2020 Plan are as described below. The following
information is only a summary of the tax consequences of the awards, and participants should consult with their own tax advisors
with respect to the tax consequences inherent in the ownership or exercise of the awards, and the ownership and disposition of
any underlying securities.
Incentive
Stock Options. A participant who is granted an incentive stock option will not recognize any taxable income for federal income
tax purposes either on the grant or exercise of the incentive stock option. If the participant disposes of the shares purchased
pursuant to the incentive stock option more than two years after the date of grant and more than one year after the exercise of
the option (the required statutory “holding period”), (a) the participant will recognize long-term capital gain or
loss, as the case may be, equal to the difference between the selling price and the option price; and (b) the Company will not
be entitled to a deduction with respect to the shares of stock so issued. If the holding period requirements are not met, any
gain realized upon disposition will be taxed as ordinary income to the extent of the excess of the lesser of (i) the excess of
the fair market value of the shares at the time of exercise over the option price, and (ii) the gain on the sale. Also in that
case, the Company will be entitled to a deduction in the year of disposition in an amount equal to the ordinary income recognized
by the participant. Any additional gain will be taxed as short-term or long-term capital gain depending upon the holding period
for the stock. A sale for less than the option price results in a capital loss.
The
excess of the fair market value of the shares on the date of exercise over the option price is, however, includable in the option
holder’s income for alternative minimum tax purposes.
Nonqualified
Stock Options. A participant who is granted a nonqualified stock option under the 2020 Plan will not recognize any income
for federal income tax purposes on the grant of the option. Generally, on the exercise of the option, the participant will recognize
taxable ordinary income equal to the excess of the fair market value of the shares on the exercise date over the option price
for the shares. If the participant is an employee, such ordinary income amount will be subject to income tax withholding and payroll
taxes. The Company generally will be entitled to a deduction on the date of exercise in an amount equal to the ordinary income
recognized by the participant. Upon disposition of the shares purchased pursuant to the stock option, the participant will recognize
long-term or short-term capital gain or loss, as the case may be, equal to the difference between the amount realized on such
disposition and the basis for such shares, which basis includes both the option price and the amount previously recognized by
the participant as ordinary income.
Stock
Appreciation Rights. A participant who is granted stock appreciation rights will normally not recognize any taxable income
on the receipt of the SARs. Upon the exercise of a SAR, (a) the participant will recognize ordinary income equal to the amount
received (the increase in the fair market value of one share of the Company’s common stock from the date of grant of the
SAR to the date of exercise); and (b) the Company will be entitled to a deduction on the date of exercise in an amount equal to
the ordinary income recognized by the participant. If the participant is an employee, such ordinary income amount will be subject
to income tax withholding and payroll taxes.
Restricted
Shares. A participant will not be taxed at the date of an award of restricted shares, but will be taxed at ordinary income
rates on the fair market value of any restricted shares as of the date that the restrictions lapse, unless the participant, within
30 days after receipt of such restricted shares to the participant, elects under Section 83(b) of the Code to include in income
the fair market value of the restricted shares as of the date of such receipt. The Company will be entitled to a corresponding
deduction when the participant recognizes the income. If the participant is an employee, the ordinary income amount, when recognized,
will be subject to income tax withholding and payroll taxes. Any disposition of shares after restrictions lapse will be subject
to the regular rules governing long-term and short-term capital gains and losses, with the basis for this purpose equal to the
fair market value of the shares at the end of the restricted period (or on the date of receipt of the restricted shares, if the
employee elects to be taxed on the fair market value upon receipt). To the extent dividends are payable during the restricted
period under the applicable award agreement, any such dividends will be taxable to the participant at ordinary income tax rates
and will be deductible by the Company unless the participant has elected to be taxed on the fair market value of the restricted
shares upon receipt, in which case they will thereafter be taxable to the employee as dividends and will not be deductible by
the Company.
Restricted
Stock Units. A participant will normally not recognize taxable income upon an award of restricted stock units, and the Company
will not be entitled to a deduction until the lapse of the applicable restrictions. Upon the lapse of the restrictions and the
issuance of the earned shares, the participant will recognize ordinary taxable income in an amount equal to the fair market value
of the common stock received and the Company will be entitled to a deduction in the same amount. If the participant is an employee,
such ordinary income will be subject to income tax withholding and payroll taxes.
Performance
Awards, Other Stock-Based Awards. Normally, a participant will not recognize taxable income upon the grant of performance
awards and other stock-based awards. Subsequently, when the conditions and requirements for the grants have been satisfied and
the payment determined, any cash received and the fair market value of any common stock received will constitute ordinary income
to the participant. The Company also will then be entitled to a deduction in the same amount. If the participant is an employee,
such ordinary income will be subject to income tax withholding and payroll taxes.
Tax
Deductibility of Certain Performance-Based Awards Under the 2020 Plan. Section 162(m) of the Code limits the deductibility
for federal income tax purposes of certain compensation paid to any “covered employee” in excess of $1 million. For
purposes of Section 162(m), the term “covered employee” includes the Company’s chief executive officer and the
two other most highly compensated executive officers who are required to be disclosed in the Company’s proxy statement as
a “named executive officer” based on the amount of their total compensation. Certain compensation, including compensation
paid based on the achievement of pre-established performance goals, is excluded from this deduction limit if the material terms
under which the compensation is to be paid, including the performance goals to be used, are approved by our stockholders. Accordingly,
in order to maintain the Company’s ability to fully deduct certain incentive compensation paid pursuant to the 2020 Plan,
approval of the 2020 Plan will qualify as approval of the material terms, including the performance goals discussed in the section
titled “Types of Awards – Performance-Based Awards” above, under which qualifying performance-based compensation
is to be paid.
Effective
Date
If
approved by the stockholders of the Company, the 2020 Plan will be effective as of the date of such approval by the stockholders.
If not approved by the stockholders, any awards previously issued under the 2020 Plan will be terminated, the 2020 Plan will not
take effect and no awards will be made under the 2020 Plan.
Equity
Compensation Plan Information
The
following table provides certain aggregate information with respect to all of our equity compensation plans in effect as of September
30, 2019.
Plan category
|
|
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
|
(b)
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in
column (a))
|
|
Equity compensation plans approved by security holders (1)
|
|
|
1,771,039
|
|
|
$
|
4.03
|
|
|
|
1,090,799
|
(2)
|
Equity compensation plans not approved by security holders
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
1,771,039
|
|
|
$
|
4.03
|
|
|
|
1,090,799
|
(2)
|
(1)
|
These
plans consist of our 2014 Stock Incentive Plan and 2018 Omnibus Stock Incentive Plan.
|
(2)
|
Column
(c) includes 1,085,000 shares of common stock available for future issuance under our 2018 Omnibus Stock Incentive Plan and
5,799 shares available for future issuance under our 2014 Stock Incentive Plan.
|
CORPORATE
GOVERNANCE
Information
Regarding the Board and its Committees
Board
Composition
Our
Board currently consists of seven members. Each director elected at this meeting will serve until the Company’s 2021 Annual
Meeting of Stockholders or until a successor is duly elected and qualified.
Our
Board of Directors is responsible for the selection of the Chairman of the Board, the Chief Executive Officer and the Lead Independent
Director. Our Board does not have a policy on whether or not the roles of Chief Executive Officer and Chairman should be separate
and, if they are to be separate, whether the Chairman should be selected from the non-employee directors or be an employee. Our
Board of Directors appointed Myron Holubiak as our Chief Executive Officer and Leonard Mazur as the Executive Chairman of the
Board.
There
are no family relationships among our executive officers and directors.
Selection
of Nominees for our Board of Directors
The
Nominating and Governance Committee of our board of directors is responsible for establishing the criteria for recommending which
directors should stand for re-election to the Board and the selection of new directors to serve on the Board. In addition, the
Committee is responsible for establishing the procedures for our stockholders to nominate candidates to the Board. Board candidates
are typically identified by existing directors or members of management. The committee considers the needs for the Board of Directors
as a whole when identifying and evaluating nominees and, among other things, considers diversity in background, age, experience,
qualifications, attributes and skills in identifying nominees, although it does not have a formal policy regarding the consideration
of diversity. Each director nominee is recommended by the Nominating and Governance Committee.
Pursuant
to the Company’s Bylaws, our stockholders may select individuals to be nominated for election to the Board of Directors
by providing written notice to the Company no more than 90 and not less than 60 days before the meeting. Such notice must set
forth the following:
|
●
|
the
name and address, as they appear on the Company’s books, of the stockholder who
intends to make the nomination and the name and residence address of the person or persons
to be nominated;
|
|
●
|
the
class and number of shares of the Company which are beneficially owned by the stockholder;
|
|
●
|
a
representation that the stockholder is a holder of record of stock of the Company entitled
to vote at such meeting and intends to appear in person or by proxy at the meeting;
|
|
●
|
a
description of all arrangements or understandings between the stockholder and each nominee
and any other person or persons pursuant to which the nomination was made;
|
|
●
|
such
other information regarding each nominee proposed by such stockholder as would be required
to be disclosed in solicitations of proxies for election of directors, pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
including any information that would be required to be included in a proxy statement
filed pursuant to Regulation 14A had the nominee been nominated by the board of directors;
and
|
|
●
|
the
written consent of each nominee to be named in a proxy statement and to serve as director
of the Company if so elected.
|
Our
Nominating and Governance Committee will evaluate a nominee recommended by a stockholder in the same manner in which the Committee
evaluates nominees recommended by other persons as well as its own nominee recommendations. No stockholder has nominated anyone
for election as a director at this Annual Meeting.
Board
Independence
After
review of all relevant transactions or relationships between each nominee for director, or any of his or her family members, and
the Company, its senior management and its Independent Registered Public Accounting Firm, the Board of Directors has determined
that all of the Company’s directors and the Company’s nominees for director are independent within the meaning of
the applicable NASDAQ listing standards, except Leonard Mazur, the Executive Chairman and Secretary of the Company, and Myron
Holubiak, the Chief Executive Officer and President of the Company.
Board
Committees
The
Company has a Nominating and Governance Committee, Audit and Risk Committee, and Compensation Committee. The Board has determined
that each of the members of the Nominating and Governance, Audit and Risk and Compensation Committees is independent. The adopted
written charters for each of these committees are available under the Investors Relations section of our website at www.citiuspharma.com.
Each committee is required to perform an annual evaluation of its charter, and each committee may engage outside independent advisors
as the committee deems appropriate. A brief description of the responsibilities of the Nominating and Governance, Audit and Risk
and the Compensation Committees follows.
Audit
and Risk Committee
Our
Audit and Risk Committee consists of Messrs. Dutia (Chair) and Safir and Dr. Kane. Each of Messrs. Dutia and Safir and Dr. Kane
satisfy the independence requirements of Rule 5605(a)(2) of the NASDAQ Stock Market listing rules and SEC Rule 10A-3. Our Audit
and Risk Committee is responsible for, among other things:
|
●
|
appointing,
terminating, compensating, and overseeing the work of any accounting firm engaged to
prepare or issue an audit report or other audit, review or attest services;
|
|
●
|
reviewing
and approving, in advance, all audit and non-audit services to be performed by the independent
auditor, taking into consideration whether the independent auditor’s provision
of non-audit services to us is compatible with maintaining the independent auditor’s
independence;
|
|
●
|
reviewing
and discussing the adequacy and effectiveness of our accounting and financial reporting
processes and controls and the audits of our financial statements;
|
|
●
|
establishing
and overseeing procedures for the receipt, retention, and treatment of complaints received
by us regarding accounting, internal accounting controls or auditing matters, including
procedures for the confidential, anonymous submission by our employees regarding questionable
accounting or auditing matters;
|
|
●
|
monitoring
and evaluating the independent auditor’s qualifications, performance, and independence
on an ongoing basis; and
|
|
●
|
reviewing
and approving related-party transactions for potential conflict of interest situations
on an ongoing basis.
|
Our
board of directors has affirmatively determined that Mr. Dutia is designated as the “audit committee financial expert.”
The designation does not impose on Mr. Dutia any duties, obligations or liabilities that are greater than those generally imposed
on members of our audit committee and our board of directors.
Compensation
Committee
Our
Compensation Committee consists of Mr. Safir (Chair), Ms. Webb and Dr. Holuka. Our Compensation Committee is responsible for,
among other things:
|
●
|
reviewing
and approving the compensation, employment agreements and severance arrangements, and
other benefits of all of our executive officers and key employees;
|
|
●
|
reviewing
and approving, on an annual basis, the corporate goals and objectives relevant to the
compensation of the executive officers, and evaluating their performance in light thereof;
|
|
●
|
reviewing
and making recommendations, on an annual basis, to the Board with respect to director
compensation; and
|
|
●
|
reviewing
any analysis or report on executive compensation required to be included in the annual
proxy statement and periodic reports pursuant to applicable federal securities rules
and regulations, and recommending the inclusion of such analysis or report in our proxy
statement and period reports.
|
Pursuant
to its written charter, our Compensation Committee has the authority to engage the services of outside advisors as it deems appropriate
to assist it in the evaluation of the compensation of our directors, principal executive officer or other executive and non-executive
officers, and in the fulfillment of its other duties. Additionally, our Compensation Committee has the authority to review and
approve the compensation of our other officers and employees and may delegate its authority to review and approve the compensation
of other non-executive officer employees to specified executive officers.
Nominating
and Governance Committee
Our
Nominating and Governance Committee consists of Dr. Kane (Chair), Dr. Holuka and Ms. Webb. It is responsible for, among other
things:
|
●
|
identifying
and screening candidates for our Board, and recommending nominees for election as directors;
|
|
●
|
establishing
procedures to exercise oversight of the evaluation of the Board and management;
|
|
●
|
reviewing
the structure of the Board’s committees and recommending to the board for its approval
directors to serve as members of each committee, and where appropriate, making recommendations
regarding the removal of any member of any committee;
|
|
●
|
developing
and reviewing our code of conduct, evaluating management’s communication of the
importance of our code of conduct, and monitoring compliance with our code of conduct;
and
|
|
●
|
generally
advising our Board on corporate governance and related matters.
|
Information
Regarding Meetings of the Board and Committees
The
business of our Company is under the general oversight of our Board as provided by the laws of Nevada and our bylaws. During the
year ended September 30, 2019, our Board held four meetings and took certain actions by unanimous written consent, our Audit and
Risk Committee held four meetings and our Compensation Committee held one meeting. Our Nominating and Governance Committee held
no meetings in fiscal 2019, acting instead as necessary at meetings of the full Board of Directors at which all members of the
Committee were present. In fiscal 2019, each director nominee attended at least 75% of the Board meetings and the meetings of
the committee on which he or she served since being appointed to the Board and respective committees.
We
do not have a formal policy regarding attendance of Board members at annual meetings, but we encourage them to do so. All directors
attended the 2019 Annual Meeting, with all attending in person except one director who attended via telephone.
Code
of Ethics
We
have adopted a code of ethics relating to the conduct of our business by all of our employees, officers and directors. We have
also adopted a corporate communications policy for our employees and directors establishing guidelines for the disclosure of information
related to the Company to the investing public, market analysts, brokers, dealers, investment advisors, the media, and any persons
who are not our employees or directors. Additionally, we have adopted an insider trading policy to establish guidelines for our
employees, officers, directors, and consultants regarding transactions in our securities and the disclosure of material nonpublic
information related to our Company. Each of these policies is posted under the Investors Relations section of our website
at www.citiuspharma.com.
Risk
Oversight
While
management is responsible for managing the day-to-day issues faced by the Company, our Board of Directors has an active role in
the oversight of the Company’s risk management efforts. The Board of Directors receives and reviews periodic reports from
management, auditors, legal counsel, and others, as considered appropriate regarding the Company’s assessment of risks.
The Board of Directors focuses on the most significant risks facing the Company and the Company’s general risk management
strategy, and also ensures that risks undertaken by the Company are consistent with the Board’s appetite for risk. We believe
this division of responsibilities is the most effective approach for addressing the risks facing the Company and that our Board
leadership structure supports this approach.
In
order to promote open discussion among non-employee directors, our Board of Directors has a policy of regularly conducting executive
sessions of non-employee directors at scheduled meetings and at such other times requested by any non-employee director. In June
2016, Howard Safir was selected by the Board to serve as lead independent director until a successor is elected and qualified.
As lead independent director, Mr. Safir provides valuable leadership to the independent directors, presides over meetings and
sessions of the independent directors, and advises the Board on matters where there may be an actual or perceived conflict of
interest.
Stockholder
Proposals
Our
bylaws establish procedures for bringing business before any annual meeting or special meeting of stockholders and stockholder
director nominations. A stockholder entitled to vote in the election of directors may submit a stockholder proposal or nominate
one or more persons for election as directors at a meeting only if written notice of such stockholder’s intent to make such
proposal or nomination has been delivered to our Corporate Secretary at our principal executive offices not less than 60 days
nor more than 90 days prior to the meeting.
A
stockholder’s notice must set forth:
|
●
|
a
brief description of the business desired to be brought before the meeting and the reasons
for conducting such business at the meeting and, if such business includes a proposal
to amend our bylaws, the language of the proposed amendment;
|
|
●
|
the
name and address, as they appear on the Company’s books, of the stockholder proposing
such business;
|
|
●
|
the
class and number of shares that are beneficially owned by such stockholder;
|
|
●
|
a
representation that the stockholder is a holder of record of stock entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to propose such
business; and
|
|
●
|
any
material interest of the stockholder in such business.
|
A
stockholder must also comply with all applicable laws, rules and regulations, including the Securities Act of 1933, as amended,
and rules promulgated thereunder governing proxies and stockholder proposals.
In
the absence of such notice to the Company meeting the above requirements, a stockholder will not be entitled to present any business
at any meeting of stockholders.
See
“Selection of Nominees for our Board of Directors” for procedures for proxy access for stockholder director
nominations.
EXECUTIVE
OFFICERS
The
names of our executive officers and their ages, positions, and biographies as of November 30, 2019 are set forth below.
Name
|
|
Age
|
|
Title
|
|
|
|
|
|
Myron
Holubiak
|
|
72
|
|
President,
Chief Executive Officer and Director
|
|
|
|
|
|
Leonard
Mazur
|
|
74
|
|
Executive
Chairman and Secretary
|
|
|
|
|
|
Jaime
Bartushak
|
|
52
|
|
Chief
Financial Officer
|
In
March 2016, Mr. Mazur was appointed as Executive Chairman and Secretary of the Company and Mr. Holubiak was appointed President
and Chief Executive Officer of the Company. On November 27, 2017, Mr. Bartushak was appointed as Chief Financial Officer of the
Company. The biographies for Myron Holubiak and Leonard Mazur are contained in the information disclosures relating to the Company’s
nominees for director.
Jaime
Bartushak
From
April 1, 2014 until November 2017, Mr. Bartushak served as Chief Financial Officer of Leonard-Meron Biosciences, Inc. (“LMB”),
a wholly-owned subsidiary of the Company. Mr. Bartushak is an experienced finance professional for early stage pharmaceutical
companies, and has over 20 years of corporate finance, business development, restructuring, and strategic planning experience.
Mr. Bartushak was one of the founders of LMB in 2014 and was instrumental in its startup as well as in obtaining initial investment
capital. In 2014, prior to his work at LMB, Mr. Bartushak helped lead the sale of PreCision Dermatology, Inc. to Valeant Pharmaceuticals
International, Inc.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table shows the amount of our common stock beneficially owned as of November 30, 2019 by (i) each person or group as
those terms are used in Section 13(d)(3) of the Exchange Act believed by us to beneficially own more than 5% of our common stock,
(ii) each of our directors, (iii) each of our named executive officers, and (iv) all of our directors and named executive officers
as a group. Except as otherwise noted, each person named in the table has sole voting and investment power with respect to all
shares shown as beneficially owned by them, subject to applicable community property laws.
Name
of Beneficial Owner (1)
|
|
Number of
Shares of
Common Stock Beneficially
Owned
(2)
|
|
|
Percentage of Shares of
Common Stock Beneficially
Owned (3)
|
|
|
|
|
|
|
|
|
Executive Officers and Directors
|
|
|
|
|
|
|
Leonard Mazur (4)
|
|
|
17,921,846
|
|
|
|
48.97
|
%
|
Myron Holubiak (5)
|
|
|
3,573,507
|
|
|
|
11.71
|
%
|
Jaime Bartushak (6)
|
|
|
152,101
|
|
|
|
|
*
|
Suren Dutia (7)
|
|
|
51,667
|
|
|
|
|
*
|
Dr. William Kane (8)
|
|
|
50,404
|
|
|
|
|
*
|
Howard Safir (8)
|
|
|
50,404
|
|
|
|
|
*
|
Carol Webb (8)
|
|
|
50,404
|
|
|
|
|
*
|
Eugene Holuka (9)
|
|
|
40,749
|
|
|
|
|
*
|
All executive officers and directors as a group (8 people)
|
|
|
21,891,081
|
|
|
|
56.84
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% holders
|
|
|
|
|
|
|
|
|
Armistice Capital, LLC (10)
|
|
|
2,885,000
|
|
|
|
9.99
|
%
|
Craig Drill Capital Corporation (11)
|
|
|
1,448,890
|
|
|
|
4.99
|
%
|
*
Less than 1%.
(1)
|
The
address for our officers and directors is c/o of the Company, 11 Commerce Drive, 1st Floor, Cranford, New Jersey 07016.
|
|
|
(2)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable
or convertible, or exercisable or convertible within 60 days of November 30, 2019 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any
other person.
|
|
|
(3)
|
Percentage
based on 28,930,493 shares of common stock issued and outstanding at November 30, 2019.
|
|
|
(4)
|
Consists
of (i) 10,255,343 shares of common stock, (ii) 302,236 shares of common stock issuable upon exercise of options and (iii) warrants
to purchase an aggregate of 7,364,267 shares of common stock.
|
(5)
|
Consists
of (i) 1,992,243 shares of common stock, (ii) 108,903 shares of common stock issuable
upon exercise of options and (iii) warrants to purchase an aggregate of 1,491,976 shares
of common stock.
|
(6)
|
Consists
of (i) 60,353 shares of common stock and (ii) 91,748 shares of common stock issuable
upon exercise of options.
|
(7)
|
Consists
of 51,667 shares of common stock issuable upon exercise of options.
|
(8)
|
Consists
of 50,404 shares of common stock issuable upon exercise of options.
|
(9)
|
Consists
of 40,749 shares of common stock issuable upon exercise of options.
|
(10)
|
Based
on a Schedule 13G filed with the SEC on February 14, 2019 by Armistice Capital, LLC.
Includes warrants to purchase 11,028,722 shares of common stock. The warrants held by
Armistice are subject to a beneficial ownership limitation of 9.99%, which does not permit
Armistice to exercise that portion of the warrants that would result in Armistice and
its affiliates owning, after exercise, a number of shares of common stock in excess of
the beneficial ownership limitation. The amounts and percentages in the table give effect
to the beneficial ownership limitation. The business address of Armistice Capital, LLC
is 510 Madison Avenue, 22nd Floor, New York, New York 10022.
|
(11)
|
Based
on a Schedule 13G filed with the SEC on May 28, 2019 by Craig Drill Capital Corporation.
Includes warrants to purchase 213,106 shares of common stock. The warrants held by Craig
Drill Capital Corporation are subject to a beneficial ownership limitation of 4.99%,
which does not permit Craig Drill Capital Corporation to exercise that portion of the
warrants that would result in Craig Drill Capital Corporation and its affiliates owning,
after exercise, a number of shares of common stock in excess of the beneficial ownership
limitation. The amounts and percentages in the table give effect to the beneficial ownership
limitation. The business address of Craig Drill Capital Corporation is 724 Fifth Avenue,
9th Floor, New York, New York 10019.
|
Director
Compensation
Director
Compensation for the fiscal year ended September 30, 2019
Effective
October 1, 2018, the Board approved a compensation plan for non-employee directors after receiving input from Frederic W. Cook
& Co. (“FW Cook”), an independent compensation consultant. Non-employee directors each receive an annual retainer
of $32,500, but no compensation for meetings attended. In addition: (i) the Lead Independent Director receives an additional annual
retainer of $10,000, (ii) the Audit and Risk Committee chairman receives an additional annual retainer of $15,000, the Compensation
Committee chairman receives an additional annual retainer of $10,000, and the Nominating and Corporate Governance Committee chairman
receives an additional annual retainer of $7,500, and (iii) Audit Committee members receive an annual retainer of $7,500, Compensation
Committee members receive an annual retainer of $5,000, and Nominating and Governance Committee members receive an annual retainer
of $3,750.
Director
compensation for the year ended September 30, 2019 was as follows:
Name
|
|
Fees Earned or
Paid in Cash (1)
|
|
|
Stock Awards
|
|
|
Option Awards (1)
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suren Dutia (2)
|
|
$
|
47,500
|
|
|
|
--
|
|
|
$
|
19,443
|
|
|
|
--
|
|
|
$
|
66,943
|
|
Carol Webb (3)
|
|
$
|
41,250
|
|
|
|
--
|
|
|
$
|
19,443
|
|
|
|
--
|
|
|
$
|
60,693
|
|
Dr. William Kane (4)
|
|
$
|
47,500
|
|
|
|
--
|
|
|
$
|
19,443
|
|
|
|
--
|
|
|
$
|
66,943
|
|
Howard Safir (5)
|
|
$
|
60,000
|
|
|
|
--
|
|
|
$
|
19,443
|
|
|
|
--
|
|
|
$
|
79,443
|
|
Dr. Eugene Holuka (6)
|
|
$
|
41,250
|
|
|
|
--
|
|
|
$
|
19,443
|
|
|
|
--
|
|
|
$
|
60,693
|
|
(1)
|
No
options were granted in the year ended September 30, 2019. Any dollar amount would represent the dollar amount recognized
for financial statement reporting purposes with respect to the fiscal year on an accrual basis for fees earned and in accordance
with FASB ASC Topic 718 for option awards.
|
|
|
(2)
|
On
October 8, 2015, Mr. Dutia was granted options to purchase 26,667 shares of common stock that vested over 14 months. On September
15, 2017, Mr. Dutia was granted options to purchase 10,000 shares of common stock that vested on September 13, 2018. On September
4, 2018, Mr. Dutia was granted options to purchase 15,000 shares of common stock that vested on September 4, 2019. On October
8, 2019, Mr. Dutia was granted options to purchase 25,000 shares of common stock that vest on October 8, 2020, which are not
included in the table above.
|
|
|
(3)
|
On
March 17, 2014, Ms. Webb was granted options to purchase 12,071 shares of common stock by LMB that vested over 36 months and
were assumed by the Company when it acquired LMB. On June 23, 2016, Ms. Webb was granted options to purchase 13,334 shares
of common stock that vested over 12 months. On September 15, 2017, Ms. Webb was granted options to purchase 10,000 shares
of common stock that vested on September 13, 2018. On September 4, 2018, Ms. Webb was granted options to purchase 15,000 shares
of common stock that vested on September 4, 2019. On October 8, 2019, Ms. Webb was granted options to purchase 25,000 shares
of common stock that vest on October 8, 2020, which are not included in the table above.
|
|
|
(4)
|
On
March 28, 2014, Dr. Kane was granted options to purchase 12,071 shares of common stock by LMB that vested over 36 months and
were assumed by the Company when it acquired LMB. On June 23, 2016, Dr. Kane was granted options to purchase 13,334 shares
of common stock that vested over 12 months. On September 15, 2017, Dr. Kane was granted options to purchase 10,000 shares
of common stock that vested on September 13, 2018. On September 4, 2018, Dr. Kane was granted options to purchase 15,000 shares
of common stock that vested on September 4, 2019. On October 8, 2019, Dr. Kane was granted options to purchase 25,000 shares
of common stock that vest on October 8, 2020, which are not included in the table above.
|
|
|
(5)
|
On
April 11, 2014, Mr. Safir was granted options to purchase 12,071 shares of common stock by LMB that vested over 36 months
and were assumed by the Company when it acquired LMB. On June 23, 2016, Mr. Safir was granted options to purchase 13,334 shares
of common stock that vested over 12 months. On September 15, 2017, Mr. Safir was granted options to purchase 10,000 shares
of common stock that vested on September 13, 2018. On September 4, 2018, Mr. Safir was granted options to purchase 15,000
shares of common stock that vested on September 4, 2019. On October 8, 2019, Mr. Safir was granted options to purchase 25,000
shares of common stock that vest on October 8, 2020, which are not included in the table above.
|
|
|
(6)
|
On
April 4, 2014, Dr. Holuka was granted options to purchase 2,415 shares of common stock by LMB that vested over 36 months and
were assumed by the Company when it acquired LMB. On June 23, 2016, Dr. Holuka was granted options to purchase 13,334 shares
of common stock that vested over 12 months. On September 15, 2017, Dr. Holuka was granted options to purchase 10,000 shares
of common stock that vested on September 13, 2018. On September 4, 2018, Dr. Holuka was granted options to purchase 15,000
shares of common stock vested on September 4, 2019. On October 8, 2019, Dr. Holuka was granted options to purchase 25,000
shares of common stock that vest on October 8, 2020, which are not included in the table above.
|
EXECUTIVE
COMPENSATION
Executive
Compensation Objectives
We
seek to achieve the following broad goals in our executive compensation programs and decisions regarding individual compensation:
|
●
|
Attract
and retain executives critical to our overall success.
|
|
●
|
Reward
executives for contributions to achieving strategic goals that enhance stockholder value.
|
|
●
|
Foster
and maintain a company culture of ownership, creativity and innovation.
|
|
●
|
Motivate
our executive officers to achieve critical long- and short-term development, product and financial milestones set by the Board
in consultation with management.
|
General
Compensation Process
The
Compensation Committee is responsible for determining the elements and levels of compensation for our executive officers who are
named in the Summary Compensation Table and whom we refer to as Named Executive Officers in this proxy statement. In doing so,
the Compensation Committee reviews our corporate performance against financial and corporate achievement measures, assesses individual
performance and evaluates recommendations of the Chief Executive Officer regarding compensation for other Named Executive Officers.
Deliberations of the Compensation Committee may occur within a meeting of the full Board of Directors at which all members of
the Compensation Committee are in attendance and the Board of Directors may take action in such meetings upon the advice of the
Compensation Committee chair and/or its members.
To
assist in its deliberations regarding executive compensation, in fiscal 2018 the Compensation Committee directly engaged FW Cook
as its compensation consultant. FW Cook does not undertake any work for us other than its services for the Compensation Committee.
The Compensation Committee has determined that FW Cook is independent and that its services do not raise any conflict of interest
with us or any of our executive officers or directors. In carrying out its work for the Compensation Committee, FW Cook interacts
from time to time directly with our management, as it determines appropriate, regarding its work product prior to presentation
to the Compensation Committee in order to confirm alignment with our business strategy and obtain data or information necessary
for its work.
FW
Cook reviewed and discussed with the Compensation Committee competitive market compensation data for consideration when determining
different levels and mix of compensation. The Compensation Committee reviewed publicly available compensation information of executive
officers as well as aggregate share usage and dilution of a peer group of companies within the biotechnology and pharmaceuticals
industries. These companies were selected by the Compensation Committee with FW Cook’s assistance and were similar to the
Company in terms of size, business model and state of development.
The
peer group consisted of the following companies:
|
●
|
ADMA Biologics, Inc.
|
|
●
|
Hepion Pharmaceuticals (formerly ContraVir Pharmaceuticals, Inc.)
|
|
●
|
AmpliPhi Biosciences Corporation
|
|
●
|
Matinas BioPharma Holdings, Inc.
|
|
●
|
Aradigm Corporation
|
|
●
|
NanoViricides, Inc.
|
|
●
|
Argos Therapeutics, Inc.
|
|
●
|
Regulus Therapeutics, Inc.
|
|
●
|
Cidara Therapeutics, Inc.
|
|
●
|
OpGen, Inc.
|
|
●
|
ContraFect Corporation
|
|
●
|
Oragenics, Inc.
|
|
●
|
CorMedix Inc.
|
|
●
|
SCYNEXIS, Inc.
|
|
●
|
Eiger BioPharmaceuticals, Inc.
|
|
●
|
Vical Incorporated
|
|
●
|
Genocea Biosciences, Inc.
|
|
●
|
Xbiotech
|
|
●
|
Heat Biologics, Inc.
|
|
|
|
The
peer company compensation data provided by FW Cook is used by the Compensation Committee as a general reference point in its compensation
review. The Compensation Committee does not set compensation levels at any specific level or percentile against this compensation
data (i.e., the Compensation Committee does not “benchmark” our executive compensation levels). The peer group data
is only one point of information taken into account by the Compensation Committee in making compensation decisions.
After
review and approval by the Compensation Committee of FW Cook’s recommendations, effective October 1, 2018, the Board adopted
the Committee’s recommendation for stock option grant guidelines as well as increases in executive and director compensation
(see “Director Compensation” above).
Components
of Compensation
The
key components of our executive compensation package are cash compensation (salary and annual bonuses), long-term equity incentive
awards and change in control provisions in employment agreements. These components are administered with the goal of providing
total compensation that recognizes meaningful differences in individual performance, is competitive, varies the opportunity based
on individual and corporate performance, and is valued by our Named Executive Officers.
Base
Salary
It
is the Compensation Committee’s objective to set a competitive rate of annual base salary for each Named Executive Officer.
The Compensation Committee believes competitive base salaries are necessary to attract and retain top quality executives, since
it is common practice for public companies to provide their named executive officers with a guaranteed annual component of compensation
that is not subject to performance risk. The Compensation Committee, on its own or with outside consultants, namely FW Cook, may
establish salary ranges for our Named Executive Officers, with minimum to maximum opportunities that cover the normal range of
market variability. The actual base salary for each Named Executive Officer is then derived from those salary ranges based on
his responsibility, tenure and past performance and market comparability. Annual base salaries for the Named Executive Officers
are reviewed and approved by the Compensation Committee. Changes in base salary are based on the scope of an individual’s
current job responsibilities, individual performance in the previous performance year, target pay position relative to the peer
group, and our salary budget guidelines. The Compensation Committee reviews established goals and objectives, and determines an
individual’s achievement of those goals and objectives and considers the recommendations provided by the Chief Executive
Officer to assist it in determining appropriate salaries for the Named Executive Officers other than the Chief Executive Officer.
The
base salary information for our Named Executive Officers for fiscal 2018 and 2019 is set forth in the Summary Compensation Table
below. We entered into an employment agreement with each of Leonard Mazur, our Executive Board Chairman, Myron Holubiak, our Chief
Executive Officer, and Jaime Bartushak, our Chief Financial Officer, in October 2017, March 2016 and November 2017, respectively.
These agreements provide for a salary for each Named Executive Officer and are described under the caption “Employment
Agreements” below.
Annual
Bonuses
As
part of their compensation package, and pursuant to the terms of their employment agreements, our Named Executive Officers generally
have the opportunity to earn annual non-equity incentive bonuses. Annual non-equity bonuses are designed to reward superior executive
performance while reinforcing our short-term strategic operating goals. Annual bonus targets as a percentage of salary increase
with executive rank so that for the more senior executives, a greater proportion of their total cash compensation is contingent
upon annual performance. Each year the Compensation Committee establishes corporate goals for our Company in consultation with
our Chief Executive Officer, with weights assigned to each goal, depending on the extent to which each Named Executive Officer
is responsible for each specific goal. The extent to which these goals are met will determine the amount of the non-equity bonus
that each Named Executive Officer receives. Pursuant to the terms of their employment agreements, the target award for each Named
Executive Officer is based on a percentage of his base salary, and subject to the applicable terms in his individual employment
agreement. Pursuant to their respective employment agreements, Mr. Mazur, Mr. Holubiak and Mr. Bartushak are each eligible for
an annual bonus, which may equal up to 50%, 50% and 40%, respectively, of his base salary then in effect, as determined by our
Board or the Compensation Committee.
For
fiscal 2019, the annual non-equity incentive bonuses for our executive officers were based on the achievement of company goals
during fiscal 2019, which were established in October 2018 and related to clinical studies for Mino-Lok and Halo-Lido, work on
the regulatory pathway for Mino-Wrap, raising capital and attracting institutional investors, and strategic matters. These specific
goals were evaluated and selected because they were considered key drivers for creating and growing Company value. Corporate goals
for fiscal 2019 were revised to reflect a change in the primary endpoint in the Phase 3 Mino-Lok trial as well as a reduction
in the number of subjects needed to complete the trial. For fiscal 2019, Mr. Mazur, Mr. Holubiak and Mr. Bartushak were potentially
entitled to cash bonuses of up to $125,000, $225,000 and $116,000, respectively. Based on the achievement of the revised corporate
goals for fiscal 2019, of which one was not met and some were not fully met, while others met or surpassed expectations, the Board
approved the payment to Mr. Mazur, Mr. Holubiak and Mr. Bartushak of a cash bonus equal to 91% of their potential 2019 bonuses,
or $113,750, $204,750 and $105,560, respectively.
Long-Term
Incentive Equity Awards
We
believe that long-term corporate success is achieved with an ownership culture that encourages high performance by our employees
through the use of stock-based awards. Our 2014 Stock Incentive Plan and 2018 Omnibus Stock Incentive Plan were each established,
and the 2020 Plan is proposed to be established, to provide our employees, including our Named Executive Officers, with incentives
to help align employees’ interests with the interests of our stockholders. The Compensation Committee believes that the
use of stock-based awards offers the best approach to achieving our compensation goals of incentivizing long-term performance.
We have historically elected to use stock options as the primary long-term equity incentive vehicle; however, the Compensation
Committee has the ability under our 2014 Stock Incentive Plan and 2018 Omnibus Stock Incentive Plan, and the 2020 Plan if approved,
to grant restricted stock and other equity awards as part of our long-term incentive program, although no such awards have been
granted to date. We have selected the Black-Scholes method of valuation for stock-based compensation. Due to the early stage of
our business and our desire to preserve cash, we may provide a greater portion of total compensation to our Named Executive Officers
through stock options or other equity awards than through cash-based compensation. The Compensation Committee generally oversees
the administration of our 2014 Stock Incentive Plan and 2018 Omnibus Stock Incentive Plan.
Stock
Options
Our
2014 Stock Incentive Plan and 2018 Omnibus Stock Incentive Plan each authorizes us to grant options to purchase shares of common
stock to our employees, directors and consultants.
The
Compensation Committee reviews and approves stock option awards to Named Executive Officers based upon a review of competitive
compensation data, an assessment of individual performance, a review of each Named Executive Officer’s existing long-term
incentives, and retention considerations. Periodic stock option grants are made at the discretion of the Compensation Committee
to eligible employees and, in appropriate circumstances, after consideration of any recommendations of our Chief Executive Officer.
Stock
options granted to employees have an exercise price equal to the fair market value of our common stock on the day of grant, typically
vest over a time or upon the achievement of certain performance-based milestones and are based upon continued employment, and
generally expire 10 years after the date of grant. The fair value of the options granted to the Named Executive Officers and reflected
in the Summary Compensation Table is determined in accordance with the Black-Scholes method of valuation for share-based compensation.
Incentive stock options also include certain other terms necessary to ensure compliance with the Code.
We
expect to continue to use stock options as a long-term incentive vehicle because:
|
●
|
Stock
options align the interests of our Named Executive Officers with those of our stockholders,
supporting a pay-for performance culture, foster employee stock ownership, and focus
the management team on increasing value for our stockholders.
|
|
●
|
Stock
options are performance-based. All of the value received by the recipient of a stock
option is based on the growth of the stock price. In addition, stock options can be issued
with vesting based on the achievement of specified milestones although we have not used
such performance-based vesting to date.
|
|
●
|
Stock
options help provide balance to the overall executive compensation program as base salary
and annual bonuses focus on short-term compensation, while stock options focus on long-term
compensation.
|
|
●
|
The
vesting period of stock options over time encourages executive retention and is designed
to increase stockholder value. In determining the number of stock options to be granted
to our Named Executive Officers, we take into account the individual’s position,
scope of responsibility, ability to affect profits and stockholder value and the individual’s
historic and recent performance and the value of stock options in relation to other elements
of the individual Named Executive Officer’s total compensation.
|
Executive
Benefits and Perquisites
Our
Named Executive Officers, all of whom currently are parties to employment agreements, will continue to be parties to such agreements
in their current form until the expiration or termination of the employment agreement or until such time as the Compensation Committee
determines in its discretion that revisions to such agreements are advisable. In addition, consistent with our compensation philosophy,
we intend to continue to maintain our current benefits for our Named Executive Officers, including medical, dental and life insurance
and the ability to contribute to a 401(k) plan; however, the Compensation Committee in its discretion may revise, amend or add
to the officer’s executive benefits if it deems it advisable. We believe these benefits are currently comparable to benefit
levels for comparable companies.
Pension
Benefits
We
do not maintain any qualified or non-qualified defined benefit plans. As a result, none of our Named Executive Officers participate
in or have account balances in qualified or non-qualified defined benefit plans sponsored by us. Our Compensation Committee or
Board of Directors may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is
in our best interests.
Nonqualified
Deferred Compensation
None
of our Named Executive Officers participate in our have account balances in nonqualified defined contribution plans or other non-qualified
deferred compensation plans maintained by us. Our Compensation Committee or Board of Directors may elect to provide our officers
and other employees with non-qualified defined contribution or other non-qualified deferred compensation benefits in the future
if it determines that doing so is in our best interests.
Summary
Compensation Table
The
following table sets forth information regarding compensation paid to our Named Executive Officers for the years ended September
30, 2019 and 2018.
Name & Position
|
|
Fiscal Year
|
|
Salary
|
|
|
Nonequity Incentive Plan Compensation
|
|
|
Option Awards (1)
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonard Mazur
|
|
2019
|
|
$
|
250,000
|
|
|
$
|
113,750
|
|
|
$
|
109,380
|
(2)
|
|
|
--
|
|
|
$
|
473,130
|
|
Executive Chairman
|
|
2018
|
|
$
|
250,000
|
|
|
$
|
103,750
|
|
|
$
|
44,572
|
(3)
|
|
|
--
|
|
|
$
|
398,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Myron Holubiak
|
|
2019
|
|
$
|
450,000
|
|
|
$
|
204,750
|
|
|
$
|
109,380
|
(2)
|
|
|
--
|
|
|
$
|
764,130
|
|
Chief Executive Officer
|
|
2018
|
|
$
|
450,000
|
|
|
$
|
186,750
|
|
|
$
|
44,572
|
(3)
|
|
|
--
|
|
|
$
|
681,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaime Bartushak
|
|
2019
|
|
$
|
290,000
|
|
|
$
|
105,560
|
|
|
$
|
129,969
|
(2)
|
|
|
--
|
|
|
$
|
525,529
|
|
Chief Financial Officer
|
|
2018
|
|
$
|
250,000
|
|
|
$
|
85,000
|
|
|
$
|
123,992
|
(3)
|
|
|
--
|
|
|
$
|
458,992
|
|
(1)
|
No
options were granted in the year ended September 30, 2019. Any dollar amount set forth
would represent the dollar amount recognized for financial statement reporting purposes
for all options granted to the executive officer with respect to the fiscal year in accordance
with FASB ASC Topic 718.
|
(2)
|
On
October 8, 2019, we granted to Mr. Mazur, Mr. Holubiak and Mr. Bartushak options to purchase
175,000, 175,000 and 100,000 shares of common stock, respectively, at an exercise price
of $0.67 per share that vest in equal one-third amounts on the first, second and third
anniversaries of the issue date. Because these options were granted in October 2019,
they are not included in the table above.
|
(3)
|
On
September 4, 2018, we granted to Mr. Mazur, Mr. Holubiak and Mr. Bartushak options to
purchase 150,000, 150,000 and 70,000 shares of common stock, respectively, at an exercise
price of $1.62 per share that vest in equal one-third amounts on the first, second and
third anniversaries of the issue date.
|
Outstanding
Equity Awards at Fiscal Year-End 2019
The
following table contains certain information concerning unexercised options for our executive officers as of September 30,
2019.
Name
(a)
|
|
Number of Securities Underlying Unexercised Options
Exercisable
(b)
|
|
|
Number of Securities Underlying Unexercised Options
Unexercisable
(c)
|
|
|
Option Exercise
Price
(e)
|
|
|
Option Expiration
Date
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonard Mazur
|
|
|
220,000
|
|
|
|
--
|
|
|
$
|
6.75
|
|
|
9/12/2024
|
Executive Chairman
|
|
|
26,667
|
|
|
|
13,333
|
|
|
$
|
3.45
|
|
|
9/13/2027
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
$
|
1.62
|
|
|
9/04/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Myron Holubiak
|
|
|
26,667
|
|
|
|
--
|
|
|
$
|
8.10
|
|
|
10/01/2025
|
Chief Executive Officer
|
|
|
26,667
|
|
|
|
13,333
|
|
|
$
|
3.45
|
|
|
9/13/2027
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
$
|
1.62
|
|
|
9/04/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaime Bartushak
|
|
|
48,267
|
|
|
|
--
|
|
|
$
|
10.50
|
|
|
7/06/2026
|
Chief Financial Officer
|
|
|
16,667
|
|
|
|
8,333
|
|
|
$
|
3.45
|
|
|
9/13/2027
|
|
|
|
23,333
|
|
|
|
46,667
|
|
|
$
|
1.62
|
|
|
9/04/2028
|
Option
Repricings
We
did not engage in any repricings or other modifications to any of our executive officers’ outstanding options during the
year ended September 30, 2019.
Employment
Agreements
Leonard
Mazur
On
October 19, 2017, the Company and Leonard L. Mazur, the Company’s Executive Chairman and Secretary of the Company’s
Board of Directors, entered into an Amended and Restated Employment Agreement (the “Mazur Employment Agreement”) with
the following terms:
Compensation
and Benefits. In exchange for his services with the Company, Mr. Mazur will receive an annual salary of $250,000 and will
be eligible for an annual bonus of up to 50% of his annual salary. Mr. Mazur’s bonus will be based on his attainment of
certain financial, clinical development and business milestones, as established annually by the Board. Mr. Mazur will also be
entitled to participate in any benefit plans that the Company may from time to time establish and have in effect for all or most
of its senior executives.
Term
and Termination. The Mazur Employment Agreement has a three-year initial term ending on October 19, 2020, which will automatically
renew for additional one-year terms unless terminated by the Company or by Mr. Mazur. If the Company terminates Mr. Mazur’s
employment for Cause or if Mr. Mazur resigns without Good Reason, he will be entitled only to payment of his accrued compensation
as of such date. If the Company terminates Mr. Mazur’s employment without Cause or Mr. Mazur resigns for Good Reason, then
conditioned upon Mr. Mazur executing a release following such termination, Mr. Mazur will continue to receive his annual salary
and certain benefits for a period of 12 months following the effective date of the termination of his employment. In addition,
the portion of Mr. Mazur’s unvested options to purchase shares of the Company’s common stock that would have vested
at the next immediate vesting event following his termination date will vest and become immediately exercisable upon his termination
date. In the event Mr. Mazur is terminated under either of these circumstances within 90 days prior to a Change of Control or
within two years following a Change of Control, Mr. Mazur will receive a lump sum payment for 18 months’ salary, continue
to receive benefits for a period of 18 months, and all of Mr. Mazur’s unvested Company stock options will vest and become
immediately exercisable.
If
Mr. Mazur’s employment is relieved during a period of Disability, notwithstanding any removal or reassignment, he will continue
to receive his full salary, subject to certain adjustments that may apply, for up to 90 consecutive days or 180 days in the aggregate
during any consecutive 12-month period.
Appointment
to Board of Directors. In connection with Mr. Mazur’s employment, the Company agrees to use its best efforts to cause
Mr. Mazur to be elected as a member of the Board and to include him in management’s slate of nominees for election to the
Board at every stockholders meeting during the term of the Mazur Employment Agreement at which Mr. Mazur’s term as a director
would otherwise expire. In addition, Mr. Mazur agrees to accept election, and to serve during the term of the Mazur Employment
Agreement, as a member of the Board without any compensation other than as specified in the Mazur Employment Agreement.
Covenants.
The Mazur Employment Agreement also includes certain non-competition and non-solicitation of customer and employee restrictions
during Mr. Mazur’s employment and for a period of nine months and 24 months, respectively, following any termination of
employment, in addition to other customary terms, including provisions covering confidentiality and return of Company property.
Myron
Holubiak
On
March 30, 2016, in connection with the merger by and among the Company, Citius LMB Acquisition Corp. and Leonard-Meron Biosciences,
Inc., the Company’s Board of Directors appointed Myron Holubiak to serve as the Chief Executive Officer of the Company and
entered into an Employment Agreement (the “Holubiak Employment Agreement”) with the following terms:
Compensation
and Benefits. In exchange for his services with the Company, Mr. Holubiak will receive an annual salary of $450,000 and will
be eligible for an annual bonus of up to 50% of his annual salary. Mr. Holubiak’s bonus will be based on his attainment
of certain financial, clinical development and business milestones, as established annually by the Board. Mr. Holubiak is also
eligible for an incentive bonus based upon Market Capitalization (as defined in the Holubiak Employment Agreement) of the Company.
Mr. Holubiak will also be entitled to participate in any benefit plans that the Company may from time to time establish and have
in effect for all or most of its senior executives.
Term
and Termination. The Holubiak Employment Agreement has a three-year initial term, which ended on March 30, 2019, and automatically
renews for additional one-year terms unless terminated by the Company or by Mr. Holubiak. If the Company terminates Mr. Holubiak’s
employment for Cause or if Mr. Holubiak resigns without Good Reason, he will be entitled only to payment of his accrued compensation
as of such date. If Mr. Holubiak’s employment is terminated as a result of his Disability, if the Company terminates Mr.
Holubiak’s employment without Cause or if Mr. Holubiak resigns for Good Reason, then conditioned upon Mr. Holubiak executing
a release following such termination, Mr. Holubiak will continue to receive his annual salary and certain benefits for a period
of 12 months following the effective date of the termination of his employment. In the event Mr. Holubiak is terminated in connection
with a Change of Control or within six months following a Change of Control, Mr. Holubiak will receive a lump sum payment for
18 months’ salary, his full annual bonus, and continue to receive benefits for a period of 18 months.
Appointment
to Board of Directors. In connection with Mr. Holubiak’s employment, the Company agrees to use its best efforts to cause
Mr. Holubiak to be elected as a member of the Board and to include him in management’s slate of nominees for election to
the Board at every stockholders meeting during the term of the Holubiak Employment Agreement at which Mr. Holubiak’s term
as a director would otherwise expire. In addition, Mr. Holubiak agrees to accept election, and to serve during the term of the
Holubiak Employment Agreement, as a member of the Board without any compensation other than as specified in the Holubiak Employment
Agreement.
Covenants.
The Holubiak Employment Agreement also includes certain non-competition and non-solicitation of customer and employee restrictions
during Mr. Holubiak’s employment and for a period of 12 months following any termination of employment, in addition to other
customary terms, including provisions covering confidentiality and assignment of inventions.
Jaime
Bartushak
On
November 27, 2017 the Company’s Board of Directors appointed Jaime Bartushak to serve as the Chief Financial Officer of
the Company and entered into an Employment Agreement (the “Bartushak Employment Agreement”) with the following terms:
Compensation
and Benefits. In exchange for his services with the Company, Mr. Bartushak will receive an annual salary of $250,000 and will
be eligible for an annual bonus of up to 40% of his annual salary. Mr. Bartushak bonus will be based on his attainment of certain
financial, clinical development and business milestones, as established annually by the Board. Mr. Bartushak will also be entitled
to participate in any benefit plans that the Company may from time to time establish and have in effect for all or most of its
senior executives.
On
September 4, 2018 the Company’s Board of Directors approved an increase to Mr. Bartushak annual salary to $290,000 after
receiving input from FW Cook, an independent compensation consultant with the increase being made effective October 1, 2018.
Term
and Termination. Under the Bartushak Employment Agreement, Mr. Bartushak’s employment will be at will and continue until
terminated by either party. If the Company terminates Mr. Bartushak’s employment for Cause or if Mr. Bartushak resigns without
Good Reason, he will be entitled only to payment of his accrued compensation as of such date. If the Company terminates Mr. Bartushak’s
employment without Cause or Mr. Bartushak resigns for Good Reason, then conditioned upon Mr. Bartushak executing a release following
such termination, Mr. Bartushak will continue to receive his annual salary and certain benefits for a period of 12 months following
the effective date of the termination of his employment and his annual bonus prorated based on the date of termination. The definition
of Good Reason includes any “Change in Control”, which is defined as including the sale of substantially all the assets
of the Company, any merger, consolidation or acquisition of the Company by or into another party, entity or person, and or any
change in the ownership of more than 50% of the voting capital stock of the Company in one or more related transactions.
Covenants.
The Bartushak Employment Agreement also includes certain non-competition and non-solicitation of customer and employee restrictions
during Mr. Bartushak’s employment and for a period of 12 months following any termination of employment, in addition to
other customary terms, including provisions covering confidentiality and assignment of inventions.
Potential
Payments on Change of Control
If
the severance payments called for in our agreements for Mr. Mazur, Mr. Holubiak and Mr. Bartushak had been triggered on September
30, 2019, we would have been obligated to make the following payments:
Name
|
|
Cash Payment
($ per month) and
(# of months paid)
|
|
Benefits
($ per month) and
(# of months paid)
|
|
Number of Options
(# that would vest) and
($ market value) (1)
|
|
Leonard Mazur
|
|
$
|
20,833
|
|
|
12 mos
|
|
$
|
0.00
|
|
|
12 mos
|
|
|
410,000
|
|
|
$
|
0.00
|
|
Myron Holubiak
|
|
$
|
37,500
|
|
|
12 mos
|
|
$
|
0.00
|
|
|
12 mos
|
|
|
216,667
|
|
|
$
|
0.00
|
|
Jaime Bartushak
|
|
$
|
24,167
|
|
|
12 mos
|
|
$
|
2,968
|
|
|
12 mos
|
|
|
143,267
|
|
|
$
|
0.00
|
|
(1)
|
The
market value equals the difference the fair market value of the shares that could be
acquired based on the closing sale price per share of our common stock on the NASDAQ
Capital Market on September 30, 2019, which was $0.76, and the exercise prices for the
underlying stock options.
|
AUDITOR
AND AUDIT COMMITTEE MATTERS
Report
of the Audit and Risk Committee
The
Audit and Risk Committee has reviewed and discussed with management our audited financial statements for the fiscal year ended
September 30, 2019, which were audited by Wolf & Company, P.C. (“Wolf”), an independent registered public accounting
firm. The Audit and Risk Committee discussed with Wolf the matters required to be discussed pursuant to Public Company Accounting
Oversight Board (United States) Auditing Standard 1301 (Communication with Audit Committee). The Audit and Risk Committee received
the written disclosures and letter from the independent registered public accounting firm required by applicable requirements
of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit and Risk Committee
concerning independence, and discussed with the independent registered public accounting firm the independent registered public
accounting firm’s independence. The Audit and Risk Committee also considered whether the provision of services other than
the audit of our financial statements for the fiscal year ended September 30, 2019 were compatible with maintaining the independence
of Wolf.
Based
on the review and discussions referred to in the foregoing paragraph, the Audit and Risk Committee recommended to the Board of
Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September
30, 2019 for filing with the SEC.
Our
Audit and Risk Committee is currently composed of the following three directors: Mr. Dutia (Chair), Dr. Kane and Mr. Safir. All
are independent directors as defined in Rules 5605(a)(2) and 5605(c)(2) of the NASDAQ Stock Market listing rules and Section 10A-3
of the Exchange Act. The Board of Directors has determined that Mr. Dutia is an “audit committee financial expert”
as such term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC. Our Audit and Risk Committee operates
under a written charter adopted by the board, a copy of which is available under Investor Relations—Governance section
of our website at www.citiuspharma.com.
Wolf
has served as our auditor since 2014 and audited our consolidated financial statements for the years ended September 30, 2014
through September 30, 2019.
THE
AUDIT AND RISK COMMITTEE
Suren
Dutia, Chairman
Dr.
William Kane
Howard
Safir
Fees
Paid to the Independent Registered Public Accounting Firm
Audit
Fees
The
aggregate audit fees billed for professional services rendered by our auditor, Wolf, an independent registered public accounting
firm, for the audit of our financial statements as of and for the years ended September 30, 2019 and 2018, our filings with the
SEC and other audit fees were $111,700 and $107,000, respectively.
Audit
Related Fees
The
aggregate audit related fees billed for professional services by Wolf for the years ended September 30, 2019 and 2018 were $42,400
and $68,750, respectively.
Tax
Fees
The
aggregate tax fees billed for professional services by Wolf for the years ended September 30, 2019 and 2018 were $14,000 and $14,500,
respectively. Tax fees are for the preparation of federal and state income tax returns.
All
Other Fees
No
other fees were billed by or paid to Wolf during the years ended September 30, 2019 and 2018.
Pre-Approval
Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
All
fees reported above under the headings Audit Fees, Audit Related Fees, Tax Fees and All Other Fees were approved by the Audit
and Risk Committee before the respective services were rendered, which concluded that the provision of such services was compatible
with the maintenance of the independence of Wolf in the conduct of its auditing functions.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
following is a summary of each transaction or series of similar transactions since October 1, 2018 to which Citius was or is a
party in which:
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the
amount involved exceeded or exceeds the lesser of (i) $120,000 and (ii) one percent of the average of our total assets at
year end for the last two completed fiscal years; and
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any
of our directors or executive officers, any holder of 5% of our capital stock or any member of their immediate family had
or will have a direct or indirect material interest.
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April
2019 Offering
On
April 1, 2019, Citius entered into securities purchase agreements with institutional investors and accredited investors for the
sale by us of an aggregate of 3,430,421 shares of our common stock at a purchase price of $1.545 per share. Concurrently with
the sale of the shares, pursuant to the securities purchase agreements, we also sold to the investors unregistered warrants to
purchase an aggregate of up to 3,430,421 shares of our common stock. The offering closed on April 3, 2019.
Our
Executive Chairman, Leonard Mazur, purchased 1,165,048 shares of common stock and warrants to purchase up to 1,165,048 shares
of our common stock for $1.8 million. Our director and Chief Executive Officer, Myron Holubiak, purchased 129,450 shares of common
stock and warrants to purchase up to 129,450 shares of our common stock for $200,000. The purchases by Messrs. Mazur and Holubiak
were on the same terms as were offered to the public.
September
2019 Offering
On
September 25, 2019, Citius entered into an underwriting agreement with H.C. Wainwright & Co., LLC, relating to an underwritten
at-the-market offering of (i) 6,760,615 units, with each unit being comprised of one share of the Company’s common stock,
par value $0.001 per share, and one warrant to purchase one share and (ii) 1,060,615 pre-funded units, with each pre-funded unit
being comprised of one pre-funded warrant to purchase one share and one warrant, which closed on September 27, 2019. The offering
price was $0.8951 per unit and $0.895 per pre-funded unit.
Armistice
Capital Master Fund, Ltd. (“Armistice”), our largest outside stockholder, purchased 3,910,615 shares of common stock,
pre-funded warrants to purchase up to 1,060,615 shares of common stock, and warrants to purchase up to 3,910,615 shares of our
common stock for $4,976,785. Our Executive Chairman, Leonard Mazur, purchased 2,234,700 shares of common stock and warrants to
purchase up to 2,234,700 shares of our common stock for approximately $2.0 million. Our director and Chief Executive Officer,
Myron Holubiak, purchased 558,597 shares of common stock and warrants to purchase up to 558,597 shares of our common stock for
500,000. The purchases by Armistice and Messrs. Mazur and Holubiak were on the same terms as were offered to the public.
Procedures
for Review and Approval of Transactions with Related Persons
Pursuant
to the Audit and Risk Committee Charter, the Audit and Risk Committee is responsible for reviewing and approving all related party
transactions as defined under Item 404 of Regulation S-K, after reviewing each such transaction for potential conflicts of interests
and other improprieties. Our policies and procedures for review and approval of transactions with related persons are in writing
in our Code of Conduct and Ethics available under the Investor Relations—Governance section of our website at www.citiuspharma.com.
STOCKHOLDER
COMMUNICATIONS
Stockholders
may send any communications regarding our Company’s business to the Board in care of our Corporate Secretary at our principal
executive offices located at 11 Commerce Drive, 1st Floor, Cranford, New Jersey 07016. The Secretary will forward all such communications
to the addressee.
DEADLINE
FOR STOCKHOLDER PROPOSALS FOR 2020 ANNUAL MEETING
Stockholder
proposals to be included in the proxy statement for our 2021 Annual Meeting of stockholders must be received by us not later than
August 21, 2020. Under our bylaws, stockholder proposals to be considered at our next Annual Meeting, including nominees for director,
must be received by us not more than 90 days and not less than 60 days before the meeting. All submissions must comply with all
of the requirements of our bylaws and Rule 14a-8 of the Exchange Act. Proposals should be mailed to our Corporate Secretary, Citius
Pharmaceuticals, Inc., 11 Commerce Drive, 1st Floor, Cranford, New Jersey 07016.
Management’s
proxy holders for the 2021 Annual Meeting of stockholders will have discretion to vote proxies given to them on any stockholder
proposal of which we do not have notice prior to November 6, 2020.
DELIVERY
OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS
The
SEC has adopted rules that permit companies to deliver a single copy of proxy materials to multiple stockholders sharing an address
unless a company has received contrary instructions from one or more of the stockholders at that address. Upon request, we will
promptly deliver a separate copy of proxy materials to one or more stockholders at a shared address to which a single copy of
proxy materials was delivered. Stockholders may request a separate copy of proxy materials by contacting us either by calling
(908) 967-6677 or by mailing a request to 11 Commerce Drive, 1st Floor, Cranford, New Jersey 07016. Stockholders at a shared address
who receive multiple copies of proxy materials may request to receive or a single copy of proxy materials in the future in the
same manner as described above.
ANNUAL
REPORT ON FORM 10-K
Our
Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as filed with the SEC is accessible free of charge on
the SEC’s website at www.sec.gov. It contains audited financial statements covering the fiscal years ended September 30,
2019 and 2018. You can request a copy of our Annual Report on Form 10-K free of charge by calling (908) 967-6677 or by mailing
a request to our Corporate Secretary, 11 Commerce Drive, 1st Floor, Cranford, New Jersey 07016. Please include your contact information
with the request.
OTHER
MATTERS
The
Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting, but if other matters
properly come before the meeting, the persons named as proxies in the proxy will vote according to their best judgment. Stockholders
are requested to vote promptly via the Internet, by telephone or by mail. If you attend the Annual Meeting, you may revoke your
proxy at that time and vote in person, if you wish. Otherwise your proxy will be voted for you.
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By
Order of the Board of Directors
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/s/
Myron Holubiak
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Director,
Chief Executive Officer and President
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APPENDIX
A
CITIUS PHARMACEUTICALS, INC.
2020 omnibus
STOCK INCENTIVE PLAN
Approved by the Board:
December 10, 2019
Approved by the Stockholders:
[February 10, 2020]
1. Purposes
of the Plan. The purposes of this Plan are to attract and retain the best available personnel; to provide additional incentives
to Employees, Directors and Consultants to contribute to the successful performance of the Company and any Related Entity; to promote
the growth of the market value of the Company’s Common Stock; to align the interests of Grantees with those of the Company’s
stockholders; and to promote the success of the Company’s business. As of the Effective Date (as defined below), no new awards
will be granted under the Prior Plan (as defined below). Awards under the Prior Plan that are outstanding as of the Effective Date
will remain subject to the terms and conditions of, and be governed by, their terms and the Prior Plan.
2. Definitions.
The following definitions will apply as used herein and in all individual Award Agreements except as a term may be otherwise defined
in an individual Award Agreement. In the event a term is separately defined in an individual Award Agreement, such definition will
supersede the definition contained in this Section 2.
(a) “Administrator”
means the Plan Administrator as described in Section 4.
(b) “Applicable
Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal and
state securities laws, the corporate laws of Nevada, and, to the extent other than Nevada, the corporate law of the state of the
Company’s incorporation, the Code, the rules of any applicable stock exchange or national market system, and the rules of
any non-U.S. jurisdiction applicable to Awards granted to residents therein.
(c) “Assumed”
means, with respect to an Award, that pursuant to a Corporate Transaction either (i) the Award is expressly affirmed by the
Company or (ii) the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law)
by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and
type of securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which
at least preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance
with the instruments evidencing the agreement to assume the Award.
(d) “Award”
means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Restricted Stock Unit, or other right or benefit
under the Plan.
(e) “Award
Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee,
including any amendments thereto.
(f) “Board”
means the Board of Directors of the Company.
(g) “Cause”
means, with respect to the termination by the Company or a Related Entity of a Grantee’s Continuous Service:
(i) that
such termination is for “Cause” as such term (or word of like import) is expressly defined in a then-effective written
employment agreement, consulting agreement, service agreement or other similar agreement between the Grantee and the Company or
such Related Entity, provided, however, that with regard to any agreement that defines “Cause” on the occurrence of
or in connection with a Corporate Transaction, such definition of “Cause” will not apply until a Corporate Transaction
actually occurs; or
(ii) in
the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator: (A)
the Grantee’s performance of any act, or failure to perform any act, in bad faith and to the detriment of the Company or
a Related Entity; (B) the Grantee’s dishonesty, intentional misconduct or material breach of any agreement with the Company
or a Related Entity; (C) the Grantee’s material breach of any noncompetition, confidentiality or similar agreement with the
Company or a Related Entity, as determined under such agreement; (D) the Grantee’s commission of a crime involving dishonesty,
breach of trust, or physical or emotional harm to any person; (E) if the Grantee is an Employee or Consultant, the Grantee’s
engaging in acts or omissions constituting gross negligence, misconduct or a willful violation of a Company or a Related Entity
policy which is or is reasonably expected to be materially injurious to the Company and/or a Related Entity; or (F) if the Grantee
is an Employee, the Grantee’s failure to follow the reasonable instructions of the Board or such Grantee’s direct supervisor,
which failure, if curable, is not cured within 10 days after notice to such Grantee or, if cured, recurs within 180 days.
(h) “Code”
means the Internal Revenue Code of 1986, as amended, or any successor statute.
(i) “Committee”
means, unless otherwise provided herein, the Compensation Committee of the Board, or another committee appointed by the Board to
administer the Plan.
(j) “Common
Stock” means the Company’s voting common stock, par value $0.001 per share.
(k) “Company”
means Citius Pharmaceuticals, Inc., a Nevada corporation, or any successor entity that adopts the Plan in connection with a Corporate
Transaction.
(l) “Consultant”
means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity
as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or
such Related Entity.
(m) “Continuous
Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director
or Consultant is not interrupted or terminated. In jurisdictions requiring notice in advance of an effective termination as an
Employee, Director or Consultant, Continuous Service will be deemed terminated upon the actual cessation of providing services
to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an
Employee, Director or Consultant can be effective under Applicable Laws. A Grantee’s Continuous Service will be deemed to
have terminated either upon an actual termination of Continuous Service or upon the entity for which the Grantee provides services
ceasing to be a Related Entity. Continuous Service will not be considered interrupted in the case of (i) any approved leave
of absence, (ii) transfers among the Company, any Related Entity, or any successor in any capacity of Employee, Director or
Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of
absence for purposes of this Plan will include sick leave, military leave, or any other authorized personal leave, so long as the
Company or Related Entity has a reasonable expectation that the individual will return to provide services for the Company or Related
Entity, and provided further that the leave does not exceed six months, unless the individual has a statutory or contractual right
to re-employment following a longer leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds
three months, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock
Option will be treated as a Non-Statutory Stock Option beginning on the day three months and one day following the expiration of
such three month period.
(n) “Corporate
Transaction” means any of the following transactions, provided, however, that the Administrator will determine under
parts (iv) and (v) whether multiple transactions are related, and its determination will be final, binding and conclusive:
(i) a
merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Company is incorporated;
(ii) the
sale, transfer or other disposition of all or substantially all of the assets of the Company;
(iii) the
complete liquidation or dissolution of the Company;
(iv) any
reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer
followed by a reverse merger) in which the Company is the surviving entity but (A) the Shares outstanding immediately prior
to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash
or otherwise, or (B) in which securities possessing more than 50% of the total combined voting power of the Company’s
outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to
such merger or the initial transaction culminating in such merger; or
(v) acquisition
in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored
employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing
more than 50% of the total combined voting power of the Company’s outstanding securities.
(o) “Data”
has the meaning set forth in Section 22 of this Plan.
(p) “Director”
means a member of the Board or the board of directors of any Related Entity.
(q) “Disability”
means a “disability” (or word of like import) as defined under the long-term disability policy of the Company or the
Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company
or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability”
means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of
any medically determinable physical or mental impairment for a period of not less than 90 consecutive days. A Grantee will not
be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator.
(r) “Disqualifying
Disposition” means any disposition (including any sale) of Common Stock received upon exercise of an Incentive Stock
Option before either (i) two years after the date the Employee was granted the Incentive Stock Option, or (ii) one year after the
date the Employee acquired Common Stock by exercising the Incentive Stock Option. If the Employee has died before such stock is
sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.
(s) “Dividend
Equivalent Right” means a right entitling the Grantee to compensation measured by ordinary dividends paid with respect
to Common Stock.
(t) “Effective
Date” means the date on which the Plan is approved by the Company’s stockholders.
(u) “Employee”
means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control
and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance.
The payment of a director’s fee by the Company or a Related Entity will not be sufficient to make such person an “Employee”
of the Company or a Related Entity.
(v) “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
(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 one or more established stock exchanges or national market systems, including without limitation
The NASDAQ Global Select Market, The NASDAQ Global Market, or The NASDAQ Capital Market of The NASDAQ Stock Market LLC, its Fair
Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal
exchange or system on which the Common Stock is listed (as determined by the Administrator) on the date of determination (or, if
no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price
or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If
the Common Stock is regularly quoted on an automated quotation system (including the OTC markets and systems maintained by OTC
Markets Group Inc.) or by a recognized securities dealer, its Fair Market Value will be the closing sales price for such stock
as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the
Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the date of determination
(or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street
Journal or such other source as the Administrator deems reliable; or
(iii) In
the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof
will be determined by the Administrator in good faith by application of a reasonable valuation method consistently applied and
taking into consideration all available information material to the value of the Company in a manner in compliance with Section
409A of the Code, or in the case of an Incentive Stock Option, in a manner in compliance with Section 422 of the Code.
(x) “Grantee”
means an Employee, Director or Consultant who receives an Award under the Plan.
(y) “Incentive
Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422
of the Code.
(z) “Non-Statutory
Stock Option” means an Option not intended to qualify as an Incentive Stock Option.
(aa) “Officer”
means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(bb) “Option”
means an option to purchase one or more Shares pursuant to an Award Agreement granted under the Plan.
(cc) “Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(dd) “Performance Award”
means an Award under the Plan in which the vesting or other realization of the Award by a Grantee is subject to the achievement
of certain performance criteria over the course of a Performance Period, all as determined by the Administrator in accordance with
Section 6(d) below.
(ee) “Performance Period”
means the time period established by the Administrator during which specified performance criteria must be met in connection with
the vesting of an Award as described in Section 6(d) below.
(ff) “Plan” means
this Citius Pharmaceuticals, Inc. 2020 Omnibus Stock Incentive Plan, as the same may be amended from time to time.
(gg) “Post-Termination Exercise
Period” means the period specified in the Award Agreement of not less than 30 days commencing on the date of termination
(other than termination by the Company or any Related Entity for Cause) of the Grantee’s Continuous Service, or such longer
period as may be applicable upon death or Disability.
(hh) “Prior Plan”
means the Company’s 2018 Omnibus Stock Incentive Plan.
(ii) “Related
Entity” means any Parent or Subsidiary of the Company.
(jj) “Restricted Stock”
means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer,
rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.
(kk) “Restricted Stock Units”
means an Award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria established
by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities
as established by the Administrator.
(ll) “Rule 16b-3”
means Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act, as such rule may be amended
from time to time, and includes any successor provisions thereto.
(mm) “SAR” means
a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured
by appreciation in the value of Common Stock.
(nn) “Share”
means a share of the Common Stock.
(oo) “Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(pp) “Tax Obligations”
means all income tax, social insurance, payroll tax, fringe benefits tax, or other tax-related liabilities related to a Grantee’s
participation in the Plan and the receipt of any benefits hereunder, as determined under the Applicable Laws.
3. Stock
Subject to the Plan.
(a) Subject
to adjustment as described in Section 13 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards
is the sum of (i) Three Million (3,000,000) Shares, plus (ii) the number of shares remaining available for grant under the Prior
Plan (up to a maximum of One Hundred Thirty-Five Thousand (135,000) as of the Effective Date. The Shares may be authorized, but
unissued, or reacquired Common Stock.
(b) Any
Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily)
will be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under
the Plan, except that the maximum aggregate number of Shares which may be issued pursuant to the exercise of Incentive Stock Options
will not exceed the number specified in Section 3(a). After the Effective Date, any Shares covered by an award made under the Prior
Plan (or portion of a Prior Plan award) which is forfeited, canceled or expires (whether voluntarily or involuntarily), will be
added to the maximum aggregate number of Shares which may be issued under the Plan. The maximum aggregate number of Shares which
may be issued pursuant to the exercise of Incentive Stock Options is the number specified in Section 3(a). Shares that actually
have been issued under the Plan pursuant to an Award will not be returned to the Plan and will not become available for future
issuance under the Plan, except that if unvested Shares are forfeited or repurchased by the Company, such Shares will become available
for future grant under the Plan.
(c) In
the event any Option or other Award granted under the Plan is exercised through the tendering of Shares (either actually or through
attestation), or in the event tax withholding obligations are satisfied by tendering or withholding Shares, any Shares so tendered
or withheld will not again be available for Awards under the Plan. To the extent that cash is delivered in lieu of Shares upon
the exercise of an SAR pursuant to Section 6(m), the Company will be deemed, for purposes of applying the limitation on the number
of shares, to have issued the total number of Shares subject to such SAR. Shares reacquired by the Company on the open market or
otherwise using cash proceeds from the exercise of Options will not be available for Awards under the Plan.
4. Administration
of the Plan.
(a) Plan
Administrator.
(i) Administration
with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or
Directors of the Company, the Plan will be administered by (A) the Board or (B) a Committee designated by the Board,
which Committee will be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions
under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee
will continue to serve in its designated capacity until otherwise directed by the Board.
(ii) Administration
With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan will be administered by (A) the Board or (B) a Committee designated by the Board,
which Committee will be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee will continue
to serve in its designated capacity until otherwise directed by the Board.
(b) Multiple
Administrative Bodies. The Plan may be administered by different bodies with respect to Directors, Officers, Consultants, and
Employees who are neither Directors nor Officers.
(c) Powers
of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator will have the authority, in its discretion:
(i) to
select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;
(ii) to
determine whether and to what extent Awards are granted hereunder;
(iii) to
determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
(iv) to
approve forms of Award Agreements for use under the Plan;
(v) to
determine the type, terms and conditions of any Award granted hereunder;
(vi) to
establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable non-U.S. jurisdictions
and to afford Grantees favorable treatment under such rules or laws; provided, however, that no Award will be granted under any
such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the
Plan;
(vii) to
amend the terms of any outstanding Award granted under the Plan, subject to Section 16(a)(v) below; provided that any amendment
that would materially adversely affect the Grantee’s rights under an outstanding Award will not be made without the Grantee’s
written consent; provided, however, that an amendment or modification that may cause an Incentive Stock Option to become a Non-Statutory
Stock Option will not be treated as adversely affecting the rights of the Grantee;
(viii) to
construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement,
granted pursuant to the Plan;
(ix) to
make other determinations as provided in this Plan; and
(x) to
take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
The express grant in the Plan of any specific
power to the Administrator will not be construed as limiting any power or authority of the Administrator; provided that the Administrator
may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Administrator or in connection
with the administration of this Plan will be final, conclusive and binding on all persons having an interest in the Plan.
(d) Indemnification.
In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the
Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority
to act for the Board, the Administrator or the Company is delegated will be defended and indemnified by the Company to the extent
permitted by law on an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily
incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with
the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement
is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding,
except in relation to such liabilities, costs, and expenses as may arise out of, or result from, the bad faith, gross negligence,
willful misconduct, or criminal acts of such persons; provided, however, that within 30 days after the institution of such claim,
investigation, action, suit or proceeding, such person will offer to the Company, in writing, the opportunity at the Company’s
expense to defend the same.
5. Eligibility.
Awards other than Incentive Stock Options may be granted to Employees, Directors, and Consultants of the Company and any Related
Entity. Incentive Stock Options may be granted only to Employees of the Company or a Related Entity. An Employee, Director, or
Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such
Employees, Directors, or Consultants who are residing in non-U.S. jurisdictions as the Administrator may determine from time to
time.
6. Terms
and Conditions of Awards.
(a) Types
of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares,
(ii) cash or (iii) an Option, an SAR, or similar right with a fixed or variable price related to the Fair Market Value
of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events,
or the satisfaction of performance criteria or other conditions. Such awards include, without limitation, Options, SARs, Restricted
Stock, Restricted Stock Units, Dividend Equivalent Rights, and Performance Awards. An Award may consist of one such security or
benefit, or two or more of them in any combination or alternative.
(b) Designation
of Award. Each Award will be evidenced by an Award Agreement in form and substance satisfactory to the Administrator. The type
of each Award will be designated in the Award Agreement. In the case of an Option, the Option will be designated as either an Incentive
Stock Option or a Non-Statutory Stock Option. However, notwithstanding such designation, an Option will qualify as an Incentive
Stock Option under the Code only to the extent the $100,000 limitation of Section 422(d) of the Code is not exceeded. The
$100,000 limitation of Section 422(d) of the Code is calculated based on the aggregate Fair Market Value of the Shares subject
to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Related Entity). For purposes of this calculation, Incentive Stock Options will be taken
into account in the order in which they were granted, and the Fair Market Value of the Shares will be determined as of the grant
date of the relevant Option. Any Option granted which fails to satisfy the requirements of the Applicable Laws for treatment as
an Incentive Stock Option will be a Non-Statutory Stock Option.
(c) Conditions
of Award. Subject to the terms of the Plan, the Administrator will determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions,
form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of
any performance criteria that may be established by the Administrator.
(d) Performance
Awards. The Administrator may issue Performance Awards under the Plan in accordance with this Section 6(d).
(i) The
performance criteria for any Performance Awards will be established by the Administrator and may include, but are not limited to,
any one of, or combination of, the following criteria:
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(A)
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Net earnings or net income (before or after taxes);
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(D)
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Net operating profit;
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(E)
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Return measures (including, but not limited to, return on assets, capital, equity, or sales);
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(F)
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Cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
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(H)
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Earnings before or after taxes, interest, depreciation, and/or amortization;
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(I)
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Gross or operating margins;
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(K)
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Share price (including, but not limited to, growth measures and total stockholder return);
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(L)
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Expense targets or ratios;
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(N)
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Improvement in or attainment of revenue levels;
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(P)
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Operating efficiency;
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(R)
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Economic value added;
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(S)
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Improvement in or attainment of expense levels;
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(T)
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Improvement in or attainment of working capital levels;
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(W)
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Regulatory, clinical, or manufacturing milestones; and
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(X)
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Consummation of acquisitions, dispositions, projects or other specific events or transactions.
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(ii) Performance
criteria may be measured on an absolute (e.g., plan or budget) or relative basis, and may be established on a corporate-wide basis
or with respect to one or more business units, divisions, subsidiaries or business segments, or may be established on an individual
basis. Relative performance may be measured against a group of peer companies, a financial market index or other acceptable objective
and quantifiable indices. If the Administrator determines that a change in the business, operations, corporate structure or capital
structure of the Company, or the manner in which the Company conducts its business, or other events or circumstances render the
performance objectives unsuitable, the Administrator may modify the minimum acceptable level of achievement, in whole or in part,
as the Administrator deems appropriate and equitable. Performance objectives may be adjusted for material items not originally
contemplated in establishing the performance target for items resulting from discontinued operations, extraordinary gains and losses,
the effect of changes in accounting standards or principles, acquisitions or divestitures, changes in tax rules or regulations,
capital transactions, restructuring, nonrecurring gains or losses or unusual items. Performance measures may vary from Performance
Award to Performance Award, and from Grantee to Grantee, and may be established on a stand-alone basis, in tandem or in the alternative.
The Administrator will have the authority to impose such other restrictions on as it may deem necessary or appropriate to ensure
that Performance Awards satisfy all requirements of any applicable law, stock market or exchange rules and regulations, and accounting
or tax rules and regulations.
(iii) The
Administrator will determine the duration of the Performance Period, the performance criteria on which performance will be measured,
and the amount and terms of payment/vesting upon achievement of the such criteria.
(iv) Following
the completion of each Performance Period, the Administrator will certify in writing whether the applicable performance criteria
have been achieved for the Performance Awards for such Performance Period. In determining the amounts earned by a Grantee pursuant
to an Award issued pursuant to this Section 6(d), the Administrator will have the right to (A) adjust the amount payable at a given
level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual
or corporate performance for the Performance Period, (B) determine what actual Award, if any, will be paid in the event of a Corporate
Transaction or in the event of a termination of employment following a Corporate Transaction prior to the end of the Performance
Period, and (C) determine what actual Award, if any, will be paid in the event of a termination of employment other than as the
result of a Grantee’s death or Disability prior to a Corporate Transaction and prior to the end of the Performance Period.
(v) Unless
otherwise determined by the Administrator, payment of the Award to a Grantee will be paid following the end of the Performance
Period, or if later, the date on which any applicable contingency or restriction has ended.
(e) Acquisitions
and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding
awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest
in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form
of transaction.
(f) Deferral
of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that
absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator
may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or
other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures
that the Administrator deems advisable for the administration of any such deferral program.
(g) Separate
Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to
time.
(h) Non-Employee
Director Award Limits. The maximum number of Shares subject to Awards granted during a single fiscal year to any non-employee
Director, taken together with any cash fees paid during the fiscal year to the non-employee Director, in respect of the Director’s
service as a member of the Board during such year (including service as a member or chair of any committees of the Board), will
not exceed $2,000,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards
for financial reporting purposes). The independent members of the Board may make exceptions to this limit for a non-executive chair
of the Board, provided that the non-employee Director receiving such additional compensation may not participate in the decision
to award such compensation.
(i) Early
Exercise. An Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received
pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction
the Administrator determines to be appropriate.
(j) Term
of Award. The term of each Award will be the term stated in the Award Agreement, provided, however, that the term will be no
more than 10 years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who,
at the time the Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company
or any Related Entity, the term of the Incentive Stock Option will be five years from the date of grant thereof or such shorter
term as may be provided in the Award Agreement. Notwithstanding the foregoing, the specified term of any Award will not include
any period for which the Grantee has elected to defer the receipt of the Shares or cash issuable pursuant to the Award.
(k) Transferability
of Awards. Unless the Administrator provides otherwise, no Award may be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime
of the Grantee, only by the Grantee. Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the
Grantee’s Award in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.
(l) Time
of Granting Awards. The date of grant of an Award will for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other later date as is determined by the Administrator.
(m) Stock
Appreciation Rights. An SAR may be granted (i) with respect to any Option granted under this Plan, either concurrently with
the grant of such Option or at such later time as determined by the Administrator (as to all or any portion of the Shares subject
to the Option), or (ii) alone, without reference to any related Option. Each SAR granted by the Administrator under this Plan will
be subject to the following terms and conditions. Each SAR granted to any Grantee will relate to such number of Shares as determined
by the Administrator, subject to adjustment as provided in Section 13. In the case of an SAR granted with respect to an Option,
the number of Shares to which the SAR pertains will be reduced in the same proportion that the holder of the Option exercises the
related Option. The exercise price of an SAR will be determined by the Administrator at the date of grant but may not be less than
100% of the Fair Market Value of the Shares subject thereto on the date of grant. Subject to the right of the Administrator to
deliver cash in lieu of Shares (which, as it pertains to Officers and Directors of the Company, will comply with all applicable
requirements of the Exchange Act), the number of Shares which will be issuable upon the exercise of an SAR will be determined by
dividing:
(i) the
number of Shares as to which the SAR is exercised multiplied by the amount of the appreciation in such Shares (for this purpose,
the “appreciation” will be the amount by which the Fair Market Value of the Shares subject to the SAR on the exercise
date exceeds (A) in the case of an SAR related to an Option, the exercise price of the Shares under the Option or (B) in the case
of an SAR granted alone, without reference to a related Option, an amount which will be determined by the Administrator at the
time of grant, subject to adjustment under Section 13); by
(ii) the
Fair Market Value of a Share on the exercise date.
In lieu of issuing Shares upon the exercise of an SAR, the Administrator
may elect to pay the holder of the SAR cash equal to the Fair Market Value on the exercise date of any or all of the Shares which
would otherwise be issuable. No fractional Shares will be issued upon the exercise of an SAR; instead, the holder of the SAR will
be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a Share on the exercise date or
to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise. The exercise of an SAR
related to an Option will be permitted only to the extent that the Option is exercisable under Section 11 on the date of surrender.
Any Incentive Stock Option surrendered pursuant to the provisions of this Section 6(m) will be deemed to have been converted into
a Non-Statutory Stock Option immediately prior to such surrender.
7. Award
Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise
or Purchase Price. The exercise or purchase price, if any, for an Award will be as follows.
(i) In
the case of an Incentive Stock Option:
(1) granted
to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than 10% of the voting
power of all classes of stock of the Company or any Related Entity, the per Share exercise price will be not less than 110% of
the Fair Market Value per Share on the date of grant; or
(2) granted
to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price will be not less than
100% of the Fair Market Value per Share on the date of grant.
(ii) In
the case of a Non-Statutory Stock Option, the per Share exercise price will be not less than 100% of the Fair Market Value per
Share on the date of grant.
(iii) In
the case of other Awards, such price as is determined by the Administrator.
(iv) Notwithstanding
the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(e), above, the exercise
or purchase price for the Award will be determined in accordance with the provisions of the relevant instrument evidencing the
agreement to issue such Award.
(b) Consideration.
Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award, including
the method of payment, will be determined by the Administrator. In addition to any other types of consideration the Administrator
may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following:
(i) cash;
(ii) check;
(iii) surrender
of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require which
have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which
said Award will be exercised;
(iv) with
respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) provides written
instructions to a broker-dealer acceptable to the Company to effect the immediate sale of some or all of the purchased Shares and
remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) provides written
directives to the Company to deliver the certificates (or other evidence satisfactory to the Company to the extent that the Shares
are uncertificated) for the purchased Shares directly to such broker-dealer in order to complete the sale transaction;
(v) with
respect to Options, payment through a “net exercise” such that, without the payment of any funds, the Grantee may exercise
the Option and receive the net number of Shares equal to (i) the number of Shares as to which the Option is being exercised,
multiplied by (ii) a fraction, the numerator of which is the Fair Market Value per Share (on such date as is determined by
the Administrator) less the Exercise Price per Share, and the denominator of which is such Fair Market Value per Share; or
(vi) any
combination of the foregoing methods of payment.
The Administrator may at any time or from
time to time, by adoption of or by amendment to the standard forms of Award Agreement described in Section 4(c)(iv), or by
other means, grant Awards which do not permit all of the foregoing forms of consideration to be used in payment for the Shares
or which otherwise restrict one or more forms of consideration.
8. Notice
to Company of Disqualifying Disposition. Each Employee who receives an Incentive Stock Option must agree to notify the Company
in writing immediately after the Employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise
of an Incentive Stock Option.
9. Tax
Withholding.
(a) Prior
to the delivery of any Shares or cash pursuant to an Award (or the exercise thereof), or at such other time as the Tax Obligations
are due, the Company, in accordance with the Code and any Applicable Laws, will have the power and the right to deduct or withhold,
or require a Grantee to remit to the Company, an amount sufficient to satisfy all Tax Obligations. The Administrator may condition
such delivery, payment, or other event pursuant to an Award on the payment by the Grantee of any such Tax Obligations.
(b) The
Administrator, pursuant to such procedures as it may specify from time to time, may designate the method or methods by which a
Grantee may satisfy the Tax Obligations. As determined by the Administrator from time to time, these methods may include one or
more of the following:
(i) paying
cash;
(ii) electing
to have the Company withhold cash or Shares deliverable to the Grantee having a Fair Market Value equal to the amount required
to be withheld;
(iii) delivering
to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld or remitted, provided
the delivery of such Shares will not result in any adverse accounting consequences as the Administrator determines;
(iv) selling
a sufficient number of Shares otherwise deliverable to the Grantee through such means as the Administrator may determine (whether
through a broker or otherwise) equal to the Tax Obligations required to be withheld;
(v) retaining
from salary or other amounts payable to the Grantee cash having a sufficient value to satisfy the Tax Obligations; or
(vi) any
other means which the Administrator determines to both comply with Applicable Laws, and to be consistent with the purposes of the
Plan.
The amount of Tax Obligations will be deemed to include any
amount that the Administrator determines may be withheld at the time the election is made, not to exceed the amount determined
by using the maximum federal, state, local and foreign marginal income tax rates applicable to the Grantee or the Company, as applicable,
with respect to the Award on the date that the amount of tax or social insurance liability to be withheld or remitted is to be
determined. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the Tax Obligations
are required to be withheld.
10. Rights
As a Stockholder.
(a) Restricted
Stock. Except as otherwise provided in any Award Agreement, a Grantee will not have any rights of a stockholder with respect
any of the Shares granted to the Grantee under an Award of Restricted Stock (including the right to vote or receive dividends and
other distributions paid or made with respect thereto). No dividends or Dividend Equivalent Rights will be paid in respect of any
unvested Award, unless and until such Shares vest.
(b) Other
Awards. In the case of Awards other than Restricted Stock, a Grantee will not have any rights of a stockholder, nor will dividends
or Dividend Equivalent Rights accrue or be paid, with respect any of the Shares granted pursuant to such Award until the Award
is exercised or settled and the Shares are delivered (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company).
11. Exercise
of Award.
(a) Procedure
for Exercise.
(i) Any
Award granted hereunder will be exercisable at such times and under such conditions as determined by the Administrator under the
terms of the Plan and as specified in the Award Agreement.
(ii) An
Award will be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award
is exercised has been made, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the
purchase price as provided in Section 7(b)(iv).
(b) Exercise
of Award Following Termination of Continuous Service. In the event of termination of a Grantee’s Continuous Service for
any reason other than Disability or death, such Grantee may, but only during the Post-Termination Exercise Period (but in no event
later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise the portion of the Grantee’s
Award that was vested at the date of such termination or such other portion of the Grantee’s Award as may be determined by
the Administrator. The Grantee’s Award Agreement may provide that upon the termination of the Grantee’s Continuous
Service for Cause, the Grantee’s right to exercise the Award will terminate concurrently with the termination of Grantee’s
Continuous Service. In the event of a Grantee’s change of status from Employee to Consultant, an Employee’s Incentive
Stock Option will convert automatically to a Non-Statutory Stock Option on the day three months and one day following such change
of status. To the extent that the Grantee’s Award was unvested at the date of termination, or if the Grantee does not exercise
the vested portion of the Grantee’s Award within the Post-Termination Exercise Period, the Award will terminate.
(c) Disability
of Grantee. In the event of termination of a Grantee’s Continuous Service as a result of his or her Disability, such
Grantee may, but only within 12 months from the date of such termination (or such longer period as specified in the Award Agreement
but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise the portion
of the Grantee’s Award that was vested at the date of such termination; provided, however, that if such Disability is not
a “disability” as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option
such Incentive Stock Option will automatically convert to a Non-Statutory Stock Option on the day three months and one day following
such termination. To the extent that the Grantee’s Award was unvested at the date of termination, or if Grantee does not
exercise the vested portion of the Grantee’s Award within the time specified herein, the Award will terminate.
(d) Death
of Grantee. In the event of a termination of the Grantee’s Continuous Service as a result of his or her death, or in
the event of the death of the Grantee during the Post-Termination Exercise Period or during the 12-month period following the Grantee’s
termination of Continuous Service as a result of his or her Disability, the Grantee’s estate or a person who acquired the
right to exercise the Award by bequest or inheritance may exercise the portion of the Grantee’s Award that was vested as
of the date of termination, within 12 months from the date of death (or such longer period as specified in the Award Agreement
but in no event later than the expiration of the term of such Award as set forth in the Award Agreement). To the extent that, at
the time of death, the Grantee’s Award was unvested, or if the Grantee’s estate or a person who acquired the right
to exercise the Award by bequest or inheritance does not exercise the vested portion of the Grantee’s Award within the time
specified herein, the Award will terminate.
(e) Extension
if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of an Award within the applicable time periods
set forth in this Section 11 is prevented by the provisions of Section 12 below, the Award will remain exercisable until
30 days after the date the Grantee is notified by the Company that the Award is exercisable, but in any event no later than 30
days immediately following the expiration of the term of such Award as set forth in the Award Agreement.
12. Conditions
Upon Issuance of Shares; Manner of Issuance of Shares.
(a) If
at any time the Administrator determines that the delivery of Shares pursuant to the exercise, vesting or any other provision of
an Award is or may be unlawful under Applicable Laws, the vesting or right to exercise an Award or to otherwise receive Shares
pursuant to the terms of an Award will be suspended until the Administrator determines that such delivery is lawful and will be
further subject to the approval of counsel for the Company with respect to such compliance. The Company will have no obligation
to effect any registration or qualification of the Shares under any Applicable Law.
(b) As
a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the
time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
(c) Subject
to the Applicable Laws and any governing rules or regulations, the Company will issue or cause to be issued the Shares acquired
pursuant to an Award and will deliver such Shares to or for the benefit of the Grantee by means of one or more of the following
as determined by the Administrator: (i) by delivering to the Grantee evidence of book entry Shares credited to the account of the
Grantee, (ii) by depositing such Shares for the benefit of the Grantee with any broker with which the Grantee has an account relationship,
or (iii) by delivering such Shares to the Grantee in certificate form.
(d) No
fractional Shares will be issued pursuant to any Award under the Plan; any Grantee who would otherwise be entitled to receive a
fraction of a Share upon exercise or vesting of an Award will receive from the Company cash in lieu of such fractional Shares in
an amount equal to the Fair Market Value of such fractional Shares, as determined by the Administrator.
13. Adjustments.
Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and
the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, as well as any other terms
that the Administrator determines require adjustment will be proportionately adjusted for (i) any increase or decrease in
the number of issued and outstanding Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification
of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued and
outstanding Shares effected without receipt of consideration by the Company, or (iii) any other transaction with respect to
the Company’s Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including
a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar
transaction; provided, however that conversion of any convertible securities of the Company will not be deemed to have been “effected
without receipt of consideration.” Such adjustment will be made by the Administrator and its determination will be final,
binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, will affect, and no adjustment by reason hereof will be made with respect
to, the number or price of Shares subject to an Award.
14. Corporate
Transactions.
(a) Unless
otherwise set forth in an Award Agreement, if a Corporate Transaction occurs and Grantees’ Awards remain outstanding after
the Corporate Transaction (or are assumed by, or converted to similar awards with equivalent value as of the date of the Corporate
Transaction of, the surviving corporation (or a parent or subsidiary of the surviving corporation)), and the Grantee incurs an
involuntary separation from service by the Company or a Related Entity or successor other than for Cause during a period specified
by the Committee, (i) all outstanding Options and SARs will automatically accelerate and become fully exercisable, (ii) any restrictions
and conditions on outstanding Restricted Stock will immediately lapse, and (iii) Awards of Restricted Stock Units or of other rights
or benefits will become payable. In such event, Performance Awards that are based on performance goals will vest and be payable
as determined by the Committee.
(b) Unless
otherwise set forth in an Award Agreement, if a Corporate Transaction occurs and Grantees’ Awards do not remain outstanding
after the Corporate Transaction (and are not assumed by, or converted to similar awards with equivalent value as of the date of
the Corporate Transaction of, the surviving corporation (or a parent or subsidiary of the surviving corporation)), (i) all outstanding
Options and SARs will immediately vest and become exercisable, (ii) any restrictions on Restricted Stock will immediately lapse,
and (iii) Awards of Restricted Stock Units or of other rights or benefits will become payable as of the date of the Corporate Transaction.
In that event, Performance Awards that are based on performance goals will vest and be payable as determined by the Committee.
(c) Notwithstanding
the foregoing, the Committee may establish such other terms and conditions relating to the effect of a Corporate Transaction on
Awards as the Committee deems appropriate. In addition to other actions, in the event of a Corporate Transaction, the Committee
may take any one or more of the following actions with respect to any or all outstanding Awards, without the consent of any Grantee:
(i) the Committee may determine that outstanding Awards will be assumed by, or replaced with awards that have comparable terms
by, the surviving corporation (or a parent or subsidiary of the surviving corporation); (ii) the Committee may determine that outstanding
Options and SARs will automatically accelerate and become fully exercisable, and the restrictions and conditions on outstanding
Restricted Stock will immediately lapse; (iii) the Committee may determine that Grantees will receive a payment in settlement of
outstanding Awards of Restricted Stock Units or of other rights or benefits, in such amount and form as may be determined by the
Committee; (iv) the Committee may require that Grantees surrender their outstanding Options and SARs in exchange for a payment
by the Company, in cash or Shares as determined by the Committee, in an amount equal to the amount, if any, by which the then Fair
Market Value of the Shares subject to the Grantee’s unexercised Options and SARs exceeds the exercise price, and (v) after
giving Grantees an opportunity to exercise all of their outstanding Options and SARs, the Committee may terminate any or all unexercised
Options and SARs at such time as the Committee deems appropriate. Such surrender, termination or payment will take place as of
the date of the Corporate Transaction or such other date as the Committee may specify. Without limiting the foregoing, if the per
share Fair Market Value of the Shares does not exceed the per share exercise price of a given Award, the Company will not be required
to make any payment to the Grantee upon surrender of the Option or SAR. Any acceleration, surrender, termination, settlement or
conversion will take place as of the date of the Corporate Transaction or such other date as the Committee may specify.
(d) Any
Incentive Stock Option accelerated under this Section 14 in connection with a Corporate Transaction will remain exercisable
as an Incentive Stock Option under the Code only to the extent the $100,000 limitation of Section 422(d) of the Code is not
exceeded.
15. Effective
Date and Term of Plan. The Plan will become effective upon the Effective Date, and will continue in effect for a term of 10
years from the Effective Date unless sooner terminated by the Board. Termination of the Plan will not affect the terms or conditions
of any Award granted prior to such termination. Awards hereunder may be made at any time prior to the termination of the Plan,
except that no Incentive Stock Options will be granted after the tenth anniversary of the date on which the Plan was adopted by
the Board.
16. Amendment,
Suspension or Termination of the Plan.
(a) The
Board may at any time amend, suspend or terminate the Plan in any respect, except that it may not, without the approval of the
stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions,
do any of the following:
(i) increase
the total number of shares that may be issued under the Plan (except by adjustment pursuant to Section 13);
(ii) modify
the provisions of Section 6 regarding eligibility for grants of Incentive Stock Options;
(iii) modify
the provisions of Section 7(a) regarding the exercise price at which shares may be offered pursuant to Options (except by adjustment
pursuant to Section 13);
(iv) extend
the expiration date of the Plan; and
(v) other
than pursuant to Section 13 or in connection with a Corporate Transaction, the Administrator will not, without the approval of
the Company’s stockholders, (a) lower the exercise price of an Option or SAR, (b) cancel an Option or SAR when the exercise
price per Share exceeds the Fair Market Value of a Share in exchange for cash or another Award, or (c) take any other action with
respect to an Option or SAR that would be treated as a repricing under the rules and regulations of the principal U.S. national
securities exchange on which the Shares are listed.
(b) No
Award may be granted during any suspension of the Plan or after termination of the Plan.
(c) No
suspension or termination of the Plan will materially adversely affect any rights under Awards already granted to a Grantee without
his or her consent.
17. Reservation
of Shares.
(a) The
Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as are sufficient to satisfy
the requirements of the Plan.
(b) The
inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s
counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority has not been obtained.
18. No
Effect on Terms of Employment/Consulting Relationship. The Plan will not confer upon any Grantee any right with respect to
the Grantee’s Continuous Service, nor will it interfere in any way with his or her right or the right of the Company or a
Related Entity to terminate the Grantee’s Continuous Service at any time, with or without Cause, and with or without notice.
The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way
affected by its determination that the Grantee’s Continuous Service has been terminated for Cause for the purposes of this
Plan.
19. No
Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the
Company or a Related Entity, Awards will not be deemed compensation for purposes of computing benefits or contributions under any
retirement plan of the Company or a Related Entity, and will not affect any benefits under any other benefit plan of any kind or
any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation.
The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act
of 1974, as amended.
20. Information
to Grantees. The Company will provide to each Grantee, during the period for which such Grantee has one or more Awards outstanding,
such information as required by Applicable Laws.
21. Electronic
Delivery. The Administrator may decide to deliver any documents related to any Award granted under the Plan through an online
or electronic system established and maintained by the Company or another third party designated by the Company or to request a
Grantee’s consent to participate in the Plan by electronic means. By accepting an Award, each Grantee consents to receive
such documents by electronic delivery and agrees to participate in the Plan through an online or electronic system established
and maintained by the Company or another third party designated by the Company, and such consent will remain in effect throughout
Grantee’s Continuous Service with the Company and any Related Entity and thereafter until withdrawn in writing by Grantee.
22. Data
Privacy. The Administrator may decide to collect, use and transfer, in electronic or other form, personal data as described
in this Plan or any Award for the exclusive purpose of implementing, administering and managing participation in the Plan. By accepting
an Award, each Grantee acknowledges that the Company holds certain personal information about Grantee, including, but not limited
to, name, home address and telephone number, date of birth, social security number or other identification number, salary, nationality,
job title, details of all Awards awarded, cancelled, exercised, vested or unvested, for the purpose of implementing, administering
and managing the Plan (the “Data”). Each Grantee further acknowledges that Data may be transferred to
any third parties assisting in the implementation, administration and management of the Plan and that these third parties may be
located in jurisdictions that may have different data privacy laws and protections, and Grantee authorizes such third parties to
receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering
and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom
the recipient or the Company may elect to deposit any Shares acquired upon any Award.
23. Compliance
with Section 409A. This Plan and Awards granted hereunder are intended to comply with the requirements of Section 409A of the
Code, to the extent applicable. All Awards will be construed and administered such that the Award either (i) qualifies for an exemption
from the requirements of Section 409A or (ii) satisfies the requirements of Section 409A. If an Award is subject to Section 409A,
unless the Award Agreement specifically provides otherwise: (i) distributions will only be made in a manner and upon an event permitted
under Section 409A, (ii) payments to be made upon a termination of employment will only be made upon a “separation from service”
under Section 409A, (iii) payments to be made upon a Corporate Transaction will only be made upon a “change of control event”
under Section 409A, and (iv) in no event will a Grantee, directly or indirectly, designate the calendar year in which a distribution
is made, except in accordance with Section 409A. Each payment in any series of installment payments under an Award will be treated
as a separate payment for purposes of Section 409A. Any Award granted under this Plan that is subject to Section 409A and that
is to be distributed to a “specified employee” (as defined in Section 409A) upon a separation from service will be
administered so that any distribution with respect to such Award will be postponed for six months following the date of the Grantee’s
separation from service, if required by Section 409A. If a distribution is delayed pursuant to Section 409A, the distribution will
be paid within 30 days after the end of the six-month period or the Grantee’s death, if earlier. Notwithstanding any provision
of the Plan to the contrary, in the event that following the Effective Date the Administrator determines that any Award may be
subject to Section 409A, the Administrator may adopt such amendments to the Plan and the applicable Award Agreement or adopt other
policies and procedures, or take any other actions, that the Administrator determines are necessary or appropriate to (A) exempt
the Award from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (B)
comply with the requirements of Section 409A. Notwithstanding anything in the Plan or any Award Agreement to the contrary, each
Grantee will be solely responsible for the tax consequences of Awards, and in no event will the Company have any responsibility
or liability if an Award does not meet any applicable requirements of Section 409A. Although the Company intends to administer
the Plan to prevent taxation under Section 409A, the Company does not represent or warrant that the Plan or any Award complies
with any provision of federal, state, local or other tax law.
24. Unfunded
Obligation. Grantees will have the status of general unsecured creditors of the Company. Any amounts payable to Grantees pursuant
to the Plan will be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee
Retirement Income Security Act of 1974, as amended. Neither the Company nor any Related Entity will be required to segregate any
monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The
Company will retain at all times beneficial ownership of any investments, including trust investments, which the Company may make
to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Grantee account
will not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Related Entity and
a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets
of the Company or a Related Entity. The Grantees will have no claim against the Company or any Related Entity for any changes in
the value of any assets that may be invested or reinvested by the Company with respect to the Plan.
25. Clawback/Repayment.
All Awards will be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) any
applicable clawback, forfeiture or other similar policy adopted by the Board and as in effect from time to time; and (ii) applicable
law. Further, to the extent that the Grantee receives any amount in excess of the amount that the Grantee should otherwise have
received under the terms of the Award for any reason (including, without limitation, by reason of a financial restatement, mistake
in calculations or other administrative error), the Grantee may be required to repay any such excess amount to the Company.
26. Construction.
Captions and titles contained herein are for convenience only and will not affect the meaning or interpretation of any provision
of the Plan. Except when otherwise indicated by the context, the singular will include the plural and the plural will include the
singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
DIRECTIONS
TO CITIUS PHARMACEUTICALS, INC.
2020
ANNUAL MEETING AT
11
COMMERCE DRIVE, FIRST FLOOR
CRANFORD,
NEW JERSEY 07016
From
New York City:
Any
Hudson River Crossing to the New Jersey Turnpike South to Route 78 West. From Route 78 West take Exit 52, the Garden State Parkway
South to Exit 136 (Linden, Roselle, and Winfield Park). Follow to Centennial Avenue and then Commerce Drive. 11 Commerce Drive
is marked accordingly.
From
North of Newark:
Take
the Garden State Parkway South to Exit 136 (Linden, Roselle, and Winfield Park). Follow to Centennial Avenue and then Commerce
Drive. 11 Commerce Drive is marked accordingly.
From
South of Newark:
Take
the Garden State Parkway North to Exit 136 (Linden, Roselle, and Winfield Park). Follow to Centennial Avenue and then Commerce
Drive. 11 Commerce Drive is marked accordingly.
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