asmb-def14a_20220525.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant

Filed by a party other than the Registrant

 

CHECK THE APPROPRIATE BOX:

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under to § 240.14a‑12

Assembly Biosciences, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

 

PAYMENT OF FILING FEE (CHECK ALL BOXES THAT APPLY):

No fee required

Fee paid previously with preliminary materials

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6 and 0-11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

ASSEMBLY BIOSCIENCES, INC.
331 Oyster Point Blvd., Fourth Floor
South San Francisco, California 94080

NOTICE OF 2022 ANNUAL MEETING OF STOCKHOLDERS
To Be Held Wednesday, May 25, 2022

April 12, 2022

Dear Stockholders:

You are cordially invited to attend the 2022 Annual Meeting of Stockholders (the Annual Meeting) of Assembly Biosciences, Inc., a Delaware corporation (we, us, Assembly or the Company). The Annual Meeting will be held on Wednesday, May 25, 2022 at 8:00 a.m. Pacific Daylight Time (PDT) solely by remote communication (i.e., a virtual-only stockholder meeting) at www.virtualshareholdermeeting.com/ASMB2022 to protect the safety, health and well-being of our stockholders, directors, employees and the public during the ongoing COVID-19 pandemic. The meeting will be held for the following purposes:

 

1.

To elect the eight nominees named in the attached proxy statement to our Board of Directors (the Board);

 

2.

To approve, on a non-binding advisory basis, our named executive officers’ compensation, as disclosed in the proxy statement accompanying this notice;

 

3.

To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022;

 

4.

To approve an amendment to the Assembly Biosciences, Inc. 2018 Stock Incentive Plan to increase the number of shares reserved for issuance thereunder by 2,000,000 shares;

 

5.

To amend and restate our Fifth Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 150,000,000;

 

6.

To approve a stock option exchange program for non-executive employees; and

 

7.

To vote on such other matters that may properly come before the meeting and any adjournment or postponement thereof.

These matters are more fully described in the proxy statement accompanying this notice.

Our Board of Directors has fixed the close of business on March 28, 2022 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof. See the attached proxy statement for information on how to attend the virtual Annual Meeting and vote during the meeting.

To ensure your representation at the Annual Meeting, you are requested to submit your vote as instructed in the Notice of Internet Availability of Proxy Materials that will be sent to you. You may also request a paper proxy card at any time on or before May 11, 2022 to submit your vote by mail. If you attend and vote at the Annual Meeting your proxy will not be used.


 


 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held solely by remote communication at www.virtualshareholdermeeting.com/ASMB2022 on Wednesday, May 25, 2022
at 8:00 a.m. PDT.

The proxy statement and the Annual Report for the fiscal year ended December 31, 2021
are available at:  www.proxyvote.com.

For information regarding how to inspect the list of registered stockholders entitled to vote at the Annual Meeting, see “Questions and Answers About These Proxy Materials and Voting” in the accompanying proxy statement.

We hope that you will attend the virtual Annual Meeting, and we very much appreciate your continuing interest in our Company.

By Order of the Board of Directors,

 

 

John G. McHutchison, A.O., M.D.
Chief Executive Officer and President

 

You are cordially invited to attend the Annual Meeting by remote communication. Whether or not you expect to attend the Annual Meeting, please vote over the Internet using your 16-digit control number as instructed in your Notice of Internet Availability of Proxy Materials or proxy card or vote by mail by requesting a printed copy of the proxy card. Even if you have voted by proxy, you may still vote at the Annual Meeting if you attend by remote communication. Please note, however, that if you hold your shares through a broker or nominee and you wish to vote at the Annual Meeting, you must obtain your control number from your broker or nominee to vote.

 

 


 

 

 

ASSEMBLY BIOSCIENCES, INC.
331 Oyster Point Blvd., Fourth Floor
South San Francisco, California 94080

PROXY STATEMENT
FOR THE 2022 ANNUAL MEETING OF STOCKHOLDERS

MAY 25, 2022

INFORMATION CONCERNING SOLICITATION AND VOTING

The Board of Directors (the Board) of Assembly Biosciences, Inc., a Delaware corporation (we, us, Assembly or the Company), is soliciting your proxy to vote at the 2022 Annual Meeting of Stockholders (the Annual Meeting) to be held on Wednesday, May 25, 2022 at 8:00 a.m. Pacific Daylight Time (PDT) solely by remote communication (i.e., a virtual-only stockholder meeting) at www.virtualshareholdermeeting.com/ASMB2022 to protect the safety, health and well-being of our stockholders, directors, employees and the public during the ongoing COVID-19 pandemic. Any adjournments or postponements of the meeting also will be held by remote communication at the same location.

You are invited to attend the Annual Meeting to vote on the proposals described in this proxy statement. 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 (the Proxy Availability Notice) described below to submit your proxy through the Internet, or you may vote by mail by using the proxy card provided or requesting a printed copy of the proxy card.

We sent the Proxy Availability Notice on or about April 12, 2022 to our stockholders of record and beneficial owners as of March 28, 2022, the record date for the Annual Meeting. The proxy materials, including this proxy statement, proxy card or voting instruction card and our Annual Report for the fiscal year ended December 31, 2021 are being distributed and made available on or about April 12, 2022. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. Please read it carefully.

This proxy statement and the Proxy Availability Notice contain instructions for accessing and reviewing our proxy materials on the Internet and for voting by proxy over the Internet, by phone or by mail. The Proxy Availability Notice and the proxy card also will provide instructions on how you can elect to receive future proxy materials electronically or in printed form by mail. If you choose to receive future proxy materials electronically, you will receive an email next year with instructions containing a link to the proxy materials and a link to the proxy voting site. Your election to receive proxy materials electronically or in printed form by mail will remain in effect until you terminate such election. 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 Proxy Availability Notice contains instructions on how to request the materials by mail. For stockholders who have elected to receive proxy materials electronically, 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.

Choosing to receive future proxy materials electronically will allow us to provide you with the information you need more rapidly, will save us the cost of printing and mailing documents to you and will conserve natural resources.

 

 


 

 

TABLE OF CONTENTS

 

 

 

Page

Proxy Statement Summary

 

1

Questions and Answers About These Proxy Materials and Voting

 

4

Cautionary Statement Regarding Forward‑Looking Statements

 

10

Proposal No. 1: Election of Directors

 

11

General

 

11

Nominees for Director

 

11

Required Vote

 

17

Recommendation of the Board of Directors

 

17

The Board of Directors and Corporate Governance

 

18

Meetings of the Board

 

18

Board Composition

 

18

Independence of Directors

 

19

Board Leadership Structure

 

20

Risk Oversight

 

20

Board Committees

 

20

Code of Ethics and Code of Conduct

 

24

Director Compensation

 

24

Stockholder Communications

 

26

Stockholder Engagement

 

26

Environmental, Social and Governance Focus

 

26

Proposal No. 2: Advisory Vote to Approve Our Named Executive Officers’ Compensation

 

27

General

 

27

Required Vote

 

28

Recommendation of the Board of Directors

 

28

Matters Relating to Our Independent Registered Public Accounting Firm

 

29

Pre-Approval Policies and Procedures

 

29

Fees and Services

 

29

Report of the Audit Committee of the Board of Directors

 

29

Proposal No. 3: Ratification of the Selection of the Independent Registered Public Accounting Firm

 

31

General

 

31

Required Vote

 

31

Recommendation of the Board of Directors

 

31

Proposal No. 4: Approval of an Amendment to the Assembly Biosciences, Inc. 2018 Stock Incentive Plan

 

32

Background

 

32

Purpose

 

32

Rationale

 

33

2019 – 2021 Burn Rate and Outstanding Awards Overhang

 

34

Material Terms of the Amended Plan

 

36

Eligibility

 

41

New Plan Benefits

 

41

Equity Plans

 

42

Required Vote

 

42

Recommendation of the Board of Directors

 

42

Proposal No. 5: Amendment and Restatement of our Certificate of Incorporation to Increase Shares of Authorized Common Stock

 

43

General

 

43

Purpose

 

43

i


 

 

 

Rights of Additional Authorized Shares

 

44

Potential Adverse Effects of the Amendment and Restatement

 

44

Required Vote

 

44

Recommendation of the Board of Directors

 

44

Proposal No. 6: Approval of a Stock Option Exchange Program for Non-Executive Employees

 

45

Background

 

45

Stockholder-Friendly Design

 

45

Rationale

 

45

Material Terms

 

48

Exchange Ratio

 

49

Implementing the Stock Option Exchange Program

 

49

Other Matters

 

49

Required Vote

 

50

Recommendation of the Board of Directors

 

50

Executive Officers

 

51

Executive Compensation

 

52

Named Executive Officers

 

52

Executive Summary

 

52

Summary Compensation Table

 

59

Employment Arrangements

 

66

Outstanding Equity Awards at December 31, 2021

 

68

Certain Relationships and Related Party Transactions

 

70

Stock Ownership Information

 

71

Security Ownership of Certain Beneficial Owners

 

71

Delinquent Section 16(a) Reports

 

72

Deadline for Stockholder Proposals for the 2022 Annual Meeting of Stockholders

 

73

Delivery of Documents to Stockholders Sharing an Address

 

73

Other Matters

 

73

Appendix A: Proposed Amendment No. 4 to Assembly Biosciences, Inc. 2018 Stock Incentive Plan

 

A-1

Appendix B: Assembly Biosciences, Inc. 2018 Stock Incentive Plan, Incorporating Proposed Amendment

 

B-1

Appendix C: Proposed Sixth Amended and Restated Certificate of Incorporation

 

C-1

 

 

 

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PROXY STATEMENT SUMMARY

This proxy summary highlights information that may be contained elsewhere in this proxy statement. This summary does not contain all information that you should consider, and you should read the entire proxy statement carefully before voting. Page references are supplied to help you find further information in this proxy statement.

Proxy Voting Matters

 

 

 

Our Board’s Recommendation

Proposal No. 1 – Election of Directors (page 11)

The Board and its Nominating and Governance Committee believe that the eight director nominees possess the necessary qualifications to provide effective oversight of our business.

 

FOR each Director Nominee

Proposal No. 2 – Executive Compensation (page 27)

The Board recommends that stockholders approve, on a non-binding advisory basis, our named executive officers’ compensation.

 

FOR

Proposal No. 3 – Ratification of the Selection of Ernst & Young LLP as Independent Auditors (page 31)

The Board and its Audit Committee believe that the continued retention of Ernst & Young LLP to serve as the Independent Auditors for the fiscal year ending December 31, 2022 is in the best interests of the Company and its stockholders. As a matter of good corporate governance, stockholders are being asked to ratify the Audit Committee’s selection of the Independent Auditors.

 

FOR

Proposal No. 4 – Amendment to 2018 Stock Incentive Plan to Increase Number of Reserved Shares by 2,000,000 Shares (page 32)

The Board believes that it is in the best interest of the Company to increase the number of shares reserved under our 2018 Stock Incentive Plan by 2,000,000 shares.

 

FOR

Proposal No. 5 – Amendment and Restatement of Our Fifth Amended and Restated Certificate of Incorporation to Increase Number of Authorized Shares of Common Stock (page 43)

The Board believes that it is in the best interest of the Company to amend and restate our Fifth Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 150,000,000.

 

FOR

Proposal No. 6 – Approval of a Stock Option Exchange Program for Non-Executive Employees (page 45)

The Board believes that it is in the best interest of the Company to approve a stock option exchange program for non-executive employees that would allow these non-executive employees to exchange certain significantly out-of-the-money stock options for new stock options exercisable for fewer shares of our common stock with an exercise price equal to the fair market value of our common stock on the new grant date.

FOR


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Governance Highlights

We are committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens Board and management accountability and helps build public trust in the Company. The Board of Directors and Corporate Governance section beginning on page 18 describes our governance framework, which includes the following highlights:

 

Board Independence

 

     Seven of our eight Board nominees are independent.

 

 

     Dr. McHutchison, our Chief Executive Officer and President, is the only management nominee standing for election to the Board.

 

 

     The independent directors hold regular executive sessions, and any independent director may raise matters for discussion at these executive sessions.

 

 

 

Independent Chair

 

     The Chair of the Board is independent.

 

 

 

Board Composition

 

     The Board will be comprised of eight directors following the Annual Meeting.

     We regularly assess our Board size and can adjust the number of directors according to our needs.

     Our directors possess a diverse mix of skills, experience and backgrounds.

 

 

 

Accountability to Stockholders

 

     Proxy Access. Our Bylaws provide proxy access, allowing a stockholder or group of up to 20 stockholders continuously owning an aggregate of 3% or more of our outstanding common stock for at least three years to nominate and include in our proxy materials director nominees constituting up to the greater of 20% of the number of directors then in office or two nominees, provided the stockholders and nominees otherwise satisfy the requirements of our Bylaws.

     Stockholders’ Right to Call Special Meetings. Our Fifth Amended and Restated Certificate of Incorporation (the Certificate of Incorporation) and Bylaws allow stockholders who hold in the aggregate at least 25% of our outstanding common stock to request special stockholders’ meetings, provided they otherwise satisfy the requirements of our Bylaws.

     Annual Election of Directors. Our Certificate of Incorporation provides for the annual election of all directors.

     Majority Voting Standard in Uncontested Director Elections. Directors must receive more “for” votes than “against” votes to be elected in uncontested director elections.

     No Poison Pill. We do not have a poison pill.

 

 

 

Independent Board Committees

 

     The Audit, Compensation and Nominating and Governance committees are composed entirely of independent directors, and each of the standing committees has a charter that is reviewed annually and posted on our website.

     Our Board and each committee may engage independent advisors in its sole discretion.

 

 

 

Risk Oversight

 

     Our full Board is responsible for risk oversight and has designated committees to have particular oversight of certain key risks. Our Board also oversees management as it fulfills its responsibilities of balancing assessment and mitigation of risks and with taking appropriate risk in operating the business.

 

 

 

Board/Committee Self-evaluation

 

     We have an annual self-evaluation process for the Board and each of its standing committees.

 

 

 

Ethics/Corporate Responsibility

 

     All of our directors and executive officers are required to abide by our Code of Conduct.

     Our Board has adopted Corporate Governance Guidelines to assist in the exercise of its responsibilities.

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Executive Compensation

Our Compensation Philosophy is “Provide Competitive Overall Compensation That Attracts, Retains and Motivates Superior Performers.” We believe that executive compensation should be designed to closely align the interests of our named executive officers (NEOs) and stockholders and to attract, motivate, reward and retain superior management talent. Our executive compensation is comprised of the following components:

 

 

 

Plan/Compensation

 

Purpose

 

Relevant Performance Metric

 

Fixed or Variable?

 

 

 

 

 

 

 

 

 

Annual/Short Term Incentives

 

Base Salary

 

Provide competitive compensation for individual performance and level of responsibility associated with position

 

N/A

 

Fixed

 

 

 

 

 

 

 

 

 

Annual Performance-based Cash Bonus

 

Provide a short-term annual performance-based cash incentive opportunity through a bonus plan that is based upon achievement of established performance goals

 

Both Company-wide and individual goals

 

Variable

 

 

 

 

 

 

 

 

 

Long-Term Incentive

 

Long-term Equity Incentive Awards

 

Provide long-term incentive opportunities in the form of equity awards in order to retain those individuals with the leadership abilities necessary for increasing long-term stockholder value while aligning their interests with our stockholders’ interests

 

Equity awards vest over a three- or four-year period and incentivize performance, because stock options have value only to the extent the market value of our common stock increases and restricted stock units only have value if the executive continues to provide services through the vesting period

 

Variable

 

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Questions and Answers About These Proxy Materials and Voting

Why did I receive the Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials?

In accordance with the rules and regulations adopted by the U.S. Securities and Exchange Commission (SEC), we have elected to provide access to our proxy materials over the Internet instead of mailing a printed copy of our proxy materials to each stockholder. Accordingly, we sent a Proxy Availability Notice on or about April 12, 2022 to most stockholders of record entitled to vote at the Annual Meeting. Stockholders may access the proxy materials on a website referred to in the Proxy Availability Notice commencing on or about April 12, 2022 or may request a printed set of the proxy materials be sent to them by following the instructions in the Proxy Availability Notice.

Why did I receive a full set of proxy materials and the Proxy Availability Notice?

We are providing paper copies of the proxy materials to stockholders who have previously requested to receive them in paper form or for whom an election to receive proxy materials electronically by email or over the Internet are not on file. If you would like to reduce the environmental impact and the costs incurred by us in mailing proxy materials, you may elect to receive all future proxy materials electronically by email or over the Internet. To sign up for electronic delivery, please follow the instructions provided with your proxy materials and on your proxy card or voting instruction card for using the Internet and, when prompted, indicate that you agree to receive or access future stockholder communications electronically. Alternatively, you can go to www.proxyvote.com and enroll for online delivery of Annual Meeting and proxy materials.

What does it mean if I receive more than one Proxy Availability Notice?

If you receive more than one Proxy Availability Notice, your shares may be registered in more than one name or in different accounts. Please follow the voting instructions on each Proxy Availability Notice to ensure that all of your shares are voted. All of your shares may be voted at www.proxyvote.com regardless of which account they are registered or held in.

How do I attend the Annual Meeting?

You will not be able to attend the Annual Meeting in person at a physical location because it is being held in a virtual only format due to the COVID-19 pandemic. However, the Annual Meeting has been designed to provide stockholders comparable rights and opportunities to participate as they would have at an in-person meeting, and stockholders of record as of the close of business on March 28, 2022 will be able to participate, vote their shares and ask questions during the meeting by audio webcast. To be admitted to the virtual-only Annual Meeting, you should visit www.virtualshareholdermeeting.com/ASMB2022 and enter the 16-digit control number found on your Proxy Availability Notice.

Additional details on attending and participating in the virtual-only Annual Meeting:

 

Access the meeting platform beginning at 7:45 a.m. PDT on May 25, 2022.

 

Vote during the Annual Meeting by following the instructions available on the meeting website during the meeting.

 

Submit a question during the meeting by visiting www.virtualshareholder.com/ASMB2022, entering your 16-digit control number and submitting the question in the “Ask a Question” field. Pertinent questions will be answered during the meeting, subject to time constraints.

 

If you encounter any difficulties while accessing the virtual-only meeting, contact the technical support number that will be posted on the Virtual Shareholder Meeting log-in page. Technical support will be available beginning at 7:30 a.m. PDT on May 25, 2022 and will remain available until the Annual Meeting has ended.

 

A list of stockholders entitled to vote will be available for inspection by stockholders of record for any legally valid purpose related to the Annual Meeting during the Annual Meeting by following the link

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provided when you log in to www.virtualshareholdermeeting.com/ASMB2022 and for a period of ten days prior to the Annual Meeting by sending a request to corpsecretary@assemblybio.com.

Whether or not you attend the Annual Meeting, we urge you to vote and submit your proxy in advance of the meeting by one of the methods described in this proxy statement.

Who can vote at the Annual Meeting?

Only stockholders of record at the close of business on March 28, 2022 will be entitled to vote at the Annual Meeting. On the record date, there were 48,120,437 shares of common stock outstanding and entitled to vote.

Stockholder of Record:  Shares Registered in Your Name

If on March 28, 2022, your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, then you are a stockholder of record. As a stockholder of record, you may vote while attending the meeting or by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return your proxy card or vote by proxy over the telephone or Internet as instructed below to ensure your vote is counted.

Beneficial Owner:  Shares Registered in the Name of a Broker or Bank

If on March 28, 2022, your shares were held not in your name, but rather in an account at a broker, bank or other similar organization, then you are the beneficial owner of shares held in “street name” and the Proxy Availability Notice is being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account and should follow the instructions provided by your broker, bank or other agent to vote your shares. You are also invited to attend the Annual Meeting.

What am I voting on?

There are six matters scheduled for a vote:

 

1.

Election of eight directors;

 

2.

Approval, on a non-binding advisory basis, of our named executive officers’ compensation, as disclosed in this proxy statement in accordance with SEC rules;

 

3.

Ratification of the selection by the Audit Committee of the Board of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022;

 

4.

Approval of an amendment to the Assembly Biosciences, Inc. 2018 Stock Incentive Plan (the 2018 Plan) to increase the number of shares reserved for issuance thereunder by 2,000,000 shares;

 

5.

Amendment and restatement of our Fifth Amended and Restated Certificate of Incorporation (our Certificate of Incorporation) to increase the authorized number of shares of common stock from 100,000,000 to 150,000,000; and

 

6.

Approval of a stock option exchange program for non-executive employees (the Stock Option Exchange Program).

What if another matter is properly brought before the meeting?

The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment.

5


 

How do I vote?

For each of the matters, including each of our nominees to the Board, to be voted on, you may vote “FOR” or “AGAINST,” or you may abstain from voting.

The procedures for voting depend upon whether your shares are registered in your name or are held by a bank, broker or other nominee:

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record, you may vote at the Annual Meeting, vote by proxy over the Internet, vote by proxy over the telephone or vote by proxy using a proxy card that we have provided or will provide upon request. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend and vote at the meeting even if you have already voted by proxy.

 

To vote at the meeting, attend the Annual Meeting, and follow the instructions available on the meeting website during the meeting.

 

To vote over the Internet, go to www.proxyvote.com to complete an electronic proxy card. You will be asked to provide the company control number from your proxy card or Proxy Availability Notice. Your vote must be received by 11:59 p.m. Eastern Daylight Time (EDT) on May 24, 2022 to be counted.

 

To vote over the telephone, dial toll‑free +1.800.690.6903 using a touch‑tone phone and follow the recorded instructions. You will be asked to provide the company control number from your proxy card or Proxy Availability Notice. Your vote must be received by 11:59 p.m. EDT on May 24, 2022 to be counted.

 

To vote using a proxy card, complete, sign and date the proxy card and return it pursuant to the instructions provided. Your vote must be received by May 24, 2022 to be counted.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If you are a beneficial owner of shares registered in the name of your broker, bank, or other nominee, you should have received a Proxy Availability Notice containing a voting instruction form from that organization rather than from us. In order to provide voting instructions to the holder of record of your shares, please refer to the materials forwarded by your broker, bank, or other nominee.

 

To vote at the Annual Meeting, contact your broker, bank or other nominee to obtain your control number and follow the instructions on the meeting website.

 

To vote over the Internet, go to www.proxyvote.com to complete an electronic proxy. You will be asked to provide your sixteen-digit control number from your voting instruction form. Your vote must be received by 11:59 p.m. EDT on May 24, 2022 to be counted.

 

To vote over the telephone, dial toll‑free +1.800.454.8683 using a touch‑tone phone and follow the recorded instructions. You will be asked to provide the company control number from your voting instruction form or Proxy Availability Notice. Your vote must be received by 11:59 p.m. EDT on May 24, 2022 to be counted.

 

To vote using the voting instruction form accompanying the Proxy Availability Notice, complete, sign and date the voting instruction form and return it pursuant to the instructions provided. Your vote must be received by May 24, 2022 to be counted.

 

Internet proxy voting is provided to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.

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How many votes do I have?

You have one vote for each share of common stock you owned as of March 28, 2022 for each matter that is voted upon at the Annual Meeting.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other nominees for their reasonable out‑of‑pocket expenses for forwarding proxy materials to beneficial owners and seeking instruction with respect thereto.

Can I vote my shares by filling out and returning the Proxy Availability Notice?

No. The Proxy Availability Notice does, however, provide instructions on how to vote by Internet, mail (by requesting a paper proxy card or voting instruction card), and during the Annual Meeting.

If you receive a proxy statement and a paper proxy card together with the Proxy Availability Notice, the paper proxy card may be used to vote your shares.

Can I change my vote or revoke my proxy after submitting my proxy?

Stockholder of Record: Shares Registered in Your Name

Yes. You can change your vote or revoke your proxy at any time before the deadline to vote. If you are the record holder of your shares, you may change your vote or revoke your proxy in any one of the following ways:

 

You may grant a subsequent proxy by telephone or over the Internet.

 

You may submit another properly completed proxy card with a later date.

 

You may send a timely written notice that you are revoking your proxy to our Corporate Secretary at 331 Oyster Point Blvd., Fourth Floor, South San Francisco, California 94080.

 

You may attend and vote at the Annual Meeting. Simply attending the meeting will not, by itself, revoke your proxy.

Your most recent vote (prior to the deadline) by Internet, telephone or proxy card or vote at the Annual Meeting will be the one that is counted.

Beneficial Owner: Shares Registered in the Name of Broker, Bank

Yes. You can change your vote or revoke your voting instruction form at any time before the deadline to vote. If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker, bank or other nominee. Note that you may also revoke your proxy in any one of the following ways:

 

You may grant a subsequent voting instruction over the Internet or by telephone.

 

You may attend and vote at the Annual Meeting by obtaining your control number from your broker, bank or other nominee. Simply attending the meeting will not, by itself, revoke your voting instruction form.

Your most current vote (prior to the deadline) by voting instruction form, telephone or Internet proxy or vote at the Annual Meeting will be the one that is counted.

What are “broker non‑votes”?

Broker non‑votes occur when a beneficial owner of shares held in “street name” does not give voting instructions to the broker, bank or other nominee holding the shares as to how to vote on matters deemed “non‑routine.” Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker, bank or other nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker, bank or other nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non‑routine” matters.

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The only “routine” matters on the agenda for the Annual Meeting is Proposal No. 3—Ratification of the Selection of the Independent Registered Public Accounting Firm and Proposal No. 5—Approval of an Amendment and Restatement of Fifth Amended and Restated Certificate of Incorporation. Accordingly, the “non‑routine” matters on the agenda for the Annual Meeting are Proposal No. 1—Election of Directors, Proposal No. 2—Advisory Vote to Approve Our Named Executive Officers’ Compensation, Proposal No. 4—Approval of an Amendment to the Assembly Biosciences, Inc. 2018 Stock Incentive Plan and Proposal No 6—Approval of a Stock Option Exchange Program for Non-Executive Employees. Therefore, it is critical that you indicate your vote on these proposals if you want your vote to be counted.

How are votes counted?

Votes will be counted by the inspector of elections appointed for the meeting.

With respect to the election of directors, you may vote “FOR” or “AGAINST” each of the nominees, or you may abstain from voting for one or more nominees. Neither abstentions nor broker non-votes will have any effect on the election of the nominees, but abstentions and broker non-votes will be counted to determine whether a quorum is present at the Annual Meeting.

With respect to the other proposals, you may vote “FOR” or “AGAINST” or you may abstain from voting. Neither abstentions nor broker non-votes will have any effect on the votes Proposal No. 2, Proposal No. 3, Proposal No. 4 and Proposal No. 6, but abstentions and broker non-votes will be counted to determine whether a quorum is present at the Annual Meeting.

What if I return a proxy card or otherwise vote but do not make specific choices?

If you return a signed and dated proxy card or otherwise vote without marking voting selections, your shares will be voted:

 

“FOR” the election of the eight director nominees identified in this proxy statement;

 

“FOR” the approval, on a non-binding advisory basis, of our named executive officers’ compensation;

 

“FOR” the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022;

 

“FOR” the approval of an amendment to the 2018 Plan to increase the number of shares reserved for issuance thereunder by 2,000,000 shares;

 

“FOR” approval of an amendment and restatement of our Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 150,000,000;

 

“FOR” approval of the Stock Option Exchange Program; and

 

To transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof as determined in the discretion of your proxyholder.

What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding a majority of the outstanding shares entitled to vote as of the Record Date are present at the virtual Annual Meeting or represented by proxy. On the record date, there were 48,120,437 shares of common stock outstanding and entitled to vote. As a result, the holders of 24,060,219 shares must be present in person or represented by proxy at the Annual Meeting for there to be a quorum.

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Your shares will be counted toward a quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) by May 24, 2022 or if you vote at the Annual Meeting. Abstentions and broker nonvotes will be counted toward the quorum requirement. If there is no quorum, the holders of a majority of shares present at the Annual Meeting or represented by proxy may adjourn the Annual Meeting to another date.

Once a share is represented for any purpose at the Annual Meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is set for the adjournment.

How many votes are needed to approve each proposal?

Assuming the presence of a quorum at the Annual Meeting, the following sets forth the votes necessary for each of the proposals being submitted to the stockholders:

 

Proposal

 

Description

 

Vote Required

 

Discretionary

Voting

Allowed

 

No. 1

 

Election of Directors

 

Majority of Votes Cast

 

No

 

No. 2

 

Advisory Vote on Named Executive Officers’ Compensation

 

Majority of Votes Cast

 

No

 

No. 3

 

Ratification of the Selection of Ernst & Young LLP as Independent Registered Public Accounting Firm for 2021

 

Majority of Votes Cast

 

Yes

 

No. 4

 

Amendment of the 2018 Plan to Increase the Number of Shares Reserved for Issuance Thereunder by 2,000,000 Shares

 

Majority of Votes Cast

 

No

 

No. 5

 

Amendment and Restatement of Our Certificate of Incorporation to Increase the Authorized Number of Shares of Common Stock from 100,000,000 to 150,000,000

 

Majority of Outstanding Shares

 

Yes

 

No. 6

 

Stock Option Exchange Program

 

Majority of Votes Cast

 

No

 

 

Election of Directors

Directors will be elected by the affirmative vote of the majority of the votes cast (meaning the number of shares voted “FOR” a nominee must exceed the number of shares voted “AGAINST” that nominee). If any nominee for director receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election, our Corporate Governance Guidelines require that person to promptly tender his or her written resignation to the Chair of the Board within five days following the certification of the vote. Abstentions and broker non-votes are not considered votes cast for the election of directors and will have no effect on the election of nominees.

Amendment and Restatement of Our Certificate of Incorporation

Adoption of Proposal No. 5 requires the affirmative vote of a majority of the outstanding shares. Abstentions and broker non-votes, if any, will have the same effect as a vote “AGAINST” Proposal No. 5.

Other Proposals

Adoption of Proposal No. 2, Proposal No. 3, Proposal No. 4 and Proposal No. 6 requires the affirmative vote of the majority of votes cast. Abstentions and broker non-votes are not considered votes cast and will have no effect on the vote for these proposals.

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How can I find out the results of the voting at the Annual Meeting?

Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will be reported in a Current Report on Form 8‑K that we expect to file within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Form 8‑K within four business days after the Annual Meeting, we intend to file a Form 8‑K to report preliminary results and, within four business days after the final results are known to us, file an additional Form 8‑K to report the final results.

What proxy materials are available on the Internet?

The proxy statement and our Annual Report for the fiscal year ended December 31, 2021 are available free of charge at www.proxyvote.com. You can request a copy of our Annual Report free of charge by calling +1.833.509.4583 or by sending an email to our Corporate Secretary at corpsecretary@assemblybio.com. Please include your contact information with the request.

Our Annual Report on Form 10‑K for the fiscal year ended December 31, 2021 as filed with the SEC is accessible free of charge on our website. It contains audited consolidated financial statements for our fiscal years ended December 31, 2020 and 2021. The Annual Report on Form 10‑K, without exhibits, is included in the 2021 Annual Report to Stockholders that is available with this proxy statement.

CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

This proxy statement contains forward‑looking statements relating to future events that involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward‑looking statements.

Statements that include the words may, will, would, could, should, might, believes, hopes, estimates, projects, potential, expects, plans, anticipates, intends, continues, forecast, designed, goal or the negative of those words or other comparable words, that express uncertainty, are forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Except as required by law, we assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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Proposal No1: Election of Directors

General

Our Amended and Restated Bylaws provide that the number of our directors is to be within a range of three to ten, with the exact number set by the Board. The number of directors currently comprising the full Board is nine, but the Board expects to reduce the number of directors to eight immediately following the Annual Meeting.

Our Board currently consists of nine directors. One of our current directors, Myron Z. Holubiak, will not stand for re-election and will retire at the end of his current term. There are eight nominees for election to the Board this year. Each director to be elected and qualified will hold office until the next annual meeting of the stockholders and until his or her successor is duly elected and qualified, or, if sooner, until the director’s death, resignation or removal. Each of the nominees listed below is currently a director. Other than Sir Michael Houghton, Ph.D., who the Board appointed as a director in July 2021, each of the director nominees was previously elected by the stockholders. Directors are elected by a majority of the votes cast in the election of such director, requiring that the number of votes cast “for” a director nominee exceed the number of votes cast “against” that director nominee.

Nominees for Director

The Nominating and Governance Committee has recommended, and the Board has approved, the nomination of each of William R. Ringo, Jr., Anthony E. Altig, Gina Consylman, Richard D. DiMarchi, Ph.D., Sir Michael Houghton, Ph.D., Lisa R. Johnson-Pratt, M.D., Susan Mahony, Ph.D. and John G. McHutchison, A.O., M.D. to serve as a director of our Company. The Board has determined that all of these nominees for director, except for Dr. McHutchison, are independent as determined in accordance with the rules of the Nasdaq Stock Market. There are no family relationships among any of our nominees for director or executive officers. The respective names, ages, lengths of service on our Board and brief biographical summaries of our nominees for director are as follows. For more information regarding the experience, qualifications, attributes and skills of the director nominees, see the matrix on page 19.

 

Name

 

Age

 

Director

Since

 

Business Experience

William R. Ringo, Jr.

 

76

 

2014

 

Mr. Ringo became a director in July 2014 upon the closing of the Assembly Pharmaceuticals, Inc. acquisition through a reverse merger by our predecessor company, Ventrus Biosciences, Inc. (the Merger) and became non-executive Chairman of the Board in February 2015. Mr. Ringo served as Interim Chief Executive Officer of Five Prime Therapeutics, Inc. (Five Prime) from September 2019 until April 2020. From July 2010 until December 2015, Mr. Ringo was a senior advisor with Barclays Capital, the global investment banking division of Barclays Bank PLC. From July 2010 until December 2015, Mr. Ringo served as a strategic advisor with Sofinnova Ventures, a life sciences-focused investment firm. Prior to his advisory roles with Barclays Capital and Sofinnova Ventures, Mr. Ringo served as Senior Vice President of Strategy and Business Development for Pfizer Inc., a biopharmaceutical company, from April 2008 until his retirement in April 2010. From 2004 to 2006, Mr. Ringo served as President and Chief Executive Officer of Abgenix, Inc., a biotechnology company acquired by Amgen, Inc. From 2001 to 2007, he served on various boards of directors, including the following public companies: Encysive Pharmaceuticals, Inc.; Inspire Pharmaceuticals, Inc.; and InterMune, Inc., where he was the non-executive chairman of the board of directors after serving as interim Chief Executive Officer from June 2003 to September 2003. His experience in the global pharmaceutical sector also includes nearly 30 years with Lilly. Over the course of his career with Lilly, Mr. Ringo served in numerous executive roles, including Product Group President for oncology and critical care, President of internal medicine products, President of the infectious diseases business unit, and Vice President of sales and marketing for U.S. pharmaceuticals. He also was a member of Lilly’s operating committee. From 1994 to 2002, he served as a director and chairman of the board for Community Health Systems, Inc. and from February 2011 until the October 2013 acquisition by Amgen, Inc., on the Onyx Pharmaceuticals, Inc. board of directors. In the last five years, Mr. Ringo served as a director of Immune Design Corp., Sangamo Biosciences, Inc., Mirati Technologies, Inc., each public companies, and Dermira, Inc. (Dermira) prior to Dermira being acquired by Lilly and Five Prime prior to Five Prime being acquired by Amgen Inc. Prior to being acquired, both Dermira and Five Prime were also public companies. In addition, Mr. Ringo currently serves as the chairman of the board at Sensei Biotherapeutics, Inc. Mr. Ringo received a B.S. in business administration and an M.B.A. from the University of Dayton.

 

Because of these and other professional experiences, Mr. Ringo possesses extensive knowledge of our business and industry and experience in senior leadership, financial audit, business development, public company board service, governance, financing and capital markets and corporate operations. Among other experience, qualifications, attributes and skills, Mr. Ringo’s extensive management experience in the pharmaceutical industry and experience in the capital markets, as well as his experience serving on the boards of directors of public pharmaceutical companies and on the boards of directors of several private pharmaceutical companies, led to the conclusion of our Board that he should serve as a director due to our business focus and strategy.

 

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Name

 

Age

 

Director

Since

 

Business Experience

Anthony E. Altig

 

66

 

2012

 

Mr. Altig joined our Board in January 2012. From 2008 until his retirement in December 2017, Mr. Altig was the Chief Financial Officer of Biotix Holdings, Inc., a company that manufactures microbiological consumables, which was acquired by Mettler Toledo in September 2017. From 2004 to 2007, Mr. Altig served as the Chief Financial Officer of Diversa Corporation (subsequently Verenium Corporation), a public company developing specialized industrial enzymes. Prior to joining Diversa, Mr. Altig served as the Chief Financial Officer of Maxim Pharmaceuticals, Inc., a public biopharmaceutical company. Mr. Altig formerly served as a director and chairman of the audit committee of TearLab Corporation (formerly OccuLogix, Inc.), an eyecare technology company that was a public company until it was taken private in July 2020, and as a director of MultiCell Technologies, Inc. and Optimer Pharmaceuticals, Inc., a pharmaceutical company that was a public company until its acquisition by Cubist Pharmaceuticals, Inc. in October 2013. Mr. Altig received his B.B.A. in business from the University of Hawaii at Manoa and is a Certified Public Accountant (inactive).

 

Because of these and other professional experiences, Mr. Altig possesses particular knowledge and experience in finance and accounting, financial audit, public company board service, corporate governance and corporate operations that strengthen the Board’s collective qualifications, skills and experience. Among other experiences, qualifications, attributes and skills, Mr. Altig’s extensive management experience and financial expertise, as well as his experience serving on the boards of directors of several public pharmaceutical and healthcare companies, led to the conclusion of our Board that he should serve as a director due to our business focus and strategy.

 

12


 

Name

 

Age

 

Director

Since

 

Business Experience

Gina Consylman

 

50

 

2020

 

Ms. Consylman joined our Board in October 2020. Since April 2022, Ms. Consylman has served as Chief Financial Officer of Vedere Bio II, Inc. Prior to that, Ms. Consylman served as Chief Financial Officer of bluebird bio, Inc (bluebird bio) from November 2021 until April 2022. Prior her service as Chief Financial Officer of bluebird bio, Ms. Consylman served as the Chief Financial Officer of bluebird bio’s Severe Genetic Disease business. Prior to joining bluebird bio, from November 2017 until July 2021, Ms. Consylman served as Senior Vice President, Chief Financial Officer of Ironwood Pharmaceuticals, Inc. (Ironwood). From September 2017 until November 2017, Ms. Consylman was Ironwood’s interim Chief Financial Officer, from August 2015 until November 2017, she served as Ironwood’s Vice President of Finance and Chief Accounting Officer and from June 2014 until July 2015, she served as Ironwood’s Vice President, Corporate Controller and Chief Accounting Officer. Prior to joining Ironwood, Ms. Consylman served as Vice President, Corporate Controller and Principal Accounting Officer of Analogic Corporation from February 2012 until June 2014. Prior to that, Ms. Consylman served in various roles of increasing responsibility at Biogen Inc. from November 2009 until February 2012, culminating in her role as Senior Director, Corporate Accounting. Prior to that, Ms. Consylman served as Corporate Controller at Varian Semiconductor Equipment Associates, Inc. From October 2018 until November 2021, Ms. Consylman served on the board of directors and as chair of the audit committee of Verastem, Inc., a public company. Ms. Consylman received her B.S. in accounting from Johnson & Wales University and a M.S. in taxation from Bentley University. Ms. Consylman is a Certified Public Accountant.

 

Because of these and other professional experiences, Ms. Consylman possesses particular knowledge and experience in finance and accounting, financial audit, public company board service and corporate governance and corporate operations that strengthen the Board’s collective qualifications, skills and experience. Among other experiences, qualifications, attributes and skills, Ms. Consylman’s extensive management experience and financial expertise, as well as her experience serving on the board of directors of Verastem, Inc., led to the conclusion of our Board that she should serve as a director due to our business focus and strategy.

 

Richard D. DiMarchi, Ph.D.

 

69

 

2014

 

Dr. DiMarchi joined our Board in July 2014 upon the closing of the Merger. Dr. DiMarchi was a co-founder of Assembly Pharmaceuticals, Inc. and served on its board from its inception in 2012 through the Merger. Dr. DiMarchi is a Distinguished Professor of Chemical Biology and Gill Chair in Biomolecular Sciences at Indiana University and Chief Scientific Officer of MBX Biosciences, Inc. From February 2016 until March 2020, Dr. DiMarchi served as Vice President of Research at Novo Nordisk Research Labs. Dr. DiMarchi was a co-founder and board member of biotechnology companies Ambrx, Inc. (until it was acquired by a consortium of entities affiliated with Shanghai Fosun Pharmaceutical Group, HOPU Investments, China Everbright Limited’s healthcare fund and WuXi PharmaTech) and Marcadia Biotech Inc. (until it was acquired by Roche in 2010). Dr. DiMarchi was also a founder of Calibrium LLC, which was acquired by Novo Nordisk in 2015 and an advisor to Twilight Ventures. Dr. DiMarchi retired as Group Vice President at Eli Lilly & Company (Lilly), where he provided leadership for more than two decades in biotechnology, endocrine research, and product development. Dr. DiMarchi previously served as a board member of the biotechnology trade group BIO, Ionis Pharmaceuticals, Inc. (f/k/a Isis Pharmaceuticals, Inc.) and Millennium BioTherapeutics, Inc. His current research is focused on developing macromolecules with enhanced therapeutic properties through biochemical and chemical optimization. Dr. DiMarchi contributed significantly to the discovery of Humalog® and to the commercial development of pharmaceutical products Humulin®, Humatrope®, Glucagon®, Xigris®, Forteo®, and Evista®. Dr. DiMarchi is the recipient of numerous prestigious awards and in 2014 was inducted to the National Inventors Hall of Fame and in 2015 to the National Academy of Medicine. Dr. DiMarchi received a B.S. with honors from Florida Atlantic University and his Ph.D. in Biochemistry from Indiana University and completed his postdoctoral studies at the Rockefeller University.

 

Because of these and other professional experiences, Dr. DiMarchi possesses particular knowledge and experience with our business and industry, innovation and academia. Among other experiences, qualifications, attributes and skills, Dr. DiMarchi’s scientific training and knowledge, extensive experience in the pharmaceutical industry, as well as his experience serving on the board of directors of several private pharmaceutical companies, led to the conclusion of our Board that he should serve as a director due to our business focus and strategy.

 

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Name

 

Age

 

Director

Since

 

Business Experience

Sir Michael Houghton, Ph.D.

 

71

 

2021

 

Sir Michael Houghton, Ph.D. joined our Board in July 2021. Since 2010, Dr. Houghton has served as the La Ka Shing Professor in the Department of Medical Microbiology and Immunology at the University of Alberta. Dr. Houghton is also the director of the La Ka Shing Applied Virology Institute. In 2020, Dr. Houghton was jointly named the 2020 Nobel Prize winner in Physiology or Medicine along with Harvey J. Alter and Charles M. Rice in recognition of the discovery of hepatitis C virus (HCV). Between 2010 and 2018, Dr. Houghton was also the Canada Excellence Research Chair in Virology at the University of Alberta. Prior to joining the University of Alberta, Dr. Houghton served as Chief Scientific Officer at Epiphany Biosciences, Inc. (Epiphany) from 2007 until 2009. Before joining Epiphany, Dr. Houghton served as Vice President, Hepatitis C and Virology Research at Novartis Vaccines & Diagnostics, Inc. (Novartis). Prior to that, Dr. Houghton served in a number of positions of increasing responsibility at Chiron Corporation (Chiron) from 1982 until 2006. Dr. Houghton serves on the boards of directors of Prophysis Inc., Aurora Vaccines Inc, Achlys Inc., Heka Therapeutics Inc. and Egerio Inc., all private Canadian startup companies. Dr. Houghton received his B.Sc. in Biological Sciences from the University of East Anglia and his Ph.D. in Biochemistry from King’s College at the University of London and was awarded an Honorary Doctorate of Sciences from the University of East Anglia.

 

Because of these and other professional experiences, Dr. Houghton possesses particular knowledge and experience with our business and industry, innovation and academia. Among other experiences, qualifications, attributes and skills, Dr. Houghton’s scientific training and knowledge, extensive experience in the pharmaceutical industry, as well as serving on the board of directors of several private pharmaceutical companies, led to the conclusion of our Board that he should serve as a director due to our business focus and strategy.

 

14


 

Name

 

Age

 

Director

Since

 

Business Experience

Lisa R. Johnson-Pratt, M.D.

 

58

 

2021

 

Dr. Johnson-Pratt was elected to our Board in May 2021. Since November 2020, Dr. Johnson-Pratt has served as Senior Vice President, Commercial of Ionis Pharmaceuticals, Inc. (Ionis). Prior to that, Dr. Johnson-Pratt served as Senior Vice President of Akcea Therapeutics, Inc. (Akcea) from March 2020 until Ionis’s acquisition of Akcea, which was consummated in October 2020. Prior to that, Dr. Johnson-Pratt served as Vice President of Global Franchise Operations at GlaxoSmithKline plc (GSK) from January 2018 until July 2019, and from June 2015 until July 2019, she served as GSK’s Head, Pipeline and Oncology Commercial Strategy. From 2013 until 2015, Dr. Johnson-Pratt was the Global Marketing Director at Stiefel Laboratories, Inc. Dr. Johnson-Pratt worked for Merck & Co., Inc. from 2004 until 2013, in a series of positions of increasing responsibility, culminating in her role as Business Unit Director (Mature Brands). Dr. Johnson-Pratt serves on the board of directors of Tracon Pharmaceuticals, Inc., a public company. Dr. Johnson-Pratt earned a B.S. in science from Howard University, a Diploma of Pharmaceutical Medicine from the Royal College of Physicians, and an M.D. from Howard University.

 

Because of these and other professional experiences, Dr. Johnson-Pratt possesses particular knowledge and in experience with the medical and the pharmaceutical industries. Among other experiences, qualifications, attributes and skills, Dr. Johnson-Pratt’s medical training and her extensive commercial experience in the pharmaceutical industry led to the conclusion of our Board that she should be nominated to serve as a director due to our business focus and strategy.

 

Susan Mahony, Ph.D.

 

57

 

2017

 

Dr. Mahony joined our Board in December 2017. From 2011 until her retirement in August 2018, Dr. Mahony served as Senior Vice President and President of Lilly Oncology and was a member of the executive committee at Lilly. Prior to that, from 2000 until 2011, Dr. Mahony served in a variety of leadership roles at Lilly, including Senior Vice President Human Resources and Diversity, President and General Manager Lilly Canada, and Executive Director Global Development. Dr. Mahony worked in sales and marketing at Bristol-Myers Squibb Company from 1995 to 2000, at Amgen Limited from 1991 to 1995, and at Schering Plough from 1989 to 1991. Dr. Mahony is on the board of directors

of Vifor Pharma, Zymeworks Inc. and Horizon Therapeutics plc, which are all public companies. Dr. Mahony earned a B.Sc. and Ph.D. in pharmacy and was awarded an Honorary Doctorate from Aston University, and she earned an M.B.A. from London Business School.

 

Because of these and other professional experiences, Dr. Mahony possesses particular knowledge and experience in all aspects of corporate functions and company operations that strengthen the Board’s collective qualifications, skills and experience. Among other experiences, qualifications, attributes and skills, Dr. Mahony’s extensive experience in management at public pharmaceutical companies, together with her experience serving on the board of directors of public and private companies, led to the conclusion of our Board that she should serve as a director due to our business focus and strategy.

 

15


 

Name

 

Age

 

Director

Since

 

Business Experience

John G. McHutchison, A.O., M.D.

 

64

 

2019

 

Dr. McHutchison has served as our Chief Executive Officer and President and as a director since August 2019. Prior to joining us, Dr. McHutchison was the Chief Scientific Officer and Head of Research and Development at Gilead Sciences, Inc. (Gilead). Prior to joining Gilead in 2010, Dr. McHutchison worked at Duke University Medical Center, where he served as Associate Director of the Duke Clinical Research Institute. He also held the positions of Professor of Medicine in the Division of Gastroenterology at Duke University Medical Center, Associate Director at Duke Clinical Research Institute and Co-Director of the Duke Clinical and Translational Science Award. Prior to his positions at Duke University, Dr. McHutchison spent nearly ten years at Scripps Clinic, most recently as Medical Director, Liver Transplantation. He also previously held an Assistant Professorship in Medicine at the University of Southern California. In June 2018, Dr. McHutchison was appointed an Officer of the Order of Australia in recognition of his distinguished service to medical research in gastroenterology and hepatology. Dr. McHutchison has undergraduate degrees in medicine and surgery from the University of Melbourne in Australia and completed his residency in internal medicine and fellowship in gastroenterology at the Royal Melbourne Hospital. He is a member of the Royal Australasian College of Physicians. Dr. McHutchison currently serves on the board of directors of Metacrine, Inc., a public company, and Evox Therapeutics and Oxford BioTherapeutics, both private companies.

 

Because of these and other professional experiences, Dr. McHutchison possesses extensive knowledge of our business and industry and experience in senior leadership, clinical development, innovation and technology development, corporate operations and academia. Among other experiences, qualifications, attributes and skills, Dr. McHutchison’s status as an internationally recognized leader in infectious diseases, liver diseases, and gastrointestinal diseases and the leadership he demonstrated at Gilead as he led the organization in the successful filing of numerous New Drug Applications across multiple therapeutic areas, including the curative treatment regimens for chronic hepatitis C and treatment of chronic hepatitis B, led to the conclusion of our Board that he should serve as a director due to our business focus and strategy.

 

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Required Vote

Assuming a quorum is present, directors will be elected by the affirmative vote of the majority of the votes cast (meaning the number of shares voted “FOR” a nominee must exceed the number of shares voted “AGAINST” that nominee). All elected nominees will serve until the 2023 Annual Meeting of Stockholders and until their successors have been duly elected and qualified or, if sooner, until the director’s death, resignation or removal. If any current director receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election, our Corporate Governance Guidelines require that person to promptly tender his or her written resignation to the Chairman of the Board within five days following the certification of the vote. Abstentions and broker non-votes are not considered votes cast for the election of directors and will have no effect on the election of nominees.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH NAMED NOMINEE FOR DIRECTOR.

17


 

The Board of Directors and Corporate Governance

This section describes key corporate governance guidelines and practices that we have adopted. Complete copies of the charters of our committees of the Board and our Corporate Governance Guidelines, Code of Conduct and Code of Ethics described below may be found in the Investors section of our website at investor.asssemblybio.com. Alternatively, you can request a copy of any of these documents free of charge by writing to Assembly Biosciences, Inc., attn: Corporate Secretary, 331 Oyster Point Blvd., Fourth Floor, South San Francisco, California 94080. Information on our website is not incorporated by reference into this proxy statement.

Meetings of the Board

Our Company is managed under the general oversight of the Board as provided by the laws of Delaware and our Amended and Restated Bylaws. During the year ended December 31, 2021, the Board held five meetings and acted by unanimous written consent six times. Our independent directors met in executive sessions at which only independent directors were present at the end Board meetings twice in 2021.

The Board has adopted a formal policy that a Board meeting be held on the same date as the annual stockholders meeting and all directors of the Company are encouraged to attend our annual meetings of stockholders. Every 2022 director nominee that served as a director or was a director nominee at the time of the 2021 Annual Meeting was in attendance. Dr. Houghton was neither a nominee for election nor a member of our Board at the time of the 2021 Annual Meeting.

Board Composition

Our Nominating and Governance Committee aims to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. Directors must possess high ethical standards, integrity and strong values and be committed to representing the best interests of our stockholders. The Board is composed of individuals that enhance the gender, age and ethnic diversity of the Board.

In fulfilling its responsibilities to select and recommend director nominees to serve on our Board, our Nominating and Governance Committee annually evaluates our incumbent Board members and other candidates, if any, against the following criteria in determining whether to recommend these directors for nomination:

 

the appropriate size of our Board and its committees;

 

the perceived needs of our Board for particular skills, background and business experience;

 

the skills, background, reputation and depth and breadth of business experience of nominees;

 

nominees’ independence from management;

 

diversity, including of experience, competency in relevant fields, gender, race, ethnicity and age; and

 

applicable regulatory and listing requirements, including independence requirements and legal considerations.

Our Corporate Governance Guidelines provide that the Nominating and Governance Committee must be satisfied that each recommended nominee to the Board meets the following minimum qualifications:

 

experience at a strategic or policymaking level in a business, government, non-profit or academic organization of high standing;

 

highly accomplished in his or her respective field, with superior credentials and recognition;

 

well regarded in the community with a long-term reputation for high ethical and moral standards;

 

sufficient time and availability to devote to the affairs of the Company, particularly accounting for the number of boards of directors on which he or she may serve; and

18


 

 

demonstrated history of actively contributing at board meetings, to the extent he or she serves or has previously served on other boards of directors.

Other than the foregoing, there are no stated minimum criteria for director nominees, although our Nominating and Governance Committee also may consider such other factors as it may deem, from time to time, to be in the best interests of our Company and our stockholders.

We seek a variety of types and degrees of knowledge, skills and experiences among our Board members. The following matrix provides information regarding our Board nominees, including select knowledge, skills, experiences and attributes possessed by our members that the Board believes are relevant to our business. The matrix is not intended to encompass all of the knowledge, skills, experiences or attributes of the nominees, and the fact that a particular knowledge, skill, experience or attribute is not listed does not mean that a nominee does not possess it. In addition, the absence of a particular knowledge, skill, experience or attribute does not mean that that particular nominee is unable to contribute to decision-making in that area.

 

 

Ringo

Altig

Consylman

DiMarchi

Houghton

Johnson-Pratt

Mahony

McHutchison

Experience

Public Board Experience

Finance

 

 

 

 

Accounting

 

 

 

 

 

Corporate Governance

 

 

 

 

Compensation

 

 

 

 

 

Executive Experience

Operations

 

 

Strategic Planning

 

Pharmaceutical Industry

Academia

 

 

 

 

 

Board Tenure

Years

8

10

2

8

1

1

5

3

Other Public Boards

Number

1

0

0

0

0

1

3

1

 

Board Diversity Matrix (as of March 28, 2022)

Total Number of Directors

9

 

Female

Male

Non-Binary

Did Not Disclose Gender

Part I: Gender Identity

Directors

3

6

0

0

Part II: Demographic Background

African American or Black

1

0

0

0

Alaskan Native or Native American

0

0

0

0

Asian

0

0

0

0

Hispanic or Latinx

0

0

0

0

Native Hawaiian or Pacific Islander

0

0

0

0

White

2

6

0

0

Two or More Races or Ethnicities

0

0

0

0

LGBTQ+

0

0

0

0

Did Not Disclose Demographic Background

0

0

0

0

Independence of Directors

Our Board assesses the independence of each of our directors under the Nasdaq Stock Market Rules (the Nasdaq listing rules), because our common stock is listed on The Nasdaq Global Select Market. Using the test provided in Rule 5605(a)(2) of the Nasdaq listing rules, the Board has determined that, except for John G. McHutchison, A.O., M.D., our Chief Executive Officer and President, all director nominees (William R. Ringo, Jr., Anthony E. Altig, Gina Consylman, Richard D. DiMarchi, Ph.D., Sir Michael Hougton, Ph.D., Lisa R. Johnson-Pratt, M.D. and Susan

19


 

Mahony, Ph.D.) are independent. As part of this determination of independence, our Board considered the relationships that each non-employee director or director nominee has with us and all other facts and circumstances that the Board deemed relevant in determining independence, including the beneficial ownership of our capital stock by such individuals and the association of certain of our directors with third parties, including Indiana University, from whom we license certain intellectual property. After considering these factors, our Board has affirmatively determined that none Mr. Ringo, Mr. Altig, Ms. Consylman, Dr. DiMarchi, Dr. Houghton, Dr. Johnson-Pratt and Dr. Mahony has a relationship with us that would interfere with the exercise of independent judgment in carrying out his or her responsibilities as a director. Our Board also affirmatively determined that Myron Z. Holubiak, who is not standing for re-election to the Board does not have any relationships that would interfere with the exercise of independent judgment in carrying out his responsibilities and is independent.

Board Leadership Structure

Our Board does not have a specific policy regarding the separation of the roles of the Chair of the Board and the Chief Executive Officer and believes it is in the best interests of our Company and our stockholders to be able to exercise discretion in combining or separating these positions as we deem appropriate considering prevailing circumstances. The roles are currently separated, with Mr. Ringo serving as independent Chair. The Board believes that this structure currently best serves the interests of our stockholders because it allows our Chief Executive Officer to focus primarily on our business strategy and operations and most effectively leverages the experience of the Chair. It also enhances the Board’s independent oversight of our senior management team and enables better communication and relations between the Board, the Chief Executive Officer and other members of our senior management team. In that regard, our independent Chair presides at Board meetings and the executive sessions of the non-management and independent directors of the Board. Our approach provides flexibility and allows our Board to modify our leadership structure in the future as appropriate. We believe that we, like many U.S. companies, are well served by this flexible leadership structure.

Risk Oversight

The Board is actively involved in the oversight of risks that could affect us. This oversight is conducted primarily through committees of the Board, particularly the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, but the full Board has retained responsibility for general oversight of risks. The Board satisfies this responsibility through regular reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks.

The Audit Committee is responsible for information security, with a particular focus on cybersecurity. Management provides regular briefings to the Audit Committee if there are any information security breaches. In recent years, we have implemented a variety of initiatives, including enhancement of our email security, evaluation of data protection capabilities of our information technology systems and implementation of a new cybersecurity incident response policy. In addition, we have also implemented a cybersecurity awareness initiative to enable our employees to identify and mitigate information security risks. The initiative is comprised of employee trainings on phishing and other malicious attacks, smart habit creation and best practices regarding file sharing, host security and email security, and we have incorporated cybersecurity training into our employee onboarding process to ensure that all new employees have the necessary skills to identify and mitigate information security risks. In addition, we recently purchased cybersecurity insurance that would defray the costs of an information security breach. We have not experienced any material information security breaches since August 2018, when our email system was hacked. We became aware of the breach and closed access prior to incurring any expenses related to the attack.

Board Committees

The Board has four standing committees. Each committee operates under a charter that has been adopted by the Board, which can be found in the Corporate Governance section of the Investors section of our website at www.assemblybio.com. Information on our website is not incorporated by reference into this proxy statement. Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities. The table below sets forth the current membership of each of the standing committees and the number of meetings each committee held in 2021. All directors attended 75% or more of the aggregate number of meetings of the Board and meetings of the committees on which he or she served during the period for

20


 

which he or she was a director or committee member, as applicable, in 2021. The Board expects to review 2022 committee assignments at its meeting immediately following the Annual Meeting, including, due to Mr. Holubiak’s retirement, appointing (1) a director that meets the Nasdaq requirements to serve as the third member of both the Compensation Committee and the Nominating and Governance Committee and (2) a new Chair of the Compensation Committee at the Board meeting immediately following the Annual Meeting.

 

 

 

Independent

 

Audit

Committee

 

Compensation

Committee

 

Nominating and

Governance

Committee

 

Science and

Technology

Committee

2021 Meetings

 

 

 

5

 

7

 

5

 

2

William R. Ringo, Jr.*

 

 

 

 

●**

 

 

Anthony E. Altig+

 

 

●**

 

 

 

 

 

Gina Consylman+

 

 

 

 

 

 

 

 

Richard D. DiMarchi, Ph.D.

 

 

 

 

 

 

 

 

●**

Myron Z. Holubiak***

 

 

 

 

●**

 

 

 

Sir Michael Houghton, Ph.D.

 

 

 

 

 

 

 

 

Lisa R. Johnson-Pratt, M.D.

 

 

 

 

 

 

 

 

Susan Mahony, Ph.D.

 

 

 

 

 

 

 

John G. McHutchison, A.O., M.D.

 

 

 

 

 

 

 

 

 

*

Chairman of the Board

**

Committee Chair

***

Mr. Holubiak is not standing for re-election.

+

“Audit Committee Financial Expert” as defined in Item 407(d) of Regulation S-K

Audit Committee

The Audit Committee oversees our accounting and financial reporting processes, the audit process, our process for monitoring compliance with laws, regulations and our Code of Conduct and Code of Ethics, and the quality and integrity of our consolidated financial statements and reports. In addition, the Audit Committee oversees the qualification, selection, independence and performance of our independent registered public accounting firm and recommends to the Board the appointment of our independent registered public accounting firm. Our Audit Committee is also responsible for reviewing and approving all related person transactions, including transactions with executive officers and directors, for potential conflicts of interests.

At the direction of the Nominating and Governance Committee, the Audit Committee conducts an annual performance evaluation of the Audit Committee and reports to the Board on the results of such evaluation.

The charter for our Audit Committee requires that the Audit Committee have at least three independent directors.  Our Audit Committee currently consists of Mr. Altig (Chair), Ms. Consylman and Mr. Ringo. The Board annually reviews the Nasdaq listing rules’ definition of independence for Audit Committee members and has determined that Mr. Altig, Ms. Consylman and Mr. Ringo are each independent under the Nasdaq listing rules for audit committee membership and within the meaning of Section 10A-3(b)(1) of the Exchange Act.

The Board has also determined that Mr. Altig and Ms. Consylman each qualify as an “audit committee financial expert” as that term is defined in Item 407(d) of Regulation S‑K promulgated by the SEC. In making that determination, the Board relied on the past experience of Mr. Altig and Ms. Consylman. The Board made a qualitative assessment of Mr. Altig’s level of knowledge and experience based on several factors, including his experience as the chief financial officer of several public companies and having been a certified public accountant. The Board made a qualitative assessment of Ms. Consylman’s level of knowledge and experience based on a number of factors, including her current role as Chief Financial Officer of Vedere Bio II, her past roles as Chief Financial Officer of bluebird bio, bluebird bio’s Severe Genetic Disease business and Ironwood Pharmaceuticals and the series of accounting and finance roles of increasing responsibility at Ironwood Pharmaceuticals, Analogic, Biogen and Varian Semiconductor Equipment Associates, her past role as the audit committee chair at Verastem, Inc. and her experience as a certified public accountant at Ernst & Young LLP.

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Compensation Committee

The charter for our Compensation Committee requires the committee to have not less than three independent members, subject to the Nasdaq listing rules. Our Compensation Committee currently consists of Mr. Holubiak (Chair), Dr. Mahony and Mr. Ringo. Our Board has determined that Mr. Holubiak, Dr. Mahony and Mr. Ringo are each independent under the Nasdaq listing rules for compensation committee membership and that each is a “non‑employee director” as defined in Rule 16b‑3 promulgated under the Exchange Act. Due to Mr. Holubiak’s retirement from the Board as of the Annual Meeting, the Board will appoint both (1) a director that meets the Nasdaq requirements to serve as the Compensation Committee’s third member and (2) a new Chair of the Compensation Committee at the Board meeting immediately following the Annual Meeting.

The purpose of our Compensation Committee is to discharge our Board’s responsibilities relating to compensation of our directors, executive officers and employees and to administer our equity compensation and other benefit plans. In carrying out these responsibilities, our Compensation Committee reviews all components of executive officer compensation for consistency with our Compensation Committee’s primary objectives of attracting and retaining key management personnel, driving long-term strategic values and enhancing stockholder value. The Compensation Committee charter specifies that the Compensation Committee will, among other things:

 

review the recommendations of management with respect to setting our annual corporate goals and objectives and advise the Board regarding such annual corporate goals and objectives;

 

taking into consideration the Board-approved corporate goals and objectives, review and approve achievement of the annual goals and objectives;

 

evaluate the principal executive officer’s and the other executive officers’ performance in light of approved goals and objectives;

 

determine and approve the compensation levels and other terms of employment of the principal executive officer and other executive officers based on this evaluation, including with respect to each executive officer, his or her base salary, cash and equity-based compensation, annual performance-based cash bonus, special benefits, perquisites and incidental benefits and other incentive compensation, benefits and terms of employment;

 

review and approve the compensation of our other employees that the Compensation Committee may specify from time to time, and delegate authority to specified executive officer(s) to review and approve the compensation of other nonexecutive officer employees;

 

review and approve any employment agreements, severance plans (including any benefits to be provided in connection with a change in control) and any other compensatory agreements for the principal executive officer, other executive officers and specified other employees, including adopting, amending and terminating such agreements, plans or arrangements;

 

review with the principal executive officer and any other appropriate officers the material criteria used by the principal executive officer and management in evaluating employee performance throughout the Company and in establishing appropriate compensation, retention, incentive, severance and benefit policies and programs;

 

review and recommend to the Board changes to the compensation of our directors;

 

oversee the administration of, and periodically review and make changes to, our incentive compensation plans, equity‑based compensation plans, and any material employee benefit, bonus, retirement, severance and other compensation plans;

 

prepare the Compensation Committee report and recommend the inclusion of the report in our proxy statement or Annual Report on Form 10‑K as required;

 

retain and approve the compensation of any compensation consultants; and

 

evaluate the independence of any such compensation consultants.

22


 

 

Under the Compensation Committee charter, the Compensation Committee may, in its discretion, delegate its duties to a subcommittee consisting of one or more of its members and delegate authority to specified executive officers to review and approve the compensation of nonexecutive officer employees. At the direction of the Nominating and Governance Committee, the Compensation Committee conducts an annual performance evaluation and reports to the Board on its results.

The charter of the Compensation Committee grants the Compensation Committee full authority to obtain, at our expense, advice and assistance from compensation consulting firms, legal counsel and other advisors as it deems appropriate to assist it in the evaluation of the compensation of directors, the principal executive officer or the other executive and non‑executive officers of the Company, and the fulfillment of its other duties.

Nominating and Governance Committee  

The charter for the Nominating and Governance Committee requires the committee to consist of not less than two independent directors, subject to the Nasdaq listing rules. Our Nominating and Governance Committee currently consists of three directors, Mr. Ringo (Chair), Mr. Altig and Mr. Holubiak. The Board has determined that each of Mr. Ringo, Mr. Altig and Mr. Holubiak are independent under the Nasdaq listing rules. Due to Mr. Holubiak’s retirement from the Board as of the Annual Meeting, at the Board meeting immediately following the Annual Meeting, the Board will appoint a director that meets the Nasdaq requirements to serve as the Nominating and Governance Committee’s third member.

The primary purpose of our Nominating and Governance Committee is to select, and recommend to our Board, director nominees for each election of directors and recommend any corporate governance guidelines it deems appropriate. Additionally, the Nominating and Governance Committee has general oversight of our compliance with legal and regulatory requirements of our business operations, other than compliance with securities laws and regulations, including our financial reporting and disclosure obligations, or anti-bribery laws, which in each case is the responsibility of the Audit Committee.  

Candidates for nomination as director may come to the attention of our Nominating and Governance Committee from time to time through incumbent directors, management, stockholders or third parties. Our Amended and Restated Bylaws contain provisions for stockholders to recommend persons for nomination as a director candidate and, subject to certain conditions, to nominate director candidates for inclusion in our proxy statement, as set forth in this proxy statement under “Deadline for Stockholder Proposals for 2023 Annual Meeting of Stockholders.” Candidates for potential nomination may be considered at meetings of our Nominating and Governance Committee at any point during the year. Such candidates will be evaluated against the criteria set forth above, and the Nominating and Governance Committee’s policy is to evaluate any recommendation for director nominees proposed by stockholders using the same criteria. If our Nominating and Governance Committee believes at any time that it is desirable that our Board consider additional candidates for nomination, the Committee may poll directors and management for suggestions or conduct research to identify possible candidates and may, if our Nominating and Governance Committee believes it is appropriate, engage a third‑party search firm to assist in identifying qualified candidates.

After director candidates have been identified, the Nominating and Governance Committee conducts a review and evaluation of the qualifications of any proposed director candidate as it deems appropriate. There is no difference in the evaluation process of a candidate recommended by a stockholder as compared to the evaluation process of a candidate identified by any of the other means described above.

If the Nominating and Governance Committee determines that a candidate should be nominated for election to the Board, the candidate’s nomination is then recommended to the Board, and the directors may in turn conduct their own review to the extent they deem appropriate. When the Board has agreed upon a candidate, such candidate is recommended to the stockholders for election at an annual meeting of stockholders or appointed as a director by a vote of the Board as appropriate.

The Nominating and Governance Committee engaged a third-party search firm in 2020 in identifying and evaluating Ms. Consylman and utilized the services of the same search firm in 2021 in identifying and evaluating Dr. Johnson-Pratt. Although Dr. Houghton was identified by our Chief Executive Officer, the same third-party search firm reviewed Dr. Houghton prior to his appointment by the Board.

23


 

All of the director nominees (William R. Ringo, Jr., Anthony E. Altig, Gina Consylman, Richard D. DiMarchi, Ph.D., Sir Michael Houghton, Ph.D., Lisa R. Johnson-Pratt, M.D., Susan Mahony, Ph.D. and John G. McHutchison, A.O., M.D.) have been recommended by the Nominating and Governance Committee to the Board for re‑election as our directors at the Annual Meeting, and the Board has approved such recommendations.

The Nominating and Governance Committee also develops and oversees an annual self-evaluation process for the Board and each of its standing committees and ensures that the results of such evaluations are reported to the Board.

Science and Technology Committee

Our Science and Technology Committee currently consists of Dr. DiMarchi (Chair), Dr. Houghton, Dr. Johnson-Pratt, Dr. Mahony and Dr. McHutchison. The primary purpose of our Science and Technology Committee is to assist the Board with oversight of our research and development activities, including to advise the Board with respect to strategic and tactical scientific matters. In furtherance of its purpose, the Science and Technology Committee reviews, among other things:

 

our overall scientific and research and development strategy;

 

progress of our research and development programs;

 

our regulatory compliance/quality programs, as applicable;

 

related external scientific research, discoveries and commercial developments, as appropriate;

 

our overall intellectual property strategies and our portfolio of patents;

 

management’s decisions regarding the allocation, deployment, utilization of and investment in our scientific assets; and

 

management’s decisions regarding acquiring or divesting scientific technology or otherwise investing in research or development programs.

The Science and Technology Committee charter requires that the Science and Technology Committee meet at least twice per year. The Chair of the Science and Technology Committee, in consultation with the other members and management, may set meeting agendas. The Science and Technology Committee will review and assess the adequacy of its charter at least once annually and recommend changes to the Board for approval.

Code of Ethics and Code of Conduct

Our Board has adopted a Code of Ethics for our principal executive officer and all senior financial officers and a Code of Conduct applicable to all of our employees and our directors. Both codes can be found in the Corporate Governance section of the Investors section of our website at www.assemblybio.com. If we make any substantive amendments to, or grant any waivers from, the Code of Ethics or Code of Conduct, as applicable, for our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8‑K.

Director Compensation

Our directors play a critical role in guiding our strategic direction and overseeing the management of our Company. The many responsibilities and risks and the substantial time commitment of being a director require that we provide adequate compensation commensurate with our directors’ workload and opportunity costs. Non-employee directors receive a combination of annual cash retainers and equity awards in amounts that correlate to their responsibilities and levels of Board participation, including service on Board committees. Dr. McHutchison does not receive separate compensation for service as a director because he is a Company employee.

The following table sets forth the annual cash compensation payable to our non‑employee directors in 2021.

24


 

 

Director Position

 

Annual Cash

Compensation(1)

 

All Non-Employee Directors

 

$

40,000

 

Chair of the Board

 

$

80,000

 

Audit Committee Chair

 

$

20,000

 

Audit Committee Members (other than Chair)

 

$

10,000

 

Chair of Compensation Committee

 

$

15,000

 

Compensation Committee Members (other than Chair)

 

$

7,500

 

Chair of Nominating & Governance or Science and Technology

   Committees

 

$

10,000

 

Nominating & Governance or Science and Technology

   Committee Members (other than Chair)

 

$

5,000

 

 

(1)

The annual cash compensation that we paid to Board members, other than Dr. McHutchison, was based on their positions on the Board or the committees of the Board, and we do not compensate the Board members on a per meeting basis. The amounts reflected in the table were in effect for 2021.

Upon appointment or election to the Board, each new non-employee director appointed or elected is granted options to purchase 30,000 shares of our common stock, which vests over three years in three approximately equal installments on each anniversary of the date of grant. Each year, on the date of our annual meeting of stockholders, each non-employee director that is re-elected receives a grant of an equity award that will vest in full upon the earlier of the first anniversary of the grant date and the next annual meeting of stockholders. The exercise price per share of equity awards that constitute options is the fair market value of a share of our common stock on the date of the grant of the option. All options have a term of ten years. Non-employee directors elected to serve on the Board at the 2021 annual meeting of stockholders were granted options to purchase 15,000 shares of common stock.

The following table sets forth information regarding cash and non‑cash compensation earned by or paid to each of our non‑employee directors serving as directors during 2021.

 

Name

 

Fees

Earned

or Paid

in Cash

($)

 

 

Option

Awards

($)(1)(2)

 

 

Total

($)

 

Anthony E. Altig

 

 

65,000

 

 

 

47,613

 

 

 

112,613

 

Gina Consylman

 

 

50,000

 

 

 

47,613

 

 

 

97,613

 

Richard D. DiMarchi, Ph.D.

 

 

50,000

 

 

 

47,613

 

 

 

97,613

 

Myron Z. Holubiak

 

 

60,000

 

 

 

47,613

 

 

 

107,613

 

Michael Houghton

 

 

20,625

 

 

 

82,412

 

 

 

103,037

 

Lisa Johnson-Pratt

 

 

28,125

 

 

 

95,227

 

 

 

123,352

 

Susan Mahony, Ph.D.

 

 

54,375

 

 

 

47,613

 

 

 

101,988

 

William R. Ringo, Jr.

 

 

107,500

 

 

 

47,613

 

 

 

155,113

 

(1)

As of December 31, 2021, our non‑employee directors held the following unexercised options to purchase shares of our common stock: Mr. Altig, 134,000 shares; Ms. Consylman, 35,000 shares; Dr. DiMarchi, 134,000 shares; Mr. Holubiak, 134,000 shares; Dr. Houghton, 30,000 shares; Dr. Johnson-Pratt, 30,000 shares; Dr. Mahony, 62,500 shares; and Mr. Ringo, 119,000 shares. Our non-employee directors did not hold any other equity awards as of such date. In connection with joining the Board in 2021, Dr. Houghton and Dr. Johnson-Pratt each received awards of 30,000 stock options. All other directors received awards of 15,000 stock options in connection with their re-election to the Board.

(2)

The reported amounts in the table above represent the aggregate grant date fair value of the options granted in 2021 computed in accordance with Financial Accounting Standards Boards (FASB) Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASC Topic 718). Assumptions used in the calculation of these amounts are included in Note 9 of the consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2021.

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Stockholder Communications

Stockholders and other interested parties may communicate with the Board by writing to Jason A. Okazaki, our Chief Operating Officer and Corporate Secretary, at Assembly Biosciences, Inc., 331 Oyster Point Blvd., Fourth Floor, South San Francisco, California 94080. Upon receipt of a stockholder communication indicating a desire to communicate with the Board, Mr. Okazaki will review the communication and determine whether the communication should be directed to the Board or any individual director. All communications will be forwarded in this manner; provided, however, that Mr. Okazaki reserves the right not to forward to the Board or any individual director any materials that he deems in his reasonable discretion to be unduly frivolous, hostile, threatening or similarly inappropriate for communication to the Board or any individual director.

Stockholder Engagement

General

Senior management regularly engages with our stockholders at industry conferences and investor meetings. In response to feedback gained through our engagement program, we remain focused on delivering on our research and clinical development strategies, and we continue to enhance the transparency and disclosure of our financial, operational and environmental and governance performance.

Our investor relations team keeps the Board regularly updated on the views of stockholders and provides reports from financial and other advisers concerning institutional stockholder feedback.

Say on Pay Outreach

In response to our 2021 Say on Pay proposal, in which approximately 74% of the shares voted supported our executive compensation program, we conducted a stockholder outreach program in October and November 2021. During our outreach efforts, we contacted our top 20 stockholders as of September 2021, which represented 53% of our outstanding shares, held by nine fund managers, one private equity fund, nine hedge funds and one venture capital firm.

Three stockholders, each in our top five holders, requested a meeting in response to our outreach. The meetings focused primarily on our executive compensation program, particularly a perceived misalignment between pay and performance. In each meeting, we explained that we have experienced recent steep declines in our stock price, as the stock price fell approximately 70% in 2020 and approximately 62% in 2021. These declines have resulted from a combination of (1) disappointing results of Study 211 released in late 2020, in which all patients relapsed, indicating that no patients were cured of HBV and (2) our discontinuation of clinical development of 2158 due to elevated ALT levels in our Phase 2 study, which was announced in September 2021. While these results can be expected to impact our stock price, the declines have been exacerbated by well documented, sector-wide weakness in the biotech market that began in early 2021 and accelerated near the end of 2021.

As a result of these steep declines, use of models relying on Grant Date Fair Value (GDFV) of equity awards result in an apparent disconnect between pay and performance. We believe focus on Realizable Pay (RP) is a more appropriate measurement of alignment. For additional information regarding GDFV and RP, see “Executive Compensation—Executive Summary—Alignment of Pay and Performance.”

We plan to continue our robust outreach efforts and to engage in additional outreach in the lead up to our 2022 Say on Pay vote.

Environmental, Social and Governance Focus

Management and the Board recognize that, as we continue to grow and advance our pipeline of product candidates, it is important to also focus our corporate responsibility programs on issues that support long-term sustainability of our operations and manage relevant environmental, social and governance (ESG) risks. In 2020, we highlighted our programs, achievements and future plans on ESG issues by adding a sustainability section to our corporate website, which can be found at www.assemblybio.com/sustainability, and we updated this site in 2021. The information posted on our website is not intended to be incorporated into this proxy statement.

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Proposal No2: Advisory Vote to Approve Our Named Executive Officers’ Compensation

General

Under the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd‑Frank Act) and Section 14A of the Exchange Act, our stockholders are entitled to vote to approve, on a non-binding advisory basis, the compensation of our named executive officers (NEOs) as disclosed in this proxy statement in accordance with SEC rules. This vote is commonly known as the “Say on Pay” vote. This vote is not intended to address any specific item of compensation, but rather our NEOs’ overall compensation and the philosophy, policies and practices described in this proxy statement.

We provide our stockholders with the opportunity to cast an advisory vote on our NEOs’ compensation every year. Approximately 74% of the votes cast on our Say on Pay vote were voted in favor of the proposal in 2021.

Our NEOs’ compensation addressed by this vote is disclosed in the “Executive Compensation” section of this proxy statement and the compensation tables and the related narrative disclosure contained in this proxy statement. As discussed in these disclosures, our compensation philosophy is to provide competitive overall compensation that attracts and retains top performers. To achieve these goals, our compensation program is structured to:

 

provide a mix of compensation that offers (1) targeted annual performance-based cash bonus opportunities based on Company-wide performance against Board-approved corporate goals weighted to reflect their relative importance to the achievement of our goals, measured over a 12-month period and, for all employees other than our CEO, performance against individual performance objectives set by our employees in consultation with their managers, which may include certain department, group or team objectives applicable to these employees, and (2) the opportunity to share in our long-term success through equity incentive awards, including, in certain circumstances, performance-based equity awards;

 

provide market-competitive base salaries, performance-based cash bonus opportunities, long-term equity awards and other compensation components and benefits that are competitive with those companies that compete with us for available high caliber talent; and

 

deliver equitable pay for our NEOs, considering each NEO’s title, role, breadth and complexity of responsibility, criticality of the role to the organization, experience, qualifications and performance, in both an individual and team context.

Accordingly, the Board is asking stockholders to indicate their support for the compensation of our NEOs as described in this proxy statement by casting a non‑binding advisory vote “FOR” the following resolution:

“RESOLVED, that the Company’s stockholders hereby approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers, as disclosed in the proxy statement for the 2022 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation tables and narrative discussion in the proxy statement for the 2022 Annual Meeting of Stockholders.”

The “Executive Compensation” section of this proxy statement contains more details on our NEOs’ compensation, and we urge you to read it carefully before casting your vote on this proposal. Because the vote is advisory, it is not binding on us, the Board or the Compensation Committee. Nevertheless, as demonstrated by our stockholder outreach in October and November 2021 and continued engagement efforts going forward, the views expressed by our stockholders, whether through this vote or otherwise, are important to our management, the Board and the Compensation Committee. Our management, the Board and the Compensation Committee intend to consider the results of this vote in making recommendations and determinations in the future regarding executive compensation arrangements and our executive compensation principles, policies and procedures.

We submit the compensation of our NEOs to our stockholders for a non-binding advisory vote on an annual basis. Accordingly, the next stockholder advisory vote on the compensation of our NEOs after the Annual Meeting is expected to take place at the 2023 Annual Meeting of Stockholders. The next non-binding advisory vote on the frequency of such non-binding advisory votes will occur no later than our 2024 annual meeting of stockholders.

27


 

Required Vote

Assuming a quorum is present, to be approved, the affirmative vote of the majority of the votes cast on Proposal No. 2 must be voted “FOR” the approval, on a non-binding advisory basis, of our NEOs’ compensation as disclosed in this proxy statement. Abstentions and broker non-votes will not be considered towards vote totals on Proposal No. 2 and will have no effect on the outcome of the vote.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON A NON-BINDING ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICERS’ COMPENSATION.

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Matters Relating to Our Independent Registered Public Accounting Firm

Pre-Approval Policies and Procedures

The charter of the Audit Committee provides for Audit Committee preapproval of all auditing services and the terms thereof (which may include providing comfort letters in connection with underwritten securities offerings) and non‑audit services (other than non‑audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by our independent registered public accounting firm. The preapproval requirement is waived with respect to the provision of non‑audit services for us if the “de minimis” provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied. This authority to preapprove non‑audit services may be delegated to one or more members of the Audit Committee, who shall present all decisions to pre‑approve an activity to the full Audit Committee at its first meeting following such decision. The Audit Committee pre‑approved all services provided by Ernst & Young LLP, our independent registered public accounting firm for the fiscal years ended December 31, 2021 and 2020.

Fees and Services

The following table represents aggregate fees billed to us for services related to the fiscal years ended December 31, 2021 and 2020 by Ernst & Young LLP, our independent registered public accounting firm:

 

Fees

 

2021

 

 

2020

 

Audit Fees(1)

 

$

1,309,944

 

 

$

1,702,583

 

Tax Fees(2)

 

 

88,190

 

 

 

143,582

 

All Other Fees(3)

 

 

530

 

 

 

2,340

 

Total

 

$

1,398,664

 

 

$

1,848,505

 

(1)

In 2021, Audit Fees consisted of fees and expenses covering the audit of our consolidated financial statements, review of the interim condensed consolidated financial statements, statutory audits, accounting and financial reporting consultations, and the issuance of consents in connection with registration statement filings with the SEC and comfort letters in connection with registered securities offerings.  In 2020, Audit fees consisted of fees and expenses covering the integrated audit of our consolidated financial statements, our internal control over financial reporting, review of the interim condensed consolidated financial statements, statutory audits, accounting and financial reporting consultations, and the issuance of consents in connection with registration statement filings with the SEC and comfort letters in connection with registered securities offerings.

(2)

Tax Fees consisted of fees and expenses for corporate tax compliance, routine on-call tax services, international tax advisory services, indirect (non-income) tax advisory and tax incentives and domestic tax advisory services.

(3)

All Other Fees consisted of fees billed in the indicated year for an annual subscription to Ernst & Young LLP’s online resource library.

All of the services described above were pre-approved by our Audit Committee. The Audit Committee concluded that the provision of these services by Ernst & Young LLP would not affect their independence.

Report of the Audit Committee of the Board of Directors

The Audit Committee reviews our financial reporting process on behalf of the Board. Management has the primary responsibility for the preparation and integrity of the consolidated financial statements and the reporting process, including establishing and monitoring the system of internal financial controls. In this context, the Audit Committee hereby reports as follows:

 

1.

The Audit Committee has reviewed and discussed our audited consolidated financial statements and internal control over financial reporting for the year ended December 31, 2021 with management.

 

2.

The Audit Committee has discussed with Ernst & Young LLP, our independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of our consolidated financial statements with generally accepted accounting principles in the United States, its judgments as to the quality, not just the acceptability, of our accounting principles and such other matters required to be

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discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the U.S. Securities and Exchange Commission.

 

3.

The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with Ernst & Young LLP its independence from the Company and management.

 

4.

Based on the review and discussions described above, among other things, the Audit Committee has recommended to the Board that the audited consolidated financial statements and management’s assessment of the effectiveness of our internal control over financial reporting be included in our Annual Report on Form 10‑K for fiscal year ended December 31, 2021.

 

Submitted by:

 

The Audit Committee
Anthony E. Altig, Chair
Gina Consylman
William R. Ringo, Jr.

 

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Proposal No. 3: Ratification of the Selection of the Independent Registered Public Accounting Firm

General

The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022. Ernst & Young LLP has served as our independent registered public accounting firm since 2015.

Neither our Amended and Restated Bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm. However, the Board is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interest of the Company and its stockholders. Representatives of Ernst & Young LLP are expected to attend the Annual Meeting, where they will have an opportunity to make a statement and be available to respond to appropriate questions.

Required Vote

Assuming a quorum is present, to be approved, the affirmative vote of the majority of the votes cast on Proposal No. 3 must be voted “FOR” the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022. Abstentions and broker non‑votes will not be considered towards vote totals on Proposal No. 3.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

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Proposal No. 4: Approval of an Amendment to the Assembly Biosciences, Inc. 2018 Stock Incentive Plan

Background

On May 30, 2018, we adopted the Assembly Biosciences, Inc. 2018 Stock Incentive Plan, which has been subsequently amended by Amendment No. 1 to Assembly Biosciences, Inc. 2018 Stock Incentive Plan effective as of May 17, 2019, Omnibus Amendment to Assembly Biosciences, Inc. Stock Plans effective as of March 11, 2020, Amendment No. 3 to Assembly Biosciences, Inc. 2018 Stock Incentive Plan, effective as of June 11, 2020 and Amendment No. 4 to Assembly Biosciences, Inc. 2018 Stock Incentive Plan, effective as of May 20, 2021 (as amended from time to time, the 2018 Plan). The 2018 Plan provides for the grant of equity awards to our employees, non-employee directors and consultants and is necessary to ensure that we can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board, the Compensation Committee and/or the Chief Executive Officer pursuant to his Board delegated authority.

As of March 28, 2022, there were stock options to acquire 6,048,294 shares of common stock and 13,635 cash settled stock appreciation rights (SARs) outstanding under our equity compensation plans. In addition, there were 529,052 shares subject to unvested restricted stock units (RSUs) with time-based vesting and 374,214 shares subject to unvested RSUs with performance-based vesting outstanding under our equity compensation plans. As of March 28, 2022, there were approximately 4,442,171 shares of common stock available and unallocated under our equity compensation plans, of which 234,169 shares are only issuable as inducement awards to new employees under our 2017 Inducement Award Plan, our 2019 Inducement Award Plan and our 2020 Inducement Award Plan collectively. As a result, as of March 28, 2022, there were approximately 4,208,002 shares of common stock available under our shareholder approved plans, of which 3,477,513 shares of common stock remain available and unallocated for issuance under the 2018 Plan.

After the record date for the Annual Meeting, on March 29, 2022, we issued an aggregate of annual performance equity awards to our employees totaling 2,204,825 shares or common stock, which consisted of stock options to acquire 1,460,550 shares of our common stock, 475,275 RSUs with time-based vesting, 255,000 RSUs with performance-based vesting and 14,000 cash settled SARs under our 2018 Plan. As a result, as of March 29, 2022, there were 1,272,688 shares of common stock available and unallocated for issuance under the 2018 Plan.

We also expect to issue an additional 140,000 stock options under the 2018 Plan at the Board meeting immediately following the Annual Meeting in connection with the re-election of seven non-employee directors.

On March 10, 2022, the Board, upon the recommendation of the Compensation Committee and subject to the approval of our stockholders at the Annual Meeting, approved Amendment No. 5 to the 2018 Plan (the Amendment) to increase the number of shares reserved under the 2018 Plan from 6,600,000 to 8,600,000 (as further amended, the Amended Plan). The proposed increase of 2,000,000 shares equals approximately 4.2% of the Company’s outstanding shares. It should be noted that in Proposal No. 6 (approval of a stock option exchange program for non-executive employees) is approved and the exchange is conducted, shares from exchanged options that are in excess of the shares needed to issue replacement grants (as described in Proposal No. 6) will not be returned to the plan pool under the 2018 Plan.

Purpose

The purpose of the Amended Plan is to encourage ownership in the Company by our employees, directors and consultants and our affiliates whose long-term employment by, or involvement with, us is considered essential to our continued progress. Our culture of ownership aligns the interests of equity award recipients and stockholders and also permits award recipients to share in our success alongside our stockholders. The Amended Plan provides an essential component of the total compensation package offered to our employees and other 2018 Plan participants. It reflects the importance that we place on both motivating and retaining employees and other 2018 Plan participants to achieve superior results over the long term and rewarding our employees and other 2018 Plan participants based on long-term achievements. We strongly believe that our equity compensation programs and emphasis on employee and non-employee director stock ownership have been integral to building and retaining a strong employee base. We also believe these programs have contributed to our continued pipeline progress and serve as valuable motivation for or employees as we seek to achieve superior performance in the future. All of our, and our affiliates’, employees, directors and our consultants are eligible to participate in the Amended Plan.

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The purpose of the Amendment is to increase the number of shares reserved for issuance under the 2018 Plan by 2,000,000 shares. We believe the ability to grant market-competitive equity awards is a necessary and powerful recruiting and retention tool for us to attract and retain the quality and number of personnel we need to continue the forward momentum of our business. Our employees are critical to the continued development of: (1) our lead core inhibitor product candidate in our hepatitis B virus (HBV) program, vebicorvir (VBR), which is in ongoing Phase 2 clinical studies evaluating VBR in combination with other HBV therapeutics with different mechanisms of action, the advancement of our next generation core inhibitor product candidates; (2) ABI-H3733 (currently in Phase 1b clinical studies) and ABI-4334 (currently undergoing Investigational New Drug enabling studies), through clinical development; (3) a HBV/hepatitis D virus (HDV) entry inhibitor, molecules that disrupt covalently closed circular DNA (cccDNA); and (4) a small molecule targeting a novel, currently undisclosed target to add to combination treatments with our core inhibitor product candidates, as well as other small molecules targeting other novel, currently undisclosed targets outside of HBV.

We believe that 2,000,000 shares is a modest increase that will be sufficient to meet our retention and anticipated hiring needs until the next annual meeting of stockholders and will underpin one of our core compensation philosophies, pay for performance, by giving our employees and other 2018 Plan participants the opportunity to share in our long-term success and motivate the creation of long-term stockholder value through equity compensation.  

Rationale

We believe you should vote to approve the Amendment for the following reasons:

 

Ability to continue to make equity grants helps us avoid unnecessary business disruption. If the Amendment is not approved, we may have to restructure existing compensation programs for reasons not directly related to the achievement of our business objectives. Such restructuring will likely necessitate the replacement of components of compensation to be awarded in equity with cash, or with other instruments that may not necessarily align employee interests with those of stockholders as effectively as equity awards do. If we were to replace equity awards with cash, this would divert our cash reserves away from our research and development activities and our clinical studies, which would negatively impact the progress of our product candidates and research and development activities, and in turn, impair stockholder value. We believe that such actions would be highly disruptive to both our business and our employees.

 

We are committed to sound equity compensation practices. We recognize that equity compensation awards dilute stockholder equity and must be used prudently. We strive to align our compensation practices with industry norms among our peer group described in this proxy statement under “Executive Compensation—Executive Summary—How We Determine Executive Compensation—Role of the Compensation Committee; Oversight of Executive Compensation—Peer Group Process.” We believe our use of equity has consistently been responsible and mindful of stockholder interests.

 

Equity awards align the interests of management with those of stockholders. We believe the grant of equity awards, particularly stock options and performance-based vesting RSUs, are effective tools to align management and stockholder interests, as management only realizes value from these awards if our stock price appreciates and meaningful performance metrics are achieved.

 

The Amended Plan contains provisions that protect stockholder interests. The Amended Plan contains features designed to strongly align the interests of our employees and directors with those of our stockholders, including a minimum vesting requirement of one year for all time-vesting awards that are made to employees, subject to acceleration in the event of death, disability, retirement, separation of service or a Corporate Transaction (as defined below), and a minimum vesting requirement of the earlier of (1) one year and (2) the next annual meeting of the stockholders for time-based vesting awards that are made to directors, subject to acceleration in the event of death, disability or a Corporate Transaction (as discussed below). The Amended Plan also has no automatic acceleration of vesting provisions upon a Corporate Transaction unless the equity awards are not assumed in connection with the Corporate Transaction.

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Equity compensation helps us to attract and retain talent. A talented, motivated and effective management team and workforce are essential to our continued progress. Equity compensation is an important component of our total compensation because we believe it will incentivize managers and employees to think and act like owners. Our employees are our most valuable assets, and the equity awards granted under the Amended Plan are vital to our ability to both attract and retain outstanding and highly skilled team members. To align the interests of our new hires with those of our current stockholders, our practice is to provide new hires with meaningful initial equity awards upon hiring. Of the 2,242,711 shares of common stock underlying equity awards granted in 2021, approximately 15% were issued to new hires, 23% were issued as retention awards to existing employees and 7% were issued to non-employee directors. We plan to continue our practice of providing meaningful initial equity awards to new hires, as well as making annual performance awards and retention award grants to existing employees to ensure continued alignment with our stockholders. We believe that our stockholders’ long-term interests are best served by maintaining these equity compensation practices. If the Amendment is not approved by stockholders, retaining the best talent will be increasingly difficult, particularly during the current highly competitive labor market as the number of shares available and unallocated under the 2018 Plan is projected to fall below the number of shares of common stock that we will need to grant annual performance equity awards to employees in 2023 at levels comparable to those granted in 2022.

 

We recruit employees in highly competitive labor markets and need to provide competitive compensation arrangements to attract and retain talent. The San Francisco Bay Area, where we are headquartered and where 80% of our employees are located, is among the most challenging markets in the world for hiring, particularly for life sciences and biotechnology companies. The challenges of recruiting in the Bay Area have been exacerbated by recent hiring trends, as the labor market nationwide has become increasingly competitive over the last several years. To continue to attract and retain an experienced and highly educated workforce with the skills necessary to advance our programs, we need to offer competitive compensation packages consisting of attractive cash and equity components. Our Compensation Committee has retained Aon’s Human Capital Solutions practice, which is a part of Aon plc (Aon) to serve as an independent outside compensation consultant. In this capacity, Aon collects and analyzes compensation information from a comparative group of biotechnology companies and provides us with recommendations regarding these compensation packages.

 

Our current equity-pay mix aligns employee incentives with stockholder gains. Our employee compensation consists of base salary payable in cash, annual performance-based cash bonuses and long-term incentives in the form of equity awards. Our annual long-term performance equity incentive award grants are a combination of stock option and RSUs; however, in certain circumstances, the Compensation Committee may consider other equity awards under the Amended Plan, including restricted stock, SARs and dividend equivalent rights. Equity awards provide effective incentives for our employees to work toward achieving business results and scientific advances that will increase the long-term value of our stock as employees only realize value from stock options and SARs if the shares of common stock appreciate and the value of other equity awards depends on the price of our common stock.

2019 – 2021 Burn Rate and Outstanding Awards Overhang

The following tables provide certain additional information regarding our equity incentive program and our equity burn rate over the last three years and overhang as of March 29, 2022. Note that burn rate and overhang are calculated on a non-diluted basis.

Burn Rate

In late 2019, we began the transition of our leadership from our remaining founders to an executive team led by John G. McHutchison, A.O., M.D. After Dr. McHutchison joined us, Luisa M. Stamm, M.D., Ph.D., our Chief Medical Officer, and a new Chief Financial Officer, who left the Company in June 2021, each joined in 2019. In 2020, Jason A. Okazaki, now our Chief Operating Officer, joined as Chief Legal and Business Officer, William E. Delaney IV, Ph.D. joined as Chief Scientific Officer and Nicole S. White, Ph.D., now our Chief Manufacturing Officer, joined as SVP of Pharmaceutical Development and Manufacturing. In each case, these critical hires were offered total compensation packages that included inducement equity grants.

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In 2021, we completed the wind-down of our Microbiome program, which included all of our Microbiome staff leaving the company, and the Chief Financial Officer hired in 2019 left the Company. Both of these events resulted in significant forfeitures of awards. Also in 2021, due to the steep declines of our stock price in 2020 and 2021, we implemented a broad-based supplemental equity award program, which led to more awards being granted than occurs in a typical year. For full details regarding the supplemental equity award program, see “Executive Compensation—Summary Compensation Table—Narrative Disclosure to Summary Compensation Table—Long-Term Equity Incentive Awards—Performance-Based Retention Equity Grants.”

Burn Rate

 

2019

 

 

2020

 

 

2021

 

Stock options granted

 

 

1,948,700

 

 

 

1,649,340

 

 

 

1,521,370

 

Full value shares granted

 

 

465,428

 

 

 

536,164

 

 

 

721,341

 

Total equity awards

 

 

2,414,128

 

 

 

2,185,504

 

 

 

2,242,711

 

Weighted average common shares outstanding

 

 

26,258,790

 

 

 

35,427,120

 

 

 

43,280,383

 

Burn rate(1)

 

 

9.2

%

 

 

6.2

%

 

 

5.2

%

Total equity awards forfeited

 

 

512,582

 

 

 

501,403

 

 

 

2,337,635

 

Net burn rate(2)

 

 

7.2

%

 

 

4.8

%

 

 

-0.2

%

 

(1)

Burn Rate equals number of shares subject to equity awards granted during a fiscal year divided by weighted average common shares outstanding for that fiscal year.

(2)

Net Burn Rate equals (a) number of shares subject to equity awards granted during a fiscal year minus total equity awards forfeited during that fiscal year, divided by (b) weighted average shares of common stock outstanding for that fiscal year.

Outstanding Awards Overhang

Prior to 2018, in connection with our founders and certain other employees leaving the Company, it was the Company’s practice to extend stock options until the end of their ten-year term rather than cause them to be forfeited following those employees’ departures. No members of the leadership team that began and continued that practice remain with the Company. This practice has caused our overhang to be higher than many of our peer companies due to the large number of equity awards held by former employees. As time passes, we expect our overhang pressure to be significantly reduced. For example, 927,238 stock options held by former members of management are scheduled to expire in 2024. However, until these legacy awards expire or are exercised, it is imperative that we maintain a sufficient number of shares under the 2018 Plan for the reasons described above under “Rationale.”

Current Overhang (As of March 29, 2022)

 

 

 

 

Total number of shares of common stock subject to outstanding stock options(1)

 

 

7,508,844

 

Weighted-average exercise price of outstanding stock options

 

$

9.86

 

Weighted-average remaining term of outstanding stock options

 

6.98 years

 

Total number of shares of common stock subject to outstanding full value awards(2)

 

 

1,633,541

 

Total number of shares of common stock available for grant under our equity compensation plans

 

 

2,237,346

 

Total number of shares of common stock subject to outstanding stock options and outstanding full value awards(1)(2)

 

 

9,142,385

 

Total number of shares of common stock outstanding

 

 

48,120,437

 

Per-share closing price of common stock as reported on Nasdaq Global Select Market

 

$

2.30

 

 

(1)

Includes shares underlying stock options that will not be available to return to the 2018 Plan if such stock options are forfeited or terminate, including the following: 278,369 under the 2010 Equity Incentive Plan (2010 Plan); 1,747,501 under the Assembly Biosciences, Inc. Amended and Restated 2014 Stock Incentive Plan (2014 Plan); 588,540 under the 2017 Inducement Award Plan (2017 Inducement Plan); 500,000 under the 2019 Inducement Award Plan (2019 Inducement Plan); 662,769 under the 2020 Inducement Award Plan (2020 Inducement Plan); and 466,238 options assumed by us in connection with our merger with Assembly Pharmaceuticals.

(2)

Includes shares underlying RSUs that will not be available to return to the 2018 Plan if such RSUs are forfeited or terminated, including the following: 7,077 under the 2014 Plan; 7,500 under the 2017 Inducement Plan; and 58,750 under the 2020 Inducement Plan.

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We also expect to issue an additional 140,000 stock options under the 2018 Plan at the Board meeting immediately following the Annual Meeting in connection with the election of seven non-employee directors.

The closing price of our common stock as reported on The Nasdaq Global Select Market on March 28, 2022, the record date for this annual meeting, was $2.18.

Material Terms of the Amended Plan

The following is a summary of the principal provisions of the Amended Plan and its operation, including the proposed Amendment. A copy of the proposed Amendment is attached as Appendix A to this proxy statement. A copy of the full 2018 Plan (as amended to date), with proposed deletions indicated by strike-out and proposed revisions to be made by the Amendment indicated by bold and underline, is attached as Appendix B to this proxy statement and is incorporated herein by reference. The following description of the Amended Plan does not purport to be complete and is qualified in its entirety by reference to Appendix B. Capitalized terms used in this summary and not otherwise defined will have the meanings ascribed to such terms in the Amended Plan.

Purpose of the Amended Plan. The purpose of the Amended Plan is to encourage ownership in the Company by employees, directors and consultants of the Company and its affiliates whose long-term employment by or involvement with the Company is considered essential to our continued progress and, thereby, aligning the interests of the award recipients and stockholders and permitting the award recipients to share in our success. The Amended Plan provides an essential component of the total compensation package offered to our employees and other plan participants. It reflects the importance we place on motivating employees and other plan participants to achieve superior results over the long-term and paying employees and other plan participants based on such achievements. We strongly believe that our equity compensation programs and emphasis on employee and non-employee director stock ownership have been integral to our progress and that a continuation of, and emphasis on, those programs is necessary for us to achieve superior performance in the future. All of our employees, directors and consultants and those of our affiliates are eligible to participate in the Amended Plan.

Types of Awards.  The Amended Plan provides for the grant of non-qualified and incentive stock options (Options), SARs, dividend equivalent rights, unrestricted stock, restricted stock, RSUs or other rights or benefits under the Amended Plan (collectively, Awards).

Shares Subject to the Amended Plan.  No more than 8,600,000 shares of common stock may be issued pursuant to Awards under the Amended Plan. The number of shares available for Awards, as well as the terms of outstanding Awards, are subject to adjustment as provided in the Amended Plan for stock splits, stock dividends, recapitalizations and other similar events.

Each share of common stock subject to an Award granted pursuant to the Amended Plan will reduce the aggregate number of shares available under the Amended Plan by one share of common stock. Any shares of common stock that again become available for issuance under the Amended Plan due to a forfeiture, expiration or cancellation of an Award (or if the Award otherwise becomes unexercisable) will generally be added back to the aggregate plan limit of the Amended Plan in this same manner and such shares will again be available for subsequent Awards, except as prohibited by law. In the event any Option or other Award granted under the Amended Plan is exercised through the tendering of shares of common stock (either actually or through attestation) or withholding shares of common stock, or in the event tax withholding obligations are satisfied by tendering or withholding shares of common stock, any shares of common stock so tendered or withheld shall not again be available for awards under the Amended Plan. Shares of Common Stock subject to a SAR granted pursuant to Section 6(k) of the Amended Plan that are not issued in connection with cash or stock settlement of the exercise of the SAR shall not again be available for award under the Amended Plan. Shares of common stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options shall not be available for awards under the Amended Plan.

Director Compensation Limit. The Amended Plan provides that the grant date value of all Awards awarded under the Amended Plan and all other cash compensation paid by the Company to any non-employee director in any calendar year shall not exceed $1,000,000.

Administration. The Amended Plan will be administered by the Board or a committee designated by the Board (the Committee), which committee is constituted in such a manner as to satisfy the applicable laws and to permit such

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grants and related transactions under the Amended Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. Currently, the Compensation Committee generally serves as the Committee specified in the Amended Plan and acts as the administrator thereunder; however, the Board delegated authority to our Chief Executive Officer acting as a committee of one to serve as the administrator in the context of granting awards under the Amended Plan to newly hired employees or in connection with promotions to individuals that are not Section 16 officers, direct reports of the Chief Executive Officer or above the level of Vice President. Awards granted by the Chief Executive Officer are limited to a preset range prepared in consultation with our Compensation Consultant and consistent with our compensation philosophy. We refer to the entity or individual administering the Amended Plan as the Administrator.

Subject to the terms of the Amended Plan, the Administrator has express authority to determine the employees, directors or consultants who will receive Awards, the number of shares of common stock or other consideration to be covered by each Award, and the terms and conditions of Awards. The administrator has broad discretion to prescribe, amend and rescind rules relating to the Amended Plan and its administration, to interpret and construe the Amended Plan and the terms of all Award agreements, and to take all actions necessary or advisable to administer the Amended Plan or to effectuate its purposes. Subject to the terms of the Amended Plan, the administrator may accelerate the vesting of any Award, allow the exercise of unvested Awards, and may modify, replace, cancel or renew any Award.

Indemnification. We will indemnify and defend members of the Committee and their delegates 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 Amended Plan, or any Award granted thereunder, 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 matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within 30 days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to us, in writing, the opportunity at our expense to defend the same.

Minimum Vesting. Time-based awards granted to employees under the Amended Plan are subject to a one-year minimum vesting requirement other than in the case of death, disability, retirement, separation of service or a Corporate Transaction. Time-based awards granted to directors under the Amended Plan may not vest until the earlier of one year from the grant date and the next annual meeting of the stockholders, other than in the case of death, disability or a Corporate Transaction.

Eligibility. The Administrator may grant Options that are intended to qualify as incentive stock options (ISOs) only to employees of the Company or an affiliate that is a “parent corporation” or “subsidiary corporation” within the meaning of Section 424 of the Code, and may grant all other Awards to any employee, director or consultant. The Amended Plan and the discussion below use the term “Grantee” to refer to the holder of an Award, or the shares of common stock issuable or issued upon exercise, vesting or settlement of an Award, under the Amended Plan.

Options. Options granted under the Amended Plan provide Grantees with the right to purchase shares of common stock at a predetermined exercise price. The Administrator may grant Options that are intended to qualify as ISOs or Options that do not so qualify (Non-Qualified Stock Options). To qualify as ISOs, Options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to ISOs that first become exercisable by a Grantee in any one calendar year.

Exercise Price of Options. The exercise price of ISOs granted to Grantees who own more than ten percent of the common stock of the Company or an affiliate on the grant date of the ISO may not be less than 110% of the fair market value of the shares of common stock subject to the ISO on the grant date. The exercise price of all other Options may not be less than 100% of the fair market value of the shares of common stock subject to the Option on the grant date.

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Exercise of Options. To the extent exercisable in accordance with the applicable Award agreement, each Option may be exercised in whole or in part, and from time to time during its term, subject to earlier termination relating to a Grantee’s termination of continuous service. With respect to Options, the Administrator has the discretion to accept payment of the exercise price by any of the following methods (or any combination of them): cash or check in U.S. dollars, promissory note with such recourse, interest, security and redemption provisions as the Administrator determines, surrender of shares of common stock, broker assisted exercise, with respect to Options that are not ISOs, by net exercise or by past or future services rendered to the Company or an affiliate. No more than 4,600,000 shares of common stock may be granted in the form of incentive stock options.

Prohibition on Repricing. Except in connection with certain corporate adjustment events, we may not, without stockholder approval, amend an Award granted under the Amended Plan to reduce the Award’s exercise price per share, cancel and regrant new Awards with lower prices per share than the original price per share of the cancelled Awards, or cancel any Awards in exchange for cash or the grant of replacement Awards with an exercise price that is less than the exercise price of the original Awards, essentially having the effect of a repricing.

Restricted Stock and Restricted Stock Units. The Administrator may grant (1) shares of restricted stock that are forfeitable until certain vesting requirements are met and (2) RSUs that represent the right to receive payment, in cash or in shares of common stock or other securities or a combination thereof, subject to the passage of time and continuous service or the attainment of performance criteria as established by the Administrator. The Administrator has discretion to determine the terms and conditions under which a Grantee’s interests in restricted stock and RSUs become vested and non-forfeitable.

Unrestricted Stock. The Administrator may grant unrestricted stock in lieu of paying cash compensation.

Dividend Equivalent Rights. The Administrator may grant awards of dividend equivalent rights, which entitle the Grantee to compensation measured by dividends paid with respect to shares of common stock.

Income Tax Withholding. As a condition for the issuance of shares of common stock pursuant to Awards, the Amended Plan requires the Grantee to make such arrangements as we may require for satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the Award or the issuance of shares of common stock. Subject to approval by the Administrator, Grantees may elect to have their tax withholding obligations satisfied by tendering previously owned shares of common stock or authorizing the Company to withhold shares of common stock to be issued pursuant to exercise or vesting. Any shares held back to satisfy such tax withholding will not be available for future issuance under the Amended Plan.

Transferability. Unless the Administrator provides otherwise, in its sole discretion, 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.

Certain Corporate Transactions. Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Amended Plan shall terminate unless they are assumed or replaced in connection with the Corporate Transaction. To the extent all outstanding Awards granted under the Amended Plan shall terminate, except as may be otherwise expressly provided in the relevant Award Agreement, all Awards with solely time-based vesting that are not vested and/or exercisable immediately prior to the effective time of the Corporate Transaction shall become fully vested and exercisable as of immediately prior to the effective time of the Corporate Transaction and all Awards with conditions and restrictions relating to the attainment of performance goals shall be deemed to vest and become nonforfeitable as of the Corporate Transaction as provided in the relevant Award Agreement or if not provided for in the relevant Award Agreement shall be deemed to vest and become nonforfeitable as of the Corporate Transaction assuming the higher of (a) achievement of all relevant performance goals at the “target” level (prorated based upon the length of time within the performance period that has elapsed prior the Corporate Transaction or partial achievement of the performance goals), or (b) actual achievement of all relevant performance goals as of the date of such Corporate Transaction. In the event of such termination of the Awards, the Company shall have the option (in its sole discretion) to (1) make or provide for a payment, in cash or in kind, to the Grantees holding Options and SARs, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of Shares subject to outstanding Options and SARs and (B) the aggregate exercise price of all such outstanding Options and SARs (provided that, in the case of an Option or SAR with an exercise price equal to or more than the Sale Price, such Option or SAR shall be cancelled for no

38


 

consideration); or (2) permit each Grantee, within a specified period of time prior to the consummation of the Corporate Transaction as determined by the Administrator, to exercise all outstanding Options and SARs (to the extent then exercisable including due to acceleration as contemplated by Section 13(a) of the Amended Plan if the Awards are not assumed or replaced) held by such Grantee as of immediately prior to the effective time of the Corporate Transaction. In the event of a termination of Awards pursuant to Section 13(a) of the Amended Plan, the Company shall also have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the Grantees holding other Awards in an amount equal to the Sale Price multiplied by the number of vested Shares under such Awards. For purposes of Section 13(a) of the Amended Plan, “Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share pursuant to a Corporate Transaction.

The Administrator has the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or at the time of an actual Corporate Transaction and exercisable at the time of the grant of an Award under the Amended Plan or any time while an Award remains outstanding, to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested Awards under the Amended Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a Corporate Transaction on such terms and conditions as the Administrator may specify. The Administrator also shall have the authority to condition any such Award vesting and exercisability or release from such limitations upon the subsequent termination of the continuous service of the Grantee within a specified period following the effective date of the Corporate Transaction. The Administrator may provide that any Awards so vested or released from such limitations in connection with a Corporate Transaction shall remain fully exercisable until the expiration or sooner termination of the Award. Any ISOs accelerated in connection with a Corporate Transaction shall remain exercisable as an ISO under the Code only to the extent the $100,000 limitation of Section 422(d) of the Code is not exceeded.

“Corporate Transaction” means any of the following transactions, provided, however, that the Administrator shall determine under (4) and (5) whether multiple transactions are related, and its determination shall be final, binding and conclusive: (1) a merger or consolidation in which we are not the surviving entity, except for a transaction the principal purpose of which is to change the state in which we are incorporated; (2) the sale, transfer or other disposition of all or substantially all of our assets; (3) the complete liquidation or dissolution of the Company; (4) 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 we are the surviving entity but (A) the shares of common stock 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 our 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 (5) 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 our outstanding securities.

Term of the Amended Plan; Amendments and Termination.  The term of the Amended Plan is ten years from May 30, 2018, except that no ISOs may be granted after April 5, 2028. The Board may, from time to time, amend, alter, suspend, discontinue or terminate the Amended Plan; provided, that any amendment to increase the number of shares of common stock available for Awards under the Amended Plan and certain other amendments will be subject to stockholder approval. Additionally, no amendment, suspension or termination of the Amended Plan shall materially and adversely affect Awards already granted unless it relates to an adjustment pursuant to certain transactions that change our capitalization or it is otherwise mutually agreed between the Grantee and the Administrator.

Notwithstanding the foregoing, the Administrator may adopt such amendments to the Amended Plan and the applicable award agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (1) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (2) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.

Expected U.S. Federal Income Tax Consequences. The following is a brief summary of certain U.S. federal tax consequences of certain transactions under the Amended Plan. This summary is not intended to be complete and does not describe state or local tax consequences. Grantees in the Amended Plan should review the current tax

39


 

treatment with their individual tax advisors at the time of grant, exercise, vesting or any other transaction relating to an Award or the underlying shares.

Under the Code, we will generally be entitled to a deduction for U.S. federal income tax purposes at the same time and in the same amount as the ordinary income that Grantees recognize pursuant to Awards. For Grantees, the expected U.S. federal income tax consequences of Awards are as follows:

 

Non-Qualified Stock Options. A Grantee will not recognize income at the time a Non-Qualified Stock Option is granted. At the time a Non-Qualified Stock Option is exercised, the Grantee will recognize ordinary income in an amount equal to the excess of (a) the fair market value of the shares of common stock issued to the Grantee on the exercise date over (b) the exercise price paid for the shares. At the time of sale of shares acquired pursuant to the exercise of a Non-Qualified Stock Option, the appreciation (or depreciation) in value of the shares after the date of exercise will be treated either as short-term or long-term capital gain (or loss) depending on how long the shares have been held.

 

ISOs. A Grantee will not recognize income upon the grant of an ISO. There are generally no tax consequences to the Grantee upon exercise of an ISO (except that the amount by which the fair market value of the shares at the time of exercise exceeds the option exercise price is a tax preference item possibly giving rise to an alternative minimum tax). If the shares of common stock are not disposed of within two years from the date the ISO was granted or within one year after the ISO was exercised, any gain realized upon the subsequent disposition of the shares will be characterized as long-term capital gain and any loss will be characterized as long-term capital loss. If either of these holding period requirements are not met, then a “disqualifying disposition” occurs and (a) the Grantee recognizes ordinary income in the amount by which the fair market value of the shares at the time of exercise exceeded the exercise price for the ISO and (b) any remaining amount realized on disposition (except for certain “wash” sales, gifts or sales to related persons) will be characterized as capital gain or loss.

 

Stock Appreciation Rights. A Grantee will not recognize income at the time a SAR is granted. At the time a SAR is exercised, the Grantee will recognize ordinary income in an amount equal to the excess of (a) the fair market value of the shares of common stock issued or the amount of cash paid, to the Grantee on the exercise date over (b) the exercise price paid for the shares. At the time of sale of shares acquired pursuant to the exercise of a SAR, the appreciation (or depreciation) in value of the shares after the date of exercise will be treated either as short-term or long-term capital gain (or loss) depending on how long the shares have been held.

 

Restricted Stock and Restricted Stock Units. In general, a Grantee will not recognize income at the time of grant of restricted stock or RSUs, unless the Grantee elects with respect to restricted shares to accelerate income taxation to the date of a restricted stock award by making a timely Section 83(b) election. If the Grantee makes such an election, such Grantee would recognize ordinary compensation income equal to the excess of the fair market value of the restricted shares on the grant date over any amount the Grantee pays for them (in which case subsequent gain or loss would be capital in nature). In the absence of an election to accelerate income taxation to the date of an Award, a Grantee will recognize taxable compensation income at the time the Award vests in an amount equal to the excess of the fair market value of any property that the Grantee receives over the amount paid for such property by the Grantee, or, in the case of RSUs, upon receipt of cash or shares of common stock.

 

Unrestricted Stock. In general, a Grantee will recognize income at the time of grant of unrestricted stock.

 

Parachute Payments. Under certain circumstances, the grant, accelerated vesting, cash-out or accelerated lapse of restrictions on Awards in connection with a change in control of the Company might be deemed an “excess parachute payment” for purposes of the golden parachute tax provisions of Code Section 280G, and the Grantee may be subject to a 20% excise tax and we may be denied a tax deduction.

 

Income Taxes and Deferred Compensation. The Amended Plan provides that Grantees are solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with Awards (including any taxes arising under Section 409A of the Code). Nevertheless, the Amended Plan permits the Administrator to establish one or more programs under the Amended Plan to permit selected

40


 

 

Grantees the opportunity to elect to defer receipt of consideration upon exercise or vesting of an Award or other event that absent the election would entitle the Grantee to payment or receipt of shares of common stock 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 of common stock 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.

Eligibility

Persons eligible to participate in the Amended Plan are our employees, directors and other consultants and those of our affiliates as selected from time to time by the Administrator in its discretion. As of March 28, 2022, approximately 112 individuals are currently eligible to participate in the Amended Plan, which includes five executive officers, 100 full-time employees who are not executive officers and seven non-employee directors. At this time, we do not have any plans to make future grants to any consultants.

New Plan Benefits

Because the grant of Awards under the Amended Plan is within the discretion of the Administrator, we cannot determine the dollar value or number of shares of common stock that will in the future be received by or allocated to any participant in the Amended Plan. Accordingly, in lieu of providing information regarding benefits that will be received under the Amended Plan, the following table provides information concerning the benefits that were received by the following persons and groups during 2021 under the 2018 Plan: (a) each named executive officer; (b) all current executive officers, as a group; (c) all current directors who are not executive officers, as a group; and (d) all employees who are not executive officers as a group.

 

 

Options

 

 

Stock Awards

 

Name and Position

 

Weighted

Average

Exercise

Price

($)

 

 

Number of

Awards

(#)

 

 

Dollar Value

($)(1)

 

 

 

Number of

Awards

(#)

 

John G. McHutchison, A.O., M.D.

   Chief Executive Officer and President

 

 

4.33

 

 

 

305,000

 

 

 

419,475

 

 

 

 

117,500

 

Jason A. Okazaki

   Chief Operating Officer

 

 

4.33

 

 

 

82,500

 

 

 

184,488

 

 

 

 

48,750

 

William E. Delaney IV, Ph.D.

   Chief Scientific Officer

 

 

4.33

 

 

 

67,500

 

 

 

173,663

 

 

 

 

46,250

 

All current executive officers, as a group

 

 

4.33

 

 

 

455,000

 

 

 

777,625

 

(2)

 

 

212,500

 

All current directors who are not executive officers, as a

   group(3)

 

 

4.03

 

 

 

120,000

 

 

 

 

 

 

 

 

All current employees who are not executive officers, as

   a group

 

 

4.33

 

 

 

400,250

 

 

 

1,604,883

 

 

 

 

422,963

 

 

(1)

The valuation of stock awards is based on the grant date fair value computed in accordance with FASB ASC Topic 718. For a discussion of the assumptions used in calculating these values, see Note 9 to of the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

(2)

Represents the aggregate grant date fair value for the group.

(3)

Non-employee directors including Mr. Ringo, Mr. Altig, Ms. Consylman, Dr. DiMarchi, Mr. Holubiak and Dr. Mahony were granted options to purchase 15,000 shares of common stock at the Board meeting following the 2021 Annual Meeting in connection with their re-election to the Board at the 2021 Annual Meeting. Dr. Johnson-Pratt was granted options to purchase 30,000 shares of common stock at the Board meeting following the 2021 Annual Meeting in connection with her election to the Board at the 2021 Annual Meeting.

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Equity Plans

The following table sets forth information as of December 31, 2021 regarding shares of common stock that may be issued under our equity compensation plans:

Plan Category

 

Number of

securities to be

issued upon

exercise of

outstanding

options,

warrants

and rights

(a)

 

 

 

Weighted

average

exercise

price of

outstanding

options,

warrants

and rights(1)

(b)

 

 

Number of

securities

remaining

available for

future

issuance

under equity

compensation

plans

(excluding

securities

reflected in

column (a))

(c)

 

 

Equity compensation plans approved by our stockholders

 

 

5,271,260

 

(2)

 

$

10.47

 

 

 

5,114,258

 

(3)

Equity compensation plans not approved by our stockholders

 

 

1,860,980

 

(4)

 

$

14.98

 

 

 

203,248

 

(5)

Total

 

 

7,132,240

 

 

 

 

 

 

 

 

5,317,506

 

 

 

(1)

The weighted average exercise price is calculated solely based on the exercise prices of the outstanding stock options and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs, which have no exercise price.

(2)

This number includes the following: 278,369 shares subject to stock options granted under the 2010 Plan; 1,751,322 shares subject to outstanding awards granted under the 2014 Plan, of which 1,743,308 were subject to outstanding stock options and 8,014 were subject to outstanding RSUs; 2,788,966 shares subject to outstanding awards granted under the 2018 Plan, of which 1,891,756 were subject to outstanding stock options, 883,575 were subject to outstanding RSUs and 13,635 are underlying stock appreciation rights (which are not included in column (a) but are reflected in column (c)); and 466,238 options assumed by us in connection with our merger with Assembly Pharmaceuticals. This number excludes purchase rights currently accruing under the Assembly Biosciences, Inc. Amended and Restated 2018 Employee Stock Purchase Plan (2018 ESPP).

(3)

This number includes: no shares under the 2010 Plan, which has been frozen; 733,295 shares available for issuance under the 2014 Plan; 3,337,448 shares available for issuance under the 2018 Plan; and 1,043,515 shares reserved for issuance under the 2018 ESPP. As of February 28, 2022, assuming each participant purchases the maximum number of shares in the current offering period, no more than 155,000 shares are subject to purchase in the current offering, which ends on May 13, 2022.

(4)

This number includes 596,690 shares subject to outstanding awards granted under the 2017 Inducement Plan, of which 589,190 were subject to outstanding stock options and 7,500 were subject to outstanding RSUs; 500,000 shares subject to stock options granted under the 2019 Inducement Plan; and 764,290 shares subject to outstanding awards granted under the 2020 Inducement Plan, of which 693,040 were subject to outstanding stock options and 71,250 were subject to outstanding RSUs.

(5)

This number includes: 191,288 shares available for issuance under the 2017 Inducement Plan, no shares under the 2019 Inducement Plan and 11,960 shares available for issuance under the 2020 Inducement Plan.

Required Vote

Assuming a quorum is present, to be approved, the affirmative vote of the majority of the votes cast on Proposal No. 4 must be voted “FOR” approval of the Amendment. Abstentions and broker non‑votes will not be considered towards vote totals on Proposal No. 4.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE ASSEMBLY BIOSCIENCES, INC. 2018 STOCK INCENTIVE PLAN.

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Proposal No. 5: Amendment and Restatement of Our Certificate of Incorporation to Increase Shares of Authorized Common Stock

General

On March 10, 2022, our Board approved the amendment and restatement of our Fifth Amended and Restated Certificate of Incorporation (the Amendment and Restatement), to increase the authorized number of shares of common stock, par value $0.001 per share (Common Stock) from 100,000,000 to 150,000,000 shares and directed that the Amendment and Restatement be submitted to a vote of our stockholders at the Annual Meeting. The text of the proposed Sixth Amended and Restated Certificate of Incorporation, with proposed deletions indicated by strike-out and proposed revisions indicated by bold and underline, is attached to this proxy statement as Appendix C. If the stockholders approve this Proposal No. 5, subject to the discretion of the Board, we will promptly file the Amendment and Restatement with the Secretary of State of the State of Delaware after the Annual Meeting.

The Fifth Amended and Restated Certificate of Incorporation, which is currently in effect, authorizes the issuance of up to 105,000,000 shares of stock, of which 100,000,000 shares are designated as Common Stock and 5,000,000 shares are designated as preferred stock. No shares of preferred stock are issued and outstanding. If adopted, the Amendment and Restatement will not result in an increase in the number of authorized shares of preferred stock.

The following details the availability of our common stock as of December 31, 2021.

 

Authorized shares of Common Stock

 

 

100,000,000

 

Shares of Common Stock Issued and Outstanding

 

 

48,120,437

 

Reserved for issuance:

 

 

 

 

Stock options assumed in 2014 Merger

 

 

466,238

 

2010 Equity Incentive Plan

 

 

278,369

 

Amended and Restated 2014 Stock Incentive Plan

 

 

2,484,617

 

2017 Inducement Award Plan

 

 

787,978

 

2018 Stock Incentive Plan

 

 

6,126,414

 

2019 Inducement Award Plan

 

 

500,000

 

2020 Inducement Award Plan

 

 

776,250

 

Amended and Restated 2018 Employee Stock Purchase Plan

 

 

1,043,515

 

Authorized shares of Common Stock available for future issuances

 

 

39,416,182

 

Percentage of authorized shares available

 

 

39.4

%

 

Because only approximately 39.4% of our total authorized Common Stock is available for future issuance, which number will be further reduced if Proposals No. 4 is approved at the Annual Meeting or if we raise additional capital through the sale and issuance of Common stock, the Board believes that it is appropriate to increase our authorized shares of Common Stock from 100,000,000 to 150,000,000.

Purpose

The Board believes it is in our best interest to increase the number of authorized shares of Common Stock to give us greater flexibility in considering and planning for future corporate needs, including, but not limited to: raising additional capital, which is needed to fund our ongoing clinical and nonclinical research programs; making long-term equity incentive awards under our equity compensation plans; attracting and retaining key employees, executive officers and directors; considering potential strategic transactions, including mergers, acquisitions and business combinations; and other general corporate purposes. The Board believes that additional authorized shares of Common Stock will enable us to take timely advantage of market conditions and favorable financing and acquisition opportunities that may become available to us without the delay and expense associated with convening a special meeting of our stockholders.

We have no current plan, commitment, arrangement, understanding or agreement regarding the issuance of the additional shares of Common Stock that will result from our adoption of the proposed Amendment and Restatement. Except as otherwise required by law or the Nasdaq listing rules, the newly authorized shares of Common Stock will be available for issuance at the discretion of the Board (without further action by the stockholders) for various future

43


 

corporate needs, including those outlined above. While adoption of the proposed Amendment and Restatement would not have any immediate dilutive effect on the proportionate voting power or other rights of our existing stockholders, any future issuance of additional authorized shares of our Common Stock may, among other things, dilute the earnings per share of the Common Stock and the equity and voting rights of those holding Common Stock at the time the additional shares are issued.

In addition to the corporate purposes mentioned above, an increase in the number of authorized shares of our Common Stock may make it more difficult to, or discourage an attempt to, obtain control of us by means of a takeover bid that the Board determines is not in the best interest of us and our stockholders. However, the Board does not intend or view the proposed increase in the number of authorized shares of our Common Stock as an anti-takeover measure and is not aware of any attempt or plan to obtain control of us.

Rights of Additional Authorized Shares

Any authorized shares of Common Stock, if and when issued, would be part of our existing class of Common Stock and would have the same rights and privileges as the shares of Common Stock currently outstanding. Our stockholders do not have pre-emptive rights with respect to the Common Stock, nor do they have cumulative voting rights. Accordingly, should the Board issue additional shares of Common Stock, existing stockholders would not have any preferential rights to purchase any of such shares, and their percentage ownership of our then outstanding Common Stock could be reduced.

Potential Adverse Effects of the Amendment and Restatement

Future issuances of Common Stock or securities convertible into Common Stock could have a dilutive effect on our earnings per share, book value per share and the voting power and interest of current stockholders. In addition, the availability of additional shares of Common Stock for issuance could, under certain circumstances, discourage or make more difficult any efforts to obtain control of us. The Board is not aware of any attempt, or contemplated attempt, to acquire control of us, nor is this proposal being presented with the intent that it be used to prevent or discourage any acquisition attempt. However, nothing would prevent the Board from taking any such actions that it deems to be consistent with its fiduciary duties.

Required Vote

Assuming a quorum is present, to be approved, a majority of the shares of common stock outstanding and entitled to vote on Proposal No. 5 must be affirmatively voted “FOR” the Amendment and Restatement. Abstentions and broker non-votes, if any, will be deemed a vote against Proposal No. 5.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO INCREASE THE AMOUNT OF AUTHORIZED COMMON STOCK FROM 100,000,000 SHARES TO 150,000,000 SHARES.

 

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Proposal No. 6: Approval of a Stock Option Exchange Program for Non-Executive Employees

Background

We are seeking stockholder approval of a stock option exchange program for our current non-executive employees that would allow these non-executive employees to exchange certain significantly out-of-the-money stock options (i.e., options with respect to which the exercise price exceeds the current market value of our common stock, also known as “underwater” stock options) for new stock options exercisable for fewer shares of our common stock with an exercise price equal to the fair market value of our common stock on the new grant date, with new vesting terms. Unless indicated otherwise, all numbers presented in this proposal are as of December 23, 2021, the date for which analysis related to the proposed stock option exchange program was performed by Aon’s Human Capital Solutions practice, part of Aon plc (Aon), our independent compensation consultant. These numbers are provided for illustrative purposes only: if the proposed stock option exchange program is approved at the Annual Meeting and implemented, an updated analysis will be conducted prior to filing the Schedule TO with the SEC in the third or fourth quarter of 2022 to effect the exchange.

Stockholder-Friendly Design

In discussing strategies to address our employees’ out-of-the-money stock options, we were particularly focused on creating a strategy that is compatible with the interests of our stockholders. We believe that the proposed stock option exchange program meets that objective by providing a more cost-effective and stockholder-friendly retention and incentive tool than simply issuing additional equity awards or paying cash compensation to retain and motivate our non-executive employees. We believe that the benefits of the proposed stock option exchange program, including reducing our overhang (meaning potential shares committed but unissued) and its approximate value-neutrality (i.e., keeping the aggregate accounting value of the current stock options surrendered and the new stock options issued approximately consistent) contribute to an alignment of the program with the interests of our stockholders. In particular (and as discussed in more detail below):

 

We believe that the proposed stock option exchange program would result in a net reduction of the overhang from our equity compensation program (a reduction of up to 1.2% of our overhang on account of stock options, depending upon the level of participation in the proposed stock option exchange program).

 

Exchange ratios for the program are intended to result in a “value for value” exchange, meaning that the accounting fair value of replacement options granted will be approximately equal to the fair value of the options that are surrendered. In other words, the exchange is designed not to result in a windfall to participants.

 

Shares from exchanged options that are in excess of the shares needed to issue replacement grants will not be returned to the plan pool, limiting the future dilution that could otherwise have resulted from the program.

We believe that these design features, among others, create a proposed stock option exchange program that is aligned with the interests of our stockholders.

Rationale

We believe that an effective and competitive employee equity incentive program is imperative for the future growth and success of our business. We rely on our employees to implement our strategic initiatives, to expand and develop our business and to conduct the research necessary to discover product candidates and to develop and advance those product candidates toward approval by the U.S. Food and Drug Administration and comparable foreign regulatory agencies. Competition for these employees, particularly in the biotech industry, is intense and many companies use stock options as a means of attracting, motivating and retaining their employees. We use stock options as a key part of our equity incentive and retention programs because our Board believes that equity compensation encourages employees to act like owners of the business, motivating them to work toward our success and rewarding their contributions by allowing them to benefit from increases in the value of our shares alongside our stockholders.

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When the Compensation Committee approves a stock option award, it establishes the exercise price that the employee must pay to purchase shares of our common stock when the option is exercised. The per share exercise price is set at the closing price of a share of our common stock as reported by Nasdaq on the date the stock option is issued. As a result, an employee receives value only if he or she exercises an option and sells the purchased shares at a price that exceeds the stock options exercise price.

We have experienced recent steep declines in our stock price, as the stock price fell approximately 70% in 2020 and approximately 62% in 2021. We believe these declines have resulted from a combination of (1) disappointing results of Study 211 of vebicorvir released in late 2020, in which all patients relapsed, indicating that no patients were cured of HBV and (2) our discontinuation of clinical development of ABI-H2158 due to elevated alanine transaminase levels in our Phase 2 study, which was announced in September 2021. The declines have been exacerbated by well documented, sector-wide weakness in the biotech market that began in early 2021 and accelerated near the end of 2021. Unfortunately, while we strive to design and develop the best product candidates, we cannot control if data is positive or negative, and we do not have any control over market dynamics in the biotech sector. Despite our two data setbacks, we have continued to progress other clinical and nonclinical studies, generate and advance next generation product candidates and expand our product candidate pipeline.

As a result of the recent decline of our stock price, many of our outstanding stock options had exercise prices significantly greater than the closing price of our common stock as reported by Nasdaq on December 23, 2021 of $2.27. Since Aon’s analysis related to the proposed stock option exchange program was conducted, our stock price has continued to decline likely because of the weak biotech market. As of the market close on March 28, 2022, the record date for the Annual Meeting, our stock price was $2.18. As of December 23, 2021, there were options to purchase 4,818,115 shares of our common stock outstanding with exercise prices ranging from $2.24 per share to $56.69 per share. These out-of-the-money options are no longer effective either performance or retention incentives.

We believe that to enhance long-term stockholder value, we need to maintain competitive employee incentive and retention programs. An equity stake in our success is a critical component of these programs. We believe the proposed stock option exchange program will provide us with an opportunity to restore for eligible participants the incentive to remain with us and to continue to contribute to the future growth and success of our business. Although we continue to believe that stock options are an important component of our employees’ total compensation, many of our employees view their existing stock options as having little or no value because of the significant difference between the option exercise prices and the current market price of our common stock. As a result, these employees’ stock options do not provide the incentive and retentive values that our Board believes is necessary to motivate our employees to increase long-term stockholder value.

When considering how best to continue incentivizing and rewarding our employees who have out-of-the-money stock options, the Compensation Committee engaged Aon to review and evaluate strategies to address this issue. Along with considering the proposed stock option exchange program, we also considered the following options: (1) do nothing; (2) increasing cash compensation; and (3) exchanging out-of-the-money stock options for RSUs. Based on Aon’s recommendations and all relevant factors, the Compensation Committee determined that a program under which employees could exchange stock options with an exercise price greater than or equal to the “Threshold Exercise Price” (described below), was most attractive for several reasons, including the following:

 

Reasonable, balanced incentives. We believe that the opportunity to exchange existing eligible stock options for new options for fewer shares, together with a new vesting requirement and term, represents a reasonable and balanced exchange program with the potential for a significant positive impact on employee retention, motivation and performance. We believe that the new options issued in the exchange program will provide a meaningful retention period for employees during the next two years at a time when we expect to continue to experience retention challenges due to the highly competitive job market in our industry.

 

Reduction of the number of shares subject to outstanding options. In addition to the out-of-the-money stock options having little or no retention value, they also contribute to our stock option overhang until they are exercised or expire unexercised. As of December 23, 2021, there were approximately 1,001,275 outstanding stock options with an exercise price equal to or greater than $3.94 per share with a weighted average exercise price of $19.09, including 648,000 stock options exercisable for over $15.00, that would have been eligible to participate in the option exchange program if it had commenced on that day.

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If approved by our stockholders, the proposed stock option exchange program is expected to reduce the overhang of outstanding stock options by eliminating the ineffective options that are currently outstanding and issued to our non-executive employees. Under the proposed stock option exchange program, eligible participants will receive stock options exercisable for fewer shares than the exchanged stock options. Based on the number of outstanding stock options as of December 23, 2021, and assuming that all eligible options were exchanged in the program, stock options to purchase 1,001,275 shares would have been exchanged and cancelled, while new stock options covering approximately 431,015 shares would have been issued. This would have resulted in a net reduction in the overhang of our equity awards by approximately 570,260 shares, or approximately 1.2% of our total overhang on account of stock options. The actual reduction in our overhang that may result from the option exchange program could vary significantly and is dependent upon several factors, including the commencement date of the program, the actual level of participation in the program and the actual exchange ratios. All eligible stock options that are not exchanged will remain outstanding and in effect in accordance with their existing terms.

 

Reduced pressure for additional grants. If we are unable to implement the proposed stock option exchange program, we may find it necessary to issue additional stock options to our employees at current market prices, increasing our overhang. These grants would also deplete the current pool of shares available for future grants under our 2018 Stock Incentive Plan and would also result in increased stock compensation expense, which could negatively impact our stock price.

 

Impact on accounting expense. Under applicable accounting rules, we are required to continue to recognize compensation expense related to these out-of-the-money stock options as they vest, even if they are never exercised because they remain underwater. We believe the proposed stock option exchange program will allow us to recapture retentive and incentive value from the compensation expense that we have recorded and will continue to record in our financial statements with respect to our eligible stock options. The new stock options are not expected to result in significant additional compensation expense and therefore will not have a material adverse impact on our reported earnings.

 

On March 10, 2022, informed by a recommendation from the Compensation Committee, the Board approved our pursuit of a stock option exchange program for current non-executive employees, which excludes former employees, members of our Board, our executive officers and consultants. If stockholders approve this proposal, we intend to commence the exchange program during the third or fourth quarter of 2022. The Board or the Compensation Committee will determine the actual start date for the exchange program. If the exchange program does not commence within one year of the Annual Meeting, we will consider any future exchange or similar program to be a new one and will seek new stockholder approval before implementing it.

 

Although stockholder approval is not required to implement the proposed stock option exchange program under the terms of our equity incentive plans, we do not intend to undertake the option exchange program unless stockholders approve this proposal.

When determining the eligibility of options for this program, the Compensation Committee (with advice from Aon) determined that stock options granted on or after August 1, 2020 would not be eligible to participate. Because the price of our stock has been depressed for over the past year, this decision was made to maximize the retentive value of our equity program, while also being conscious that these awards are intended to be long-term in nature.

Members of the Board, executive officers of the Company, former employees and consultants will not be eligible to participate in the stock option exchange program. Together, the holdings of the Board and executive officers constitute approximately 44% of our outstanding stock options as of March 28, 2022. All of these stock options will continue to be governed by their existing terms.

Exchange ratios for those eligible to participate will be designed to result in a “value for value” exchange, which means that the accounting fair value of new stock options granted will be approximately equal to the accounting fair value of the stock options that are surrendered. None of the shares subject to surrendered stock options (in excess of the replacement options issued under the exchange program) will return to our authorized share pool nor reserves for the equity plan under which they were issued or any of our other equity plans.

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The minimum exercise price of options eligible to be exchanged will be determined by the greater of the 52-week intraday high trading price of our common stock and 1.5 times the then-current trading price of our shares (in each case as of a date shortly prior to the commencement date of the offer). Using this minimum price is designed to ensure that only outstanding options with an exercise price that is significantly out of the money will be eligible for the exchange program.

Material Terms

An overview of the key features of the proposed stock option exchange program is provided below.

 

Eligible Participants

All current employees except executive officers; directors, consultants and former employees are not eligible

 

 

Type of Exchange

Stock Options for Stock Options

 

 

Eligible Stock Options

Stock options with exercise prices above the greater of (1) the 52-week high for Company stock and (2) 1.5 times the current trading price of our shares, in each case as of a date shortly prior to the commencement date of the offer

 

Stock options scheduled to expire before the exchange offer will be completed are excluded from participating in the offer

 

Stock options that were granted on or after August 1, 2020 are excluded from participating in the offer

 

 

Elections

Employees may elect to exchange individual grants; however, if an employee elects to exchange a specific grant, all stock options granted on the same date must be exchanged

 

 

Term of Replacement Stock Options

All new stock options will have a six-year maximum contractual term

 

 

Vesting of New Stock Options

New stock options will vest on the first anniversary of the issuance of the new stock options (with respect to vested stock options that are exchanged) and on the second anniversary of the issuance of the new stock options (with respect to unvested stock options that are exchanged), in each case subject to continued employment

 

 

Plan to Be Issued Under

All new stock options will be issued under the 2018 Stock Incentive Plan; excess shares resulting from the stock option exchange will not be returned to the plan pool of the applicable equity incentive plan

 

 

Illustrative Exchange Ratios

Exchange ratios will depend on the value of out-of-the-money stock options, which options will be grouped into value ranges to simplify administration; exchange ratios are expected to range from 1.90-to-1 to 3.15-to-1 (described in more detail below)

 

 

Total Grants Eligible for Exchange, Price and Term

Had the offer been commenced on December 23, 2021, stock options to purchase 1,001,275 with a weighted average exercise price of $19.09 and a weighted average remaining term of 6.45 years would have been eligible for the proposed stock option exchange program

 

 

Total Replacement Grants, Price and Term

Had the offer been commenced on December 23, 2021, assuming 100% participation, 431,015 stock options would have been granted as new stock options with an exercise price based on our closing stock price on the date of the exchange and a maximum term of six years

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Exchange Ratio

The table below illustrates for eligible stock options, the applicable exercise price range, the approximate number of options in each such range (along with the weighted average exercise price and remaining term for stock options in that category), the applicable exchange ratio and the approximate number of new stock options issuable with respect to exchanged stock options, assuming 100% participation in the offer, had the offer been commenced as of December 23, 2021. If the proposed stock option exchange program is approved, the exercise price ranges and exchange ratios will be determined immediately prior to the commencement of the stock option exchange program in a manner consistent with that used to formulate the illustration below.

 

Per Share Exercise

Price ($)

 

Outstanding Stock

Options in Range

 

 

Weighted Average Exercise Price ($)

 

 

Weighted Average

Years Remaining

in Term

 

 

Exchange Ratio

 

New Stock Options

Issuable (assuming

full participation)

 

3.94 – 15.00

 

 

353,168

 

 

 

11.84

 

 

 

6.25

 

 

1.90 to 1

 

 

186,000

 

15.01 – 19.50

 

 

287,332

 

 

 

16.57

 

 

 

6.99

 

 

2.20 to 1

 

 

131,000

 

19.51+

 

 

360,775

 

 

 

27.95