DEF 14A 1 acrx20170421_def14a.htm FORM DEF 14A acrx20170421_def14a.htm

SCHEDULE 14A INFORMATION

 

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 Pursuant to § 240.14a-12

 

 

AcelRx Pharmaceuticals, Inc.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

 

 

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ACELRX PHARMACEUTICALS, INC.

351 Galveston Drive

Redwood City, CA 94063

650-216-3500

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held On June 15, 2017

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of ACELRX PHARMACEUTICALS, INC., a Delaware corporation, or the Company. The meeting will be held on Thursday, June 15, 2017 at 12:00 p.m. local time at our principal office located at 351 Galveston Drive, Redwood City, California 94063 for the following purposes:

 

 

1.

To elect our Board of Director’s two nominees for director, to hold office until the 2020 Annual Meeting of Stockholders.

 

 

2.

To ratify the selection by the Audit Committee of the Board of Directors of OUM & Co. LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2017.

 

 

3.

To conduct any other business properly brought before the meeting.

 

These items of business are more fully described in the Proxy Statement accompanying this Notice.

 

The record date for the Annual Meeting is April 20, 2017. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

 

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholders’ Meeting to Be Held
on Thursday, June 15, 2017 at 12:00 p.m. local time at our principal office located at 351 Galveston Drive,
Redwood City, California 94063.

 

     
 

The proxy statement, notice and annual report to stockholders

are available at www.proxyvote.com.

 

 

By Order of the Board of Directors

 

/s/ Adrian Adams 

Adrian Adams

Chairman

 

Redwood City, California

April 28, 2017

 

 

You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the proxy mailed to you, or vote over the telephone or the internet as instructed in these materials, as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) has been provided for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

 

 

 
 

 

 

TABLE OF CONTENTS

 

 

Page 

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

1

PROPOSAL NO. 1: ELECTION OF DIRECTORS

5

PROPOSAL NO. 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

7

Information regarding the BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

8

Independence of the Board of Directors

8

Board Leadership Structure

8

Role of the Board in Risk Oversight

8

Meetings of the Board of Directors

8

Annual Meeting Attendance

8

Information Regarding Committees of the Board of Directors

8

Compensation Committee Interlocks and Insider Participation

11

Stockholder Communications with the Board of Directors

11

Code of Business Conduct and Ethics

11

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

12

EXECUTIVE OFFICERS OF THE REGISTRANT

13

EXECUTIVE COMPENSATION

14

Compensation Discussion and Analysis

14

Compensation Committee Report

25

Summary Compensation Table

26

Grants of Plan Based Awards in Fiscal 2016

27

Outstanding Equity Awards at December 31, 2016

28

Option Exercises and Stock Vested

29

Potential Payments Upon Termination or Change of Control for each Named Executive Officer

29

Director Compensation

30

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

32

Section 16(a) Beneficial Ownership Reporting Compliance

34

Equity Compensation Plan Information

35

RELATED PERSON TRANSACTIONS AND INDEMNIFICATION

36

Policies and Procedures for Review of Related Party Transactions

36

Certain Transactions With or Involving Related Persons

36

Indemnification Agreements

36

STOCKHOLDER PROPOSALS FOR 2018 ANNUAL MEETING

37

HOUSEHOLDING OF PROXY MATERIALS

37

OTHER MATTERS

38

 

 
 

 

 

ACELRX PHARMACEUTICALS, INC.

351 Galveston Drive

Redwood City, CA 94063

 

PROXY STATEMENT

FOR THE 2017 ANNUAL MEETING OF STOCKHOLDERS

 

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

 

 

Why did I receive a notice regarding the availability of proxy materials on the internet?

 

Pursuant to rules adopted by the Securities and Exchange Commission, or the SEC, we have elected to provide access to our proxy materials over the internet. Accordingly, we have sent you a Notice of Internet Availability of Proxy Materials, or the Notice, because the Board of Directors of AcelRx Pharmaceuticals, Inc. (sometimes referred to as the “Company” or “AcelRx”) is soliciting your proxy to vote at the 2017 Annual Meeting of Stockholders, including at any adjournments or postponements of the meeting. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the internet or to request a printed copy may be found in the Notice.

 

We intend to mail the Notice on or about April 28, 2017 to all shareholders of record entitled to vote at the Annual Meeting.

 

Will I receive any other proxy materials by mail?

 

We may send you a proxy card, along with a second Notice, on or after May 15, 2017.

 

How do I attend the Annual Meeting?

 

The meeting will be held on Thursday, June 15, 2017 at 12:00 p.m. local time at 351 Galveston Drive Redwood City, CA 94063. Directions to the Annual Meeting may be found at www.acelrx.com. Information on how to vote in person at the Annual Meeting is discussed below.

 

Who can vote at the Annual Meeting?

 

Only stockholders of record at the close of business on April 20, 2017 will be entitled to vote at the Annual Meeting. On this record date, there were 45,380,473 shares of common stock outstanding and entitled to vote.

 

Stockholder of Record: Shares Registered in Your Name

 

If on April 20, 2017 your shares were registered directly in your name with our transfer agent, Computershare Trust Company, N.A., then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card to ensure your vote is counted.

 

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

 

If on April 20, 2017 your shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and the 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. You are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

 

What am I voting on?

 

There are two matters scheduled for a vote:

 

 

Election of two directors (Proposal 1); and

 

 

Ratification of selection by the Audit Committee of the Board of Directors of OUM & Co. LLP as independent registered public accounting firm of the Company for its fiscal year ending December 31, 2017 (Proposal 2).

 

 
1

 

 

What are the Board’s voting recommendations?

 

The Board of Directors recommends that you vote your shares:

 

 

“For” each of the nominees named below for director to hold office until the 2020 annual meeting of stockholders (Proposal 1).

 

 

“For” the ratification of selection by the Audit Committee of the Board of Directors of OUM & Co. LLP as independent registered public accounting firm of the Company for its fiscal year ending December 31, 2017 (Proposal 2).

 

What if another matter is properly brought before the Annual Meeting?

 

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

 

How do I vote?

 

You may either vote “For” all the nominees to the Board of Directors or you may “Withhold” your vote for any nominee you specify. For the other matter to be voted on, you may vote “For” or “Against” or “Abstain” from voting.

 

The procedures for voting are fairly simple:

 

Stockholder of Record: Shares Registered in Your Name

 

If you are a shareholder of record, you may vote in person at the Annual Meeting or vote by proxy over the telephone, or vote by proxy through the internet or vote by proxy using a proxy card that you may request or that we may elect to deliver at a later time. 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 the meeting and vote in person even if you have already voted by proxy.

 

 

To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.

 

 

To vote using the proxy card, simply complete, sign and date the proxy card that may be delivered and return it promptly in the envelope provided. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct.

 

 

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 number and control number from the Notice. Your vote must be received by 11:59 p.m., Eastern Daylight Time on June 14, 2017 to be counted.

 

 

To vote through the internet, go to www.proxyvote.com to complete an electronic proxy card. You will be asked to provide the company number and control number from the Notice. Your vote must be received by 11:59 p.m., Eastern Daylight Time on June 14, 2017 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 agent, you should have received a Notice containing voting instruction from that organization rather than from AcelRx. Simply follow the voting instructions in the Notice to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

 

 

Internet proxy voting may be 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.

 

 

How many votes do I have?

 

On each matter to be voted upon, you have one vote for each share of common stock you own as of April 20, 2017.

 

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

 

Shareholder of Record: Shares Registered in Your Name

 

If you are a stockholder of record and you indicate when voting on the internet or by telephone that you wish to vote as recommended by the Board of Directors, or Board, which recommendations are set forth under “What are the Board’s voting recommendations?” above, or if you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Board of Directors on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.

 

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

 

If you are a beneficial owner of shares held in “street name” and you do not provide the organization that holds your shares with specific instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform our inspector of elections that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.” When our inspector of elections tabulates the votes for any particular matter, broker non-votes will be counted for purposes of determining whether a quorum is present, but will not be counted toward the vote total for any proposal. We encourage you to provide voting instructions to the organization that holds your shares to ensure that your vote is counted on all proposals.

 

Which proposals are considered “routine” or “non-routine”?

 

The ratification of selection by the Audit Committee of the Board of Directors of OUM & Co. LLP as independent registered public accounting firm of the Company for its fiscal year ending December 31, 2017 (Proposal 2) is a matter considered routine under applicable rules. A broker or other nominee may generally vote on routine matters, and therefore no broker non-votes are expected on Proposal 2.

 

The election of directors (Proposal 1) is considered a non-routine matter under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore we expect broker non-votes on Proposal 1.

 

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 agents for the cost of forwarding proxy materials to beneficial owners.

 

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

 

If you receive more than one Notice, your shares may be registered in more than one name or in different accounts. Please follow the voting instructions on the Notices to ensure that all of your shares are voted.

 

Can I change my vote after submitting my proxy?

 

Stockholder of Record: Shares Registered in Your Name

 

Yes. You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:

 

 

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

 

 

You may grant a subsequent proxy by telephone or through the internet.

 

 

You may send a timely written notice that you are revoking your proxy to AcelRx’s Secretary at 351 Galveston Drive, Redwood City, CA 94063.

 

 

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

 

Your most current proxy card or telephone or internet proxy is the one that is counted.

 

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

 

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

 

How are votes counted?

 

Votes will be counted by the inspector of election appointed for the meeting, who will separately count, for the proposal to elect directors, votes “For,” “Withhold” and broker non-votes and, with respect to the other proposal, votes “For” and “Against” and abstentions. Broker non-votes have no effect and will not be counted towards the vote total for the proposal to elect directors.

 

 
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What are “broker non-votes”?

 

Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker or 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 or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the New York Stock Exchange, or NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested) and executive compensation, including the advisory stockholders vote on executive compensation. Of the two proposals, only Proposal No. 2, the ratification of the selection by the Audit Committee of the Board of Directors of OUM & Co. LLP as the independent auditors of AcelRx for its fiscal year ending December 31, 2017, is a “routine” matter; the election of directors proposal is “non-routine.”

 

How many votes are needed to approve each proposal?

 

 

Proposal No. 1: For the election of directors, the two nominees receiving the most “For” votes from the holders of shares present in person or represented by proxy and entitled to vote on the election of directors will be elected. Only votes “For” or “Withheld” will affect the outcome.

 

 

Proposal No. 2: Ratification of the selection by the Audit Committee of the Board of Directors of OUM & Co. LLP as the Company’s independent registered public accounting firm for its fiscal year ending December 31, 2017, must receive “For” votes from the holders of a majority of shares present in person or by proxy and entitled to vote. If you “Abstain” from voting, it will have the same effect as an “Against” vote.

 

What is the quorum requirement?

 

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares entitled to vote are present at the meeting in person or represented by proxy. On the record date, there were 45,380,473 shares outstanding and entitled to vote. Thus, the holders of 22,690,237 shares must be present in person or represented by proxy at the meeting to have a quorum.

 

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the holders of a majority of shares present at the meeting in person or represented by proxy may adjourn the meeting to another date.

 

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 published 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 meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

 

 
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PROPOSAL 1

 

ELECTION OF DIRECTORS

 

CLASSIFIED BOARD

 

Our Board of Directors is divided into three classes. Two classes consist of three directors and one class consists of two directors. Each class has a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified.

 

The Board of Directors presently has eight members. There are two directors in the class whose term of office expires in 2020. All of the nominees are current directors of the Company. Both of the nominees listed below were previously elected by the stockholders. If elected at the Annual Meeting, each of these nominees would serve until the 2020 Annual Meeting and until his or her successor has been duly elected and qualified, or, if sooner, until the director’s death, resignation or removal. It is the Company’s policy to encourage directors and nominees for director to attend the Annual Meeting.

 

Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors. The two nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the two nominees named below. If any nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee will instead will be voted for the election of a substitute nominee proposed by AcelRx. Each person nominated for election has agreed to serve if elected. The Company’s management has no reason to believe that either nominee will be unable to serve.

 

The following is a brief biography of each nominee and each director whose term will continue after the Annual Meeting. The biographies below also include a discussion of the specific experience, qualifications, attributes or skills of each nominee that led the Nominating and Corporate Governance Committee and the Board to conclude, as of the date of this proxy statement, that each nominee for Class III director should continue to serve as a director.

 

CLASS III NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2020 ANNUAL MEETING

 

Howard B. Rosen, age 59, served as our Chief Executive Officer from April 1, 2016 until March 5, 2017, as our interim Chief Executive Officer from April 1, 2015 until March 31, 2016, and has served as our director since 2008. Since 2008, Mr. Rosen has served as a consultant to several companies in the biotechnology industry. He has also served as a lecturer at Stanford University in Chemical Engineering since 2008 and in Management since 2011. Mr. Rosen served as interim President and Chief Executive Officer of Pearl Therapeutics, Inc., a company focused on developing treatments for chronic respiratory diseases, from June 2010 to March 2011. From 2004 to 2008, Mr. Rosen was Vice President of Commercial Strategy at Gilead Sciences, Inc., a biopharmaceutical company. Mr. Rosen was President of ALZA Corporation, a pharmaceutical and medical systems company that merged with Johnson & Johnson, a global healthcare company, in 2001, from 2003 until 2004. Prior to that, from 1994 until 2003, Mr. Rosen held various positions at ALZA Corporation. Since February 2016, Mr. Rosen has been chairman of the board of directors of Alcobra, Ltd., a public pharmaceutical company. Mr. Rosen holds a B.S. in Chemical Engineering from Stanford University, an M.S. in Chemical Engineering from the Massachusetts Institute of Technology and an M.B.A. from the Stanford Graduate School of Business. Mr. Rosen’s experience in the biopharmaceutical industry, including his specific experience with commercialization of pharmaceutical products, provides him with the qualifications and skills to serve as a director.

 

Mark Wan, age 51, has served as our director since August 2006. Mr. Wan is a founding managing director of Causeway Media Partners, a private investment firm, which was founded in 2013. He is also a founding general partner of Three Arch Partners, a venture capital firm. Prior to co-founding Three Arch Partners in 1993, Mr. Wan was a general partner at Brentwood Associates, a private equity firm from 1987 until 1993. Mr. Wan currently serves on the board of directors of QT Vascular Ltd., a public Singapore-based medical device company. From 1999 until its acquisition by athenahealth, Inc., in March 2013, Mr. Wan served on the board of directors of Epocrates, Inc., a company focused on providing mobile drug reference tools. Mr. Wan holds a B.S. in Engineering from Yale University and an M.B.A. from the Stanford Graduate School of Business. Mr. Wan’s financial experience and extensive knowledge of our company provides him with the qualifications and skills to serve as a director.

 

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF EACH NAMED NOMINEE.

 

Set forth below is a brief biography of each continuing director composing the remainder of the Board with terms expiring as shown, including their ages, and information furnished by them as to principal occupations and public company directorships held by them. The biographies below also include a discussion of the specific experience, qualifications, attributes or skills of each continuing director that led the Nominating and Corporate Governance Committee and the Board to conclude, as of the date of this Proxy Statement, that the applicable director should continue to serve as a director.

 

 
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CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL THE 2018 ANNUAL MEETING

 

Adrian Adams, age 66, has served as our Chairman since February 2013. Mr. Adams serves as Chief Executive Officer and a member of the Board of Directors of Aralez Pharmaceuticals, Inc., a specialty pharmaceutical company, since the merger between Pozen, Inc. and Tribute Pharmaceuticals Canada, Inc. in February 2016. Prior to that, from May 2015 to January 2016, Mr. Adams served as Chief Executive Officer and a member of the Board of Directors of Pozen, Inc. Mr. Adams served as Chief Executive Officer and President of Auxilium Pharmaceuticals Inc., a specialty biopharmaceutical company, from December 2011 until January 2015, when it was acquired by Endo International plc. Prior to joining Auxilium, from September 2011 until November 2011, Mr. Adams served as Chairman and Chief Executive Officer of Neurologix, a company focused on development of multiple innovative gene therapy development programs. Before Neurologix, Mr. Adams served as President and Chief Executive Officer of Inspire Pharmaceuticals, Inc., where he oversaw the commercialization and development of prescription pharmaceutical products and led the company through a strategic acquisition by global pharmaceutical leader Merck & Co., Inc. in May 2011. Prior to Inspire, Mr. Adams served as President and Chief Executive Officer of Sepracor Inc. from December 2006 until February 2010, when it was acquired by Dainippon Sumitomo Pharma Co. Prior to joining Sepracor, Mr. Adams was President and Chief Executive Officer of Kos Pharmaceuticals, Inc. from 2002 until the acquisition of the company by Abbott Laboratories in December 2006. Mr. Adams graduated from the Royal Institute of Chemistry at Salford University in the U.K. Mr. Adams has extensive national and international experience and has been instrumental in launching major global brands in addition to driving successful corporate development activities encapsulating financing, product and company acquisitions, in-licensing and company M&A activities, all of which provide him with the qualifications and skills to serve as a director.

 

Richard Afable, M.D., age 63, has served as our director since December 2013. Since February 2013, Dr. Afable has been the Chief Executive Officer of Covenant Health Network, based in Irvine, California, a non-profit healthcare delivery system formed through the affiliation of Hoag Memorial Hospital Presbyterian and St. Joseph Health System. Prior to Covenant Health Network, Dr. Afable served as the President and Chief Executive of Hoag Memorial Hospital Presbyterian from 2005 to 2013. Prior to Hoag Memorial Hospital Presbyterian, Dr. Afable served as the Chief Medical Officer of Catholic Health East from 1999 to 2005. He earned a B.S. in biology, an M.D. degree from Loyola University of Chicago, and a Master’s in Public Health from the University of Illinois at Chicago. Dr. Afable’s scientific, financial and business expertise, including his experience as an executive officer in the health care industry, provides him with the qualifications and skills to serve as a director.

 

Mark G. Edwards, age 59, has served as our director since September 2011. Mr. Edwards is Managing Director of Bioscience Advisors Inc., a biopharmaceutical consulting firm he founded in 2011. From July 2008 until December 2010, he was Managing Director and a Principal of Deloitte Recap LLC, a wholly-owned subsidiary of Deloitte Touche Tohmatsu, an audit and financial consulting services firm. Mr. Edwards was previously the Managing Director and founder of Recombinant Capital, Inc. (Recap), a consulting and database firm based in Walnut Creek, California, from 1988 until the sale of Recap to Deloitte in 2008. Prior to founding Recap in 1988, Mr. Edwards was Manager of Business Development at Chiron Corporation, a biotechnology company. He received his B.A. and M.B.A. degrees from Stanford University. Mr. Edwards’ financial and business expertise, including his background as a business advisor to pharmaceutical and biotechnology companies, provides him with the qualifications and skills to serve as a director.

 

 

CLASS II DIRECTORS NOMINEES CONTINUING IN OFFICE UNTIL THE 2019 ANNUAL MEETING

 

Stephen J. Hoffman, M.D., Ph.D., age 63, has served as our director since February 2010. Dr. Hoffman has been a Senior Advisor to PDL BioPharma, Inc. since February 2014. Prior to that, he served as a managing director at Skyline Ventures, a venture capital firm, from May 2007 until February 2014. From January 2003 to March 2007, Dr. Hoffman was a general partner at TVM Capital, a venture capital firm. Prior to that, he served as President, Chief Executive Officer and a director of Allos Therapeutics, a biopharmaceutical company, from 1994 to 2012; he served as Chairman of the Board from 2002 until its acquisition by Spectrum Pharmaceuticals in 2012. Dr. Hoffman holds a Ph.D. in bio-organic chemistry from Northwestern University and an M.D. from the University of Colorado School of Medicine. Dr. Hoffman’s scientific, financial and business expertise, including his diversified background as an executive officer and investor in public pharmaceutical companies, provides him with the qualifications and skills to serve as a director.

 

Pamela P. Palmer, M.D., Ph.D., age 54, has served as our director and Chief Medical Officer since she co-founded the company in July 2005. Dr. Palmer has been on faculty at the University of California, San Francisco since 1996 and is currently a Clinical Professor of Anesthesia and Perioperative Care. Dr. Palmer was Director of UCSF PainCARE-Center for Advanced Research and Education from 2005 to 2009, and was Medical Director of the UCSF Pain Management Center from 1999 to 2005. Dr. Palmer has been a consultant of Omeros Corporation, a biopharmaceutical company, since she co-founded that company in 1994. Dr. Palmer holds an M.D. from Stanford University and a Ph.D. from the Stanford Department of Neuroscience. Dr. Palmer’s extensive clinical and scientific experience in the treatment of acute and chronic pain as well as historical knowledge of our company provides her with the qualifications and skills to serve as a director.

 

Vincent J. Angotti, age 49, has served as our director and Chief Executive Officer since March 2017. From 2015 to 2016, Mr. Angotti was Chief Executive Officer of XenoPort, Inc., a biopharmaceutical company that was acquired by Arbor Pharmaceuticals, LLC in 2016. Prior to that, from 2008 to 2015, Mr. Angotti held various roles at Xenoport, including Executive VP and Chief Operating Officer from 2012 to 2015, and Senior Vice President and Chief Commercialization Officer from 2008 to 2012. Prior to joining XenoPort, from 2001 to 2008, Mr. Angotti held several senior sales and marketing positions at Reliant Pharmaceuticals, Inc., a pharmaceutical company that was acquired by GlaxoSmithKline in 2007, the most recent of which was senior vice president of sales and marketing. Mr. Angotti began his career in the life sciences industry at Novartis Pharmaceuticals Corp., where he worked from 1991 until 2001 in sales and operations positions, most recently as executive director, field operations. He holds a Bachelor of Science with a concentration in business management from Cornell University and a Masters of Business Administration with honors from Columbia University. Mr. Angotti’s role as our Chief Executive Officer, his business expertise and his prior leadership roles in pharmaceutical companies provides him with the qualifications and skills to serve as a director.

 

 
6

 

 

PROPOSAL 2

 

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board of Directors has selected OUM & Co. LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017, and has further directed that management submit the selection of independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. OUM & Co. LLP has audited the Company’s financial statements for fiscal 2016 and 2015. OUM & Co. LLP was first appointed in fiscal 2015. Representatives of OUM & Co. LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Neither the Company’s Bylaws nor other governing documents or law require stockholder ratification of the selection of OUM & Co. LLP as the Company’s independent registered public accounting firm. However, the Audit Committee of the Board is submitting the selection of OUM & Co. LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee of the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee of the Board in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of OUM & Co. LLP. Abstentions will be counted toward the tabulation of votes on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.

 

 

FEES BILLED BY OUM & CO. LLP DURING FISCAL 2016 and 2015

 

The following table represents aggregate fees for the fiscal years ended December 31, 2016 and 2015 for professional services rendered by OUM & Co. LLP, our independent registered public accounting firm:

 

   

Fiscal Year Ended

 
   

2016

   

2015

 

Audit Fees

  $ 634,680     $ 468,400  

Audit-Related Fees

           

Tax Fees

           

All Other Fees

           
                 

Total Fees

  $ 634,680     $ 468,400  

 

 

Audit Fees: Consists of fees for professional services rendered for the audit of our financial statements and internal controls over financial reporting, review of interim financial statements and fees for assistance with registration statements filed with the SEC, comfort letters and services that are normally provided by OUM & Co. LLP in connection with statutory and regulatory filings or engagements. Fees for the 2016 audit and the 2016 quarterly reviews of financial statements were $552,500. Fees for the 2015 audit and the 2015 quarterly reviews of financial statements were $451,556.

 

Pre-Approval Policies and Procedures

 

Our Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval may be given as part of the Audit Committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individual explicit case-by-case basis.

 

 

In connection with the audit of our 2017 financial statements, we entered into an engagement agreement with OUM & Co. LLP which sets forth the terms by which OUM & Co. LLP will perform audit and interim services for us. That agreement is subject to alternative dispute resolution procedures and an exclusion of punitive damages.

 

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 2.

 

 
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INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

 

INDEPENDENCE OF THE BOARD OF DIRECTORS

 

Under the rules of the NASDAQ Stock Market, LLC, or NASDAQ, “independent” directors must comprise a majority of a listed company’s board of directors within a specified period following that company’s listing date in conjunction with its initial public offering, or IPO. In addition, applicable NASDAQ rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating committees be independent within the meaning of applicable NASDAQ rules. Audit Committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.

 

Our Board of Directors undertook a review of the independence of each director and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board of Directors determined that all of our directors, other than Mr. Angotti, our Chief Executive Officer, who was elected to the Board effective March 6, 2017, Mr. Rosen, who was our Chief Executive Officer until March 6, 2017, and Dr. Palmer, our Chief Medical Officer, qualify as “independent” directors within the meaning of the NASDAQ rules. Accordingly, a majority of our directors are independent, as required under applicable NASDAQ rules. In making this determination, our Board of Directors considered Mr. Wan’s affiliation with Three Arch Partners, one of our stockholders. Our non-employee directors have been meeting, and we anticipate that they will continue to meet, in regularly scheduled executive sessions at which only non-employee directors are present.

 

BOARD LEADERSHIP STRUCTURE

 

Our Board of Directors has a Chairman, Mr. Adams since February 2013, who has authority, among other things, to preside over Board meetings, including meetings of the independent directors. Accordingly, the Chairman has substantial ability to shape the work of our Board. The Company believes that separation of the roles of Chairman and Chief Executive Officer reinforces the independence of our Board in its oversight of the business and affairs of the Company. However, no single leadership model is right for all companies and at all times. Our Board recognizes that depending on the circumstances, other leadership models, such as combining the role of Chairman with the role of Chief Executive Officer, might be appropriate. Accordingly, the Board may periodically review its leadership structure.

 

ROLE OF THE BOARD IN RISK OVERSIGHT

 

Our Board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities and has determined that our principal source of risk falls into two categories, financial and product development. The Audit Committee oversees management of financial risks; our Board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The Board regularly reviews plans, results and potential risks related to our lead therapeutic development programs and other preclinical programs as well as financial and strategic risk related to our operations.

 

In addition, our Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance guidelines and policies and manages risks associated with the independence of the Board and potential conflicts of interest. Our Compensation Committee oversees risk management as it relates to our compensation plans, policies and practices for all employees including executives particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on the Company. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks.

 

MEETINGS OF THE BOARD OF DIRECTORS

 

The Board of Directors met six times during the last fiscal year. All directors attended at least 75% of the aggregate number of all Board and committee meetings of the Board on which they served held during 2016.

 

ANNUAL MEETING ATTENDANCE

 

We do not have a formal policy regarding attendance by members of our Board at annual meetings of stockholders; however, directors are encouraged to attend all such meetings. In 2016, five of our directors attended the 2016 Annual Meeting of Stockholders.

 

INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board has three committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below.

 

 
8

 

 

Audit Committee

 

The Audit Committee of the Board of Directors was established by the Board in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, to oversee the Company’s corporate accounting and financial reporting processes and audits of its financial statements. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of the independent auditors; determines and approves the engagement of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent auditors on the Company’s audit engagement team as required by law; reviews and approves or rejects transactions between the Company and any related persons; confers with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and meets to review the Company’s annual audited financial statements and quarterly financial statements with management and the independent auditor, including a review of the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Since April 1, 2015, the Audit Committee has been comprised of Messrs. Edwards, Adams and Dr. Hoffman, each of whom is a non-employee member of our Board. The Audit Committee met four times during the fiscal year. The Audit Committee has adopted a written charter that is available to stockholders on the Company’s website at www.acelrx.com.

 

The Board of Directors reviews the NASDAQ listing standards definition of independence for Audit Committee members on an annual basis and has determined that all members of the Company’s Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the NASDAQ listing standards).

 

In addition, our Board of Directors has determined that each of the directors serving on our Audit Committee meets the requirements for financial literacy under applicable rules and regulations of the SEC and NASDAQ. Our Board has also determined that Mr. Edwards qualifies as an “audit committee financial expert” within the meaning of SEC regulations. In making this determination, our Board considered the overall knowledge, experience and familiarity of Mr. Edwards with accounting matters, in analyzing and evaluating financial statements and in managing private equity investments. Mr. Edwards serves as the Chairman of the Audit Committee. The composition of the Audit Committee satisfies the independence and other requirements of NASDAQ and the SEC.

 

Compensation Committee

 

The Compensation Committee is comprised of three directors: Dr. Afable and Messrs. Wan and Adams, with Dr. Afable serving as the Chairman of the Compensation Committee. All members of the Company’s Compensation Committee are independent (as independence is currently defined in Rules 5605(a)(2) and 5605(d)(2) of the NASDAQ listing standards). The Compensation Committee met six times during the fiscal year. The Compensation Committee has adopted a written charter that is available to stockholders on the Company’s website at www.acelrx.com.

 

The Compensation Committee of the Board of Directors acts on behalf of the Board to review, recommend for adoption and oversee the Company’s compensation strategy, policies, plans and programs, including:

 

 

approving or recommending for approval to our Board of Directors the compensation and other terms of employment of our executive officers;

 

 

approving or recommending to our Board of Directors performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives;

 

 

evaluating and approving the equity incentive plans, compensation plans and similar programs, as well as modification or termination of existing plans and programs;

 

 

evaluating and recommending to our Board of Directors the type and amount of compensation to be paid or awarded to Board members;

 

 

administering our equity incentive plans;

 

 

establishing policies with respect to equity compensation arrangements;

 

 

recommending to our Board of Directors compensation-related proposals to be considered at our annual meetings, including the frequency of advisory votes on executive compensation;

 

 

reviewing and discussing with our management any conflicts of interest raised by the work of any compensation consultants;

 

 

reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us;

 

 

approving or recommending to our Board of Directors the terms of any employment agreements, severance arrangements, change of control protections and any other compensatory arrangements for our executive officers;

 

 
9

 

 

 

reviewing with management our disclosures under the caption “Compensation Discussion and Analysis” and recommending to the full Board its inclusion in our reports to be filed with the SEC;

 

 

preparing the Compensation Committee report, for our annual proxy statement;

 

 

reviewing the adequacy of our Compensation Committee charter on a periodic basis; and

 

 

reviewing and evaluating, at least annually, the performance of the Compensation Committee and its charter.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee of the Board of Directors is responsible for identifying, reviewing and evaluating candidates to serve as directors of the Company (consistent with criteria approved by the Board), reviewing and evaluating incumbent directors, recommending to the Board for selection candidates for election to the Board of Directors, making recommendations to the Board regarding the membership of the committees of the Board, and assessing the performance of the Board.

 

The Nominating and Corporate Governance Committee is comprised of three directors: Dr. Hoffman and Messrs. Wan and Adams. Mr. Wan serves as Chairman of the Nominating and Corporate Governance Committee. Our Board of Directors has determined that Dr. Hoffman and Messrs. Wan and Adams are independent (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards). The Nominating and Corporate Governance Committee met twice during fiscal 2016. The Nominating and Corporate Governance Committee has adopted a written charter that is available to stockholders on the Company’s website and www.acelrx.com.

 

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Nominating and Corporate Governance Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of the Company’s stockholders. However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee typically considers diversity, age, skills and such other factors as it deems appropriate given the current needs of the Board and the Company, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair the directors’ independence. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for NASDAQ purposes, which determination is based upon applicable NASDAQ listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board. The Nominating and Corporate Governance Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote.

 

The Nominating and Corporate Governance Committee of the Board, to date, has not adopted a formal policy with regard to the consideration of director candidates recommended by stockholders and will consider director candidates recommended by stockholders on a case-by-case basis, as appropriate. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder. To date, the Nominating and Corporate Governance Committee has not received any such nominations nor has it rejected a director nominee from a stockholder or stockholders holding more than 5% of our voting stock. The Nominating and Corporate Governance Committee believes that it is in the best position to identify, review, evaluate and select qualified candidates for Board membership, based on the comprehensive criteria for Board membership approved by the Board. Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Board may do so by delivering a written recommendation to our Secretary at the following address: 351 Galveston Drive, Redwood City, CA 94063, at least 120 days prior to the anniversary date of the mailing of the Company’s proxy statement for the last annual meeting of stockholders. Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record holder of the Company’s stock and has been a holder for at least one year. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.

 

 
10

 

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

The Compensation Committee consists of directors Messrs. Afable, Wan and Adams. None of the members of our Compensation Committee during 2016 is currently or has been, at any time since our formation, one of our officers or employees. During 2016, no executive officer served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or our Compensation Committee. None of the members of our Compensation Committee during 2016 currently has or has had any relationship or transaction with a related person requiring disclosure pursuant to Item 404 of Regulation S-K.

 

STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS

 

Historically, the Company has not provided a formal process related to stockholder communications with the Board. Nevertheless, every effort has been made to ensure that the views of stockholders are heard by the Board or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner. The Company believes its responsiveness to stockholder communications to the Board has been excellent.

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

The Company has adopted the AcelRx Pharmaceuticals, Inc. Code of Business Conduct and Ethics that applies to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics is available on our website at www.acelrx.com. Stockholders may request a free copy of the Code of Business Conduct and Ethics by submitting a written request to: AcelRx Pharmaceuticals, Inc., Attention: Investor Relations, 351 Galveston Drive, Redwood City, CA 94063. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website.

 

 
11

 

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

The material in this report is not “soliciting material,” is not deemed “filed” with the Commission and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2016 with management of the Company. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed pursuant to Public Company Accounting Oversight Board Auditing Standard No. 1301, Communications with Audit Committees. The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

Mark G. Edwards, Committee Chair

Adrian Adams

Stephen J. Hoffman, M.D., Ph.D.

 

 
12

 

 

EXECUTIVE OFFICERS OF THE REGISTRANT

 

The following table sets forth certain information concerning our executive officers as of April 20, 2017:

 

         

Name

 

Age  

 

Position 

Vincent J. Angotti

 

49

 

Director, Chief Executive Officer

Timothy E. Morris

 

55

 

Chief Financial Officer and Head of Business Development

Pamela P. Palmer, M.D., Ph.D.

 

54

 

Director, Chief Medical Officer and Co-Founder

Lawrence G. Hamel

 

65

 

Chief Development Officer

Badri Dasu

 

54

 

Chief Engineering Officer

Jane Wright-Mitchell

 

48

 

Chief Legal Officer

 

Vincent J. Angotti. Mr. Angotti’s biography is included above under the section titled “Proposal 1—Election of Directors— Class II Directors Continuing in Office Until the 2019 Annual Meeting.”

 

Timothy E. Morris has served as our Chief Financial Officer since March 2014. In April 2015, he also assumed the role of Head of Business Development. From November 2004 to December 2013, Mr. Morris served as Senior Vice President Finance and Global Corporate Development, Chief Financial Officer of VIVUS, Inc. a biopharmaceutical company. Mr. Morris graduated cum laude with a B.S. in Business with an emphasis in Accounting from California State University, Chico, and is a Certified Public Accountant.

 

Pamela P. Palmer, M.D., Ph.D. Dr. Palmer’s biography is included above under the section titled “Proposal 1—Election of Directors—Class II Directors Continuing in Office Until the 2019 Annual Meeting.”

 

Lawrence G. Hamel has served as our Chief Development Officer since September 2006. From 1986 until September 2006, Mr. Hamel served as Product Development Manager, Director Project Management, Executive Director Oral Product Development, and Vice President Oral Products Development at ALZA Corporation. From 1977 until 1985, Mr. Hamel held a number of other positions at ALZA Corporation, including Senior Chemist, Research Scientist, and Senior Research Fellow. Mr. Hamel holds a B.S. in Biology from the University of Michigan.

 

Badri Dasu has served as our Chief Engineering Officer since September 2007. From December 2005 until September 2007, Mr. Dasu served as Vice President of Medical Device Engineering at Anesiva, Inc., a biopharmaceutical company. From March 2002 until December 2005, Mr. Dasu served as Vice President for Manufacturing and Device Development at AlgoRx Pharmaceuticals, Inc., an emerging pain management company, which merged with Corgentech Inc., a biotechnology company, in December 2005. From January 2000 until March 2002, Mr. Dasu served as Vice President of Manufacturing and Process Development at PowderJect Pharmaceuticals, a vaccine, drug and diagnostics delivery company that was acquired by Chiron Corporation in 2003 and later acquired by Novartis AG, a global healthcare and pharmaceutical company, in 2006. Previously, Mr. Dasu served in various capacities in process development at Metrika, Inc., a company focused on the manufacture and marketing of disposable diabetes monitoring products that was acquired by Bayer HealthCare, LLC in 2006, and at Cygnus, Inc., a drug delivery and specialty pharmaceuticals company. Mr. Dasu holds a B.E. in Chemical Engineering from the University of Mangalore, India and a M.S. in Chemical Engineering from the University of Tulsa.

 

Jane Wright-Mitchell has served as our Chief Legal Officer since July 2014. From January 2012 to June 2014, Ms. Wright-Mitchell served as Associate General Counsel at Mesoblast, Inc., a biopharmaceutical company. Prior to joining Mesoblast, Ms. Wright-Mitchell held the position of Assistant General Counsel at Purdue Pharma from November 2010 to January 2012 and Associate General Counsel at NeurogesX, Inc. from May 2008 to October 2010. Ms. Wright-Mitchell received her J.D. from Chicago-Kent College of Law, Pharm.D. from the University of Illinois, Chicago and B.S. in Biological Sciences from Clemson University. She is a registered pharmacist (Illinois) and is registered to practice before the U.S. Patent and Trademark Office.

 

 
13

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Our compensation discussion and analysis, or CD&A, discusses the compensation of the individuals who served as our executive officers during 2016, as set forth in the summary compensation table, subsequent tables and related disclosure in this proxy statement. Our CD&A describes our overall executive compensation philosophy, objectives and practices, as well as the Compensation Committee’s decisions and determinations regarding executive compensation for 2016. It also describes key decisions made by the Compensation Committee for 2017 prior to the filing of this proxy statement.

 

We refer to the following individuals as "named executive officers" for 2016:

 

Name

 

Title

Howard B. Rosen

 

Director and Former Chief Executive Officer

Timothy E. Morris

 

Chief Financial Officer and Head of Business Development

Pamela P. Palmer, M.D., Ph. D. 

 

Chief Medical Officer

Badri Dasu

 

Chief Engineering Officer

Lawrence G. Hamel

 

Chief Development Officer

Jane Wright-Mitchell

 

Chief Legal Officer

 

Our Leadership Transition

 

Vince Angotti was appointed as our Chief Executive Officer and a member of the Board, effective March 6, 2017. Mr. Angotti succeeds Mr. Rosen, who resigned as Chief Executive Officer, effective March 5, 2017, and will continue to serve as a member of our Board. Mr. Rosen has served on our Board since 2008, and had agreed to serve as our interim Chief Executive Officer in March 2015, and later as our full-time Chief Executive Officer in March 2016.

 

Mr. Angotti’s offer letter is described in more detail below under the heading “Employment Agreements and Arrangements.”

 

Executive Summary and 2016 Business Highlights

 

During the 2016 fiscal year, we were able to continue to advance the development and raise awareness of our product candidates, in particular, DSUVIA and ZALVISO®, supporting the commercial launch of ZALVISO in the European Union, or EU, while maintaining appropriate financial management. We achieved our corporate objectives and milestones in 2016, including as follows:

 

 

Continued progress in the development of DSUVIA, including the completion of the SAP302 and SAP303 clinical trials and submission of the New Drug Application, or NDA;

 

 

Preparation for submission of ARX-04 Marketing Authorisation Application, or MAA, in the first half of 2017;

 

 

Manufacturing and other activities in support of the commercial launch of ZALVISO by Grünenthal GmbH, or Grünenthal, in the European Union;

 

 

Continued product development of ZALVISO leading towards regulatory submission in the United States; and

 

 

Met financial budget goals for 2016, including controlling operating expenses and ensuring adequate financial resources to support operations through at least the end of the first quarter of 2017.

 

Compensation Philosophy and Practices

 

At AcelRx, our executive compensation program is based on four guiding principles:

 

 

Integrate compensation closely with the achievement of our business and performance objectives;

 

 

Enhance stockholder value by aligning the financial interests of our executive officers with those of our stockholders;

 

 

Attract, motivate and retain the people needed to define and create industry-leading products and services, and;

 

 

Reward individual performance that contributes to our short-term and long-term success.

 

Our compensation philosophy and principles have lead us to believe that our compensation programs should include short-term and long-term components, including cash and equity-based compensation, and should reward performance as measured against established goals. Consequently, the compensation of our executive officers generally consists of four principal elements: base salary, annual incentive bonuses, long-term equity incentives, and employee benefits. Our Compensation Committee considers the total current and potential long-term compensation of each of our executive officers in establishing each element of compensation, but views each element as related but distinct. We also provide severance and other benefits following termination of employment under certain circumstances.

 

 
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At our annual meeting in June 2016, we conducted our second advisory vote on executive compensation, commonly referred to as a “say-on-pay” vote. At that time, approximately 99% of the votes affirmatively cast on the advisory say-on-pay proposal were voted in favor of the compensation of our named executive officers. Our Board and our Compensation Committee understood this level of approval to indicate strong stockholder support for our executive compensation policies and programs generally. The views expressed by the stockholders, whether through this vote or otherwise, are important to our Board and our Compensation Committee, and, accordingly, our Board and our Compensation Committee intend to consider the results of this vote in making determinations in the future regarding executive compensation arrangements. Our Board of Directors and our Compensation Committee also remain committed to engaging with shareholders and are open to feedback, as described elsewhere in this proxy. However, at this time, our Board and our Compensation Committee have no plans to make any fundamental changes to our executive compensation programs in the near future.

 

In 2016, we continued many of our key practices and programs that demonstrate good governance, including:

 

 

An emphasis on pay for performance. A significant portion of our executive officers’ total compensation is variable and at risk and tied directly to measurable performance, which aligns the interests of our executives with those of our stockholders.

 

 

Peer group positioning. Using a peer group selected with the assistance of an independent compensation consultant, the Compensation Committee targets alignment of the base salary, annual incentive bonuses and employee benefits elements of our executives’ compensation to at or near the 50th percentile of our peer group, and the long-term equity incentive element of our executives’ compensation to at or near the 75th percentile of our peer group.

 

 

Equity as a key component to align the interests of our executives with those of our stockholders. Our Compensation Committee continues to believe that keeping executives interests aligned with those of our stockholders is critical to driving toward achievement of long-term goals of both our stockholders and the company.

 

In 2016, we also continued practices that demonstrate good governance and careful stewardship of corporate assets, including:

 

 

Limited personal benefits. Our executive officers are eligible for the same benefits as our non-executive salaried employees, and they do not receive any additional perquisites.

 

 

No pension plan, post-retirement health plans or supplemental deferred compensation or retirement benefits. We do not offer any pension plans or post-retirement health benefits or provide our executive officers with any supplemental deferred compensation or retirement benefits.

 

 

No tax gross-ups. We do not provide our executive officers with any tax gross-ups.

 

 

No single-trigger cash change of control benefits. We do not provide cash severance benefits to our executives upon a change of control, absent an actual termination of employment. We only provide single trigger vesting acceleration if unvested equity awards are not assumed by an acquirer in a change of control.

 

Compensation Processes and Procedures

 

Our Board has established a Compensation Committee for the purpose of reviewing and making recommendations to our full Board regarding the compensation to be paid to our executive officers and directors. All compensation decisions regarding our executive officers and directors are ultimately made by our Board.

 

Our Compensation Committee generally meets at least once in the first quarter of the year, and again throughout the year as needed. The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with the Chief Executive Officer. From time to time, members of management and other employees as well as outside advisors or consultants are invited by the Compensation Committee to make presentations, to provide financial or other background information or advice or to otherwise participate in Compensation Committee meetings. The Compensation Committee also meets regularly in executive session.

 

The Compensation Committee determines and makes recommendations to our Board regarding the compensation levels of our executive officers and the establishment of performance objectives for the current year for our executive officers. In determining compensation levels, our Compensation Committee will generally consider the Company’s overall financial condition and performance, peer company data and other survey materials, reports on current market conditions, operational data, tax and accounting information to ensure that the compensation provided to our executive officers remains competitive relative to compensation paid by companies of similar size and stage of development operating in the biotechnology and pharmaceutical industry, while taking into account our relative performance and our own strategic goals. The members of the Compensation Committee will also consider their own experiences with hiring and retaining executive officers at other companies.

 

In recommending performance goals for the current year, the Compensation Committee will recommend goals for the clinical, regulatory, commercial, manufacturing operations, and financial areas of the Company.

 

 
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Role of Compensation Committee’s Independent Compensation Consultant

 

For 2016, the Compensation Committee engaged an independent compensation consultant, Compensia, Inc., to provide the Committee with a competitive market assessment of the current compensation for the Company’s executive team. Compensia, Inc. did significant work for the Compensation Committee, including selecting and recommending a peer group of companies for the Compensation Committee to use for comparison purposes in evaluating our executive compensation policies and programs. After review and consultation with Compensia, Inc. the Compensation Committee has determined that Compensia, Inc. is independent and there is no conflict of interest resulting from retaining Compensia, Inc. currently. In reaching these conclusions, the Compensation Committee considered the factors set forth in Rule 10C-1 of the Securities Exchange Act of 1934, as amended, and applicable NASDAQ listing standards.

 

Under its charter, the Compensation Committee has the sole discretion to retain or obtain the advice of compensation consultants, legal counsel and other compensation advisers, and it has direct responsibility for the appointment, compensation and oversight of the work of any compensation adviser. The Compensation Committee also has the right to receive from the Company appropriate funding for the payment of reasonable compensation to the compensation adviser it selects, as well as the responsibility to consider certain independence factors before selecting such compensation advisers. The compensation consultant reports directly and exclusively to the Compensation Committee with respect to executive and non-employee director compensation matters.

 

Also under its charter, the Compensation Committee may form and delegate authority to subcommittees as appropriate, including, but not limited to, a subcommittee composed of one or more members of the Board to grant stock awards under the Company’s equity incentive plans to persons who are not (a) “Covered Employees” under Section 162(m) of the Code; (b) individuals with respect to whom the Company wishes to comply with Section 162(m) of the Code or (c) then subject to Section 16 of the Exchange Act.

 

Role of our Management 

 

In general, our Chief Executive Officer and our finance department work together to prepare materials requested by and to be presented to the Compensation Committee, including analyses of financial data, peer data comparisons and other briefing materials. Our Chief Executive Officer typically presents these proposals, along with any background information, to the Compensation Committee for review and consideration. The Compensation Committee may approve, modify, or reject those proposals, or may request additional information from management or outside advisors or consultants on those matters.

 

For setting compensation levels for executives other than our Chief Executive Officer, the Compensation Committee will solicit and consider the recommendations of the Chief Executive Officer, including his review of the officer’s performance and contributions in the prior year, and his recommendations for the potential compensation levels that should be set for each executive officer for the coming year.

 

Role of Other Independent Board Members

 

With respect to our Chief Executive Officer, the Compensation Committee generally prepares an evaluation of the Chief Executive Officer, which it then reviews with the independent members of the Board for their input and consideration. The Compensation Committee also submits to the independent Board members its recommendations for Chief Executive Officer compensation. The final compensation elements and levels for the Chief Executive Officer are then determined by the independent members of the Board.

 

No executive officer is present or participates directly in approving the amount of any component of his or her own compensation package.

 

Use of Peer Company Data

 

In 2015, our Compensation Committee selected a group of nineteen companies to comprise our peer group for executive compensation comparison purposes based on recommendations from Compensia, Inc. For 2016, our Compensation Committee sought to update our peer group for executive compensation comparison purposes to ensure companies remain in general alignment with the selection criteria utilized in our prior years’ reviews. After refreshing peer group financials and stage of development detail, our Compensation Committee approved the following changes based on recommendations from Compensia, Inc. with input from our management:

 

 

Twelve companies from our 2015 peer group were retained (identified with an * below).

 

 

Hyperion Therapeutics, Inc. was deleted because it had been acquired.

 

 

Three companies were deleted because their market capitalization fell outside of our peer group parameters: Dynavax Technologies, Inc., Exelixis, Inc. and ZIOPHARM Oncology, Inc.

 

 
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Three companies were deleted because their revenue fell outside of our peer group parameters: Repligen Corporation, Sucampo Pharmaceuticals, Inc. and Supernus Pharmaceuticals, Inc.

 

 

Six new companies were added, with similar market capitalization, business focus and stage of development as AcelRx.

 

As a result, our peer group for 2016 consisted of the following companies:

 

Achaogen, Inc.

Adamas Pharmaceuticals, Inc. 

BioTime, Inc.*

ChemoCentryx, Inc.*

Corcept Therapeutics, Inc.*

CTI BioPharma Corp.*

Cytokinetics, Inc.

DURECT Corporation 

Omeros Corporation*

Orexigen Therapeutics, Inc.*

Osiris Therapeutics, Inc.*

Peregrine Pharmaceuticals, Inc.

Progenics Pharmaceuticals, Inc.*

Threshold Pharmaceuticals, Inc.

Vanda Pharmaceuticals, Inc.*

XenoPort, Inc.*

XOMA Corporation*

Zogenix, Inc.*

 

These peer group companies, based on available data at the time of our analysis in December 2015, had a median market capitalization of $311 million as compared to our market capitalization of $200 million, a median revenue for the previous four quarters of $28.5 million as compared to our revenue of $18 million, and a median number of employees of 97 as compared to our 40 employees. Our Compensation Committee generally uses the peer group for a broad understanding of market compensation practices and our positioning within the peer group with respect to each element of our compensation program. In addition, the Compensation Committee finds the peer data useful in evaluating whether our overall executive compensation programs are providing sufficient incentive opportunities and retention components, given the competitive market that exists for talented and experienced executives. In some circumstances, our Compensation Committee targets compensation components to meet certain benchmarks, such as targeting salary to be at or near the 50th percentile of our peer group. However, our Compensation Committee believes that over-reliance on benchmarking can result in compensation that is unrelated to the value delivered by our executive officers because compensation benchmarking does not take the specific performance of our executives, the performance of the company as a whole, or other unique business circumstances into account.

 

Elements of Executive Compensation

 

As discussed above, the compensation of our executive officers generally consists of four principal components: base salary, annual incentive bonuses, long-term equity incentives, and employee benefits. We also provide severance and other benefits following termination of employment under certain circumstances.

 

Base Salary

 

As a general matter, we pay our named executive officers a base salary to provide them a stable source of income for the work that they perform during the year. The Compensation Committee generally seeks to set executive salaries at or near the 50th percentile of our peer group. Base salaries are initially established through negotiation at the time the executive is hired, taking into account his or her qualifications, experience, prior salary, and competitive market salary information for similar positions in our industry. Thereafter, the Compensation Committee reviews the base salaries of our executive officers annually and adjustments, if any, are made based on our company’s performance and available budget, the performance of each executive officer against his individual job and responsibilities, competitive market conditions for executive compensation for similar positions, as well as increases in the cost of living. As a result of these factors, actual executive salaries may be higher than the 50th percentile of our peer group.

 

In February 2016, our Compensation Committee reviewed base salary levels for our named executive officers against salaries for similar positions from our peer group of companies, and also in light of the individual performance of our named executive officers during the prior calendar year. As a result of this review and based on the recommendations of our Compensation Committee, also in February 2016, our Board approved salary increases to all of our named executive officers other than Mr. Rosen based on their individual performance, effective January 1, 2016. These adjustments to the base salaries of our then-current named executive officers are shown in the table below.

 

 
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Separately, in March 2016, following the recommendations of our Compensation Committee, the Board reviewed and approved the terms of a new offer letter with Mr. Rosen under which Mr. Rosen transitioned from his prior role as interim Chief Executive Officer to become our full-time Chief Executive Officer. Compensia, Inc. provided an analysis of CEO compensation at peer companies and made recommendations to the Compensation Committee for Mr. Rosen’s new compensation package in light of his increased role, and the Compensation Committee made recommendations to the Board of Directors based on Compensia Inc.’s analysis and recommendations. The Board increased Mr. Rosen’s base salary to $590,000 a year, which represented approximately the 50th percentile of our peer group. The terms of Mr. Rosen’s new offer letter is described in more detail below under the heading “Employment Agreements and Arrangements.”

 

 

Name

 

2015 Annual
Base Salary ($)

   

2016 Annual
Base Salary ($)

   

Increase to Annual
Base Salary

 

Howard B. Rosen

      420,000(1)       590,000(2)     40.5%    

Timothy E. Morris

    386,500       410,000       6.1%    

Pamela P. Palmer, M.D., Ph. D.

    438,000       457,500       4.5%    

Badri Dasu

    321,000       334,000       4.0%    

Lawrence G. Hamel

    321,000       334,000       4.0%    

Jane Wright-Mitchell

    300,000       333,500       11.2%    

                                

 

 

(1)

Mr. Rosen was appointed our interim Chief Executive Officer in April 2015 and received a base salary of $35,000 per month. At the completion of his service as interim Chief Executive Officer in April 2016, Mr. Rosen received an additional lump sum payment equal to $15,000 for each month that he had served as interim Chief Executive Officer.

 

(2)

Mr. Rosen transitioned to our full-time Chief Executive Officer in April 2016 and received a base salary of $590,000 per year.

 

Annual Incentive Bonuses 

 

Our annual Cash Bonus Plan is designed to provide an incentive to our executive officers and other employees to achieve our short-term corporate performance objectives, and to reward them when these objectives are achieved, while also taking into account the level of individual contribution. Under the annual Cash Bonus Plan, target bonus levels are assigned based on various categories of employees, with our executive employees having higher bonus opportunities, but also more pay at risk in the event our performance objectives are not achieved. Each year, the Compensation Committee reviews a detailed set of overall corporate performance goals for the current year for use under our annual bonus plan. These performance objectives are initially prepared by management, reviewed (and revised, if determined appropriate) by the Compensation Committee, and then presented to the full Board of Directors for approval. Goals under the annual incentive bonuses are set based on the Company’s overall performance objectives, as well as the objectives for performance within each executive’s functional area, including his relative individual contributions, while taking into account competitive market information.

 

Whether or not a bonus is paid for any year and the actual amount of a bonus awarded in any year is within the discretion of our Board of Directors. The actual amount of a bonus awarded in any year may be more or less than the target amount, depending on the Board of Director’s assessment as to whether and to what extent we have achieved our corporate objectives, and whether and to what extent an individual has achieved his or her individual objectives. Our Board of Directors also has the discretion to award bonuses, however, even if the applicable performance criteria set forth under the annual Cash Bonus Plan have not been met, or to award a bonus based on other criteria.

 

For 2016, the target bonus percentage was 55% of annual base salary for our Chief Executive Officer, 40% of annual base salary for our Chief Financial Officer and Chief Medical Officer and 35% of annual base salary for the remaining named executive officers. Since our Chief Executive Officer is responsible for the overall performance of the Company, his 2016 annual bonus was based solely on the Company’s overall performance in achieving corporate goals. For our other named executive officers, the cash bonus was weighted 60% on achievement of the Company’s 2016 corporate objectives and 40% on achieving his or her individual performance goals, as determined by the Chief Executive Officer and recommended by the Compensation Committee and approved by the Board of Directors. The Compensation Committee set target bonus percentages at or near the 50th percentile of our peer group.

 

Our 2016 corporate performance objectives, as recommended by our Compensation Committee and approved by our Board of Directors, were as follows:

 

 

Continued progress in the development of DSUVIA, including the completion of the SAP302 and SAP303 clinical trials and submission of the New Drug Application, or NDA;

 

 

Preparation for submission of ARX-04 Marketing Authorisation Application, or MAA, in the first half of 2017;

 

 

Manufacturing and other activities in support of the commercial launch of ZALVISO by Grünenthal GmbH, or Grünenthal, in the European Union;

 

 

Continued product development of ZALVISO leading towards regulatory submission in the United States; and

  

 

Met financial budget goals for 2016, including controlling operating expenses and ensuring adequate financial resources to support operations through at least the end of the first quarter of 2017.

 

 
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At the end of each year, the Compensation Committee determines the overall level of corporate achievement, including assessing our performance relative to these goals. The Compensation Committee does not use a rigid formula in determining the Company’s level of achievement, but instead considers:

 

 

the degree of success achieved for each corporate goal, comparing actual results against the pre-determined deliverables associated with each objective;

 

 

the difficulty of the goal;

 

 

whether significant unforeseen obstacles or favorable circumstances altered the expected difficulty of achieving the desired results;

 

 

other factors that may have made the stated goals more or less important to our success; and

 

 

other accomplishments by us during the year or other factors which, although not included as part of the formal goals, are nonetheless deemed important to our near- and long-term success.

 

The Compensation Committee does assign weightings to the goals by functional area, but, as described above, uses its discretion and judgment to determine a percentage that it believes fairly represents our achievement level for the year. In January 2017, the Compensation Committee reviewed the performance of the Company against its 2016 goals and determined that the Company had achieved 95% of its 2016 corporate objectives, which was then presented and confirmed by the Board of Directors in February 2017.  

 

At this same February meeting, the Board also confirmed that each of the named executive officers achieved a performance level of 100% against his or her individual performance goals for 2016. In making this determination, the Board considered the following:

 

 

In evaluating Mr. Morris’ performance, the Compensation Committee considered his attainment of certain defined individual objectives. In particular, in 2016 Mr. Morris supported partnering activities and provided financial analyses as needed for potential deal structures; supported the Company’s investor relations strategy; managed spending within the Board-approved net operating budget; renegotiated the loan with Hercules and developed contingency plans to address future cash requirements; ensured compliance with internal controls; and met SEC reporting compliance requirements.

 

 

In evaluating Dr. Palmer’s performance, the Compensation Committee considered her attainment of certain defined individual objectives. In particular, in 2016 Dr. Palmer directed the conduct of our SAP302 and SAP303 clinical trials for DSUVIA, known as ARX-04 outside the United States; supported the effort to submit the NDA for DSUVIA in the United States, and the preparation for the MAA submission of ARX-04 in the EU; supported the continued development of ZALVISO in the United States, including directing the conduct of the IAP312 clinical trial; and completed certain abstract and poster presentations relating to the Company’s product portfolio.

 

 

In evaluating Mr. Dasu’s performance, the Compensation Committee considered his attainment of certain defined individual objectives. In particular, in 2016 Mr. Dasu completed certain engineering work in support of ZALVISO and DSUVIA device development and manufacturing; supported the commercial launch of ZALVISO in the European Union; and supported the effort to submit the NDA for DSUVIA in the United States and to prepare for the MAA submission of ARX-04 in the EU.

 

 

In evaluating Mr. Hamel’s performance, the Compensation Committee considered his attainment of certain defined individual objectives. In particular, in 2016 Mr. Hamel completed certain pharmaceutical work in support of the continued development of DSUVIA and commercial supplies of ZALVISO in the European Union; and supported the effort to submit the NDA for DSUVIA in the United States and to prepare for the MAA submission of ARX-04 in the EU.

 

 

In evaluating Ms. Wright Mitchell’s performance, the Compensation Committee considered her attainment of certain defined individual objectives. In particular, in 2016 Ms. Wright-Mitchell completed certain legal work in support of the continued development of DSUVIA in the United States and commercialization of ZALVISO in the European Union; the effort to submit the NDA for DSUVIA in the United States and to prepare for the MAA submission of ARX-04 in the EU; the renegotiation of the loan agreement with Hercules; and other negotiations with vendors and service providers.

 

 
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Pursuant to the 2016 Bonus Plan, and based on the recommendations of the Compensation Committee, in January 2017, the Board of Directors awarded cash bonuses to our executives based on the confirmed attainment level of the 2016 corporate objectives and the confirmed attainment level of their respective individual performance goals for 2016. All bonus amounts were paid on February 15, 2017.

 

The table below provides the target bonus for each named executive officer, the level of performance achieved against the goals, and the amount of the actual bonus paid:

 

Name

 

2016 Target
Bonus as a
Percentage
of Annual
Base Salary

   

2016
Target
Bonus($)

   

Level
of
Achievement
of Corporate Goals

   

Level
of
Achievement
of Individual Goals

   

2016
Actual
Bonus
Paid ($)
 

 

Howard B. Rosen(1)

    55%       243,375       95%       n/a       231,208  

Timothy E. Morris

    40%       164,000       95%       100%       159,080  

Pamela P. Palmer, M.D., Ph. D.

    40%       183,000       95%       100%       177,510  

Badri Dasu

    35%       116,900       95%       100%       113,393  

Lawrence G. Hamel

    35%       116,900       95%       100%       113,393  

Jane Wright-Mitchell

    35%       116,725       95%       100%       113,223  

                           

 

(1)     Mr. Rosen was transitioned from our interim to full-time Chief Executive Officer in April 2016, and received a pro-rated bonus based on the number of months he served as our full-time Chief Executive Officer.

 

Equity Compensation

 

Equity incentives represent the largest at-risk element of our executive compensation program. Our equity incentives are designed to align the interests of our executive officers with those of our stockholders by creating an incentive for our executive officers to maximize stockholder value and to remain employed with us despite a competitive labor market. In general, stock awards are granted once annually to existing employees, including our executive officers, and upon a new hire or promotion, and are subject to vesting over time, based on the individual’s continued employment. Typically, stock awards grants are made to our existing executive officers at the beginning of each fiscal year, and these annual stock awards consist of stock options. However, sometimes such annual stock awards are made at the end of a fiscal year. Our Board and Compensation Committee believes that stock options continue to be the most appropriate vehicle for equity awards at this time, because our executives are only able to realize rewards if our stockholders also have gains.

 

In making recommendations to our Board regarding the size of long-term equity incentives to award to our named executive officers, our Compensation Committee refers to guidelines we have developed based on an executive’s position, which in turn were developed based on third party survey data of companies in our industry. Our Compensation Committee also considers the role and responsibilities of the named executive officers, competitive factors, the non-equity compensation received by the named executive officers in current and previous years, as well as the total available pool of equity to be granted in the current fiscal year and each executive’s current equity ownership in the Company and the extent to which outstanding awards are fully vested. After reviewing all of these factors, the Compensation Committee makes recommendations to our Board who awarded our then-serving named executive officers the stock options reflected in the tables that follow this Compensation Discussion and Analysis. The Compensation Committee and our Board of Directors set the amount of each named executive officer’s stock options at or near the 75th percentile of our peer group. Our Board made annual stock option grants to Mr. Morris, Ms. Palmer, Mr. Dasu, Mr. Hamel and Ms. Wright-Mitchell in February 2016 and also made a stock option grant to Mr. Rosen in March 2016. Our stock option awards typically vest over a four year period subject to the continued service of the employee to the Company. Twenty-five percent of the shares typically vest on the first anniversary of the option award, with the remaining shares vesting monthly in equal amounts over the remainder of the vesting period. In connection with his service as our full-time Chief Executive Officer, the stock option award granted to Mr. Rosen in March 2016 vests monthly at the rate of 1/48th of the total number of option shares over four years, which is described in more detail below under “Employment Agreements and Arrangements.” Due to the fact that Mr. Rosen’s previous grants as a member of our Board of Directors vested monthly, the Compensation Committee recommended monthly vesting for Mr. Rosen’s stock option grants awarded for his service as interim Chief Executive Officer and his appointment as our Chief Executive Officer.

 

Perquisites and Other Benefits

 

Consistent with our compensation philosophy, we intend to continue to maintain our current benefits for our executive officers, which are also generally available to employees, including medical, dental, vision and life insurance coverage and 401(k) employer contributions; however, the Compensation Committee in its discretion may revise, amend or add to these benefits. Our 401(k) plan provides that eligible employees can elect to contribute to the 401(k) plan, subject to certain limitations. Pursuant to the 401(k) plan, we make annual matching contributions to each participant in the 401(k) plan of up to 4% of the participant’s related compensation. All matching contributions are subject to a three year vesting schedule, based on the number of years of service with the Company.

 

 
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Severance Benefits

 

AcelRx maintains a severance plan for certain of our executive officers, under which our named executive officers are also eligible to become participants, and offer letter agreements with certain of our named executive officers also include severance and change of control benefits. The terms of the severance and change of control benefits are described in more detail below in the section entitled “Potential Payments Upon Termination or Change of Control.” Given the nature of the industry in which we participate and the range of strategic initiatives that we may explore, we believe providing severance and change of control benefits are an essential element of our executive compensation package and assist us in recruiting and retaining talented individuals in a marketplace where these types of arrangements are commonly offered by our peer companies. Change of control benefits are generally structured on a “double-trigger” basis, meaning that the executive officer must experience a constructive termination or a termination without cause in connection with the change of control in order for the change of control benefits to become due, except as noted below. By establishing these severance benefits, we believe we can mitigate the distraction and loss of executive officers that may occur in connection with rumored or actual fundamental corporate changes and thereby protect shareholder interests while a transaction is under consideration or pending.

 

Employment Agreements and Arrangements

 

We have entered into offer letter agreements with each of our named executive officers, in connection with each named executive officer’s commencement of employment with us. Each of our executive officers is employed “at-will,” and each such executive officer’s employment may be terminated at any time by us or the named executive officer. These offer letter agreements provide for the named executive officer’s initial base salary, a target annual bonus opportunity, eligibility to participate in our standard benefit plans and in certain cases, a stock option grant along with vesting provisions with respect to such stock option grant. These agreements also provide for severance benefits upon termination of employment or a change of control of our company, which are described in more detail under the heading “Benefits Upon Termination or Change in Control.”

 

In February 2017, we entered into an offer letter agreement with Mr. Angotti, under which Mr. Angotti became our Chief Executive Officer, effective March 6, 2017. Mr. Angotti’s offer letter provides that he will be employed by the Company on an “at will” basis and will receive an initial annual base salary of $600,000; an annual cash bonus targeted at 55% of Mr. Angotti’s base salary with actual bonus payments based on the achievement of corporate business objectives, as determined by the Board or Compensation Committee of the Board; and an option to purchase 800,000 shares of the Company’s common stock, vesting with respect to 25% of the shares on March 6, 2018 and then over four years, with 1/48th of the shares vesting monthly thereafter subject to Mr. Angotti’s continuous service. We also agreed to reimburse him for up to $10,000 in reasonable attorney’s fees in connection with the negotiation of his offer letter agreement.

 

On March 28, 2016, we entered into an amended offer letter with Mr. Rosen in connection with his transition from interim to full-time Chief Executive Officer, effective April 1, 2016. Mr. Rosen’s new offer letter provided that he would receive (i) an initial annual base salary of $590,000; (ii) an annual cash bonus targeted at 55% of his base salary, with actual bonus payments based on the achievement of corporate business objectives, as determined by the Compensation Committee; and (iii) an option to purchase 800,000 shares of the Company’s common stock, vesting over four years, with 1/48th of the option shares vesting monthly subject to subject to Mr. Rosen’s continuous service through each vesting date. Effective March 5, 2017, Mr. Rosen resigned as Chief Executive Officer. Mr. Rosen was eligible for and received his 2016 annual bonus payment, prorated for his partial year of service as our Chief Executive Officer in 2016, on February 15, 2017. Mr. Rosen continues to serve on the Board, where he has served since 2008, accordingly the stock options awarded to him for his service as our interim Chief Executive Officer and our full-time Chief Executive Officer will continue to vest until such time as Mr. Rosen ceases to be a service provider to the Company.

 

In March 2014, we entered into an offer letter agreement with Mr. Morris, which provided for an initial annual base salary of $375,000. As of the date of this proxy statement, Mr. Morris’ annual base salary is $419,250 and Mr. Morris is eligible for an annual target bonus of up to 40% of his annual base salary.

 

In December 2010, we entered into an offer letter agreement with Dr. Palmer, which provided for an initial annual base salary of $375,000. As of the date of this proxy statement, Dr. Palmer’s annual base salary is $467,750 and Dr. Palmer is eligible for an annual target bonus of up to 40% of her annual base salary.

 

 
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In December 2010, we entered into an offer letter agreement with Mr. Dasu, which provided for an initial annual base salary of $235,000. As of the date of this proxy statement, Mr. Dasu’s annual base salary is $341,525 and Mr. Dasu is eligible for an annual target bonus of up to 35% of his annual base salary.

 

In December 2010, we entered into an offer letter agreement with Mr. Hamel, which provided for an initial annual base salary of $275,000. As of the date of this proxy statement, Mr. Hamel’s annual base salary is $341,525 and Mr. Hamel is eligible for an annual target bonus of up to 35% of his annual base salary.

 

In July 2014, we entered into an offer letter agreement with Ms. Wright-Mitchell, which provided for an initial annual base salary of $288,000. As of the date of this proxy statement, Ms. Wright-Mitchell’s annual base salary is $341,000 and Ms. Wright-Mitchell is eligible for an annual target bonus of up to 35% of her annual base salary.

 

Benefits Upon Termination or Change in Control 

 

Mr. Angotti. Under our offer letter agreement with Mr. Angotti, in the event that Mr. Angotti’s employment is terminated by us without cause (and not due to his death or disability) or he resigns for good reason, referred to as an involuntary termination, then he will be entitled to the following severance benefits: (i) a lump sum cash severance payment in an amount equal to twelve months of his then-current base salary, plus 100% of his target annual bonus for the year of termination; (ii) reimbursement of COBRA premiums for up to twelve months; (iii) twelve months’ worth of accelerated vesting of his equity awards, and (iv) extended exercisability of vested options for up to twelve months following his termination date. In addition, if Mr. Angotti experiences an involuntary termination within three months prior to or eighteen months following a change in control of AcelRx, then his severance benefits will be increased as follows: (w) the lump sum cash severance payment will instead be an amount equal to twenty-four months of his then-current base salary, plus 200% of his target annual bonus; (x) he will be entitled to payment of any bonus earned but not yet paid for the prior fiscal year; (y) the COBRA premium reimbursement period will be for up to twenty-four months; and (z) 100% of all then-unvested equity awards will accelerate as of his termination date. In order to receive any severance benefits, Mr. Angotti must sign a waiver and release of claims in favor of AcelRx.

 

Mr. Rosen. Mr. Rosen voluntarily resigned from AcelRx effective as of March 5, 2017, and did not receive any severance payments or benefits in connection with his resignation. He continues to serve on our Board of Directors, but he will not be entitled to any of the severance benefits described in his amended offer letter dated March 28, 2016 or under our Severance Plan in connection with any future termination of his service as a director.

 

Mr. Morris. Under our offer letter agreement with Mr. Morris, in the event that Mr. Morris’ employment is terminated by us without cause, or he resigns for good reason (and not due to his death or disability), in each case within three months prior to, or one year following, a change in control of AcelRx, Mr. Morris will be entitled to the following severance benefits: (i) a lump sum cash payment equal to nine months of his base salary, (ii) reimbursement of COBRA premiums for a period of up to nine months, and (iii) 100% acceleration of all then-unvested equity awards as of his termination date. In order to receive the severance benefits, Mr. Morris must execute a waiver and release of claims in favor of AcelRx. In February 2017, Mr. Morris became a participant in our Severance Plan, and therefore he is no longer entitled to the severance benefits that are provided for in his offer letter.

 

Severance Benefit Plan. In February 2016, our Compensation Committee recommended and our Board of Directors approved the Severance Benefit Plan, for certain of our executive officers, under which our named executive officers are also eligible to become participants if they so elect. In February 2017, our Board of Directors adopted an Amended and Restated Severance Benefit Plan to create two tiers of severance benefits payable to participating executive officers upon an involuntary termination in connection with a change in control, depending on the executive officer’s position with AcelRx as of the change in control transaction. The Amended and Restated Benefit Plan, or the Severance Plan, is subject to ERISA and intended to maintain the competitiveness and effectiveness of our total compensation packages. The Severance Plan replaces the prior change of control and severance arrangements contained in the offer letter agreements with Dr. Palmer, Mr. Morris, Mr. Dasu, Mr. Hamel and Ms. Wright-Mitchell.

 

 
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The Severance Plan provides that if an executive officer’s employment with us is terminated by us without cause (and not due to death or disability) or the executive officer resigns for good reason (as such terms are defined in the Severance Plan), referred to below as an involuntary termination, the executive officer will receive (i) a lump sum severance payment equal to 6 months of the monthly base salary the executive officer was receiving immediately prior to such termination date; and (ii) up to 6 months of reimbursement for premiums paid for COBRA coverage for the executive officer and his or her eligible dependents. In addition, the Severance Plan provides for the following enhanced severance benefits if an executive officer’s involuntary termination occurs within 3 months prior to or within 18 months after a change in control (as such term is defined in the Severance Plan) of AcelRx:

 

Severance
Benefit

 

C-level officers *

 

VP, SVP or EVP

         

Base Salary:

 

12 months

 

6 months

         

Target Bonus:

 

100% of target bonus opportunity

 

Greater of 50% of target bonus opportunity, or a prorated amount of target bonus opportunity through termination date

         

Reimbursement of COBRA Premiums:

 

Up to 12 months

 

Up to 6 months

         

Vesting Acceleration:

 

100% vesting and exercisability of all outstanding unvested stock awards subject to time-based vesting

 

Same as for C-level executive officers

         

Extended exercisability of stock options:

 

Until 6 months after termination date (or earlier expiration date of the award)

 

Same as for C-level executive officers

 

* Executive officer must elect to participate in the Severance Plan in lieu of any separate benefits in their employment offer letters

 

The Severance Plan also provides that in the event that an outstanding unvested time-based vesting stock award does not become an assumed award in connection with a change in control, each such outstanding stock award will become 100% vested and exercisable immediately prior to the effective date of the change in control. All severance benefits payable under the Severance Plan are subject to the execution of a waiver and release of claims in favor of AcelRx.

 

Mr. Angotti’s offer letter and the Severance Plan also contain a "better after-tax" provision, which provides that if any of the payments to the executive constitutes a parachute payment under Section 280G of the Internal Revenue Code, the payments will either be (i) reduced or (ii) provided in full to the executive, whichever results in the executive receiving the greater amount after taking into consideration the payment of all taxes, including the excise tax under Section 4999 of the Internal Revenue Code, in each case based upon the highest marginal rate for the applicable tax.

 

2017 Compensation Actions

 

In early 2017, the Compensation Committee and Board of Directors approved base salary, target bonuses and equity awards for our continuing named executive officers that were generally consistent with past practice. In addition, in February 2017 our Board of Directors approved the Amended and Restated Severance Benefit Plan, as described above under the heading “Benefits Upon Termination or Change of Control.” Finally, in March 2017 our Board of Directors approved the terms contained in our offer letter agreement with Mr. Angotti, our Chief Executive Officer, as described above under the heading “Employment Agreements and Arrangements.”

 

Analysis of Risks Presented by our Compensation Policies and Programs

 

Our Compensation Committee has discussed the concept of risk as it relates to the forms and amounts of compensation at AcelRx and believes that the risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on us. In addition, our Compensation Committee believes that the mix and design of the elements of our executive compensation program do not encourage management to assume excessive risks. Our compensation program consists of both fixed and variable compensation. The fixed (or salary) portion is designed to provide a steady income regardless of our stock price performance so that executives do not focus exclusively on stock price performance to the detriment of other important business metrics. The variable (cash bonus and equity) portions of compensation are designed to reward both short-term and long-term corporate performance. We believe that the variable elements of compensation are a sufficient percentage of overall compensation to motivate executives to produce positive short- and long-term corporate results, while the fixed element is also sufficiently high such that executives are not encouraged to take unnecessary or excessive risks in doing so. Because executive officers receive a significant portion of their compensation in the form of equity, with multiple year vesting, this discourages them from making short-term decisions that may result in long-term harm to the organization. Furthermore, the performance goals used to determine the amount of an executive officer’s bonus are measures that the Compensation Committee believes contribute to long-term stockholder value and promote the continued viability of the company and are often focused on key events related to the overall success of our product development. Finally, compensation decisions include subjective considerations, which help to constrain the influence of formulas or objective factors on excessive risk taking.

 

 
23

 

 

Compensation Recovery Policy

 

We do not have a policy to attempt to recover cash bonus payments paid to our executive officers if the performance objectives that led to the determination of such payments were to be restated or found not to have been met to the extent the Compensation Committee originally believed. However, as a public company subject to the provisions of Section 304 of the Sarbanes-Oxley Act of 2002, if we are required as a result of misconduct to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our Chief Executive Officer and Chief Financial Officer may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive. In addition, we plan to implement appropriate compensation recoupment programs in accordance with any clawback policy that we are required to adopt pursuant to the listing standards of any national securities exchange or association on which our securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law.

 

Accounting and Tax Considerations

 

AcelRx accounts for stock-based awards exchanged for employee services in accordance with the Compensation – Stock Compensation topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC. In accordance with the topic, we are required to estimate and record an expense for each award of equity compensation over the vesting period of the award. Accounting rules also require us to record cash compensation as an expense over the period during which it is earned.

 

Section 162(m) of the Internal Revenue Code, or the Code, limits public companies, including AcelRx, to a deduction for federal income tax purposes of no more than $1.0 million of compensation paid to certain executive officers in a taxable year. Compensation above $1.0 million may be deducted if it is “performance-based compensation” within the meaning of the Code. To maintain flexibility in compensating our executive officers in a manner designed to promote our compensation objectives, our Compensation Committee does not specifically design the incentive compensation awards to our named executive officers in a manner intended to qualify as performance-based compensation. AcelRx and the Compensation Committee intend to continue to evaluate the effects of the compensation limits of Section 162(m) of the Code and to structure incentive compensation in the future in a manner consistent with the best interests of AcelRx and its stockholders.

 

 
24

 

 

COMPENSATION COMMITTEE REPORT

 

The material in this report is not “soliciting material,” is not deemed “filed” with the Commission and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, other than in AcelRx’s Annual Report on Form 10-K where it shall be deemed to be furnished, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

The foregoing report has been furnished by the Compensation Committee.

 

Richard Afable, M.D., Committee Chair

Mark Wan

Adrian Adams

 

 
25

 

 

Summary Compensation Table

 

The following table sets forth certain summary information for the year indicated with respect to the compensation earned by our former Chief Executive Officer, our Chief Financial Officer, and each of our three other most highly compensated executive officers as of December 31, 2016. We refer to these individuals as our “named executive officers” elsewhere in this proxy statement.

 

 

 

Summary Compensation Table

 

Name and Principal Position

Year

 

Salary
($)

   

Bonus
($)

   

Option
Awards
($)
(3)

   

Non-Equity
Incentive Plan
Compensation
($)
(4)

   

All Other
Compensation
($)
(5)

   

Total ($)

 

Howard B. Rosen(6)

2016

    547,500 (1)     45,000 (2)     1,703,990       231,208       10,600       2,538,298  

Former Chief Executive Officer

2015

    315,000       310,000       571,304             11,875       1,208,179  
                                                   

Timothy E. Morris

2016

    410,000             261,246       159,080       10,600       840,926  

Chief Financial Officer and

2015

    386,500             275,594       208,711       10,600       881,405  

Head of Business Development

2014

    288,352             1,741,931       70,137       5,625       2,106,045  
                                                   

Pamela P. Palmer, M.D., Ph.D.

2016

    457,500             261,246       177,510       10,600       906,856  

Chief Medical Officer

2015

    438,000                   231,264       10,600       679,864  
 

2014

    421,000             1,127,522       104,987       7,800       1,661,309  
                                                   

Badri Dasu

2016

    334,000             165,495       113,393       10,600       623,488  

Chief Engineering Officer

2015

    321,000                   155,043       10,600       486,643  
 

2014

    310,250             693,723       67,867       7,800       1,079,640  
                                                   

Lawrence G. Hamel

2016

    334,000             165,495       113,393       10,600       623,488  

Chief Development Officer

2015

    321,000                   157,290       10,600       488,890  
 

2014

    310,250             693,723       65,695       7,800       1,077,468  
                                                   

Jane Wright-Mitchell

2016

    333,500             212,779       113,223       10,600       670,102  

Chief Legal Officer

                                                 

 

                                   

(1)

Mr. Rosen’s annual base salary was increased from $420,000 to $590,000 effective April 1, 2016 in connection with his change in status from interim to full-time Chief Executive Officer.

(2)

Amount represents a retention payment of $45,000 in 2016 for Mr. Rosen’s service as interim Chief Executive Officer.

(3) 

The dollar amounts in this column represent the aggregate grant date fair value of all option awards granted during the indicated year. These amounts have been calculated in accordance with ASC 718, using the Black-Scholes option-pricing model and excluding the effect of estimated forfeitures. For a discussion of valuation assumptions, see Note 1 to our financial statements and the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation” included in our Annual Report on Form 10-K filed with the SEC on March 3, 2017. These amounts do not necessarily correspond to the actual value that may be recognized from the option awards by the named executive officers.

(4) 

The dollar amounts in 2016 reflect the incentive bonuses awarded to the named executive officers under the Company’s 2016 Cash Bonus Plan.

(5)

Includes contributions made by AcelRx under its 401(k) Plan on behalf of each named executive officer.

(6) 

Mr. Rosen resigned as our Chief Executive Officer in March 2017.

 

 
26

 

 

Grants of Plan Based Awards in Fiscal 2016

 

The following table provides information with regard to each grant of plan-based award made to a named executive officer under any plan during the fiscal year ended December 31, 2016.

 

 

   

Grant Date 

          Number of
Securities
Underlying
Options(#)(2) 
    Exercise
or Base
Price of
Option
Awards
($/Sh)(3) 
    Grant Date
Fair Value
of Option
Awards($)
 
                               
         

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards(1) 

                   
Name        

Threshold($) 

   

Target($) 

   

Maximum($) 

                   

Howard B. Rosen

                                                       

Stock Options

 

3/28/2016

                        800,000       3.10       1,703,990  

Annual Bonus Plan

    —                243,375                          
                                                         

Timothy E. Morris

                                                       

Stock Options

 

2/10/2016

                        110,500       3.40       261,246  

Annual Bonus Plan

    —                164,000                          
                                                         

Pamela P. Palmer, M.D., Ph. D.

                                                       

Stock Options

 

2/10/2016

                        110,500       3.40       261,246  

Annual Bonus Plan

    —                183,000                          
                                                         

Badri Dasu

                                                       

Stock Options

 

2/10/2016

                        70,000       3.40       165,495  

Annual Bonus Plan

    —                116,900                          
                                                         

Lawrence G. Hamel

                                                       

Stock Options

 

2/10/2016

                        70,000       3.40       165,495  

Annual Bonus Plan

    —                116,900                          
                                                         

Jane Wright-Mitchell

                                                       

Stock Options

 

2/10/2016

                        90,000       3.40       212,779  

Annual Bonus Plan

    —                116,725                          

                            

(1) 

The Annual Bonus Plan amount in the table above reflects the target value of a cash bonus award to each respective named executive officer in 2016 under the Annual Bonus Plan approved by the Compensation Committee. There is no minimum or maximum bonus amount under the Annual Bonus Plan. The target value of Mr. Rosen’s cash bonus award is pro-rated for his service as full-time Chief Executive Officer. The cash bonus award amounts actually paid under the Annual Bonus Plan to the named executive officers in 2016 are shown in the Summary Compensation Table for 2016 under the heading “Non-Equity Incentive Plan Compensation” and the accompanying footnote. Please refer to “Compensation Discussion and Analysis” above for a description of the Annual Bonus Plan.

(2) 

The stock options granted to Mr. Rosen vest over four years, with 1/48th of the shares vesting monthly subject to Mr. Rosen’s continuous service and each of the options expiring 10 years from the date of grant. The stock options granted to our other named executive officers in 2016 are exercisable starting on the twelve month anniversary of the vesting commencement date, with 25% of the shares covered thereby becoming exercisable at that time, with the remaining shares vesting on an equal monthly basis over the following 36 months and each of these options expiring 10 years from the date of grant.

(3) 

Options are granted at an exercise price equal to the fair market value of our Common Stock, as determined by reference to the closing price reported by the NASDAQ Global Market on the date of grant.

 

 
27

 

 

Outstanding Equity Awards at December 31, 2016

 

The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2016.

 

 

Option Awards(1)

Name




Vesting

Commencement

Date

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

   

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

   

Option
Exercise
Price
($)

 

Option
Expiration
Date

Howard B. Rosen

4/1/2016

    133,333       666,667 (2)     3.10  

03/28/2026

        240,000             3.92  

04/01/2025

        15,000             10.22  

07/24/2024

        15,000             10.55  

09/12/2023

        12,500             3.11  

07/24/2022

        16,250             2.56  

06/15/2020

        22,500             4.00  

08/14/2018

                             
                             

Timothy E. Morris

2/10/2016

          110,500       3.40  

02/10/2026

 

4/29/2015

    41,666       58,334       4.24  

04/29/2025

 

12/2/2014

    50,000       50,000       6.60  

12/02/2024

 

3/25/2014

    137,500       62,500       10.34  

05/07/2024

                             
                             

Pamela P. Palmer, M.D., Ph.D.

2/10/2016

          110,500       3.40  

02/10/2026

 

12/2/2014

    55,000       55,000       6.60  

12/02/2024

 

2/4/2014

    70,833       29,167       10.34  

02/04/2024

 

2/5/2013

    371,964       16,173       5.31  

02/05/2023

        231,911             3.39  

02/07/2022

        100,000             3.45  

03/02/2021

        221,000 (3)           2.56  

06/15/2020

        37,500 (3)           5.52  

03/25/2019

        37,500 (3)           4.00  

08/14/2018

                             
                             

Badri Dasu

2/10/2016

          70,000       3.40  

02/10/2026

 

12/2/2014

    35,000       35,000       6.60  

12/02/2024

 

2/4/2014

    42,500       17,500       10.34  

02/04/2024

 

2/5/2013

    125,844       5,472       5.31  

02/05/2023

        51,319             3.39  

02/07/2022

        52,500             3.45  

03/02/2021

        55,000 (3)           2.56  

06/15/2020

        6,250 (3)           5.52  

03/25/2019

        37,500 (3)           1.20  

10/25/2017

                             

Lawrence G. Hamel

2/10/2016

          70,000       3.40  

02/10/2026

 

12/2/2014

    35,000       35,000       6.60  

12/02/2024

 

2/4/2014

    42,500       17,500       10.34  

02/04/2024

 

2/5/2013

    119,162       5,181       5.31  

02/05/2023

        51,319             3.39  

02/07/2022

        31,000             3.45  

03/02/2021

        62,500 (3)           2.56  

06/15/2020

        12,500 (3)           5.52  

03/25/2019

        9,122 (3)           1.20  

12/5/2017

                             

Jane Wright-Mitchell

2/10/2016

          90,000       3.40  

02/10/2026

 

12/2/2014

    35,000       35,000       6.60  

12/02/2024

 

7/14/2014

    39,270       25,730       10.22  

07/24/2024

 

                             

(1) 

Unless otherwise noted, all awards were granted pursuant to AcelRx’s 2011 Equity Incentive Plan. Unless otherwise noted, all stock options vest over 4 years, with to 1/4 of the shares vesting on the first anniversary of the vesting commencement date, and the remaining shares vesting on an equal monthly basis over the following 36 months, subject to continued service. Vesting commencement dates are included for stock options that were not fully vested as of December 31, 2016.

(2)

The shares subject to this stock option vest over four years, with 1/48th of the shares vesting monthly beginning on May 1, 2016, subject to Mr. Rosen’s continuous service with the Company, whether as an employee, director or consultant.

(3)

Award granted pursuant to AcelRx’s 2006 Stock Plan.

 

 
28

 

 

Option Exercises

 

No options were exercised by any named executive officer during the fiscal year ended December 31, 2016. None of our named executive officers held any restricted stock awards or restricted stock unit awards that vested during the fiscal year ended December 31, 2016.

 

Potential Payments Upon Termination or Change of Control for each Named Executive Officer

 

The table below reflects the amount of compensation to each of the named executive officers pursuant to each executive’s employment agreement or our Severance Plan, as applicable, in the event of termination of such executive’s employment or in the event of a change of control. The amounts shown assume that a named executive officer’s termination was effective as of December 31, 2016, prior to the amendment and restatement of our Severance Plan in February 2017.

 

 

Potential Payments Upon Termination or Change of Control for each Named Executive Officer

 

Executive benefits and payments upon termination(1) (2):

 

Involuntary termination

not for cause or by

constructive termination
not in connection with a change of
control($)

   

Involuntary termination

not for cause or by
constructive termination
following a change of control($)

 

Howard B. Rosen(3)

                   

Base salary

    295,000         590,000    

Non-equity incentive compensation

    243,375         324,500    

Medical continuation

    18,385         36,770    

Value of accelerated stock options

               
                     

Timothy E. Morris

                   

Base salary

            307,500    

Non-equity incentive compensation

               

Medical continuation

            24,686    

Value of accelerated stock options

               
                     

Pamela P. Palmer, M.D., Ph.D.

                   

Base salary

    228,750         343,125    

Non-equity incentive compensation

            183,000    

Medical continuation

    8,740         13,111    

Value of accelerated stock options

               
                     

Badri Dasu

                   

Base salary

    167,000         250,500    

Non-equity incentive compensation

            116,900    

Medical continuation

    17,685         26,528    

Value of accelerated stock options

               
                     

Lawrence G. Hamel

                   

Base salary

    167,000         250,500    

Non-equity incentive compensation

            116,900    

Medical continuation

    21,749         32,624    

Value of accelerated stock options

               
                     

Jane Wright-Mitchell

                   

Base salary

    166,750         250,125    

Non-equity incentive compensation

            116,725    

Medical continuation

    9,881         14,821    

Value of accelerated stock options

               

                                    

(1) 

The amounts shown above reflect the benefits payable under Mr. Rosen’s and Mr. Morris’ employment offer letters and to our other named executive officers pursuant to our Severance Plan in place as of December 31, 2016. Prior to the amendment and restatement of our Severance Plan in February 2017, the cash severance payments and reimbursement of COBRA premiums upon an involuntary termination within three months prior to or eighteen months following a change in control under the Severance Plan were the same for all participants regardless of position, and were as follows: (i) a lump sum payment equal to the sum of (1) 9 months of the his or her current base salary and (2) an amount equal to the greater of 75% of the executive officer’s target bonus opportunity, or a pro rata amount of the executive officer’s target bonus opportunity for the calendar year in which the termination occurs prorated on a daily basis from the beginning of the year up to the termination date; (ii) up to 9 months of reimbursement for premiums paid for COBRA coverage for the executive officer and his or her eligible dependents. Except for this difference, the severance benefits provided under the Severance Plan remain unchanged. Please see “Benefits Upon Termination or Change in Control” in the Compensation Discussion and Analysis for a description of the terms of the Severance Plan as amended and restated.

 
 
29

 

 

(2) 

The closing price of our common stock on December 30, 2016 was $2.60 per share. None of our named executive officers held unvested stock options with an exercise price less than $2.60 on December 31, 2016, and therefore no severance benefits attributable to accelerated vesting are included in the table.

(3) 

As previously reported on a Form 8-K filed February 16, 2017, Mr. Rosen resigned as Chief Executive Officer effective March 5, 2017, and no severance benefits were provided to him in connection with his resignation. Mr. Rosen continues to serve on our Board, but he will not be entitled to any severance benefits described in his amended offer letter dated March 28, 2016 or under our Severance Plan in connection with any future termination of his service as a director.

 

 

 

Director Compensation

 

Non-Employee Director Compensation

 

Cash Compensation Arrangements

 

Compensation for our non-employee directors consists of cash and stock options. The Compensation Committee periodically reviews the compensation paid to non-employee directors for their service on the Board and its committees and recommends any changes considered appropriate to the full Board for its approval. In 2013, the Compensation Committee conducted a competitive analysis of industry practices and director compensation programs at comparable companies. Based on this analysis, in January 2013 the Compensation Committee recommended revisions to our non-employee director compensation program. In February 2013, our Board revised the non-employee director compensation policy, which became effective January 1, 2013. Pursuant to the revised non-employee director compensation policy, each member of our Board, who is not our employee, receives an annual retainer of $40,000. In addition, our non-employee directors receive the following cash compensation for Board services, as applicable:

 

 

the Board Chair receives an additional annual retainer of $20,000;

 

 

the Audit Committee Chair receives an additional annual retainer of $15,000;

 

 

the Compensation Committee Chair receives an additional annual retainer of $7,500;

 

 

the Nominating and Corporate Governance Committee Chair receives an additional annual retainer of $6,000;

 

 

an Audit Committee member receives an additional annual retainer of $7,500;

 

 

a Compensation Committee member receives an additional annual retainer of $3,750; and

 

 

a Nominating and Corporate Governance Committee member receives an additional retainer of $3,000.

 

All Board and committee retainers accrue and are payable on a quarterly basis at the end of each calendar quarter of service. We continue to reimburse our non-employee directors for travel, lodging and other reasonable expenses incurred in connection with their attendance at Board or committee meetings.

 

Equity Compensation Arrangements

 

Our non-employee director compensation policy provides for automatic grants of stock options to our non-employee directors under our 2011 Incentive Plan. Upon election or appointment to our Board, each non-employee director will receive an initial grant of a stock option to purchase 15,000 shares of our common stock, which will vest as to 1/36th of the shares subject to the option on an equal monthly basis over a three-year period. Beginning with our 2013 annual meeting, each non-employee director who is then serving as a director or who is elected to our Board of directors on the date of such annual meeting is eligible to receive a grant of a stock option to purchase 15,000 shares of our common stock, which will vest as to 1/24th of the shares subject to the option on an equal monthly basis over a two-year period. Each of these options will be granted with an exercise price equal to the fair market value of our common stock on the date of the grant, and shall be entitled to full vesting acceleration as of immediately prior to the effective date of certain change of control transactions involving us, such as our liquidation or a dissolution of or an event that results in a material change in the ownership of our Company.

 

2016 Director Compensation

 

The following table sets forth certain summary information for the year ended December 31, 2016 with respect to the compensation of our non-employee directors. Neither Mr. Rosen, who was an executive officer, nor Dr. Palmer, who is an executive officer, received or receives any additional compensation for serving on our Board. Mr. Rosen was appointed interim Chief Executive Officer effective April 1, 2015 and became the Company’s full-time Chief Executive Officer, effective April 1, 2016. Effective March 5, 2017, Mr. Rosen resigned as Chief Executive Officer but remains on the Company’s Board of Directors. As such, Mr. Rosen received no additional compensation for serving on our Board, during his tenure as interim Chief Executive Officer and Chief Executive Officer from April 1, 2015 through March 5, 2017.

 

 
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2016 Director Compensation

 

Name

 

Fees Earned or

Paid in Cash

($) 

   

Option

Awards

($)(1)

 

Total

($)

 

Adrian Adams

    74,250       28,078 (2)(3)     102,328  

Stephen J. Hoffman M.D., Ph.D.(4)

    50,500       28,078 (2)(3)     78,578  

Richard Afable, M.D.

    47,500       28,078 (2)(3)     75,578  

Mark Wan

    49,750       28,078 (2)(3)     77,828  

Mark G. Edwards

    55,000       28,078 (2)(3)     83,078  

                                

(1) 

The dollar amount in this column represents the grant date fair value of the stock option award granted to each of the directors. This amount has been calculated in accordance with ASC 718 using the Black-Scholes option-pricing model and excluding the effect of estimated forfeitures. For a discussion of valuation assumptions, see Note 1 to our financial statements and the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Share-Based Compensation” included in our Annual Report on Form 10-K filed with the SEC on March 3, 2017. These amounts do not necessarily correspond to the actual value that may be recognized from the option award.

(2) 

On June 21, 2016, the date of our Annual Meeting of Shareholders, each of the following non-employee directors was granted an option to purchase 15,000 shares of our common stock. The shares subject to these stock options vest as to 1/24th of the shares subject to the option per month on an equal monthly basis over a two-year period.

(3) 

As of December 31, 2016, the following directors held options to purchase the following number of shares of the Company’s common stock: Mr. Adams, 75,000, of which 60,000 were exercisable; Dr. Hoffman, 72,500, of which 57,500 were exercisable; Dr. Afable, 60,000, of which 45,000 were exercisable; Mr. Wan, 72,500, of which 57,500 were exercisable; Mr. Edwards, 66,459, of which 51,459 were exercisable.

(4) 

AcelRx has received representations from Stephen J. Hoffman, M.D., Ph.D. and Skyline Venture Partners Qualified Purchaser Fund IV, L.P. providing that, as a consultant of Skyline Management in 2016, the economic benefit of any equity or other compensation received by Dr. Hoffman in connection with his service as a director of AcelRx in 2016 was for the benefit of Skyline Venture Partners Qualified Purchaser Fund IV, L.P.

 

 
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SECURITY OWNERSHIP OF

 

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the ownership of our common stock as of April 24, 2017 by: (i) each director; (ii) each named executive officer; (iii) all of our executive officers and directors as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock.

 

   

Beneficial Ownership(1) 

 

Name of Beneficial Owner

 

Number of Shares

   

% of Total

 

5% Stockholders:

               

Funds affiliated with Three Arch Entities(2)

    9,623,269       21.1 %

Fund affiliated with Perceptive Advisors LLC(3)

    5,408,728       11.9 %
                 

Named Executive Officers and Directors:

               

Vincent J. Angotti (4)

    0        *  

Howard B. Rosen (5)

    612,083       1.3 %

Timothy E. Morris(6)

    309,749        *  

Pamela P. Palmer, M.D., Ph.D.(7)

    1,621,508       3.5 %

Badri Dasu(8)

    479,662       1.0 %

Lawrence G. Hamel(9)

    488,221       1.1 %

Jane Wright-Mitchell(10)

    125,922       *  

Adrian Adams(11)

    142,500        *  

Mark Wan(12)

    9,688,269       21.3 %

Stephen J. Hoffman, M.D., Ph.D.(13)

    65,000        *  

Richard Afable, M.D.(14)

    53,500        *  

Mark G. Edwards(15)

    173,959        *  

All executive officers and directors as a group (12 persons)(16)

    13,751,251       28.1 %

                             

*

Less than 1%.

(1) 

This table is based upon information supplied by officers, directors and principal stockholders. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 45,380,743 shares outstanding on April 24, 2017, adjusted as required by rules promulgated by the SEC. The number of shares beneficially owned includes shares of common stock issuable pursuant to the exercise of stock options and warrants that are exercisable within 60 days of April 24, 2017. Shares issuable pursuant to the exercise of stock options and warrants that are exercisable within 60 days of April 24, 2017, are deemed to be outstanding and beneficially owned by the person to whom such shares are issuable for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) 

Includes 179,962 shares held by Three Arch Associates III, L.P., 126,153 shares held by Three Arch Associates IV, L.P., 3,347,357 shares held by Three Arch Partners III, L.P. and 5,713,569 shares held by Three Arch Partners IV, L.P. The number also includes 256,228 shares of common stock issuable pursuant to the exercise of stock warrants that are exercisable within 60 days of April 24, 2017. The voting and dispositive decisions with respect to the shares held by Three Arch Associates III, L.P. and Three Arch Partners III, L.P., are made by the following Managing Members of their general partner, Three Arch Management III, L.L.C.: Mark Wan and Wilfred Jaeger, each of whom disclaims beneficial ownership of such shares. The voting and dispositive decisions with respect to the shares held by Three Arch Partners IV, L.P. and Three Arch Associates IV, L.P. are made by the following Managing Members of their general partner, Three Arch Management IV, L.L.C.: Mark Wan and Wilfred Jaeger, each of whom disclaims beneficial ownership of such shares. The address for the funds affiliated with Three Arch Partners is 19 South B Street, Suite 14, San Mateo, CA 94401.

(3) 

The indicated ownership is based on a Schedule 13G/A filed with the SEC by the reporting persons on February 14, 2017, reporting beneficial ownership as of December 31, 2016. According to the Schedule 13G/A, the reporting persons beneficially own a total of 5,408,728 shares of common stock held by a private investment fund to which Perceptive Advisors LLC serves as the investment manager. Mr. Edelman is the managing member of Perceptive Advisors LLC and Perceptive Life Sciences Master Fund LTD. The Schedule 13G/A filed by the reporting persons provides information only as of December 31, 2016, and, consequently, the beneficial ownership of the above-mentioned reporting persons may have changed between December 31, 2016 and April 24, 2017. The address for Perceptive Advisors LLC is 51 Astor Place, 10th Floor, New York, NY 10022.

(4) 

Includes 0 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(5) 

Includes 554,583 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(6) 

Includes 309,749 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(7) 

Includes 1,215,707 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

 
 
32

 

 

(8) 

Includes 450,968 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(9) 

Includes 398,745 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(10) 

Includes 121,145 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(11) 

Includes 67,500 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(12)

Includes 65,000 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017. Mr. Wan, one of our directors, is a managing partner of Three Arch Management III, L.L.C. and Three Arch Management IV, L.L.C., and in such capacities he may be deemed to beneficially own the shares owned by the funds affiliated with Three Arch Partners. Mr. Wan disclaims beneficial ownership of these shares. The address of Mr. Wan is c/o Three Arch Partners, 19 South B Street, Suite 14, San Mateo, CA 94401.

(13) 

Includes 65,000 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(14) 

Includes 52,500 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(15) 

Includes 58,959 shares issuable pursuant to stock options exercisable within 60 days of April 24, 2017.

(16) 

Includes 3,359,856 shares issuable pursuant to stock options exercisable and 256,228 shares issuable pursuant to warrants exercisable within 60 days of April 24, 2017.

 

 
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SECTION 16(A ) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on its review of copies of such forms received by the Company or on written representations from certain reporting persons submitted to the Company during the year ended December 31, 2016, the Company believes that during the period from January 1, 2016 to December 31, 2016, its executive officers, directors and ten percent (10%) stockholders complied with all Section 16(a) requirements, except that each of Howard B. Rosen, Timothy E. Morris, Pamela Palmer, M.D., Ph.D., Badri Dasu, Lawrence Hamel and Jane Wright-Mitchell did not timely file a Form 4 in connection with the grant of stock options by the Board of Directors at its meeting on February 10, 2016. 

 

 
34

 

 

EQUITY COMPENSATION PLAN INFORMATION

Equity Compensation Plan Information 

 

The following table provides certain information with respect to our equity compensation plans in effect as of December 31, 2016.

 

 

 

             

 

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

(B) 

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A)
(2)(3)

(C) 

 

Equity compensation plans approved by security holders(1)

 

 

6,307,756

 

 

$

5.00

 

 

 

3,910,996

 

Equity compensation plans not approved by security holders

 

 

 

 

$

 

 

 

 

Total

 

 

6,307,756

 

 

 

 

 

 

 

3,910,996

 

 


(1) 

Consists of the AcelRx Pharmaceuticals, Inc. 2006 Stock Plan, or the 2006 Plan, the AcelRx Pharmaceuticals, Inc. 2011 Equity Incentive Plan, as amended, or the 2011 Incentive Plan, and the AcelRx Pharmaceuticals, Inc. 2011 Employee Stock Purchase Plan, or the ESPP.

(2) 

Consists of shares available for future issuance under the 2011 Incentive Plan, including shares that were previously available for future issuance under the 2006 Plan at the time of the execution and delivery of the underwriting agreement for our IPO, and the ESPP. As of December 31, 2016, 2,774,854 shares of common stock were available for issuance under the 2011 Incentive Plan and 1,136,142 shares of common stock were available for issuance under the ESPP, and as of April 24, 2017, up to a maximum of 130,158 shares may be purchased in the current purchase period.  

(3) 

The initial aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2011 Incentive Plan was 1,875,000 shares, which number was the sum of (i) 51,693 shares remaining available for future grant under the 2006 Plan at the time of the execution and delivery of the underwriting agreement for our IPO, and (ii) an additional 1,823,307 new shares. The number of shares of our common stock reserved for issuance under the 2011 Incentive Plan will automatically increase on January 1st each year, starting on January 1, 2012 and continuing through January 1, 2020, by 4% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, or such lesser number of shares of common stock as determined by our Board. The initial aggregate number of shares of common stock that may be issued pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates under the ESPP was 250,000 shares. The number of shares of our common stock reserved for issuance will automatically increase on January 1st each year, starting January 1, 2012 and continuing through January 1, 2020, in an amount equal to the lower of (i) 2% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, and (ii) a number of shares of common stock as determined by our Board.

 

 
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RELATED PERSON TRANSACTIONS

AND INDEMNIFICATION

 

Policy and Procedures for Review of Related Party Transactions

 

Our Audit Committee charter provides that the Audit Committee will review and approve all related party transactions. This review will cover any material transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, and a related party had or will have a direct or indirect material interest, including, purchases of goods or services by or from the related party or entities in which the related party has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related party.

 

Our related party transactions policy sets forth the procedures for the identification, review, consideration and approval or ratification of transactions involving the Company and its related persons. The policy is designed to prevent transactions between the Company and any of its related persons that may interfere with the performance of the Company’s employees’ and directors’ duties to the Company or deprive the Company of a business opportunity. Any such transactions with related persons may present actual or potential conflicts of interests. However, the Company recognizes that whether or not a conflict exists is often unclear and, in many circumstances, transactions with related persons may, on balance, be beneficial to the Company and its stockholders.

 

Certain Transactions With or Involving Related Persons

 

There has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeds $120,000 and in which any current director, executive officer, holder of more than 5% of our common stock or any immediate family member of any of the foregoing persons had or will have a direct or indirect material interest other than compensation arrangements, described under the sections entitled “Executive Compensation” and “Compensation of Directors,” other than with respect to the indemnification agreements and royalty monetization described below.

 

Indemnification Agreements

 

We have entered into indemnification agreements with each of our current directors and officers. These agreements provide for the indemnification of such persons for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were serving in such capacity. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. Furthermore, we have obtained director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us.

 

 
36

 

 

STOCKHOLDER PROPOSALS FOR 2018 ANNUAL MEETING

 

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by December 29, 2017, to AcelRx’s Secretary at 351 Galveston Drive, Redwood City, CA 94063. If you wish to submit a proposal that is not to be included in next year’s proxy materials or nominate a director, you must provide specified information to AcelRx’s Secretary at 351 Galveston Drive, Redwood City, CA 94063 between February 15, 2018 and March 17, 2018, unless the date of our 2018 Annual Meeting of stockholders is before May 16, 2018 or after August 14, 2018, in which case such proposals shall be submitted no earlier than 120 days prior to the 2018 Annual Meeting of stockholders and no later than the later of (i) 90 days before the 2018 Annual Meeting of stockholders or (ii) ten days after notice of the date of the 2018 Annual Meeting of stockholders is publicly given. You are also advised to review our Bylaws, which contain additional requirements regarding advance notice of stockholder proposals and director nominations.

 

HOUSEHOLDING OF PROXY MATERIALS

 

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual Meeting materials with respect to two or more shareholders sharing the same address by delivering a single set of Notice of Internet Availability of Proxy Materials or other Annual Meeting materials addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.

 

This year, a number of brokers with account holders who are AcelRx stockholders will be “householding” the Company’s proxy materials. A single set of Notice of Internet Availability of Proxy Materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate set of Notice of Internet Availability of Proxy Materials, please notify your broker or AcelRx. Direct your written request to Secretary, AcelRx Pharmaceuticals, Inc. at 351 Galveston Drive, Redwood City, CA 94063, or call our principal office at (650) 216-3500. Stockholders who currently receive multiple copies of the Notices of Internet Availability of Proxy Materials at their addresses and would like to request “householding” of their communications should contact their brokers.

 

 
37

 

 

OTHER MATTERS

 

The Board of Directors 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 such matters in accordance with their best judgment.

 

   

By Order of the Board of Directors

   
 

/s/ Adrian Adams

 

Adrian Adams

 

Chairman

 

April 28, 2017

 

A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2016 is available without charge upon written request to: Corporate Secretary, AcelRx Pharmaceuticals, Inc. at 351 Galveston Drive, Redwood City, CA 94063.

 

 
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