Annual report pursuant to Section 13 and 15(d)

Stock Option Plans and 401(k) Plan

v3.20.2
Stock Option Plans and 401(k) Plan
12 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock Option Plans and 401(k) Plan

At March 31, 2020, we have the following share-based compensation plans, which are described below:

 

Amended and Restated 2016 Stock Incentive Plan (the 2016 Plan); and

 

2019 Omnibus Equity Incentive Plan (the 2019 Plan)

 

Description of the 2016 Plan

 

Our Board unanimously approved the Company’s Amended and Restated 2016 Stock Incentive Plan, formerly titled the 2008 Stock Incentive Plan (the 2016 Plan), on July 26, 2016, and the 2016 Plan was approved by our stockholders at our 2016 Annual Meeting of Stockholders on September 26, 2016, and further amended to increase the number of shares authorized for issuance therefrom at our 2017 Annual Meeting of Stockholders on September 15, 2017. The 2016 Plan provided for the grant of stock options, restricted shares of common stock, stock appreciation rights and dividend equivalent rights, collectively referred to as “Awards”. Stock options granted under the 2016 Plan were either incentive stock options under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), or non-qualified stock options. We could grant incentive stock options only to employees of the Company or any parent or subsidiary of the Company. Awards other than incentive stock options could be granted to employees, directors and consultants. A total of 10.0 million shares of our common stock were authorized for issuance under the 2016 Plan, of which options to purchase approximately 7.8 million shares remain outstanding at March 31, 2020. Upon the adoption of our 2019 Plan, no futher grants were permissible under the 2016 Plan and approximately 1.4 million authorized shares were transferred to the 2019 Plan and became issuable therefrom. All options granted from the 2016 Plan remain operative under the terms of the respective grants.

 

Description of the 2019 Plan

 

Our Board approved the VistaGen Therapeutics, Inc. 2019 Omnibus Equity Incentive Plan on May 27, 2019, and our stockholders adopted it and ratified all previously issued grants on September 5, 2019. The principal features of the 2019 plan are summarized below.

 

The 2019 Plan provides for the grant of stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, and other stock-based awards, and performance awards, collectively referred to as “Awards”. Awards may be granted under the 2019 Plan to officers, employees and consultants of the Company and our subsidiaries and to our non-employee directors. Incentive stock options may be granted only to employees of the Company or one of our subsidiaries. The 2019 Plan is administered by the Compensation Committee of the Board. The Compensation Committee, in its discretion, selects the individuals to whom awards may be granted, the time or times at which such awards are granted, and the terms of such awards. The Compensation Committee may delegate its authority to the extent permitted by applicable law.

 

The Compensation Committee sets stock option exercise prices and terms, except that stock options must be granted with an exercise price not less than 100% of the fair market value of the common stock on the date of grant. The Compensation Committee may grant either incentive stock options, which must comply with Section 422 of the Code, or nonqualified stock options. At the time of grant, the Compensation Committee determines the terms and conditions of stock options, including the quantity, exercise price, vesting periods, term (which cannot exceed ten years) and other conditions on exercise.

 

The Compensation Committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2019 Plan or as a freestanding award. Upon exercise, SARs entitle the holder to receive payment per share in stock or cash, or in a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over the grant price of the SAR.

 

The Compensation Committee may also grant awards of restricted stock, which are shares of common stock subject to specified restrictions, and restricted stock units, which represent the right to receive shares of the common stock in the future. These awards may be made subject to repurchase, forfeiture or vesting restrictions at the Compensation Committee’s discretion. The restrictions may be based on continuous service with the Company or the attainment of specified performance goals, as determined by the Compensation Committee. Stock units may be paid in stock or cash or a combination of stock and cash, as determined by the Compensation Committee.

 

The Compensation Committee may condition the grant, exercise, vesting, or settlement of any award on such performance conditions as it may specify. We refer to these awards as “performance awards.” The Compensation Committee may select such business criteria or other performance measures as it may deem appropriate in establishing any performance conditions. At March 31, 2020, the Compensation Committee has not granted any performance awards.

 

A total of 7,500,000 shares of common stock were initially authorized for issuance under the 2019 Plan. As noted previously, all awards outstanding under the 2016 Plan at the time the 2019 Plan was adopted remain subject to the 2016 Plan. Upon approval of the 2019 Plan, all shares of common stock remaining authorized and available for issuance under the 2016 Plan, approximately 1.4 million shares, automatically became available for issuance under the 2019 Plan. Additionally, any shares subject to outstanding awards under the 2016 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares also become available for issuance under the 2019 Plan. Further, if any award under the 2019 Plan is canceled, terminates, expires or lapses for any reason prior to the issuance of shares or if shares are issued under the 2019 Plan and thereafter are forfeited to us, the shares subject to such awards and the forfeited shares will again be available for grant under the 2019 Plan. At March 31, 2020, a total of 6,730,162 shares remain available for grant under the 2019 Plan.

 

No more than 25% of any equity-based awards granted under the 2019 Plan will vest on the grant date of such award. This requirement does not apply to (i) substitute awards resulting from acquisitions or (ii) shares delivered in lieu of fully vested cash awards. In addition, the minimum vesting requirement does not apply to the Compensation Committee’s discretion to provide for accelerated exercisability or vesting of any award, including in cases of retirement, death, disability or a change in control, in the terms of the award or otherwise. Awards are not transferable other than by will or the laws of descent and distribution, except that in certain instances transfers may be made to or for the benefit of designated family members of the participant for no consideration.

 

In the event of a change in control of the Company, the Compensation Committee may accelerate the time period relating to the exercise of any award.  In addition, the Compensation Committee may take other action, including (a) providing for the purchase of any award for an amount of cash or other property that could have been received upon the exercise of such award had the award been currently exercisable, (b) adjusting the terms of the award in a manner determined by the Compensation Committee to reflect the change in control, or (c) causing an award to be assumed, or new rights substituted therefor, by another entity with appropriate adjustments to be made regarding the number and kind of shares and exercise prices of the award. “Change in Control” is defined under the 2019 Plan and requires consummation of the applicable transaction.

 

Unless earlier terminated by the Board, the 2019 Plan will terminate, and no further awards may be granted, on September 5, 2029, which is ten years after the date on which it was approved by our stockholders. The Board may amend, suspend or terminate the 2019 Plan at any time. To the extent necessary to comply with applicable provisions of U.S. federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein, we will obtain stockholder approval of any such amendment to the 2019 Plan in such a manner and to such a degree as required. The amendment, suspension or termination of the 2019 Plan or the amendment of an outstanding award generally may not, without a participant’s consent, materially impair the participant’s rights under an outstanding award.

 

During our fiscal year ended March 31, 2020, we granted from the 2019 Plan and the 2016 Plan:

 

options from the 2016 Plan to purchase an aggregate of 1,220,000 shares of our common stock at a then above-market exercise price of $1.00 per share to the independent members of our Board, our officers and employees and certain consultants in May 2019. The options vested 25% upon grant with the remaining shares vesting ratably over three years for independent directors, officers and employees, and over two years for consultants;

 

options from the 2019 Plan to one of our officers to purchase 170,000 shares of our common stock at a then above-market exercise price of $1.00 per share, which May 2019 grant was contingent upon the approval of the 2019 Plan by our stockholders. Our stockholders approved the 2019 Plan at our Annual Meeting in September 2019 and ratified the contingent grant. The option vested 25% upon approval of the 2019 Plan and the remaining shares are vesting ratably over three years;

 

options from our 2019 Plan to the independent members of our Board, our officers and employees and certain consultants to purchase an aggregate of 1,990,000 shares of our common stock at exercise prices ranging from $0.50 per share to $1.41 per share during the quarter ended December 31, 2019. Options granted to Board members, officers, employees and most consultants were vested 25% at grant, with the remaining options vesting ratably over the following 24 months. In the case of options granted to certain consultants, the options were vested 25% at grant but the remaining vesting period was less than 24 months to coincide with remaining contractual terms;

 

options from our 2019 Plan to purchase 75,000 shares of our common stock at an exercise price of $0.7074 per share to a consultant as partial compensation under a professional services contract in January 2020. The options were vested 25% upon grant with the remaining shares vesting ratably over the next twelve months.

 

During our fiscal year ended March 31, 2019, we granted from the 2016 Plan:

 

options to purchase an aggregate of 860,000 shares of our common stock at an exercise price of $1.27 per share to the independent members of our Board, to all of our officers except our Chief Executive Officer, and to all non-officer employees in August 2018;

 

options to purchase an aggregate of 250,000 shares of our common stock at exercise prices ranging from $1.52 per share to $2.20 per share to various scientific, legal, investor relations, and financial and strategic advisory consultants in October 2018;

 

an option to purchase 25,000 shares of our common stock at an exercise price of $1.74 per share to a new independent member of our Board in January 2019;

 

an option to purchase 220,000 shares of our common stock at an exercise price of $1.70 per share to our Chief Executive Officer in January 2019; and

 

25,000 shares of registered common stock having a fair value of $41,500 on the date of grant to an investor relations and social media consultant. Noncash expense related to this grant is being amortized ratably over the contractual period as a component of general and administrative expense not included in stock compensation expense.

 

The following table summarizes stock-based compensation expense related to option grants to our officers, independent directors, consultants and service providers included in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the years ended March 31, 2020 and 2019.

 

     Fiscal Year Ended March 31,  
     2020      2019  
             
 Research and development expense   $ 1,287,200     $ 1,259,400  
                 
 General and administrative expense     2,533,600       2,184,000  
                 
                 
 Total stock-based compensation expense   $ 3,820,800     $ 3,443,400  

 

We used the Black-Scholes Option Pricing model with the following weighted average assumptions to determine share-based compensation expense related to option grants during the fiscal years ended March 31, 2020 and 2019:

 

    Fiscal Years Ended March 31,  
     2020      2019  
    (weighted average)     (weighted average)  
Exercise price   $ 1.14     $ 1.45  
Market price on date of grant   $ 1.05     $ 1.45  
Risk-free interest rate     1.79 %     2.84 %
Expected term (years)     5.41       6.32  
Volatility     86.99 %     96.58 %
Expected dividend yield     0.00 %     0.00 %
                 
Fair value per share at grant date   $ 0.73     $ 1.15  

 

The expected term of options represents the period that our share-based compensation awards are expected to be outstanding. We have calculated the weighted-average expected term of the options using the simplified method as prescribed by Securities and Exchange Commission Staff Accounting Bulletins No. 107 and No. 110 (SAB No. 107 and 110). The utilization of SAB No. 107 and 110 is based on the lack of relevant historical option exercises and relevant historical data due to the relatively limited period during which our stock has been publicly traded on a major exchange and the historical lack of liquidity in freely-tradable shares of our common stock. Those factors also resulted in our decision to utilize the historical volatilities of a peer group of public companies’ stock over the expected term of the option in determining our expected volatility assumptions.  The risk-free interest rate for periods related to the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is zero, as we have not paid any dividends and do not anticipate paying dividends in the near future. We recognize the effect of forfeitures as they occur.

 

The following table summarizes stock option activity for the fiscal years ended March 31, 2019 and 2018 under the 2019 Plan and the 2016 Plan:

 

     Fiscal Years Ended March 31,  
     2020      2019  
           Weighted            Weighted  
           Average            Average  
     Number of      Exercise      Number of      Exercise  
     Shares      Price      Shares      Price  
                         
 Options outstanding at beginning of period     6,626,088     $ 1.48       5,300,338     $ 2.43  
 Options granted     3,455,000     $ 1.14       1,355,000     $ 1.45  
 Options exercised     -     $ -       (29,250 )   $ 1.50  
 Options forfeited     -     $ -       -     $ -  
 Options expired     (78,000 )   $ 1.50       -     $ -  
                                 
 Options outstanding at end of period     10,003,088     $ 1.36       6,626,088     $ 1.48  
 Options exercisable at end of period     7,936,290     $ 1.39       4,303,972     $ 1.53  
                                 
 Weighted average grant-date fair value of                                
 options granted during the period           $ 0.73             $ 1.15  

 

In August 2018, as permitted by the terms of the 2016 Plan, the Board approved the modification of outstanding options held by independent members of our Board, our officers and our employees that had exercise prices higher than $1.56 per share to reduce the exercise prices thereof to $1.50 per share. We calculated the fair value of such options immediately before and after the modification using the Black-Scholes Option Pricing Model and the weighted average assumptions indicated in the table below. We immediately recognized the additional fair value attributable to vested options, $258,100, as stock compensation expense, which is included in the expense reported above for the fiscal year ended March 31, 2019. The additional fair value resulting from the modification, approximately $142,200, is being expensed over the remaining vesting period of the modified options.

 

Assumption:

  Pre-modification     Post-modification  
Market price per share   $ 1.49     $ 1.49  
Exercise price per share   $ 3.57     $ 1.50  
Risk-free interest rate     2.77 %     2.77 %
Remaining expected term in years     5.08       5.08  
Volatility     94.9 %     94.9 %
Dividend rate     0.0 %     0.0 %
                 
Number of option shares     2,419,503       2,419,503  
Weighted average fair value per share   $ 0.91     $ 1.08  

 

The following table summarizes information on stock options outstanding and exercisable under the 2019 Plan and the 2016 Plan as of March 31, 2020.

 

        Options Outstanding     Options Exercisable  
               Weighted                    
               Average      Weighted            Weighted  
               Remaining      Average            Average  
   Exercise      Number      Years until      Exercise      Number      Exercise  
   Price      Outstanding      Expiration      Price      Exercisable      Price  
                                   
  $ 0.50 to $1.00       1,815,000       9.30     $ 0.90       1,040,422     $ 0.84  
  $ 1.16       2,000,000       7.84     $ 1.16       2,000,000     $ 1.16  
  $ 1.20 to $1.41       2,525,000       9.13     $ 1.35       1,455,466     $ 1.33  
  $ 1.50 to $1.52       2,412,253       6.65     $ 1.50       2,302,069     $ 1.50  
  $ 1.56 to $1.99       1,115,000       7.86     $ 1.63       1,017,082     $ 1.61  
  $ 2.20 to $15.00       135,835       6.28     $ 6.03       121,251     $ 6.49  
                                               
      10,003,088       8.12     $ 1.36       7,936,290     $ 1.39        

 

At March 31, 2020, there were 6,730,162 registered shares of our common stock remaining available for grant under the 2019 Plan.  There were no option exercises during the fiscal year ended March 31, 2020. Two officers and a member of our Board exercised outstanding stock options to purchase an aggregate of 29,250 shares of our common stock during the fiscal year ended March 31, 2019.

 

Aggregate intrinsic value is the sum of the amount by which the fair value of the underlying common stock exceeds the aggregate exercise price of the outstanding options (in-the-money-options). Based on the $0.44 per share quoted closing market price of our common stock on March 31, 2020, there was no intrinsic value in any of our outstanding options at that date.

 

As of March 31, 2020, there was approximately $1,778,700 of unrecognized compensation cost related to non-vested share-based compensation awards from the 2019 Plan and the 2016 Plan, which cost is expected to be recognized through August 2021.  

 

2019 Employee Stock Purchase Plan

 

Our Board approved the VistaGen Therapeutics, Inc. 2019 Employee Stock Purchase Plan (the 2019 ESPP) on June 13, 2019. Our stockholders approved the 2019 ESPP at our annual meeting on September 5, 2019. The principal terms of our 2019 ESPP are summarized below.

 

The 2019 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code. The Compensation Committee of the Board administers the 2019 ESPP. The Compensation Committee has authority to construe, interpret and apply the terms of the 2019 ESPP. As approved by our stockholders, a maximum of 1,000,000 shares of our common stock may be purchased under the 2019 ESPP.

 

The 2019 ESPP is generally expected to operate in consecutive semi-annual periods referred to as “option periods.” The first option period commenced on January 1, 2020 and will end on the last trading day in the semi-annual period ending June 30, 2020, with successive option periods expected to begin on the first day of January and July and to terminate on the last trading day of June and December, respectively. Option periods may not last longer than the maximum period permitted under Section 423 of the Code, which generally limits the length of such offerings to either 5 years or 27 months, depending on the terms of the offering. Generally, all full-time employees of the Company and its subsidiaries will be eligible to participate in an option period

 

On the first day of each option period (the Grant Date), each eligible employee for that option period will be granted an option to purchase shares of our common stock. Each participant’s option will permit the participant to purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the option period by the applicable purchase price. A participant must designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that option period for the purchase of stock under the 2019 ESPP. The participant’s payroll deduction election will generally remain in effect for future option periods unless terminated by the participant. A participant may elect to withdraw from any option period prior to the last day of the option period, in which case the participant’s payroll deductions will be refunded and the participant’s outstanding options will terminate.

 

Each participant’s payroll deductions under the 2019 ESPP will be credited to a liability account in his or her name under the 2019 ESPP. The aggregate liability for participant payroll deductions at March 31, 2020 was $14,700, which is included in accrued expenses in the accompanying Consolidated Balance Sheet at that date.

 

Each option granted under the 2019 ESPP will automatically be exercised on the last day of the respective option period (referred to as the Exercise Date). The number of shares acquired by a participant upon exercise of his or her option will be determined by dividing the participant’s 2019 ESPP account balance as of the Exercise Date for the option period by the purchase price of the option. The purchase price for each option is generally equal to the lesser of (i) 85% of the fair market value of a share of our common stock on the applicable Grant Date, or (ii) 85% of the fair market value of a share of our common stock on the applicable Exercise Date. A participant’s 2019 ESPP account will be reduced upon exercise of his or her option by the amount used to pay the purchase price of the shares acquired by the participant. Following exercise of the option, any excess amount in a participant’s account will be refunded following the Exercise Date. No interest will be paid to any participant under the 2019 ESPP.

 

Participation in the 2019 ESPP is subject to the following limits:

 

  A participant cannot contribute less than 1% or more than 15% of his or her compensation to the purchase of stock under the 2019 ESPP in any one payroll period;
  A participant cannot accrue rights to purchase more than $25,000 of stock (valued at the Grant Date of the applicable offering period and without giving effect to any discount reflected in the purchase price for the stock) for each calendar year in which an option is outstanding; and
  A participant will not be granted an option under the 2019 ESPP if it would cause the participant to own stock and/or hold outstanding options to purchase common stock constituting 5.0% or more of the total combined voting power or value of all classes of stock of the Company or of its parent or one of its subsidiaries or to the extent it would exceed certain other limits under the Code.

 

The $25,000 annual purchase and the 5% ownership limitations referred to above are required under the Code.

 

As is customary in stock incentive plans of this nature, the number of shares of stock available under the 2019 ESPP or subject to outstanding options, is subject to adjustment in the event of certain reorganizations, combinations, recapitalization of shares, stock splits, reverse stock split, subdivision or other similar change in respect of our common stock. A participant’s rights with respect to options or the purchase of shares under the 2019 ESPP, as well as payroll deductions credited to his or her 2019 ESPP account, may not be assigned, transferred, pledged or otherwise disposed of in any way except by will or the laws of descent and distribution.

 

The Board generally may amend, suspend, or terminate the 2019 ESPP at any time and in any manner, except that stockholder approval is required to increase the number of shares authorized for issuance under the 2019 ESPP and for certain other amendments. No amendment to the 2019 ESPP may materially adversely affect the option rights previously granted to a participant under the 2019 ESPP, except as required by law or regulation.

 

Our 2019 ESPP became effective on January 1, 2020 and will continue in effect until the earlier of such time as all of the shares of the Company’s common stock subject to the 2019 ESPP have been sold under the 2019 ESPP or December 31, 2030, unless terminated earlier by the Board. At March 31, 2020, no option periods had been completed nor shares of common stock purchased by employees under the 2019 ESPP.

 

401(k) Plan

 

Through a third-party agent, we maintain a retirement and deferred savings plan for our employees. This plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. The retirement and deferred savings plan provides that each participant may contribute a portion of his or her pre-tax compensation, subject to statutory limits. Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee. The retirement and deferred savings plan also permits us to make discretionary contributions, subject to established limits and a vesting schedule. To date, we have not made any discretionary contributions to the retirement and deferred savings plan on behalf of participating employees.