Biostage, Inc. appointed new CEO

Item 5.02. 
Departure of Directors or Certain Officers; Election of Directors; 

Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.


Effective as of March 1, 2023, the Biostage, Inc., or the Company, implemented a transition of its Chairman and Chief Executive Officer roles. In connection therewith, the Company's existing director, Junli (Jerry) He, was appointed Chairman and Chief Executive Officer of the Company, in replacement of David Green in such roles. Mr. Green will remain on the Board of Directors of the Company and also will provide support to Mr. He during his transition to the Chief Executive Officer role.


Following such appointment, on March 14, 2023, the Company entered into an Employment Agreement (the Employment Agreement) with Mr. He. The Employment Agreement has a commencement date of March 1, 2023 (the Commencement Date) and an initial term of one year, which such term shall automatically be extended for one additional year on each anniversary of the end of the term then in effect unless proper notice of non-renewal is timely provided under the Employment Agreement. Pursuant to the Employment Agreement, Mr. He's initial compensation as Chief Executive Officer will include base salary, incentive compensation and the nonqualified stock option grants described below. Mr. He shall also be eligible to participate in such incentive compensation plans as the Board or a Committee thereof shall determine from time to time for employees of the same status within the hierarchy of the Company.


Mr. He's annual base salary is set at $300,000, and is subject to annual review, provided that such base salary shall not be decreased without Mr. He's consent, and shall be increased to $500,000 in the event that the Company's initial private placement following March 14, 2023 raises $4,000,000 or more in gross proceeds. In the event that such placement does not raise at least such threshold amount, then in addition and in lieu of the additional cash salary, (i) on the first trading date following the Company's announcement of such placement (the Grant Date), Mr. He will receive a nonqualified stock option to purchase a share amount determined based on Black-Scholes value of $200,000 as of the Grant Date, which subject to continued employment, shall vest in twelve substantially equal amounts monthly on each monthly anniversary of the Grant Date for twelve months following the Grant Date, and (ii) thereafter, following each anniversary of the Commencement Date so long as Mr. He continues to be employed as Chief Executive Officer, the Company will grant Mr. He on the first trading day following such anniversary an option to purchase shares of Common Stock in a share amount determined based on Black-Scholes value of $200,000 as of the grant date. Subject to continued employment, each such additional annual grant shall vest monthly in twelve substantially equal monthly installments on each monthly anniversary of the respective grant date. In the event that Mr. He's base salary is increased during the term of employment, the grant amount of $200,000 shall be reviewed by the Company's Board of Directors to determine if such amount shall be adjusted as determined in its discretion.


Mr. He is also eligible to receive cash incentive compensation on an annual basis of up to a one hundred percent (100%) of his Base Salary upon meeting objectives as determined by the Board of Directors of the Company or the Compensation Committee thereof.


In addition, on the Grant Date, Mr. He will also receive, as a long term incentive grant, a nonqualified stock option to purchase shares of Common Stock as follows: (i) an option to purchase 732,384 shares of Common Stock (the "Time Based Grant") and (ii) an option to purchase up to 488,256 shares (the "Milestone Grant"). With respect to the Time Based Grant, the option shall vest monthly in thirty-six substantially equal monthly installments on each monthly anniversary of the Grant Date. With respect to the Milestone Grant, the option shall vest in two increments, each for 244,128 shares, with such vesting subject to certain performance milestones as determined by the Board.


2


Each option described above shall have an exercise price equal to the closing price of the Company's common stock on the date of grant, and portions of the option are subject to acceleration of vesting and extended post-termination exercise period under certain circumstances, including in relation to the Company terminating Mr. He without cause.


The Employment Agreement also provides that if the Company terminates Mr. He's employment without Cause (as defined in the Employment Agreement), or if Mr. He terminates his employment for Good Reason (as defined in the Employment Agreement), in addition to any accrued and unpaid base salary through the date of his termination, and to the extent required by law, any accrued and unused vacation and any bonuses or other compensation actually earned for periods ended prior to the date of his termination, Mr. He will be entitled, subject to his execution of a release of claims in favor of the Company, to his earned annual bonus in the event that the termination occurs after December 31st but before payment of such annual bonus, and (I) if the termination was in connection with the hiring by the Company of a replacement Chief Executive Officer, if the termination is within twelve (12) months following the initial Grant Date, the remaining unvested portion of the Time Based Grant that would have vested within the twelve (12) months following the initial Grant Date if Mr. He had continued to be employed shall accelerate and become fully vested or non-forfeitable, and (II) if the termination was not in connection with the hiring by the Company of a replacement Chief Executive Officer, a severance amount equal to $300,000 and a non-qualified option to purchase shares of Common Stock in a share amount determined based on Black-Scholes value of $200,000 as of the grant date, which such option shall be fully vested as of the grant date and have an exercise price equal to the closing price of the stock on the grant date.


The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 5.02.