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COMMITMENTS AND CONTINGENCIES | 6 Months Ended
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Jun. 30, 2015
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | NOTE 5 — COMMITMENTS AND CONTINGENCIES Employment Agreements Michael Step On December 2, 2014, the Company entered into a letter agreement (the “Step Letter Agreement”), with Michael Step, the Company’s current Chief Executive Officer, setting forth the terms of his employment. The Step Letter Agreement provides that Michael Step is entitled to an annual base salary of $360,000 and a total of three grants of options to purchase the Company’s common stock. The first two options entitle Michael Step to purchase 646,537 and 73,777 of the Company’s shares, respectively, for an exercise price of $5.86 per share. Each of these options is immediately exercisable in full as of the date of the grant, with 44/48ths of the total number of shares covered by each option subject to a right of repurchase by the Company upon termination of Michael Step’s employment with the Company for any reason. This right of repurchase will lapse over a period of 44 months, with 1/44th of the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and on the first day of each month thereafter. In addition, the right of repurchase will lapse in its entirety upon a termination of the employment under certain circumstances. The third option became exercisable upon the closing of the Company’s initial public offering on June 29, 2015. Pursuant to the terms of the agreement, the option is exercisable for a total of 103,025 shares of the Company’s common stock, which, together with the shares subject to the first option, represent 7.5% of the shares of common stock deemed to be outstanding at June 29, 2015 on a fully-diluted basis after giving effect to the number of shares subject to the third option. Seventy-five percent (75%) of the shares subject to the third option are subject to a right of repurchase by the Company upon termination of Michael Step’s employment for any reason. This right of repurchase will lapse with respect to 1/36th of the total number of shares subject to the right of repurchase on the first day of each month following the date on which the third option first becomes exercisable. In addition, the right of repurchase will lapse in its entirety upon Michael Step’s termination of employment under certain circumstances. Under the terms of the agreement, Michael Step will be entitled to receive certain payments in the event his employment is terminated under certain scenarios. Andrew Ritter and Ira Ritter On September 25, 2013, the Company’s Board of Directors approved the Executive Compensation Plan (the “Compensation Plan”), which was later amended in June 2015, setting forth the compensation to be paid to Andrew Ritter and Ira Ritter, the Company’s current President and also the Company’s former Chief Executive Officer, and Chief Strategic Officer (“CSO”), respectively, for their contributions to the Company. Pursuant to the amended terms of the Compensation Plan, effective June 29, 2015, the President’s salary increased to $310,000 per year and the CSO’s salary is $295,000 per year. The President will also be entitled to receive up to $180,000 payable over a three year period for tuition reimbursement. As of June 30, 2015, the Company accrued $121,000 in tuition reimbursement for the President and recognized such amount in general and administrative expenses in our Unaudited Condensed Statements of Operations in the three and six month periods ending June 30, 2015. Under the terms of the agreement, both the President and the CSO will be entitled to receive certain payments in the event their employment is terminated under certain scenarios. Each executive received options to purchase up to 48,951 shares of the Company’s common stock (each referred to in this section as “Executive Options”) pursuant to the 2008 Stock Plan, which will vest based on specific performance conditions, described below. Cash Bonus and Executive Options Performance Conditions Pursuant to the amended terms of the Compensation Plan, the Company will review bonus opportunities annually for the President and the CSO based on achievement of specific performance as determined by the Company. The initial target bonus opportunities are 40% and 35% of the base salary for the President and the CSO, respectively. In addition, each covered executive is also entitled to the following cash payments and vests in Executive Options upon the satisfaction of the events described below:
| · | FDA Meeting Bonus Opportunities. In April 2013, each executive received a one-time cash bonus of $10,000 for a milestone associated with meeting with the FDA regarding RP-G28’s path to FDA approval. In addition, 2,360 shares of the Executive Options vested and became exercisable as of the grant date of September 25, 2013. The balance of 1,136 shares vests ratably on a monthly basis beginning on September 30, 2013.
| · | Clinical Trial Funding Commitment Bonus Opportunities. Each executive is entitled to receive a one-time cash bonus of  $75,000 upon the Company’s receipt of a commitment by a third party to fund a Phase 2 or later clinical trial; provided, however, that no such bonus may be paid at any time the Company has less than $2,000,000 in available cash. In addition, upon the satisfaction of this milestone, 35% of 10,489 shares of the Executive Options will vest and become exercisable, with the balance of the 10,489 shares vesting in 36 equal monthly installments beginning on the last day of the following month. Each executive satisfied this performance condition on June 29, 2015 and was entitled to receive a bonus of $75,000 accrued and recognized in general and administrative expenses in the accompanying Unaudited Condensed Statements of Operations in the three and six month periods ending June 30, 2015. In addition, 3,671 shares of the Executive Options vested and became exercisable as of June 29, 2015, with the balance of 6,818 shares vests ratably on a monthly basis beginning July 31, 2015.
| · | Fundraising Bonus Opportunities. Each executive is entitled to receive (i) a one-time cash bonus of  $50,000 upon the sale of additional equity capital for cash, in one or more closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial in an aggregate amount in excess of  $2,000,000 and (ii) a one-time cash bonus of  $150,000 upon the sale of additional equity capital for cash, in one or more closings after July 17, 2012 and/or the actual deployment of funds by a third party for a clinical trial in an aggregate amount in excess of $10,000,000 (which such bonus will be reduced by any cash bonus paid under subsection (i)); provided, however, that no bonus under subsection (i) or (ii) may be paid at any time the Company has less than $2,000,000 in available cash. In addition, upon the satisfaction of the milestone described in subsection (i), 35% of 6,993 shares of the Executive Options will vest and become exercisable, with the balance of the 6,993 shares vesting in 36 equal monthly installments beginning on the last day of the following month, and, upon satisfaction of the milestone described in subsection (ii), 35% of 13,986 shares of the Executive Options will vest and become exercisable, with the balance of the 13,986 shares vesting in 36 monthly installments beginning on the last day of the following month. Upon the closing of the initial public offering on June 29, 2015 raising approximately $17.4 million, net of offering costs, each executive was entitled to receive a bonus of $150,000 accrued and recognized in general and administrative expenses in the accompanying Unaudited Condensed Statements of Operations in the three and six month periods ending June 30, 2015. In addition, 4,895 shares of the Executive Options vested and became exercisable as of June 29, 2015, with the balance of 9,091 shares vests ratably on a monthly basis beginning July 31, 2015.
| · | License Event Bonus Opportunities. Each executive is entitled to receive the following bonus payments in connection with the closing of an exclusive license of RP-G28 and/or any future product candidate developed by the Company from time to time during the term of the Compensation Plan by an/or any option to exclusively license such product candidate to a third party (referred to under the Compensation Plan as a “License Event”) with a minimum upfront payment to the Company of  $2,000,000:
| o | A graduated cash bonus equal to (i) 5% of the Initial Period License Payment (as defined below) up to $5,000,000; (ii) 4% of the Initial Period License Payment in excess of  $5,000,000 up to $10,000,000; and (iii) 3% of the Initial Period License Payment in excess of $10,000,000. In addition, upon the Company’s receipt of an Initial Period License Payment of more than $2,000,000, 35% of 45,454 shares of their Executive Options will vest and become exercisable, with the balance of the 45,454 shares vesting in 36 monthly installments beginning on the last day of the following month.
| o | A cash bonus equal to 3% of any Annual Excess Milestone Payments (as defined below); provided, however that no such bonus may be paid at any time the Company has less than $1,000,000 in available cash. In addition, upon the Company’s receipt of an Annual Excess Milestone Payment, 35% of 6,993 shares of their Executive Options will vest and become exercisable, with the balance of the 6,993 shares vesting in 36 monthly installments beginning on the last day of the following month.
Notwithstanding any of the vesting provisions set forth above, the total potential number of Executive Options that may vest will not exceed 48,951 and the Executive Options will automatically terminate for any options for which a vesting date or performance condition has not been met by September 25, 2015. For purposes of the Compensation Plan, the term “Initial Period License Payment” means the aggregate amount in cash received by the Company (not including any amount placed in escrow or subject to earn-outs, contingencies or other deferrals or earmarked to pay or reimburse the Company for research and development activities) in respect of the License Event over a 24 month period beginning on the closing date of such License Event (which period is referred to therein as the “Initial Period”). The term “Annual Excess Milestone Payments” means the amount in cash in excess of  $2,000,000 (not including any amounts placed in escrow or subject to earn-outs, contingencies or other deferrals) that is received by the Company in respect of any Post-Closing Milestones (as defined below) in each 12-month period beginning on the expiration of the Initial Period. The term “Post-Closing Milestones” means any post-closing payouts set forth in the definitive transaction documentation executed in connection with a License Event; provided, however, that such amounts will not include any amounts that are determined by the Board of Directors to comprise all or any portion of any upfront payment made in connection with a License Event and any royalty payment based on product sales. The Compensation Plan provides that in the event that the Company enters into more than one License Event with respect to a single product candidate (i.e., for a separate field of use), then the proceeds of any such additional License Event will be included with the proceeds of the original License Event for purposes of meeting any of the financial thresholds set forth above. Under the terms of the Compensation Plan, receipt by the Company of more than one bona fide term sheet for a proposed License Event with respect to RP-G28 will result in the payment of an additional 10% of any cash bonus earned as Clinical Trial and Fundraising Bonus or a License Event Bonus. Under the terms of the Compensation Plan, each executive is entitled to receive certain payments in the event their employment is terminated under certain scenarios. On December 2, 2014, pursuant to the 2008 stock plan, the Company granted an aggregate of 453,413 options to the President and the CSO to purchase the Company’s common stock listed as follows:
| (i) | 20,979 fully vested options with an exercise price of  $5.86; and
| (ii) | 432,434 options which vest 25% upon the first anniversary of the vesting commencement date with the remaining options vesting monthly in equal amounts over 36 months with an exercise price equal to $5.86 for the first 152,347 options covered thereby, $9.30 for the next 140,044 options covered thereby, and $13.23 for the remaining balance.
In addition, all non-employee directors will each be initially entitled to receive an option to acquire 1,398 shares of the Company’s common stock, which will vest annually over a three-year term from the grant date, and annually thereafter be entitled to receive an option to acquire 979 shares of the Company’s common stock, each of which will vest one year from the grant date. As of June 30, 2015, no stock based compensation or cash compensation has been granted to the directors under this program. Leases The Company leases office and storage space for its headquarters in California pursuant to a two-year agreement ending September 30, 2015 which calls for a minimum monthly rent of approximately $5,000 and an annual increase of 3%. Rent expense, recognized on a straight-line basis, was approximately $15,000 for each of the three months ended June 30, 2015 and 2014. The Company recognized approximately $30,000 in each of the six months ended June 30, 2015 and 2014 in rent expense. Rent expense is recorded in general and administrative expenses in the Unaudited Condensed Statements of Operations. In July 2015, the Company entered into a new five-year lease agreement for new corporate office space, projected to be effective October 1, 2015, which calls for a minimum lease payment of approximately $107,000 annually. Legal The Company is not currently involved in any legal matters arising in the normal course of business. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.

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