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______________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
___________
Filed by the Registrant x
Filed by a party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
o Definitive Additional Material
o Soliciting Material under §240.14a-12
Simulations Plus, Inc.
(Name of Registrant as Specified In Its Charter)
______________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x No fee required.
o Fee paid previously with preliminary materials.
o Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
______________________________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held February 8, 2024
Notice is hereby given that the Annual Meeting of Shareholders (“Meeting”) of Simulations Plus, Inc., a California corporation (the “Company”), will be held on Thursday, February 8, 2024, at 2:00 p.m. Pacific Time. We have adopted a completely virtual format for our Annual Meeting to provide a consistent and convenient experience to all shareholders regardless of location. You may attend the Meeting virtually via the Internet at www.virtualshareholdermeeting.com/SLP2024, where you will also be able to vote electronically and submit questions. You may also attend the Meeting by proxy and may submit questions ahead of the Meeting through the designated website. For further information about the virtual Meeting, please see the Questions and Answers about the Meeting beginning on the first page of the accompanying Proxy Statement. The purpose of the Meeting is as follows:
1.To elect five individuals to serve on the Company’s Board of Directors until the next Annual Meeting of Shareholders of the Company or until their successors are duly elected and qualified, subject to prior death, resignation, or removal;
2.To ratify the selection of Rose, Snyder, & Jacobs LLP (“RSJ”) as the independent registered public accounting firm for the Company for the fiscal year ending August 31, 2024;
3.To approve an amendment to the Company’s 2021 Equity Incentive Plan, as amended (the “2021 Plan”), in substantially the form attached hereto as Exhibit A, to increase the number of shares authorized for issuance thereunder from 1,550,000 shares to 2,500,000 shares of common stock of the Company; and
4.To consider and transact such other business as may properly come before the Meeting or any adjournments or postponements thereof.
All shareholders are cordially invited to attend the Meeting, although only shareholders of record at the close of business on December 13, 2023, the record date for the Meeting, will be entitled to notice of, and to vote at, the Meeting. A list of shareholders entitled to vote at the Meeting will be open to inspection by the shareholders for a period of 10 days prior to the Meeting. If you would like to inspect the shareholder list, email renee.bouche@simulations-plus.com. The list of shareholders will also be available during the Meeting itself through the Meeting website for those shareholders who choose to attend.
Our Board of Directors has carefully reviewed and considered the foregoing proposals and has concluded that each proposal is in the best interests of the Company and its shareholders. Therefore, the Board of Directors has approved each proposal and recommends that you vote FOR each of the director nominees included in the accompanying Proxy Statement and FOR each of the other foregoing proposals.
Shares can be voted at the Meeting only if the holder thereof is present virtually or represented by a proxy. To ensure that your shares are represented at the Meeting, we urge you to vote your shares promptly by proxy over the Internet, by phone, or by mail by following the instructions provided in the Notice of Internet Availability of Proxy Materials you received in the mail, or, if you requested to receive printed proxy materials, you may vote by marking, dating, and signing the enclosed proxy card and returning it in the postage-paid envelope provided. We encourage you to do so even if you plan to attend the Meeting virtually. The prompt voting of your shares, regardless of the number you hold, will aid the Company in reducing the expense of additional proxy solicitation. You may revoke your proxy at any time before it has been voted at the Meeting. Please note that dissenters’ rights are not available with respect to the proposals to be voted on at the Meeting.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on February 8, 2024. This notice of meeting, the accompanying proxy statement, and our annual report to shareholders, which includes our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, will be available on or about December 30, 2023 on www.proxyvote.com and on our website, www.simulations-plus.com.
By Order of the Board of Directors
/s/ Will Frederick
Will Frederick
Corporate Secretary
December 22, 2023
TABLE OF CONTENTS
Simulations Plus, Inc.
42505 10th Street West
Lancaster, CA 93534
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 8, 2024
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING
Why am I receiving these materials?
Simulations Plus, Inc. (“we,” “us,” “our,” “Simulations Plus” or the “Company”) is making proxy materials, including this proxy statement (the “Proxy Statement”) and the related proxy card, available to our shareholders electronically via the Internet because our Board of Directors (the “Board”) is soliciting proxies to vote at the Annual Meeting of Shareholders (“Meeting”). The Notice of Internet Availability of Proxy Materials containing instructions on how to access this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended August 31, 2023 (the “Annual Report”), and how to vote via the Internet, by phone, or by mail, are first being mailed to our shareholders of record entitled to vote at the Meeting on or about December 22, 2023. The Meeting is scheduled to be held on February 8, 2024, at 2:00 p.m. Pacific Time, via live webcast through www.virtualshareholdermeeting.com/SLP2024. You will need the 16-digit control number provided on the Notice of Internet Availability of Proxy Materials or your proxy card (if applicable) to vote your shares. This solicitation is for proxies for use at the Meeting or at any reconvened meeting after an adjournment or postponement of the Meeting, if applicable.
What am I voting on?
There are three matters scheduled for a vote at the Meeting:
Proposal No. 1 – To elect five individuals to serve on the Board until the next Annual Meeting of Shareholders of the Company or until their successors are duly elected and qualified, subject to prior death, resignation, or removal.
Proposal No. 2 – To ratify the selection of Rose, Snyder, & Jacobs LLP (“RSJ”) as our independent registered public accounting firm for the fiscal year ending August 31, 2024.
Proposal No. 3 – To approve an amendment to the Company’s 2021 Equity Incentive Plan, as amended (the “2021 Plan”), in substantially the form attached hereto as Exhibit A, to increase the number of shares authorized for issuance thereunder from 1,550,000 shares to 2,500,000 shares of common stock of the Company (the “Plan Amendment”).
Who can vote at the Meeting?
Only shareholders of record as of the close of business on December 13, 2023, the record date for the Meeting, will be entitled to notice of, and to vote at, the Meeting. The Company’s common stock is its only class of voting securities issued and outstanding. As of the record date, December 13, 2023, there were 19,965,900 shares of the Company’s common stock issued and outstanding.
Am I a shareholder of record for purpose of the Meeting?
If, as of the close of business on December 13, 2023, your shares were registered directly in your name with our transfer agent, Broadridge Corporate Issuer Solutions, Inc., then you are the shareholder of record for purposes of the Meeting.
What if my shares are held in an account at a brokerage firm, bank, or dealer?
If, as of the close of business on December 13, 2023, your shares were held in an account at a brokerage firm, bank, dealer or other intermediary (commonly referred to as being held in “street name”), and these proxy materials are being forwarded to you by the organization holding your account, the organization holding your account is considered the shareholder of record with respect to your shares for purposes of the Meeting, and you are considered the beneficial owner of such shares. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account.
How do I vote?
With respect to the election of directors, you may vote “for” all of the nominees proposed by the Board, withhold your vote for all of such nominees, or vote for all of such nominees except those that you specify you would like to withhold your vote for. With respect to each of the (i) ratification of RSJ as our independent registered public accounting firm for the fiscal year ended August 31, 2024, and (ii) approval of the Plan Amendment, you may vote “for” or “against” or abstain from voting altogether.
To be timely, your voting instructions must be received no later than 11:59 p.m., Eastern Time, on February 7, 2024. Please note that you may still attend the Meeting and vote virtually during the Meeting, even if you have already voted by phone or by proxy via either the Internet or mail.
Shareholders of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote your shares by proxy over the Internet, or by phone or mail by following the instructions provided in the Notice of Internet Availability of Proxy Materials you received, or, if you requested to receive printed proxy materials, you may vote by marking, dating, and signing the enclosed proxy card and returning it in the postage-paid envelope provided. Additionally, you may vote your shares virtually at the Meeting by visiting www.virtualshareholdermeeting.com/SLP2024 and using the 16-digit control number provided on the Notice of Internet Availability of Proxy Materials or your proxy card (if applicable).
Beneficial Owner: Shares Held in “Street Name”
If you are a beneficial owner of shares held in “street name,” you should have received instructions from the organization holding your shares that you must follow for your shares to be voted. The availability of telephonic or Internet voting will depend on the voting process of such organization. Alternatively, you may vote virtually at the Meeting by visiting www.virtualshareholdermeeting.com/SLP2024 and using the 16-digit control number provided on the Notice of Internet Availability of Proxy Materials or your proxy card (if applicable). However, in order to do so, you must obtain a “legal” proxy from the organization holding your shares and present it and proof of identification to the inspector of elections at the Meeting. Please contact the organization that holds your shares if you wish to obtain a “legal” proxy.
Regardless of how your shares are held, and whether or not you plan to attend the Meeting, we encourage you to vote your shares via the Internet or phone or by returning a completed proxy card to ensure that your vote is counted.
If my shares are held in “street name” by a broker or other intermediary, will my broker or intermediary vote my shares for me?
If your shares are held in “street name” and you do not instruct your broker or other intermediary on how to vote your shares, your broker or other intermediary may exercise its discretion to vote your shares only on “routine” matters.
The election of directors is considered a nonroutine matter. Consequently, without your voting instructions, your broker or other intermediary cannot vote your shares on this proposal.
The proposal to ratify the selection of RSJ as our independent registered public accounting firm is considered a routine matter. Therefore, your broker or other intermediary will be able to vote on that proposal, even if it does not receive voting instructions from you.
The Plan Amendment is considered a nonroutine matter. Consequently, without your voting instructions, your broker or other intermediary cannot vote your shares on this proposal.
How are votes counted?
Votes will be counted by the Company’s corporate secretary, who will separately count “for” and “against” votes (other than with respect to the election of directors, as to which there is no “against” vote, and there is a “withheld” vote instead), abstentions, and “broker non-votes.”
If you provide specific instructions with regard to an item, your shares will be voted as you instruct on such item. If you sign your proxy card without giving specific instructions, your shares will be voted in accordance with the recommendations of the Board (“for” each of the director nominees identified herein, “for” each other proposal, and in the discretion of the proxy holder on any other matters that properly come before the Meeting).
What is a “broker non-vote”?
A “broker non-vote” occurs when a beneficial owner of shares held in street name does not give instructions to the broker or other intermediary holding the shares as to how to vote on matters deemed “nonroutine.” Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or other intermediary holding the shares. If the beneficial owner does not provide voting instructions, the broker or other intermediary can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “nonroutine” matters. Under the rules and interpretations of the New York Stock Exchange, “nonroutine” matters are generally those involving a contest or a matter that may substantially affect the rights or privileges of shareholders, such as mergers, dissolutions, or shareholder proposals.
How many “for” votes are needed to approve each proposal?
Proposal No. 1: The election of directors will be decided by a plurality of votes cast. Accordingly, the five nominees receiving the highest number of “for” votes will be elected. Withheld votes and broker non-votes will have no effect on the outcome of this proposal.
Proposal No. 2: The ratification of the selection of RSJ as our independent registered public accounting firm must receive a “for” vote from the holders of a majority of the shares of our common stock represented and voting at the Meeting. In addition, the shares voting affirmatively must equal at least a majority of the quorum that is required to conduct business at each meeting; this means that the shares voting affirmatively must be greater than 25 percent of the outstanding shares entitled to vote. Abstentions and broker non-votes, if any, will have no effect. Brokers and other intermediaries generally will have discretionary authority to vote on this proposal because it is considered a routine matter, and, therefore, we do not expect broker non-votes with respect to this proposal.
Proposal No. 3: The Plan Amendment requires the affirmative vote of a majority of the shares of common stock represented and voting at the Meeting. In addition, the shares voting affirmatively must equal at least a majority of the quorum that is required to conduct business at each meeting; this means that the shares voting affirmatively must be greater than 25 percent of the outstanding shares entitled to vote. Abstentions and broker non-votes will have no effect.
How many votes do I have?
Each shareholder of record as of December 13, 2023, is entitled to cast one vote for each share of our common stock held as of the record date on each matter to come before the Meeting, except that shareholders may have cumulative voting rights with respect to the election of directors.
Cumulative voting allows a shareholder to cast a number of votes equal to the number of directors to be elected, which is five, multiplied by the number of shares such shareholder is entitled to vote. This total number of votes may be cast for one nominee or may be distributed among as many nominees as the shareholder desires. Under California law, no shareholder can cumulate votes unless, prior to voting at the Meeting, such shareholder or any other shareholder entitled to vote has given notice of his or her intention to cumulate his or her votes at the Meeting. If any shareholder properly gives such notice, then all shareholders may cumulate their votes for the election of directors. Our Board does not, at this time, intend to give such notice or to cumulate the votes it may hold pursuant to the proxies solicited herein unless the required notice by a shareholder is given, in which event shares represented by proxies solicited by this Proxy Statement may be cumulated at the discretion of the proxy holders, in accordance with the recommendation of our Board.
What is the quorum requirement?
A quorum of shareholders is necessary to hold the Meeting. A quorum will be present if at least a majority of the outstanding shares of our common stock as of the record date are present either virtually or by proxy at the Meeting. On the record date, December 13, 2023, there were 19,965,900 shares outstanding and entitled to vote. Accordingly, 9,982,950 shares must be present either virtually or by proxy at the Meeting to establish a quorum at the Meeting.
If you submit a valid proxy (by Internet, phone, or mail), regardless of whether you abstain from voting on one or more matters, your shares will be counted as present at the Meeting for purposes of determining a quorum. Broker non-votes will also be counted as present at the Meeting for purposes of determining a quorum. If there is no quorum, a majority of the shares present either virtually or by proxy at the Meeting may adjourn the Meeting to another date.
What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?
If you receive more than one Notice of Internet Availability of Proxy Materials, then your shares are registered in more than one name or are registered in different accounts. Please follow the instructions on each Notice of Internet Availability of Proxy Materials you receive to ensure that all of your shares are voted at the Meeting.
What if I vote online or return a proxy card but do not make specific choices?
If you vote online, or return a signed and dated proxy card, without marking any voting selections, all of your shares will be voted “for” the election of each of the nominees for director described herein, “for” the ratification of RSJ as our independent registered public accounting firm for the fiscal year ending August 31, 2024, and “for” the approval of the Plan Amendment. If any other matter is properly presented at the Meeting, your proxy (one of the individuals named on your Notice of Internet Availability of Proxy Materials or on your proxy card) will vote your shares using his or her best judgment.
Can I change my vote after submitting my proxy?
You can change your vote with respect to any proposal by revoking your proxy at any time prior to the commencement of voting with respect to that proposal at the Meeting. You may revoke your proxy in one of three ways:
•By delivering to our corporate secretary (c/o Will Frederick, Simulations Plus, Inc. 42505 10th Street West, Lancaster, CA 93534) a duly executed proxy bearing a date later than the date of the proxy you wish to revoke. Such later-dated proxy must be delivered before voting begins at the Meeting.
•By delivering to our corporate secretary (c/o Will Frederick, Simulations Plus, Inc. 42505 10th Street West, Lancaster, CA 93534) a written notice of revocation dated later than the date of the proxy you wish to revoke. Such written notice of revocation must be delivered before voting begins at the Meeting.
•By attending the Meeting and voting virtually. Bear in mind that simply attending the Meeting will not, by itself, revoke your proxy. In addition, please recall that if you are a beneficial owner of shares held in “street name” and wish to vote virtually at the Meeting, you must obtain a “legal” proxy from the organization holding your shares and present it to the inspector of elections, along with proof of identification, at the Meeting.
Following the commencement of voting with respect to a proposal, you may not revoke your proxy or otherwise change your vote with respect to such proposal.
Are dissenters’ rights available with respect to any proposal?
Dissenters’ rights are not available with respect to any proposal to be voted on at the Meeting.
How can I find out the results of the voting at the Meeting?
Preliminary voting results are expected to be announced at the Meeting. We will report final voting results in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) within four business days after the Meeting.
Who is paying for this proxy solicitation?
We are soliciting proxies from our shareholders on behalf of our Board and will pay for all costs incurred in connection with such solicitation. In addition to soliciting proxies by this Proxy Statement, our directors and employees may also solicit proxies virtually at the Meeting, 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.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Nomination of Directors
The Nominating & Corporate Governance Committee of the Board is charged with making recommendations to the Board regarding qualified candidates to serve as members of the Board. The Nominating & Corporate Governance Committee’s goal is to assemble a board of directors with the skills and characteristics that, taken as a whole, will assure a strong board of directors with experience and expertise in matters relevant to the Company and all aspects of corporate governance. Accordingly, the Nominating & Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including personal integrity, strength of character, an inquiring and independent mind, practical wisdom, and mature judgment. In evaluating director nominees, the Nominating & Corporate Governance Committee considers the following factors:
(1)The appropriate size of the Board;
(2)The Company’s needs with respect to particular talents and experience of its directors;
(3)The knowledge, skills, and experience of nominees in technology, business, risk management, finance, administration, and the health care information technology and data analytics software and services industry; and
(4)Relevant Nasdaq, SEC, California, and investor recommendations and requirements.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Nominating & Corporate Governance Committee may also consider such other factors as it deems to be in the Company’s and its shareholders’ best interests. The Nominating & Corporate Governance Committee states in its charter that it is committed to consideration of qualified directors of diverse gender, race, age, color, religion, national origin, sexual orientation, genetic information, marital status, disability, or covered veterans’ status, and seeks nominees from a broad variety of sources. Furthermore, the Nominating & Corporate Governance Committee is committed to complying with the Nasdaq board diversity rules, and, to the extent applicable, any state or other diversity related requirements. The Nominating & Corporate Governance Committee believes it is appropriate for at least one member of the Board to meet the criteria for an “audit committee financial expert,” as defined by SEC rules, and for a majority of the members of the Board to meet the definition of an “independent director” under Nasdaq listing standards.
The Nominating & Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for renomination, but the Nominating & Corporate Governance Committee at all times seeks to balance the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not wish to continue in service, the Nominating & Corporate Governance Committee’s policy is to not renominate that member for reelection. The Nominating & Corporate Governance Committee identifies the desired skills and experience of a new nominee, and then uses its network of contacts to compile a list of candidates.
We do not have a formal policy concerning shareholder recommendations of nominees for director to the Nominating & Corporate Governance Committee and, to date, we have not received any recommendations from shareholders requesting the Nominating & Corporate Governance Committee to consider a candidate for inclusion among the Nominating & Corporate Governance Committee’s slate of nominees in our proxy statement. Shareholders wishing to recommend a candidate may do so by sending a written notice to the Nominating & Corporate Governance Committee, Attn: Chair, Simulations Plus, Inc., 42505 10th Street West, Lancaster, CA 93534, naming the proposed candidate and providing detailed biographical and contact information for such proposed candidate. At the sole discretion of the Nominating & Corporate Governance Committee, a third-party consultant may be engaged at an appropriate fee, to help evaluate such candidates for membership to the Board. If the Nominating & Corporate Governance Committee recommends the proposed candidate to the Board, and the Board approves the nomination, the proposed candidate’s name will be included in the Company’s proxy statement for election by the Company’s shareholders at the appropriate time; however, shareholder approval will not be required to appoint a new director to fill a vacancy on the Board other than in connection with an annual meeting of the Company’s shareholders.
There are no arrangements or understandings between any of our directors, nominees for directors or officers, or any other person pursuant to which any director, nominee for director, or officer was or is to be selected as a director, nominee, or officer, as applicable. To our knowledge, there currently are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our directors or director nominees. There are no material proceedings to which any director, officer, affiliate, or owner of record or beneficial owner of more than 5% of any class of voting securities of the Company, or any associates of any such persons, is a party adverse to the Company or any of our subsidiaries (either current or previous), and to our knowledge, none of such persons has a material interest adverse to the Company or any of its subsidiaries (either current or previous). Other than as disclosed below, during the last 5 years, none of our directors held any other directorships in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. There are no familial relationships between any officers and directors of the Company.
The Nominating & Corporate Governance Committee has recommended, and the Board has nominated, Dr. Walter S. Woltosz, Dr. John K. Paglia, Dr. Daniel Weiner, Dr. Lisa LaVange and Sharlene Evans as nominees for election as members of our Board at the Meeting. At the Meeting, five directors will be elected to the Board.
Information Concerning Directors
| | | | | | | | | | | | | | | | | | | | |
| NAME | | AGE | | POSITION WITH THE COMPANY | | ELECTED DIRECTOR SINCE |
| Dr. Walter S. Woltosz | | 78 | | Chairman of the Board | | 1996 |
| Dr. John K. Paglia | | 56 | | Director | | 2014 |
| Dr. Daniel Weiner | | 73 | | Lead Independent Director | | 2017 |
| Dr. Lisa LaVange | | 70 | | Director | | 2019 |
| Sharlene Evans | | 59 | | Director | | 2021 |
DR. (HON) WALTER S. WOLTOSZ is a cofounder of the Company, served as its Chief Executive Officer until June 26, 2018, and has served as Chairman of the Board from incorporation in July 1996. As author/coauthor of over 70 technical publications, conference papers, and two book chapters over 25 years, his expertise in pharmacokinetics and machine-learning methodology for pharmaceutical research is well-recognized. He is also a significant investor in, and independent director of, the Vulcan Line Tools Corporation in Birmingham, Alabama. Prior to cofounding the Company, Dr. Woltosz served in the United States Air Force as a missile systems analyst; as an electronics engineer with the Federal Aviation Administration; with Northrop Services developing simulation/optimization software for the space shuttle ascent trajectory; and with the Thiokol corporation, Air Force Rocket Propulsion Laboratory, and United Technologies Corporation Chemical Systems Division as a rocket motor engineer. In 1981, he established Words+, Inc., a company that designs, manufactures, and sells computer-based communication systems, including the system formerly used by Professor Stephen Hawking. Dr. Woltosz holds the Distinguished Auburn Engineer Award, Auburn Alumni Association Lifetime Achievement Award, and is a member of the State of Alabama Engineering Hall of Fame. He is a member of the Auburn Alumni Engineering Council, the Engineering Keystone Society, the Engineering Eagles Society, and the Engineering Ginn Society, as well as the 1856 Society and the Pat Dye Society. Mr. Woltosz holds Bachelor’s and Master’s degrees in aerospace engineering, and an honorary Doctor of Science (D.Sc.) from Auburn University, as well as a Master’s degree in administrative science from the University of Alabama. We believe that Dr. Woltosz’s knowledge of the industry, his 27 years with the Company, and his 30 years of experience running Words+ make him a qualified candidate for the Board.
DR. JOHN K. PAGLIA, a recipient of several prestigious honors for his work in the financing and capital markets space, has been a director of the Company and Chair of the Audit Committee since December 3, 2014. Additionally, he is an independent director for Aeluma, Inc. (OTCQB:ALMU) and is an advisor to a number of private equity and venture funds and startup companies. At Pepperdine University’s Graziadio Business School, he is a tenured Professor of Finance where his specialty areas are venture capital, private equity, corporate finance, business valuations, and mergers and acquisitions (“M&A”). In addition, he held a number of leadership positions at Pepperdine University since joining in 2000, most recently as Senior Associate Dean where he had oversight for nearly 200 business school faculty members and key strategic projects including advancing diversity, equity, and inclusion initiatives. Dr. Paglia holds a Ph.D. in finance from the University of Kentucky, an MBA from Gannon University, a B.S. in finance from Gannon University, and is a Certified Public Accountant, Chartered Financial Analyst, and is NACD Directorship Certified™. We believe his knowledge of technical accounting issues and business experience qualify him as an expert in financial matters and as a qualified candidate for the Board.
DR. DANIEL WEINER has been a director of the Company since May 1, 2017. Dr. Weiner graduated from the University of Kentucky with a doctoral degree in Mathematical Statistics, with an emphasis on compartmental modeling. Dr. Weiner has served as an expert consultant to the U.S. Food and Drug Administration (“FDA”) on pharmacokinetic modeling and bioequivalence assessment and is the 2022 American Society for Clinical Pharmacology & Therapeutics (ASCPT) recipient of the Sheiner-Beal Award in Pharmacometrics. Dr. Weiner has held senior management positions at companies such as Merrell Dow Pharmaceuticals; Statistical Consultants, Inc. (founder); Syntex Development Research; Certara Inc.; Pharsight Corp.; Quintiles, Inc. (now IQVIA); and IVAX Research, where he had operational responsibilities as well as assisting with M&A activities. Dr. Weiner is an Adjunct Professor with the Division of Pharmacotherapy and Experimental Therapeutics in the School of Pharmacy, University of North Carolina. He is the original designer/author of the WinNonlin family of PK/PD Modeling Software and is the co-author of Pharmacokinetic and Pharmacodynamic Data Analysis: Concepts and Applications. Dr. Weiner previously served as a Board member of DILIsym Services, Inc. (“DILIsym”), which was merged into the Company in September 2021. We believe that Dr. Weiner’s extensive industry knowledge, expertise, and experience make him a qualified candidate for the Board.
DR. LISA LAVANGE has been a director of the Company since May 1, 2019. Dr. LaVange graduated from the University of North Carolina (“UNC”) with a doctoral degree in Biostatistics. Dr. LaVange is currently Professor Emerita and former Chair of Biostatistics, retiring from UNC in October 2023. From 2011 to 2017, Dr. LaVange served as Director of the Office of Biostatistics in the Center for Drug Evaluation and Research (“CDER”) at the FDA, where she oversaw more than 200 statisticians involved in the review of new drugs, therapeutic biologics, and generics. She also established the FDA’s complex innovative design initiative and continues to contribute to research in innovative clinical trials design and analysis. Previously, she worked in the pharmaceutical industry at the level of Vice President. Dr. LaVange is a fellow of the American Statistical Association (“ASA”), was the 2018 ASA President, and served on the ASA Board of Directors from 2017 to 2019 (and as Chair in 2018). She is also a former Board member of the International Biometric Society and served as regional president. Dr. LaVange is the recipient of numerous awards in clinical, statistical, and regulatory science, including the 2020 award for Outstanding Contribution to Health in the Americas Region from the Drug Information Association and the 2023 ICH Award for Outstanding Contribution to Harmonization for Better Health, nominated by the US FDA. We believe that Dr. LaVange’s extensive experience, knowledge, and industry expertise make her a qualified candidate for the Board.
SHARLENE EVANS was appointed as a director of the Company as of December 1, 2021. Ms. Evans received a Bachelor’s degree in Industrial Engineering from Auburn University, and graduated from Purdue University with a Master’s degree in Industrial Engineering. Ms. Evans has a proven track record in executing large-scale improvement projects across complex, multi-site organizations for Fortune 500 clients. She currently serves as a Principal Director at Accenture, where she leads deployment of capabilities in organization design, change management, and leadership development as part of client transformation projects. Prior to Accenture’s acquisition of Myrtle Consulting Group, a change management and sustainability consulting firm, Ms. Evans served as the Chief People Officer at Myrtle Consulting Group, where she was responsible for the internal people processes to support Myrtle employees. Ms. Evans also led the team responsible for the development and delivery of the people and organization capabilities and service offerings provided to Myrtle clients. Prior to joining Myrtle, Ms. Evans was the Vice President of People and Organization at SSA & Company from January 2016 to June 2019. Her prior consulting experience also includes Hitachi Consulting, Celerant Consulting, and Ernst & Young Consulting. We believe that Ms. Evans’ executive record, with over 26 years of experience in operations, human resources, and personnel development, makes her a qualified candidate for the Board.
Vote Required
Each of the five nominees for director must be elected by a plurality of votes cast by holders of our common stock at the Meeting. If a quorum is present and voting at the Meeting, the five nominees receiving the highest number of “for” votes will be elected.
Votes withheld for any nominee and broker non-votes will be counted only for purposes of determining a quorum and will have no effect on this proposal.
Board Recommendation
The Board recommends that you vote all of your shares “FOR” the election to the Board of each of the nominees described in this Proposal No. 1.
PROPOSAL NO. 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Background
The Audit Committee of the Board has selected Rose, Snyder, & Jacobs, LLP (“RSJ”) as our independent registered public accounting firm for the fiscal year ending August 31, 2024, and has further directed us to submit the selection of RSJ as our independent registered public accounting firm for ratification by our shareholders at the Meeting. Representatives of RSJ are expected to be present via phone call at the Meeting. The representatives of RSJ will have an opportunity to make a statement at the Meeting, if they so desire, and will be available to respond to appropriate questions.
Neither our governing documents nor any applicable laws require shareholder ratification of the selection of RSJ as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of RSJ to our shareholders for ratification as a matter of good corporate practice. If our shareholders do not ratify the selection, the Audit Committee will reconsider its selection of RSJ and will either continue to retain the firm or appoint a new independent registered public accounting firm, in its discretion. Even if the selection is ratified, however, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and those of our shareholders.
Independent Registered Public Accounting Firm Fee Information
The following table sets forth the aggregate fees billed by RSJ for the services indicated for each of the last two fiscal years:
| | | | | | | | | | | | | | |
| | Fiscal Year Ended August 31, 2023 | | Fiscal Year Ended August 31, 2022 |
Audit Fees (1) | | $ | 424,500 | | | $ | 386,000 | |
Audit-Related Fees (2) | | $ | 8,510 | | | $ | 6,500 | |
Tax Fees (3) | | $ | 24,650 | | | $ | 97,530 | |
| All Other Fees | | $ | — | | | $ | — | |
| Total Fees | | $ | 457,660 | | | $ | 490,030 | |
__________________
(1)Includes fees for (i) the audit of our annual financial statements for the fiscal years ended August 31, 2023, and 2022 included in our Annual Reports on Form 10-K, (ii) the review of our interim period financial statements for fiscal years 2023 and 2022 included in our Quarterly Reports on Form 10-Q, (iii) Sarbanes-Oxley audit-related services, and (iv) related services that are normally provided in connection with regulatory filings or engagements.
(2)Includes fees related to the audit of our 401K profit share plan and other assurance services.
(3)Represents the aggregate fees billed for tax compliance prior to the Company transitioning these services to Holthouse Carlin & Van Trigt LLP during the first quarter of fiscal year 2023.
Audit Committee Policy Regarding Preapproval of Audit and Permissible Non-audit Services of Our Independent Registered Public Accounting Firm
The Audit Committee has adopted policies and procedures for the preapproval of all audit and non-audit services to be rendered by our independent registered public accounting firm. Under the policies and procedures, the Audit Committee generally preapproves specified services in defined categories up to specified amounts. Preapproval may also 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 a case-by-case basis for specific tasks before engagement. The Audit Committee has delegated the preapproval of services to the chair of the Audit Committee, who is required to report each preapproval to the full Audit Committee no later than its next meeting. All of the Audit Fees and Audit-Related Fees set forth in the table above were approved by the Audit Committee.
Vote Required
Approval of this Proposal No. 2 requires the affirmative “for” vote of holders of a majority of the shares of our common stock represented and voting at the Meeting. In addition, the shares voting affirmatively must equal at least a majority of the quorum that is required to conduct business at each meeting; this means that the shares voting affirmatively must be greater than 25 percent of the outstanding shares entitled to vote.
Abstentions and broker non-votes, if any, will have no effect. Brokers and other intermediaries generally will have discretionary authority to vote on this proposal because it is considered a routine matter, and, therefore, we do not expect broker non-votes with respect to this proposal.
Board Recommendation
The Board recommends a vote “FOR” the ratification of the selection by the Audit Committee of RSJ as our independent registered public accounting firm for the fiscal year ending August 31, 2024.
PROPOSAL NO. 3: APPROVAL OF AMENDMENT TO 2021 EQUITY INCENTIVE PLAN
At the Meeting, our shareholders will be asked to approve an amendment to our 2021 Plan, in the form attached hereto as Exhibit A, to increase the number of shares authorized for issuance thereunder from 1,550,000 shares to 2,500,000 shares of common stock of the Company (the “Plan Amendment”).
Background
On April 9, 2021, our Board approved, subject to shareholder approval, the adoption of our 2021 Plan. Our shareholders approved the 2021 Plan at the special meeting of shareholders held on June 23, 2021. On October 20, 2022, the Board approved, subject to shareholder approval, an amendment to the 2021 Plan to increase the aggregate number of shares of common stock reserved for issuance thereunder from 1,200,000 to 1,550,000 shares, which amendment was approved by our shareholders at the annual meeting of shareholders held on February 9, 2023 and was adopted by the Company on the same day. On October 19, 2023, the Board approved, subject to shareholder approval, the Plan Amendment to increase the aggregate number of shares of common stock reserved for issuance under our 2021 Plan from 1,550,000 to 2,500,000 shares. If approved by our shareholders at the Meeting, the Plan Amendment will be effective as of the date of such approval.
The 2021 Plan allows for the grant of a variety of equity vehicles to provide flexibility in implementing equity awards, including stock options, restricted stock awards, restricted stock units, stock bonus awards, and performance-based awards. The purposes of the 2021 Plan are:
•to promote the success and enhance the value of the Company by linking the personal interests of the Company’s officers, directors, employees, and service providers to those of the Company’s shareholders and, by providing such individuals with an incentive for performance, to generate returns to the Company’s shareholders; and
•to provide the Company flexibility to motivate, attract, and retain the services of officers, directors, employees, and service providers, upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.
As of December 13, 2023, an aggregate of 1,550,000 shares of common stock were reserved for issuance under our 2021 Plan. As of December 13, 2023, approximately 1,155,907 shares of our common stock were subject to outstanding awards under the 2021 Plan and 367,098 shares of common stock were available for future awards under the 2021 Plan. The Board believes that an increase in the number of authorized shares of common stock is necessary for the continued optimal use of the 2021 Plan.
Reasons for Approval of Plan Amendment
The market for quality personnel is competitive, and the ability to obtain and retain competent personnel is of great importance to the Company’s business operations. We believe that providing equity incentives as a component of our compensation and total rewards offering enhances our ability to attract and retain highly qualified officers, directors, and employees, and to motivate such individuals to serve the Company and to expend maximum effort to improve our business results by providing to those individuals an opportunity to acquire or increase a direct proprietary interest in our operations and future success. The Plan Amendment will also allow us to continue to promote greater ownership in our Company by our officers, directors, and employees in order to align their interests more closely with the interests of our shareholders. During fiscal 2023, we increased the number of our employees by 21%, from 163 to 197, including the addition of staff in connection with our acquisition of Immunetrics Inc. in June 2023. Accordingly, the Board has determined that the number of shares available for issuance under the 2021 Plan should be increased so that we may continue our compensation structure and strategy.
If our shareholders do not approve the Plan Amendment at the Meeting, the Plan Amendment will not become effective, and the number of shares of common stock authorized for issuance under the 2021 Plan will remain at 1,550,000 shares of common stock. The Company does not believe this will be a sufficient number of shares to provide adequate equity incentive compensation to Company employees and directors during fiscal 2024.
Description of the 2021 Plan
The principal features of the 2021 Plan are summarized below; however, the summary is qualified in its entirety by reference to the 2021 Plan itself, including the First Amendment to the 2021, copies of which are attached as Exhibit 10.9 and 10.15, respectively, of our Annual Report.
Purposes
The 2021 Plan provides a means to retain the services of the group of persons eligible to receive awards, to secure and retain the services of new members of this group, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its affiliates. All of the employees, as well as officers, non-employee directors, and service providers of the Company and its affiliates, are eligible to participate in the 2021 Plan.
Summary of Key Terms of the 2021 Plan
| | | | | | | | |
| Plan Term: | | Ten years. |
| Eligible Participants: | | Employees (including officers), directors, and service providers of both the Company and its affiliates. |
| Shares Authorized: | | 1,550,000 shares of the Company’s common stock. |
| Award Types: | | (i) Incentive Stock Options; (ii) Nonstatutory Stock Options; (iii) Restricted Stock awards, (iv) Restricted Stock Units; (v) Stock Bonus awards; and (vi) Performance-Based Awards. |
| Vesting; Minimum Periods; Discretionary Vesting; Dividends on Unvested Shares: | | Vesting schedules are determined by the administrator when each award is granted. Except as to a maximum of five percent (5%) of the number of shares reserved and available for grant and issuance under the 2021 Plan, any awards that vest on the basis of the participant’s continued service will have a minimum vesting period of one year (such requirement, the “Minimum Vesting Requirement”). In addition, the administrator may not use discretion to accelerate the vesting of plan awards (subject to a maximum five percent (5%) of shares under the 2021 Plan that may be accelerated) other than in connection with a death, disability or a change in control (where a participant terminates employment in certain situations or equity awards are not assumed or substituted for in the transaction). No dividends payments will be made on unvested shares subject to grants under the 2021 Plan, but instead any dividends will be deferred until the relevant awards become vested. |
| Award Terms: | | Stock options have a term no longer than ten years from the date the options were granted, except in the case of incentive stock options granted to holders of more than 10% of the Company’s voting power, which have a term no longer than five years. |
| Repricing and Buyout Prohibited Without Shareholder Approval: | | Repricing, or reducing the exercise price of outstanding options or any similar employee program, or buying out options, without shareholder approval is prohibited under the 2021 Plan. |
| Recoupment: | | Awards (and gains realized with respect to such awards) under the 2021 Plan will be subject to recoupment to the extent that an executive officer is determined to have engaged in fraud or intentional illegal conduct materially contributing to a financial restatement, pursuant to a clawback or recoupment policy to be adopted by the Board, or required by law during a participant’s employment or service. |
Administration
As permitted by the terms of the 2021 Plan, the Board has delegated administration of the 2021 Plan to the Compensation Committee of the Board. As used herein with respect to the 2021 Plan, the “Board” refers to any committee the Board appoints as well as to the Board itself. Subject to the provisions of the 2021 Plan, the Board has the power to construe and interpret the 2021 Plan and awards granted under it and to determine the persons to whom and the dates on which awards will be granted, the number of shares of common stock to be subject to each award, the time or times during the term of each award within which all or a portion of such award may be exercised, the exercise price, the type of consideration and other terms of the award. All decisions, determinations, and interpretations by the Board regarding the 2021 Plan shall be final and binding on all participants or other persons claiming rights under the 2021 Plan or any award.
In the discretion of the Board, a committee may consist solely of two or more nonemployee directors in accordance with Rule 16b-3 of the Exchange Act. The Board has the power to delegate administration of the 2021 Plan to a committee composed of not fewer than two members of the Board.
Stock Subject to the 2021 Plan
Currently, an aggregate of 1,550,000 shares of common stock are reserved for issuance under the 2021 Plan. If this Proposal is approved by our shareholders, the number of shares of common stock reserved for issuance under the 2021 Plan will be increased to 2,500,000 shares. Shares issued under the 2021 Plan may be previously unissued shares or reacquired shares of the Company’s common stock bought on the market or otherwise.
If awards granted under the 2021 Plan expire or otherwise terminate without being exercised, or if any shares of common stock issued to a participant pursuant to an award are cancelled, forfeited to, or repurchased by the Company at the original purchase price, such shares of common stock again become available for issuance under the 2021 Plan. If any shares subject to an award are not delivered to a participant because such shares are withheld for the payment of taxes or the award is exercised through a “cashless exercise,” or if shares subject to an award are withheld to satisfy tax withholding obligations related to such award, such shares shall no longer be available for the grant of awards under the 2021 Plan. Notwithstanding the foregoing, and subject to the terms of the 2021 Plan, the aggregate maximum number of shares of common stock that may be issued as incentive stock options will be 1,550,000 shares of common stock, which maximum aggregate amount will increase to 2,500,000 shares if this Proposal is approved by our shareholders.
Eligibility
Incentive stock options may be granted under the 2021 Plan only to employees (including officers) of the Company and its affiliates. Employees (including officers and employees providing services to the Company or an affiliate in a foreign country through an agreement with such country or an agency), directors, and service providers of both the Company and its affiliates are eligible to receive all other types of awards under the 2021 Plan.
No incentive stock option may be granted under the 2021 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company or any affiliate of the Company, unless the exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and the term of the option does not exceed five years from the date of grant. In addition, the aggregate fair market value, determined at the time of grant, of the shares of common stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under the 2021 Plan and all other such plans of the Company and its Affiliates) may not exceed $100,000.
Terms of Stock Options
The following is a description of the permissible terms of stock options issuable under the 2021 Plan. Individual option grants may be more restrictive as to any or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options may not be less than 100% of the fair market value of the stock subject to the option on the date of the grant and, in some cases (see “Eligibility” above), may not be less than 110% of such fair market value. The exercise price of nonstatutory options shall be determined by the Board.
Acceptable consideration for the purchase of common stock issued under the 2021 Plan will be determined by the Board and may include cash, common stock previously owned by the optionee, a deferred payment arrangement, the cashless exercise of the option, consideration received in a “cashless” broker-assisted sale, and other legal consideration approved by the Board.
Option Exercise. Stock options granted under the 2021 Plan may become exercisable (“vest”) in cumulative increments as determined by the Board. Such increments may be based on continued service to the Company over a certain period of time, the occurrence of certain performance milestones, or other criteria. Stock options granted under the 2021 Plan may be subject to different vesting terms. Except as to a maximum of 5% of the number of shares reserved and available for grant and issuance under the 2021 Plan, any options that vest on the basis of the participant’s continued service will have a minimum vesting period of one year. In addition, the plan administrator may not use discretion to accelerate the vesting of options (subject to a maximum 5% of shares under the 2021 Plan that may be accelerated) other than in connection with a death, disability, or a change in control (where a participant terminates employment in certain situations or equity awards are not assumed or substituted for in the transaction). To the extent provided by the terms of an option, a participant may satisfy any federal, state, or local tax withholding obligation relating to the exercise of such option by a cash payment upon exercise, by authorizing the Company to withhold a portion of the stock otherwise issuable to the participant, or by such other method as may be set forth in the option agreement.
Term. The maximum term of stock options issued under the 2021 Plan is 10 years, except that in certain cases (see “Eligibility” above) the maximum term of certain incentive stock options is five years. Stock options under the 2021 Plan generally terminate 60 days after termination of the participant’s service unless (i) such termination is due to the participant’s disability, in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the termination of service) at any time within six months of such termination; (ii) the participant dies before the participant’s service has terminated, or within three months after termination of such service, in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the participant’s death) within 12 months of the participant’s death by the person or persons to whom the rights to such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifically provides otherwise. If an optionee’s service with the Company, or any affiliate of the Company, ceases with cause, the option will terminate at the time the optionee’s service ceases. In no event may an option be exercised after its expiration date.
A participant’s option agreement may provide that if the exercise of the option following the termination of the participant’s service would be prohibited because the issuance of stock would violate the registration requirements under the Securities Act of 1933, as amended (the “Securities Act”), then the option will terminate on the earlier of (i) the expiration of the term of the option or (ii) three months after the termination of the participant’s service during which the exercise of the option would not be in violation of such registration requirements.
Restrictions on Transfer. Incentive stock options are not transferable except by will or by the laws of descent and distribution, provided that a participant may designate a beneficiary who may exercise an option following the participant’s death. Nonstatutory stock options are transferable to the extent provided in the option agreement.
Terms of Stock Bonuses and Restricted Stock Awards
Stock bonus awards and restricted stock awards are granted through a stock bonus award agreement or restricted stock award agreement.
Payment. Subject to certain limitations, the purchase price for restricted stock or stock bonus awards must be at least the par value of our common stock. The purchase price for a stock purchase award may be payable in cash or any other form of legal consideration approved by the Board. Stock bonus awards may be granted in consideration for the recipient’s past services for the Company.
Vesting. Common stock under a restricted stock or stock bonus award agreement may be subject to a share repurchase option or forfeiture right in our favor, each in accordance with a vesting schedule and subject to the Minimum Vesting Requirement. If a recipient’s service relationship with us terminates, we may reacquire or receive via forfeiture all of the shares of our common stock issued to the recipient pursuant to a restricted stock or stock bonus award that have not vested as of the date of termination.
Restrictions on Transfer. Rights under a stock bonus or restricted stock bonus agreement may be transferred only as expressly authorized by the terms of the applicable stock bonus or restricted stock purchase agreement.
Dividends. No dividend payments will be made on unvested shares of restricted stock, but instead, any dividends will be deferred until the relevant awards become vested.
No stock bonuses or restricted stock awards have been issued under the 2021 Plan through August 31, 2023.
Restricted Stock Unit Awards
Restricted stock unit awards are issued pursuant to a stock unit award agreement.
Payment. Subject to certain limitations, the consideration, if any, for restricted stock unit awards must be at least the par value of our common stock. The consideration for a stock unit award may be payable in any form acceptable to the Board and permitted under applicable law.
Vesting and Settlement. The Board may impose any restrictions or conditions upon the vesting of restricted stock unit awards, or that delay the delivery of the consideration after the vesting of stock unit awards, that it deems appropriate consistent with the Minimum Vesting Requirement. Restricted stock unit awards may be settled in cash or shares of the Company’s common stock, as determined by the Board. No dividend payments will be made on unvested restricted stock unit awards, but instead, any dividends will be deferred until the relevant awards become vested.
Termination of Service. If a restricted stock unit award recipient’s service relationship with the Company terminates, any unvested portion of the restricted stock unit award is forfeited upon the recipient’s termination of service.
No restricted stock unit awards have been issued under the 2021 Plan through August 31, 2023.
Performance-Based Awards
The Board may grant awards under the 2021 Plan that are designated “Performance-Based Awards.” Generally, Performance-Based Awards require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted or becoming exercisable, or as a condition to accelerating the timing of such events. Performance may be measured over a period of any length specified by the Board. If so determined by the Board, the business criteria used by the Board in establishing performance goals applicable to performance awards to our named executive officers will be selected from among the following: (i) net earnings (either before or after interest, taxes, depreciation, and amortization), sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), (ii) return on net assets, (iii) return on shareholders’ equity, (iv) return on sales, (v) gross or net profit margin, (vi) working capital, (vii) earnings per share and price per share of common stock, or (viii) the achievement of certain milestones, customer retention rates, licensing, partnership, or other strategic transactions, or obtaining a specified level of financing for the Company, as determined by the Board, including the issuance of securities, or the achievement of one or more corporate, business unit, or individual scientific or inventive measures.
No performance-based awards have been issued under the 2021 Plan through August 31, 2023.
Adjustment Provisions
Transactions not involving receipt of consideration by the Company, such as recapitalization, reincorporation, reclassification, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, or a change in corporate structure may change the type(s), class(es), and number of shares of common stock subject to the 2021 Plan and outstanding awards. In that event, the 2021 Plan will be appropriately adjusted as to the type(s), class(es), and the maximum number of shares of common stock subject to the 2021 Plan, and outstanding awards will be adjusted as to the type(s), class(es), number of shares, and price per share of common stock subject to such awards.
Effects of Certain Corporate Transactions
In the event of a merger, sale of all or substantially all of the assets of the Company, or other change of control transaction, unless otherwise determined by the Board, all outstanding awards will be subject to the agreement governing such merger, asset sale, or other change of control transaction. Such agreement need not treat all such awards in an identical manner, and it will provide for one or more of the following with respect to each award: (i) the continuation of the award, (ii) the assumption of the award, (iii) the substitution of the award, or (iv) the payment of the excess of the fair market value of the shares subject to the award over the exercise price or purchase price of such shares. In the event the successor corporation refuses to either continue, assume, or substitute the shares subject to the award pursuant to the terms of the 2021 Plan, or to pay the excess of the fair market value of the shares subject to the award over the exercise price or purchase price of such shares, then outstanding awards shall vest and become exercisable as to 100% of the shares subject thereto contingent upon the consummation of such change of control transaction.
Duration, Amendment and Termination
The Board may suspend or terminate the 2021 Plan without shareholder approval or ratification at any time or from time to time. Unless sooner terminated, the 2021 Plan will terminate on April 9, 2031, which is the tenth anniversary of the date of its adoption by the Board.
The Board has authority to amend or terminate the 2021 Plan. No amendment or termination of the 2021 Plan shall adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. Additionally, no action may be taken by the Board without shareholder approval to (i) permit the repricing or buyout of outstanding stock options under the 2021 Plan, or (ii) otherwise implement any amendment required to be approved by shareholders to comply with applicable provisions of 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.
New Plan Benefits
At the present time, no specific determination has been made as to the grant or allocation of future awards under the 2021 Plan. Future awards to the Company’s executive officers and employees are discretionary. Therefore, at this time the benefits that may be received by the Company’s executive officers and other employees if the Company’s shareholders approve the Plan Amendment cannot be determined. Because the value of stock issuable to the Company’s non-employee directors under the 2021 Plan will depend on the fair market value of the Company’s common stock at future dates, it is not possible to determine exactly the benefits that might be received by the Company’s non-employee directors under the 2021 Plan.
Awards under the 2021 Plan as of the end of fiscal 2023:
| | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Number of Options | | Weighted Average Exercise Price for Options |
| Balance, beginning of the period (September 1, 2022) | | 8,975 | | | 255,730 | | | $ | 43.13 | |
| Granted | | 13,765 | | | 464,800 | | | $ | 43.78 | |
| Cancelled / Forfeited | | — | | | (43,331) | | | $ | 43.22 | |
| Balance, end of the period (August 31, 2023) | | 22,740 | | | 677,199 | | | $ | 43.57 | |
| | | | | | |
| Vested (and, in the case of options, exercisable), end of the period (August 31, 2023) | | 22,740 | | | 54,768 | | | $ | 43.96 | |
| Vested and expected to vest, end of the period (August 31, 2023) | | 22,740 | | | 670,404 | | | $ | 43.53 | |
Current Awards under the 2021 Plan:
The following table summarizes the awards outstanding and shares available for grant under the 2021 Plan as of December 13, 2023, and the proposed increase in shares authorized for issuance pursuant to the Plan Amendment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares and Options | | Weighted Average Exercise Price of Options | | Weighted average remaining term (in years) | | As a % of Shares Outstanding (1) | | Dollar Value (2) |
| Options Outstanding (3) | | 1,155,907 | | | $ | 42.19 | | | 9.06 | | | 5.79 | % | | 47,114,769 | |
| Shares issued to directors (3) | | 26,995 | | | N/A | | N/A | | 0.14 | % | | 1,100,316 | |
| Shares available for grant | | 367,098 | | | N/A | | N/A | | 1.84 | % | | 14,962,914 | |
| Proposed increase in shares available for issuance under Restated Equity Plan (over existing share reserve under Existing Plan) | | 950,000 | | | N/A | | N/A | | 4.76 | % | | 38,722,000 | |
(1)Based on 19,965,900 shares of our common stock outstanding as of December 13, 2023.
(2)Based on the closing price of our common stock on December 13, 2023, of $40.76 per share.
(3)The only type of awards that have been granted under our 2021 Plan as of December 13, 2023 were stock options and shares of common stock.
In fiscal years 2021, 2022, and 2023, the number of shares subject to awards granted under the Company’s equity incentive plans during each such fiscal year were as follows:
| | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 |
| 231,611 | | 262,960 | | 478,565 |
Federal Income Tax Information
The following is a brief summary of the current federal income tax consequences that generally apply with respect to awards that may be granted under the 2021 Plan and is based upon laws, regulations, rules, and decisions now in effect, all of which are subject to change. The following summary is intended for general information only and does not purport to be a complete analysis of all of the potential tax effects of the 2021 Plan. This summary does not describe any foreign, state, or local tax consequences, or various other rules that could apply to a particular individual or to the Company and its subsidiaries under certain circumstances (and references to the Company in this section include the applicable subsidiary, if any). This summary is not tax advice and is not intended or written to be used (and cannot be used by any taxpayer) to avoid penalties that may be imposed on a taxpayer. Tax implications may vary due to individual circumstances. Participants should consult their personal tax advisors about the tax consequences related to awards under the 2021 Plan. Tax consequences are not guaranteed.
Incentive Stock Options. Incentive stock options under the 2021 Plan are intended to be eligible for the federal income tax treatment accorded “incentive stock options” under the Code.
There generally are no federal income tax consequences to the participant or the Company by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may give rise to or increase alternative minimum tax liability for the participant.
If a participant holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the option is granted and more than one year from the date on which the shares are transferred to the participant upon exercise of the option, any gain or loss on a disposition of such stock will be a long-term capital gain or loss if the participant held the stock for more than one year.
Generally, if the participant disposes of the stock before the expiration of either of these holding periods (a “disqualifying disposition”), then at the time of disposition the participant will realize taxable ordinary income equal to the lesser of (i) the excess of the stock’s fair market value on the date of exercise over the exercise price, or (ii) the participant’s actual gain, if any, on the purchase and sale. The participant’s additional gain or any loss upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year.
To the extent the participant recognizes ordinary income by reason of a disqualifying disposition, the Company will generally be entitled (subject to the requirement of reasonableness and the satisfaction of a tax reporting obligation) to a corresponding business expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards, Restricted Stock Units and Stock Bonuses. Nonstatutory stock options, restricted stock purchase awards, restricted stock units and stock bonuses granted under the 2021 Plan generally have the federal income tax consequences described below.
There generally are no tax consequences to the participant or the Company by reason of the grant of these awards. However, if the exercise price of a nonstatutory stock option can, at any time, be less than the fair market value of the stock on the grant date, Section 409A of the Code imposes ordinary income and employment tax liability on the participant as the option vests in an amount equal to the difference between the fair market value of the stock on the vesting date and the exercise price. In addition, Section 409A imposes a penalty of 20% of such amount and an interest charge. The Company would be responsible for withholding these tax amounts. Upon acquisition of the stock under any of these awards (or settlement of restricted stock units in cash), the participant normally will recognize taxable ordinary income equal to the excess, if any, of the stock’s fair market value on the acquisition date over the purchase price. However, to the extent the stock is subject to certain types of vesting restrictions, the taxable event will be delayed until the vesting restrictions lapse unless the participant elects to be taxed on receipt of the stock. With respect to employees, the Company is generally required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, and the satisfaction of a tax reporting obligation, the Company will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon acquisition (or vesting) of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year. Slightly different rules may apply to participants who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act.
Dividends and Dividend Equivalent Rights. No taxable income should be recognized upon receipt of a dividend equivalent right award in connection with the receipt of another award under the 2021 Plan. A participant will recognize ordinary income in the year in which a dividend or distribution, whether in cash, securities, or other property, is paid on an unrestricted basis to the participant. The amount of that income will be equal to the fair market value of the cash, securities, or other property received. The Company is generally required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized, and the Company will generally be entitled to a business expense deduction equal to the amount of the taxable ordinary income recognized by the participant at the time the dividend or distribution is paid to such participant. That deduction will generally be taken for the taxable year in which such ordinary income is recognized.
Section 162(m) of the Code. Section 162(m) of the Code limits deductibility of compensation in excess of $1 million paid to certain executives. The Compensation Committee intends to maximize the tax deductibility of compensation paid to executive officers where possible. However, the Compensation Committee may authorize the payment of compensation to our executive officers that may not be deductible due to the limit imposed by Section 162(m) of the Code in order to continue to attract and retain superior talent.
Sections 280G and 4999 of the Code. Sections 280G and 4999 of the Code impose penalties on persons who pay and persons who receive so-called excess parachute payments. A parachute payment is the value of any amount that is paid to Company officers (or other disqualified individuals) on account of a change in control. If total parachute payments from all sources, including but not limited to stock-based compensation plans, equal or exceed three times an officer’s (or other disqualified individual’s) base amount, meaning his or her five-year average taxable compensation, a portion of the parachute payments above one times the base amount will constitute an excess parachute payment. Because of Section 4999 of the Code, the officer (or other disqualified individual) must pay an excise tax equal to 20% of the total excess parachute payments. This tax is in addition to other federal, state, and local income, wage, and employment taxes imposed on the individual’s change in control payments. Moreover, because of Section 280G of the Code, the company paying the compensation is unable to deduct the excess parachute payment.
Benefits to which participants are entitled under the 2021 Plan and associated award agreements could constitute parachute payments under Sections 280G and 4999 of the Code if a change in control of the Company occurs. If this happens, the value of each participant’s parachute payment arising under the 2021 Plan must be combined with other parachute payments the same participant may be entitled to receive under other agreements or plans with the Company or a related entity, such as an employment agreement or a severance agreement.
Section 409A of the Code. Section 409A of the Code provides requirements for certain nonqualified deferred compensation arrangements. If applicable, Section 409A of the Code also imposes penalties (including an additional 20% tax) on the recipient of deferred compensation in the event such compensation fails to comply with Section 409A of the Code. Furthermore, if applicable, Section 409A of the Code imposes certain tax reporting on the Company if such deferred compensation does not comply with Section 409A requirements. Unless otherwise provided by the Compensation Committee, awards granted under the 2021 Plan generally are intended to either comply with or meet the requirements for an exemption from Section 409A of the Code. The Company does not guarantee to any participant that the 2021 Plan or any award granted under the 2021 Plan complies with or is exempt from Section 409A of the Code, and the Company will not have any liability to, or obligation to indemnify or hold harmless, any individual with respect to any tax consequences that arise from any such failure to comply with or meet an exemption under Section 409A of the Code.
Effective Date
The effective date of the 2021 Plan is April 9, 2021. The Plan Amendment will be effective as of February 8, 2024, subject to shareholder approval at the Meeting.
Registration with the SEC
If the Plan Amendment is approved by our shareholders, the Company intends to file a registration statement on Form S-8, relating to the additional shares of our common stock that will be issuable under the 2021 Plan, with the SEC pursuant to the Securities Act as soon as practicable after approval of the Plan Amendment by our shareholders.
Vote Required
Approval of this Proposal No. 3 requires the affirmative “for” vote from holders of a majority of the shares of our common stock represented and voting at the Meeting. In addition, the shares voting affirmatively must equal at least a majority of the quorum that is required to conduct business at each meeting; this means that the shares voting affirmatively must be greater than 25 percent of the outstanding shares entitled to vote.
Abstentions and broker non-votes will have no effect.
Board Recommendation
The Board of Directors unanimously recommends that you vote “FOR” approval of the Plan Amendment.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 13, 2023, regarding the beneficial ownership of our common stock by (a) each person known to the Company to own beneficially more than 5% of our common stock, (b) each of our directors and director nominees, (c) each of our Named Executive Officers (as defined below), and (d) all of our current directors and executive officers as a group. Information with respect to beneficial ownership is based solely on a review of our capital stock transfer records and on publicly available filings made with SEC by or on behalf of the shareholders listed below.
The percent of class is calculated based on 19,965,900 shares of our common stock outstanding as of December 13, 2023. Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities and for such persons includes shares of our common stock issuable to such persons pursuant to the exercise of stock options, warrants, or other securities that are exercisable or convertible into shares of our common stock within 60 days of December 13, 2023.
| | | | | | | | | | | | | | |
| Beneficial owner (1) (2) | | Amount and Nature of Beneficial Ownership | | Percent of Class |
| | | | |
| Directors and Named Executive Officers | | | | |
| Dr. Walter S. Woltosz (3) | | 3,769,403 | | | 18.9 | % |
| John DiBella (4) | | 143,371 | | | * |
| Jill Fiedler-Kelly (5) | | 111,442 | | | * |
| Shawn O’Connor (6) | | 106,000 | | | * |
| Dr. Brett Howell (7) | | 28,875 | | | * |
| Will Frederick (8) | | 23,750 | | | * |
| Dr. Daniel Weiner (9) | | 19,555 | | | * |
| Dr. Lisa LaVange (10) | | 16,069 | | | * |
| Dr. John Paglia (11) | | 14,097 | | | * |
| Sharlene Evans (12) | | 4,681 | | | * |
| All directors and executive officers as a group (10 persons) | | 4,237,243 | | | 20.9 | % |
| | | | |
| 5% or Greater Shareholders | | | | |
| BlackRock, Inc. (13) | | 2,606,308 | | | 13.1 | % |
| Conestoga Capital Advisors LLC (14) | | 2,306,377 | | | 11.6 | % |
| Neuberger Berman Group LLC (15) | | 1,520,778 | | | 7.6 | % |
| The Vanguard Group (16) | | 1,119,112 | | | 5.6 | % |
* Less than 1%
(1)Unless otherwise indicated in the footnotes to the table, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws, where applicable.
(2)The address of each director and executive officer is c/o the Company, 42505 10th Street West, Lancaster, California 93534-7059.
(3)Consists of 3,764,403 shares of common stock and 5,000 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023. The common shares are held jointly with Ms. Virginia Woltosz, Mr. Woltosz’s spouse and cofounder of the Company.
(4)Consists of 79,840 shares of common stock and 63,531 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(5)Consists of 66,617 shares of common stock and 44,825 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(6)Consists of 106,000 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(7)Consists of 28,875 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(8)Consists of 2,100 shares of common stock and 21,650 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(9)Consists of 8,555 shares of common stock and 11,000 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(10)Consists of 7,069 shares of common stock and 9,000 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(11)Consists of 3,097 shares of common stock and 11,000 shares of common stock underlying stock options exercisable within 60 days of December 13, 2023.
(12)Consists of 4,681 shares of common stock.
(13)Consists of 2,606,308 shares of common stock, based upon information contained in a Schedule 13G/A filed by BlackRock, Inc. on January 23, 2023. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
(14)Consists of 2,306,377 shares of common stock, based upon information contained in a Schedule 13G/A filed by Conestoga Capital Advisors LLC and its affiliate on January 19, 2023. The address of Conestoga Capital Advisors LLC is 550 E. Swedesford Rd. Ste 120 Wayne, PA 19087.
(15)Consists of 1,520,778 shares of common stock, based solely upon information contained in a Schedule 13G/A filed by Neuberger Berman Group LLC and its affiliates on February 10, 2023. The address of Neuberger Berman Group LLC is 1290 Avenue of the Americas, New York, New York 10104.
(16)Consists of 1,119,112 shares of common stock, based solely upon information contained in a Schedule 13G/A filed by The Vanguard Group on February 9, 2023. The address of The Vanguard Group is 100 Vanguard Blvd. Malvern, PA 19355.
The Company has adopted certain policies with respect to the ownership of stock by the Board of Directors, including an Insider Trading Policy. As of August 31, 2023, to management’s knowledge, all members of our Board were in compliance with these policies.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors, and persons holding greater than 10% of our issued and outstanding stock filed all of the required reports in a timely manner during fiscal year 2023.
BOARD MATTERS AND CORPORATE GOVERNANCE
Information Regarding the Board and its Committees
The Board met six times during the fiscal year ended August 31, 2023. Each member of the Board attended 75% or more of the aggregate number of meetings of the Board and of the committees of the Board on which he or she served that were held during the period for which he or she was a director or committee member, respectively.
The Board has three committees: Audit Committee, Compensation Committee, and Nominating & Corporate Governance Committee. The following table provides information for the current membership for each of the committees of the Board:
| | | | | | | | | | | | | | | | | | | | |
| Name | | Audit Committee | | Compensation Committee | | Nominating & Corporate Governance Committee |
| Dr. John K. Paglia | | Chair | | X | | X |
| Dr. Daniel Weiner | | X | | Chair | | X |
| Dr. Lisa LaVange | | X | | X | | Chair |
| Sharlene Evans | | X | | X | | X |
Below is a description of each committee of the Board. The Board has determined that each member of each committee, and each member of the Board, except for Dr. Woltosz, is “independent” within the meaning of the applicable listing standards of the Nasdaq Stock Market, as well as applicable SEC rules and regulations, and that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment with regard to the Company.
Audit Committee
The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Exchange Act and bears direct responsibility for the appointment and termination, compensation, and oversight of the work of our independent registered public accounting firm, who reports directly to the Audit Committee. The Audit Committee operates pursuant to a charter that is available in the “Investors” section of our corporate website at www.simulations-plus.com, under “Investors – Shareholder Information.” The Audit Committee has received written disclosures and the letter from our independent registered public accounting firm pursuant to the applicable requirements of Public Company Accounting Oversight Board (“PCAOB”) regarding the independent auditor’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent accountant the independent accountant’s independence. The Audit Committee oversees cybersecurity measures, ensuring robust protection of our digital assets and information infrastructure. The Audit Committee also reviews and discusses with our management and independent registered public accounting firm the financial statements and disclosures in our quarterly financial press releases and SEC filings. Audit Committee members periodically meet separately with our management and independent registered public accounting firm to discuss issues and concerns, and the Audit Committee has established procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or audit matters, in a confidential manner.
The Board has determined that Dr. Paglia qualifies as an “audit committee financial expert” in accordance with applicable SEC rules and as “independent” under the applicable Nasdaq listing standards. For a description of Dr. Paglia’s relevant experience, please refer to Dr. Paglia’s biography set forth above in the section above entitled “Proposal No. 1: Election of Directors.”
The Audit Committee met four times during the fiscal year ended August 31, 2023.
Audit Committee members during fiscal year 2023:
Dr. John K. Paglia (Chair)
Dr. Lisa LaVange
Sharlene Evans
Dr. Daniel Weiner
Audit Committee Report
The Audit Committee oversees the Company’s financial reporting process on behalf of our Board. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2023, with management, including a discussion of any significant changes in the selection or application of accounting principles, the reasonableness of significant judgments, the clarity of disclosures in the financial statements, and the effect of any new accounting pronouncements.
The Audit Committee reviewed with RSJ, which is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards and the matters listed in PCAOB Auditing Standard No. 1301, Communications with Audit Committees. In addition, the Audit Committee has discussed with RSJ its independence from management and the Company, has received from RSJ the written disclosures and the letter required by applicable requirements of the PCAOB regarding RSJ’s communications with the Audit Committee concerning independence, and has considered the compatibility of non-audit services with the auditors’ independence.
The Audit Committee met with RSJ to discuss the overall scope of its services, the results of its audit and reviews, and the overall quality of the Company’s financial reporting. RSJ, as the Company’s independent registered public accounting firm, also periodically updates the Audit Committee about new accounting developments and their potential impact on the Company’s reporting. The Audit Committee’s meetings with RSJ were held with and without management present. The Audit Committee is not employed by the Company, nor does it provide any expert assurance or professional certification regarding the Company’s financial statements. The Audit Committee relies, without independent verification, on the accuracy and integrity of the information provided, and representations made, by management and the Company’s independent registered public accounting firm.
In reliance on the reviews and discussions referred to above, the Audit Committee has recommended to the Board that the audited financial statements of the Company be included in its Annual Report on Form 10-K for the year ended August 31, 2023 (the “Annual Report”). The Audit Committee and the Board also have recommended, subject to shareholder approval, the ratification of the appointment of RSJ as the Company’s independent registered public accounting firm for the fiscal year ending August 31, 2024.
This report of the Audit Committee is not “soliciting material,” shall not be deemed “filed” with the SEC and shall not be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (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, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
The foregoing report has been furnished by the Audit Committee.
Respectfully submitted,
The Audit Committee of the Board of Directors:
Dr. John K. Paglia (Chair)
Dr. Lisa LaVange
Dr. Daniel Weiner
Sharlene Evans
Nominating & Corporate Governance Committee
The Nominating & Corporate Governance Committee makes recommendations to the Board regarding candidates for election to the Board, as well as the composition and size of the Board and its committees and qualifications for membership. In connection with performing their duties, the members of the Nominating & Corporate Governance Committee are fully empowered to engage one or more search firms to identify potential director candidates. The Nominating & Corporate Governance Committee is also charged with recommending the appointment of new directors to our Board, committee structure and membership, director compensation, and Named Executive Officer, including Chief Executive Officer, succession planning.
The Nominating & Corporate Governance Committee provides instructions in each annual proxy statement regarding how shareholders can make director nominations. The Nominating & Corporate Governance Committee does not have a formal policy for consideration of any director candidates recommended by shareholders, including the minimum qualifications for director candidates, as, to date, the Nominating & Corporate Governance Committee has not received a recommendation from a shareholder; however, any such nomination, if received, would be considered on an equal basis with candidates identified by the Nominating & Corporate Governance Committee. The Nominating & Corporate Governance Committee has not typically used any third party to identify, evaluate, or assist in identifying and/or evaluating potential nominees and to date has not paid any fee to any third party for such services. However, at the sole discretion of the Nominating & Corporate Governance Committee, a third-party consultant may be engaged at an appropriate fee, to help evaluate such candidates for membership to the Board. The Nominating & Corporate Governance Committee operates pursuant to a charter that is available in the “Investors” section of our corporate website at www.simulations-plus.com, under “Investors – Shareholder Information.”
The Nominating & Corporate Governance Committee oversees Environmental, Social, and Governance (“ESG”) practices, fostering a commitment to sustainability and ethical standards within our organization. On October 21, 2021, the Nominating & Corporate Governance Committee approved and adopted the Simulations Plus, Inc. Guiding Principles of Corporate Governance (the “principles of corporate governance”), that applies to our Board of Directors, Audit Committee, Compensation Committee, and Nominating & Corporate Governance Committee. The principles of corporate governance are publicly available on our website at https://www.simulations-plus.com/wp-content/uploads/Principles-of-Corp-Goverance-Approved-10_21_21.pdf.
The Nominating & Corporate Governance Committee met four times during the fiscal year ended August 31, 2023.
Nominating & Corporate Governance Committee members during fiscal year 2023:
Dr. Lisa LaVange (Chair)
Dr. Daniel Weiner
Dr. John K. Paglia
Sharlene Evans
Compensation Committee
The Compensation Committee administers our executive compensation program and is responsible for establishing, implementing, and monitoring adherence to our philosophy with respect to executive compensation. The Compensation Committee is responsible for reviewing and making recommendations regarding the compensation of our Chief Executive Officer, as well as reviewing the compensation of other executive officers. The Compensation Committee serves as the administrative committee of the Company’s equity incentive plans and advises the Board on other incentive compensation plans and equity-based plans. The Compensation Committee has the sole authority to retain and terminate compensation consultants, independent legal counsel, and other advisers, and has sole authority to approve any such consultant’s and/or advisor’s fees associated with their duties. The Compensation Committee operates pursuant to a charter that is available in the “Investors” section of our corporate website at www.simulations-plus.com, under “Investors – Shareholder Information.”
The Compensation Committee met six times during the fiscal year ended August 31, 2023.
Compensation Committee members during fiscal year 2023:
Dr. Daniel Weiner (Chair)
Dr. Lisa LaVange
Sharlene Evans
Dr. John K. Paglia
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis portion contained in this Proxy Statement. Based on this review and discussion, the Compensation Committee has recommended to the Board, and the Board has agreed, that the section entitled “Compensation Discussion and Analysis” as it appears below be included in this Proxy Statement and incorporated by reference into Simulation Plus, Inc.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2023.
The foregoing report has been furnished by the Compensation Committee.
Respectfully submitted,
The Compensation Committee of the Board of Directors:
Dr. Daniel Weiner (Chair)
Dr. Lisa LaVange
Sharlene Evans
Dr. John K. Paglia
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee during fiscal 2023, or as of the date of this Proxy Statement, is or has been an officer or employee of the Company, has had any relationship with the Company required to be disclosed as a related person transaction, and none of our executive officers served on the compensation committee (or other committee serving an equivalent function) or board of any company that employed any member of our Compensation Committee or our Board during fiscal year 2023.
Board Diversity Matrix
The following diversity matrix provides information regarding the members of our Board, including certain types of knowledge, skills, experiences, and attributes possessed by one or more of our directors which our Board believes are relevant to our business and industry. The matrix does not encompass all of the knowledge, skills, experiences, or attributes of our directors, and the fact that a particular knowledge, skill, experience or attribute is not listed does not mean that a director does not possess it. In addition, the absence of a particular knowledge, skill, experience, or attribute with respect to any of our directors does not mean the director in question is unable to contribute to the decision-making process in that area. The type and degree of knowledge, skill, and experience listed below may vary among the members of the Board.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dr. Walter Woltosz | | Dr. Daniel Weiner | | Dr. John K. Paglia | | Dr. Lisa LaVange | | Sharlene Evans |
| Executive Leadership |
| CEO Experience | | X | | X | | | | | | |
| | | | | | | | | | |
| CTO/R&D Experience | | X | | X | | | | | | |
| | | | | | | | | | |
| Other C-Level Experience | | | | X | | X | | X | | X |
| Industry Background |
| Academia | | X | | X | | X | | X | | |
| Pharmaceutical/Biotech | | | | X | | | | X | | X |
| Pharma Services/Technology | | X | | X | | | | X | | |
| Technology (IT/Software/Cybersecurity) | | X | | | | | | | | |
| Knowledge, Skills and Experience |
| Accounting and Financial Audit | | X | | X | | X | | X | | X |
| Corporate Governance/Ethics | | X | | X | | X | | X | | X |
| Cybersecurity | | X | | X | | X | | X | | X |
| Finance/Financial Literacy | | X | | X | | X | | X | | X |
| Human Capital Management | | X | | X | | X | | X | | X |
| Investor Relations | | X | | X | | X | | X | | X |
| Marketing | | X | | X | | X | | X | | X |
| Mergers & Acquisitions | | X | | X | | X | | X | | X |
| Operations | | X | | X | | X | | X | | X |
| Public Company Board | | X | | X | | X | | X | | X |
| Sales | | X | | X | | X | | X | | X |
| Scientific Consulting | | X | | X | | X | | X | | X |
| Strategy and Strategic Planning | | X | | X | | X | | X | | X |
| Demographics |
| Race/Ethnicity |
| African American | | | | | | | | | | X |
| Asian/Pacific Islander | | | | | | | | | | |
| White/Caucasian | | X | | X | | X | | X | | |
| Hispanic/Latino | | | | | | | | | | |
| Native American | | | | | | | | | | |
| Gender |
| Male | | X | | X | | X | | | | |
| Female | | | | | | | | X | | X |
| Board Tenure |
| Years | | 27 | | 6 | | 9 | | 4 | | 2 |
Key Metrics of our Directors are as follows:
•Average age is 67.
•40% of non-employee Directors have been on the Board for less than six years.
•40% are women.
•20% are racially/ethnically diverse.
Board, Committee, and Director Evaluations
During fiscal year 2023, the Nominating & Corporate Governance Committee engaged a third-party service to carry out a board evaluation process. The evaluation process was designed to facilitate ongoing, systematic examination of the Board’s effectiveness and accountability, and to identify opportunities for improving its operations and procedures. The 2023 board evaluation process included the following:
•Board assessment: Each director completed a questionnaire assessing the performance of the Board in overseeing strategy and relationship management; succession planning and human capital management; ethics, risk, financial monitoring and crisis control; and performance and compensation, as well as the effectiveness of Board processes.
•Committee assessments: Each of the three Board Committees was also evaluated. Each member of each committee completed a questionnaire assessing the committee’s effectiveness, composition, culture, and administration.
•Director skills self-assessment: Additionally, each director independently completed a skills self-assessment.
The Board views this evaluation process as a means of increasing shareholder value by enhancing the Board’s contributions to the Company.
Board Leadership Structure
The Company’s Chairman of the Board served as Chief Executive Officer until June 26, 2018. Our current Chief Executive Officer and Chairman roles are separate.
The Company’s Corporate Governance Guidelines provide the Board with flexibility to determine the appropriate Board leadership structure at any time. The Nominating & Corporate Governance Committee (consisting entirely of independent directors) regularly reviews the leadership structure, and considers many factors, including the specific needs of the Company, corporate governance best practices, shareholder feedback, and succession planning, as we believe that different structures may be appropriate in different circumstances. Effective October 20, 2022, at the Nominating & Corporate Governance Committee’s recommendation and after the Board’s thorough and thoughtful considerations, the Board appointed Dr. Daniel Weiner as the Board’s Lead Independent Director. We believe our leadership structure is appropriate for the size and scope of operations of a company of our size.
Lead Independent Director Responsibilities
The responsibilities of the Lead Independent Director include, without limitation:
•Presiding at Board meetings at which the Chairman is not present;
•Serving as a liaison between the Chairman and the independent directors, as needed;
•Working with the Compensation Committee Chair to perform the Board’s annual evaluation of the CEO; and
•Having the authority to call meetings of the independent directors.
Board’s Role in Risk Management
The Board is responsible for oversight of risks facing the Company, while our management is responsible for day-to-day management of risk. The Board satisfies this responsibility through reporting by each committee regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company. The Board as a whole directly oversees our strategic and business risk, including, but not limited to, risks related to the following:
•accounting and financial reporting, internal controls and financial statement audits, compliance with legal and regulatory requirements
•compensation practices and management succession planning
•board composition
•product developments
•diversity, equity, and inclusion (“DEI”)
•information technology and cybersecurity
•corporate social responsibility (“CSR”)
•ESG, including climate risks and human rights
The Board as a whole is responsible for risk oversight. Our Chief Executive Officer and executive team are responsible for assessing and managing risks facing the Company day-to-day, with members of the Board providing oversight of such risk management.
The Board is committed to understanding, monitoring, and managing ESG factors to support the Company’s sustainable growth. The Board, through its Nominating & Corporate Governance Committee, reviews the overall adequacy of, and provides oversight with respect to, the Company’s DEI, CSR, and ESG strategies, initiatives, and policies, including communications with employees, investors, and other stakeholders of the Company with respect to such matters. The Nominating & Corporate Governance Committee periodically provides reports to the Board on DEI, CSR, and ESG matters. Additionally, the Company has formed an ESG Steering Committee, which is chaired by the Chief Financial Officer and comprised of representatives from multiple departments. The ESG Steering Committee is designed to identify and implement desired changes in the Company’s ESG practices and to monitor global developments in each ESG pillar.
Environmental, Social, Governance
We are committed to providing consistent and excellent return to our shareholders, all while maintaining a strong sense of good corporate citizenship that places a high value on the welfare of our employees, the communities in which we operate, and the world as a whole. We believe that effectively prioritizing and managing our ESG factors will help create long-term value for our investors. We also believe that transparently disclosing the goals and relevant metrics related to our ESG programs will allow our stakeholders to be informed about our progress.
The topics covered in this section are identified through third-party ESG reporting frameworks, standards and metrics, such as the Sustainability Accounting Standards Board (“SASB”), and United Nations Sustainable Development Goals (“SDGs”). More information regarding our key ESG programs, goals and commitments, and key metrics can be found on our website and within our 2022 ESG Update and 2020 ESG Report.
Our ESG highlights include the following:
Environmental Matters
We participate in a recycling program through our local waste management facilities to divert all recyclable materials – bottles, cans, plastics, paper, and cardboard – from landfills. Across the Company, our facilities provide for recycling, and our electronic waste is sent to local approved e-waste recycling centers. We have achieved 90% reduction in energy usage for data center cooling. We have implemented a policy of using exclusively IT hardware vendors that embrace environmental sustainability. We are continuing with the commitment to work-from-home, with 74% employees working remotely.
Greenhouse gas (“GHG”) emission:
Our purpose is to calculate the GHG emissions for better visibility of environmental impact. We have identified our base year to calculate emissions inventory for the year ended August 31, 2023. We have used the control approach to identify and determine the organizational boundaries. Our U.S.A. offices are in Pittsburgh-PA with 7,141 square feet of leased office space, Lancaster-CA with 4,200 square feet of leased office space, Buffalo-NY with 4,317 square feet of leased office space, and Raleigh-NC with 1,510 square feet of leased office space. Our Data Center is located in Buffalo-NY. We lease 2,300 square feet of office space in Paris, France. Currently, we have identified our U.S.A. offices, including our data center, for calculating GHG emissions.
Scope:
Scope 1: Scope 1 emissions are direct GHG emissions that occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles).
Scope 1 is not applicable to our organization as we do not own or control any sources that produce direct GHG emissions.
Scope 2: The Scope 2 Guidance standardizes how corporations measure emissions from purchased or acquired electricity, steam, heat, and cooling (called “scope 2 emissions”).
We have identified electricity as our source of GHG emissions.
Scope 3: Scope 3 encompasses emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by them, but by those that it’s indirectly responsible for up and down its value chain. An example of this is when we buy, use and dispose of products from suppliers. Scope 3 emissions include all sources not within the scope 1 and 2 boundaries.
We believe that we do not produce GHG emissions that fall within Scope 3.
We have identified and determined our source of emission is the electricity usage at facilities referenced within organizational boundaries in the U.S.A. We have used the EPA Simplified GHG Emissions Calculator (“SGEC”) for calculating the GHG emission. For the year ended August 31, 2023, using the SGEC calculator, the total CO2 equivalent GHG emissions is 470.6 metric tons. Our operations are built on continual improvements in efficiency and clean energy.
We are attentive to energy use in our office operations and strive to only use what is necessary for business purposes. In fiscal 2023, we reduced the footprint of our US-based facilities by 35%, decreasing it from 19,300 square feet to 12,400 square feet. We also implemented LearnUpon LMS and Adobe e-signature to reduce travel for in-person training and the need for printed materials, with virtual on-demand programs using only digital materials.
We believe we are in compliance in all material respects with all applicable environmental laws. Presently, we do not anticipate that such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any of our operations.
Social Impact and Supporting our Communities
•Our support for the academic community is broad and deep. We provide certain distinguished professors at academic institutions with free reference site licenses for nonprofit research and teaching, including providing free access to our software in university instruction. In addition to reference site licenses, academic and research institutions are entitled to a 95% discount off commercial license fees, and we offer students and professors either free or substantially reduced fees to attend our training courses and workshops. In recent years, we have sponsored several students with awards given by the Society of Toxicology. In fiscal year 2023, we expanded our University+ program to provide 307 free software licenses to recipients in 51 different countries to further promote education in our industry and support the next generation of scientists.
•We provide sponsorships to numerous conferences, symposia, and associations such as the American Conference on Pharmacometrics (“ACoP”), American Association of Pharmaceutical Scientists (“AAPS”), American Chemical Society (“ACS”), Controlled Release Society (“CRS”), Groupe de Métabolisme et Pharmacocinétique (“GMP”), and the Gordon Research Conferences.
•We encourage employees to volunteer in their local communities, and we offer our employees the flexibility they need to participate, from sponsoring and participating in charity golf tournaments to volunteering to serve hot meals to the disadvantaged. In recent years, we have joined the global GivingTuesday movement and donated food, clothing, and financial support to several organizations that serve those in need in our communities.
•We focus on maintaining policies that support our social commitments worldwide. During fiscal year 2023, we updated our Company privacy policy and processes in the Personal Data Protection (“PDP”) Program to reflect changes to global personal data protection laws and we developed and implemented a Human Rights Policy to support our Company commitment to all basic human rights around the globe.
Our People
•Our commitment to our people lies in our continued efforts to support and value our most important asset, our employees.
•We conducted an employee engagement survey and received over 80% engagement to ensure culture alignment and success of internal programs and to further support their needs.
•We established a paid parental leave program to support working parents and implemented a new recognition system to encourage peer-to-peer and leader-to-employee recognition.
•We implemented a program to ensure that all our employees have the opportunity to attend in-person employee events to collaborate face to face with their colleagues around the globe.
•We added additional supplemental benefits to our health benefit offerings and increased our focus on physical and mental wellness with all our teams through an online wellness challenge hosted by the Company.
•We continue to engage with our employees and listen to their feedback in order to work toward building a culture of trust, collaboration, and transparency.
Customer Privacy & Data Security
•We value customer privacy, and we only collect data as needed to deliver company information, software products, and consulting services. Our website includes our comprehensive Privacy Policy, which details what and how data are collected, how data are used and stored, and the options for controlling personal data, including opting out, accessing, updating, or deleting it.
•In recognition of the critical importance of Data Security to our operations, including Cybersecurity, Personal Data Protection, and Customer Privacy, our leadership team conducts a thorough examination of all elements of Data Security. Our objective is to ensure the security, confidentiality, and privacy of our systems and information assets, and to follow and be compliant with all relevant laws, regulations, and guidelines, including, but not limited to:
◦U.S. and State Data Privacy Laws, including without limitation the California Consumer Privacy Act of 2018 (“CCPA”) and the California Privacy Rights Act (“CPRA”)
◦The EU’s General Data Protection Regulation (“GDPR”)
◦Pharmaceutical Good Practice Quality Guidelines, including FDA 21 CFR Part 11
◦The Sarbanes-Oxley Act
◦The Personal Information Protection Law of the People’s Republic of China (“PIPL”)
•Our IT department provides consistency, efficiency, and functional IT support across the entire company. The IT department is responsible for centralizing data processing, storage, and backup capabilities at each of our geographical locations. The IT department is also responsible for ensuring that corporate IT policies are aligned and compliant with all applicable regulatory provisions and current best practices.
•We have appointed VeraSafe as our Data Protection Officer (“DPO”). The DPO is responsible for ensuring that we have a Personal Data Protection program that is compliant with data privacy laws such as the EU’s GDPR, UK GDPR, China’s PIPL, the CCPA and CPRA and other data privacy laws enacted at the state level, as applicable to us. Our corporate Personal Data Protection program includes policies, practices, and training directed to protecting personal data. More information about the data we collect, how we use it, and how we protect it is publicly available on our website at https://www.simulations-plus.com/privacy-notice.
Business Ethics
•From the Company’s inception, we have placed the highest emphasis on conducting our business with honesty and integrity. The highest ethical standards are expected of management and employees alike, and we continuously strive to create a corporate culture of honesty, integrity, and trust. Throughout our operations and in our dealings with our stakeholders, we endeavor to engender the confidence that the Company’s conduct is beyond reproach.
•The policies we have developed are intended to:
◦Define and disseminate our core values and the legal requirements applicable to good business conduct and ethical behavior
◦Offer guidance in understanding Company policies, interpreting laws, and handling Company-related issues and situations
◦Foster clear, ethical behaviors and conduct to create an atmosphere of respect, trust, cooperation, and collaboration throughout the Company and its activities
◦Provide clear and well-defined procedures by which employees can easily obtain information, ask questions, and, if necessary, report any suspected violations of our Code of Conduct and any of our other policies
•In addition to abiding by all applicable laws, all management and employees are required to comply fully with our Code of Conduct, which sets forth the Company’s values, business culture, and practices. The Code of Conduct also governs conduct between our employees and our customers and vendors with whom we do business. Because many of our customers are companies in the pharmaceutical and biotech industries, we have incorporated in our Code of Conduct the principles of the Pharmaceutical Supply Chain Initiative, including Leadership, Partnering, Presence, Consistency & Quality, Learning, and Innovation & Discovery.
Human Rights
•The Company was founded on the belief that our software technologies could lead to important advances in healthcare, thereby improving patient outcomes, advancing and improving global health, and bettering the lives of humankind. This objective cannot be accomplished without a commitment to human rights, and we are committed to ensuring that, in our day-to-day business practices, in our business relationships, and in matters of employment, we will uphold our own principles as delineated in our Code of Conduct. Furthermore, we support the principles set forth in the United Nations International Bill of Human Rights, specifically the Universal Declaration of Human Rights, and the ILO Declaration on Fundamental Principles and Rights at Work and have a written Human Rights Policy to uphold these commitments. As we evolve this policy, we will look to the UN Guiding Principles on Business and Human Rights (“UNGPs”) for guidance.
Governance
•We are committed to ensuring strong corporate governance practices on behalf of our shareholders and other stakeholders. We believe strong corporate governance provides the foundation for financial integrity and shareholder confidence. Our Board is responsible for the oversight of risks facing the Company, while our management is responsible for the day-to-day management of risk. The Board has three committees: Audit Committee, Compensation Committee, and Nominating & Corporate Governance Committee. The Board, as a whole, directly oversees our strategic and business risk, including risks related to financial reporting, compensation practices, cybersecurity, ESG, and product developments. In addition, all our employees, contractors, and vendors are required to follow our Code of Conduct as a part of our good governance practice. Our ESG steering committee oversees and executes matters related to ESG.
Human Capital Resources
We are committed to our people, and we embrace a culture of engagement, empowerment, and equity. Over 95% of our global employees are employed full-time, and more than 75% work within our life sciences software or consulting business units. Given the specialized nature of our business, candidates for our open positions are strategically selected for their unique education and skills. The majority of our employees have advanced degrees, with over 70% of our technical and scientific staff holding a doctoral degrees in mathematics, chemistry, biomedical engineering, and/or the pharmaceutical sciences.
As of August 31, 2023, we employed a total of 197 persons, including 192 full-time employees and 5 part-time employees. Our staff consisted of 132 in scientific, technical, and research and development roles, 21 in business unit operations, administration, and business development roles, 19 in sales and marketing roles, and 25 in corporate general and administration roles.
We believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. To continue to support the endeavor, we have focused heavily on our total rewards program, which includes components of compensation, training, time off, recognition, and support for business travel. At the end of fiscal year 2023, we were recognized by Comparably for several workplace accolades including Best Company for Happiness, Best Company for Compensation, Best Company for Perks, Best Company for Women, A+ culture rating and A+ Diversity rating. We continue to seek additions to our science and technical staff, although the competition for such personnel in the pharmaceutical industry is intense. We added 19 new scientists via direct recruiting and 19 scientific and technical staff with the acquisition of Immunetrics, Inc. this past year. We also achieved a turnover rate of under 8%. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are good, as we just received the Best Company for Happiness award from Comparably based on our own employees reviews of their work experience.
Diversity, Equity, and Inclusion
We embrace diversity and equity with the belief it can lead to greater innovation, and in our workplace, we foster inclusion, so all employees feel they are a part of our team with equal access to all opportunities. We have made significant progress on our diversity, equity, and inclusion efforts. In terms of gender equity, women currently comprise 48% of our workforce and 52% of our scientific staff. We have also increased racial diversity with over 39% of our employees from minority backgrounds. We implemented the ADP Workforce Now® talent platform, which allows us to access and better understand trends in our staff and hiring relative to diversity. We are utilizing the recruitment platform to track our applicants and push job postings out to reach as many diverse applicants as possible.
Compensation, Training, and Awareness Programs
We are continuing to refine career paths for the different functions within our organization. We use these career paths as a basis for promoting employee career development and growth within the organization, as well as in recruiting and hiring new talent. We have continued the effort to provide top tier benefits and in fiscal year 2023, we added a new parental leave program, allowing all of our employees to take company paid time off after a birth or adoption.
Over the past two years, we have focused on mandated compliance, soft-skill and data privacy training. In the coming year, we are rolling out an education and training reimbursement program that will allow all employees access to Company-paid technical, leadership or skills training opportunities.
In addition to these new employee training and development initiatives, we have an ongoing program of cross-specialty training, consisting of presentations by expert modelers from each business unit. These monthly sessions serve to familiarize all business units with the applications and techniques unique to each business unit and, in so doing, create opportunities to find synergies, expand the knowledge base across all business units, and build a shared sense of purpose.
Health & Safety
We place a high value on maintaining a clean, safe, and healthy environment for our employees. In fiscal year 2023, we implemented a new Human Rights Policy confirming our commitment to basic human rights worldwide. We also updated our Code of Conduct to ensure we require our employees and vendors work within our established principals of ethics.
The well-being of our employees, whether they are working in our offices or remotely from home offices, is paramount. We believe that we are substantially in compliance with all applicable laws, regulations, and standards, and we make every reasonable effort to be attentive and responsive to our employees’ needs. In our offices, we have provided employees with ergonomic equipment, including ergonomic chairs and standing desks, and for their home offices, we provide an allowance for the purchase of home office equipment. We continue to provide very competitive health and wellness benefits, and in 2023, we ran a wellness challenge that had monetary incentives to encourage a healthy and less sedentary lifestyle.
We also consider open and transparent channels of communication to be a critical component of our employee health and wellness program. Toward this end, on a quarterly basis, we hold a company-wide virtual meeting to keep our employees engaged, informed, and apprised of activities occurring at the company and at each business unit, including quarterly financial results, future goals, and notable milestones.
Shareholder Communications with the Board
We have not adopted a formal process for shareholder communications with the Board. However, any shareholder comments and communications received by the Company are forwarded to the Board or the Nominating and Corporate Governance Committee Chair, as applicable, and appropriate responses are provided to shareholders in a timely manner. We believe that these informal communication efforts have proven effective and obviate the need for any formal process. Although we do not have a formal policy, members of the Board are encouraged to attend annual meetings of our shareholders. All except one of our directors attended the annual meeting of shareholders held in February 2023.
Code of Conduct
The Company has adopted a Code of Conduct that applies to our directors, officers, and employees that is available in the “Investors” section of our corporate website at www.simulations-plus.com under “Investors – Shareholder Information.”
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Persons.
We have not entered into any transactions with any of our directors, nominees for director, officers, or principal shareholders, nor any associate or affiliate of the foregoing, and we are not currently considering any proposed transactions with such related persons in which we are, or plan to be, a participant and the amount involved exceeds $120,000 at the end of fiscal year 2023, and in which any such related person had or will have a direct or indirect material interest.
Review, Approval, or Ratification of Transactions with Related Persons.
We have not adopted any formal procedures for the review or ratification, or standards for approval, of related-party transactions, but instead review such transactions on a case-by-case basis.
Interest of Certain Persons in Matters to be Acted Upon
Other than with respect to the election of directors and to the extent that they are, or may in the future be, granted awards under our 2021 Plan, none of our directors, nominees for director, executive officers, any person who has served as a director or executive officer since the beginning of the last fiscal year, or their associates have any interest, direct or indirect, by security holdings or otherwise, in any of the matters to be acted upon at the Meeting as described in this Proxy Statement.
DIRECTOR COMPENSATION
Non-Employee Director Compensation Policy
Our Board has adopted a non-employee director compensation policy that is designed to provide a total compensation package that enables us to attract and retain, on a long-term basis, high caliber non-employee directors.
We also reimburse our directors for reasonable out-of-pocket expenses in connection with the attendance at the Board and committee meetings. Mileage expense to attend meetings is reimbursed at the Internal Revenue Service defined rate for business use.
During fiscal year 2023, the Company’s non-executive directors were entitled to receive the following compensation for services rendered to the Company:
Each non-executive director was entitled to $165,000 in compensation annually, of which $120,000 was in the form of stock grants and $45,000 was in the form of a cash stipend. Members of the Board’s committees were also entitled to receive an additional cash stipend of $7,500 for each committee they were a member of, which was paid on a quarterly basis.
The Company also paid an additional annual cash stipend to each of the chairs of the Board’s committees, as follows:
•Board Chair, $35,000
•Audit Committee Chair, $20,000
•Compensation Committee Chair, $15,000
•Nominating & Corporate Governance Committee Chair, $10,000
On October 19, 2023, the Compensation Committee conducted an annual review of director compensation. Following such review and at the Compensation Committee’s recommendation, the Board made no changes to the compensation of the Company’s non-executive directors, as set forth above, for fiscal 2024.
To further align the interests of our directors with the interests of our shareholders, in October 2022 the Board adopted equity ownership guidelines applicable to our directors. These guidelines require directors to own three times the annual cash retainer within five years of appointment to the Board. The Board has the full power to administer and interpret the equity ownership guidelines.
In calculating equity ownership level, the following shares and equity rights shall be included: outstanding shares of common stock that are not pledged, vested in-the-money stock options, and any other vested equity grants or account balances under the Company’s equity incentive plans.
The ownership requirement will be measured for each director as of August 31st of each year. Our current directors are required to achieve the applicable ownership requirement by August 31, 2027. Following the conclusion of a phase-in period applicable to a director, in the event that such individual does not satisfy the ownership requirement as of any measurement date, the Board may implement such conditions, restrictions or limitations on such individual as the Board determines to be necessary or appropriate in order to achieve the purpose of the guidelines.
Director Compensation Table
The table below shows all compensation awarded to, earned by or paid to our non-employee directors during the fiscal year 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Director | | Fees earned or paid in cash ($) | | Option Awards ($) | | Stock Awards ($) | | All other compensation ($) | | Total ($) |
| | (a) | | (b) (c) | | (d) | | | | |
| Dr. Walter Woltosz | | 80,000 | | — | | 119,986 | | — | | 199,986 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Dr. John K. Paglia | | 80,000 | | — | | 119,986 | | — | | 199,986 |
| | | | | | | | | | |
| Dr. Daniel Weiner | | 80,000 | | — | | 119,986 | | — | | 199,986 |
| | | | | | | | | | |
| Dr. Lisa LaVange | | 70,000 | | — | | 119,986 | | — | | 189,986 |
| | | | | | | | | | |
| Sharlene Evans | | 67,500 | | — | | 119,986 | | — | | 187,486 |
__________________
(a)Represents annual stipend and per meeting fees described above.
(b)No options were awarded to our non-employee directors during fiscal year 2023.
(c)As of August 31, 2023, the aggregate number of shares subject to outstanding stock options and stock awards held by each of our non-employee directors was as follows:
| | | | | | | | | | | | | | |
| Director | | Number of Shares Subject to Option Awards | | Number of Shares Subject to Stock Awards |
| Dr. Walter Woltosz | | 5,000 | | | — | |
| Dr. John K. Paglia | | 11,000 | | | — | |
| Dr. Daniel Weiner | | 11,000 | | | — | |
| Dr. Lisa LaVange | | 9,000 | | | — | |
| Sharlene Evans | | — | | | — | |
(d)Stock grants issued to our independent directors as compensation, as described above.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
At the beginning of fiscal year 2024, in order to create a more integrated and cohesive company, we reorganized our internal structuring to move away from divisions based on our prior acquisitions and to instead divide the internal structure into business units organized around key product and service offerings that we provide. Our business units now include the following:
•Clinical Pharmacology and Pharmacometrics (“CPP”)
•Quantitative Systems Pharmacology (“QSP”)
•Physiologically-based pharmacokinetics (“PBPK”)
•Cheminformatics
•Regulatory Strategies
In connection with the internal reorganization, the titles of certain of our team leaders changed to reflect the new structure, as discussed further below.
Executive Officers
The following table sets forth the names, ages, and positions of our executive officers as of December 22, 2023. There are no arrangements, agreements, or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs. There are no arrangements or understandings between any executive officer and any other person pursuant to which any executive officer was or is to be selected as an executive officer, as applicable. There currently are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our executive officers.
| | | | | | | | | | | | | | | | | | | | |
| NAME | | AGE | | POSITIONS WITH THE COMPANY | | OFFICER SINCE |
| Shawn O’Connor | | 64 | | Chief Executive Officer | | 2018 |
| Will Frederick | | 60 | | Chief Financial Officer | | 2020 |
| John A. DiBella | | 44 | | President, PBPK / Regulatory Strategies / Cheminformatics Solutions | | 2012 |
| Jill Fiedler-Kelly | | 55 | | President, Clinical Pharmacology & Pharmacometric Services | | 2021 |
| Dr. Brett Howell | | 40 | | President, Quantitative Systems Pharmacology Solutions | | 2021 |
Set forth below is biographical information regarding each of our executive officers.
SHAWN O’CONNOR joined the Company in June 2018 as our Chief Executive Officer. Mr. O’Connor has more than 30 years of experience in high technology executive management. From 2011 to 2018, Mr. O’Connor was Chief Executive Officer, President, and a director of Entelos Holding Corp., a provider of unique quantitative systems pharmacology software and services to the pharmaceutical drug development market. From 2002 to 2009, Mr. O’Connor served as Chief Executive Officer, President, and Chairman of Pharsight Corporation, a developer and marketer of software products and services that help pharmaceutical and biotechnology companies improve their decision-making in drug development and commercialization. From 1995 to 2000, Mr. O’Connor was with QRS Corporation in various positions including Chief Financial Officer and President and Chief Operating Officer. From 1988 to 1994, Mr. O’Connor was with Diasonics, Inc., serving in various positions including Chief Financial Officer. Mr. O’Connor earned a Bachelor of Science in business administration from the University of California at Berkeley and completed the Executive Education Program at Stanford University Graduate School of Business.
WILL FREDERICK joined the Company in December 2020 as Chief Financial Officer and Secretary of the Company. Mr. Frederick brings more than 25 years of financial leadership experience to the Company. He has a proven track record of developing and implementing strategies to drive revenue growth, increase profitability, managing merger and acquisition activities, and achieving corporate objectives. He has global experience with both publicly traded and privately held companies including Entelos Holding Corp., Avaya, Pharsight Corporation, The Walt Disney Company, and Ford Motor Company, amongst others. Prior to joining the Company, from 2015 to 2020, Mr. Frederick served as President and Managing Director of RightPlace Enterprises, providing C-Suite level strategic and financial consulting services to multiple companies. He served as Interim Chief Financial Officer at Sysorex Global Holdings Corp. from October 2014 to January 2015. He served as Chief Financial Officer at Neural ID LLC from April 2014 to September 2014. He served as Chief Financial Officer of Entelos Holding Corp. from January 2012 to January 2014, at which time it was acquired by Rosa & Co. Mr. Frederick holds an M.B.A degree from California State University at Long Beach and a B.A. degree in Finance from California State University at Fullerton.
JOHN DIBELLA joined the Company in June 2003 as a Modeling & Simulations Scientist, initially spending time working on the development of the GastroPlus® and DDDPlus™ software platforms, as well as serving as a technical lead on consulting projects for sponsor companies. In 2005, Mr. DiBella moved to the Marketing and Sales Department, and worked as a Field Scientist, where he eventually took over the Marketing and Sales Department and worked as Director until February 2012. Mr. DiBella was appointed Vice President of Marketing and Sales of the Company in March 2012. In September 2017, Mr. DiBella was appointed President of the Simulations Plus Division, and in connection with the Company’s internal reorganization, his title was changed to Business Unit President of PBPK, Regulatory Strategies, and Cheminformatics Solutions. Mr. DiBella leads our strategic efforts, hosts workshops and presents at conferences globally. Mr. DiBella holds B.S. and Master’s degrees in biomedical engineering from Case Western Reserve University.
JILL FIEDLER-KELLY joined the Company in September 2014 with the acquisition of Cognigen Corporation (“Cognigen”), where she had served as the Vice President of Pharmacometric Services and Chief Scientific Officer for over 20 years, since cofounding the company in 1992. In this role, she was primarily responsible for leading the scientific consulting group, ensuring the quality of deliverables and representing the Company to new clients. Ms. Fiedler-Kelly is an Adjunct Professor in the Department of Pharmaceutical Sciences at the University at Buffalo and was named a Fellow of the International Society of Pharmacometrics in 2016. In October 2019, she was appointed President of Cognigen, which was merged into the Company in September 2021 and became a division of Simulations Plus. In connection with the Company’s internal reorganization, Ms. Fiedler-Kelly was appointed Business Unit President of CPP Services . Ms. Fiedler-Kelly brings approximately 30 years of experience in the implementation of population PK/PD modeling and simulation in drug development. She has also published numerous scientific papers in peer-reviewed journals, has presented at national and international symposia, and has held leadership positions in organizations such as the East Coast Population Analysis Group, the Population PK/PD Focus Group of the American Association of Pharmaceutical Scientists, and on the ASCPT Board of Directors. She holds a B.A. degree in Statistics from the University at Buffalo and an M.S. in Applied and Mathematical Statistics from the Rochester Institute of Technology.
DR. BRETT HOWELL joined the Company in June 2017 as the President of DILIsym, which was merged into the Company in September 2021 and became a division of Simulations Plus, Inc. He served as Chief Executive Officer of DILIsym from July 2015 until the Company acquired it in June 2017. He has also served as an associate director of the DILI-sim Initiative since its inception in 2011. In connection with the Company’s internal reorganization, Dr. Howell was appointed Business Unit President of QSP Solutions. Dr. Howell focuses on company management and operations, sales and marketing, and product design, and helps guide the architecture and consulting use of various QST platforms such as DILIsym and RENAsym. From January 2010 to December 2015, Dr. Howell held various roles at the Hamner Institute for Health Sciences. Dr. Howell has published over 35 scientific papers in the areas of PBPK/PD modeling, in vitro toxicity testing, novel drug delivery systems, and drug safety. He has given invited scientific presentations at numerous national and international meetings, including the Society of Toxicology annual meeting, the Japanese Society of Toxicology annual meeting, the annual FDA/AASLD Drug-Induced Liver Injury meeting, and the American Conference on Pharmacometrics (“ACOP”) annual meeting. He serves on the editorial board for the prominent Quantitative Systems Pharmacology (“QSP”) journal, “CPT: Pharmacometrics & Systems Pharmacology,” published by the American Society for Clinical Pharmacology and Therapeutics. Dr. Howell holds a Ph.D. in chemical engineering from the University of Florida and Bachelor of Science degrees in chemical engineering and textile engineering from North Carolina State University.
Compensation Discussion and Analysis
The purpose of our compensation program is to attract and retain talented and dedicated professionals to manage and execute our strategic plans and tactical operations.
The goal of our Named Executive Officer compensation program is the same as our goal for operating our business - to create long-term value for our shareholders. Toward this goal, we have designed and implemented our compensation programs for our Named Executive Officers to reward them for sustained financial and operating performance and leadership excellence, to align their interests with those of our shareholders, and to encourage them to remain with the Company for long and productive careers. Most of our compensation elements simultaneously fulfill one or more of our performance, alignment, and retention objectives. These elements consist of salary and annual bonus, equity incentive compensation, and 401(k) matching retirement benefits. In determining the type and amount of compensation for each Named Executive Officer, we focus on both current pay and the opportunity for future compensation. We combine the compensation elements for each Named Executive Officer in a manner we believe optimizes the Named Executive Officer’s contribution to the Company.
The Company employs performance metrics that compare our cumulative shareholder return on our common stock, assuming reinvestment of dividends to the extent there are any distributed during the period, relative to the Russell 3000 index (“Russell 3000”), with companies listed on the Nasdaq Composite – Total Returns (“IXIC”) and the S&P 600 Health Care Equipment and Services Industry Group Index (“SP600-3510”). See our Annual Report on Form 10-K filed on October 27, 2023, for details.
Determining Compensation
We rely on the judgement of our Compensation Committee and our Board in making compensation decisions, after reviewing the performance of the Company and carefully evaluating an executive’s performance during the year against established goals, leadership qualities, operational performance, business responsibilities, career with the Company, current compensation arrangements, and long-term potential to enhance shareholder value.
There is currently no equity ownership requirement in place for our Named Executive Officers.
The compensation of our Chief Executive Officer (“CEO”) is determined by the Compensation Committee. The salaries of all other officers are determined by the CEO and the Compensation Committee together. Option grants for all officers other than our CEO are recommended by the CEO and approved by the Compensation Committee and our Board. In fiscal year 2022, the Company engaged an external compensation consultant, Arthur J. Gallagher & Co. (“Gallagher”), to benchmark the Company’s executive compensation against a comparable peer group. The results of this compensation study provided a useful reference point in the Compensation Committee’s efforts to appropriately align target executive compensation to that of our peers, which affords our Named Executive Officers the opportunity to earn above-target levels of compensation for exceptional performance that could be expected to increase value for shareholders, while providing that they would earn less than targeted compensation if the Company’s performance failed to meet expectations.
After consideration of Gallagher’s recommendations related to executive compensation in fiscal 2022, amongst other things, the Compensation Committee determined that for fiscal 2023, 80%, or $297,000, of the CEO’s target bonus was tied to Company performance and 20%, or $74,250, of the CEO’s target bonus was tied to individual performance. The breakdown of the applicable performance metrics for fiscal 2023 are as follows:
Company Performance Metrics
For each annual fiscal period, the Compensation Committee reviews and approves, among other financial metrics, the budgeted amount for revenue and net income. The Company considers these to be its most important metrics to evaluate the Company’s performance toward increasing shareholder value. Accordingly, the portion of the CEO’s bonus tied to Company performance was based on revenue and net income for fiscal 2023. Each performance metric had equal weight of 50%. No performance bonus was to be paid to the CEO with respect to a particular performance metric if the actual results of that performance metric were below 80% of the budgeted amount for that performance metric (the “Minimum Payout Targets”). No additional performance bonus was to be paid to the CEO with respect to a particular performance metric to the extent that actual results of that performance metric exceeded 120% of the budgeted amount for that performance metric (the “Maximum Payout Targets”). The actual payout to the CEO when the Company achieves performance between the Minimum and Maximum Payout Targets is based on linear interpolation. The effect of any acquisitions during the fiscal year was removed from the actual results of each performance metric for purposes of determining the CEO’s performance bonus.
Individual Performance Metrics
Of the 20% of the CEO’s target bonus tied to individual performance in fiscal 2023, 10% was to be paid for the achievement of the identification of a suitable acquisition target and obtaining a signed indication of interest or legal agreement, and 10% was to be paid for the achievement of three management team development objectives, with equal weight (or 3.33% of the total bonus target) attributable to each of the three objectives. The first objective was to provide a memo to the Nominating & Corporate Governance Committee with recommendations for the Company’s succession plan, which was to include existing personnel staff replacements for each executive position, recommended training and development for such existing personnel staff replacements, and any additional hiring needed. The second objective was to further the Company’s progress towards strengthening its commitment to human rights, health and safety, and sustainability to achieve meaningful progress across critical ESG pillars. The third objective related to a leadership assessment of the CEO performed by the CEO’s direct reports, the Board, and any other individuals at the discretion of the Board.
The Compensation Committee determined that for fiscal 2024, 80%, or $308,880, of the CEO’s target bonus will be tied to Company performance, as measured by revenue and net income, and 20%, or $77,220, of the CEO’s target bonus will be tied to individual performance, as measured by four equally weighted criteria specified by the Compensation Committee.
Clawback Policy
In October 2023, we adopted a compensation recovery policy (the “Clawback Policy”) that is designed to comply with, and will be interpreted in a manner consistent with, Section 10D and Rule 10D-1 of the Exchange Act and the applicable rules of the Nasdaq Stock Market, including any interpretive guidance provided by Nasdaq. Under our Clawback Policy, in the event of an accounting restatement due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct a material error in previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the Company must recover erroneously awarded incentive-based compensation previously paid to the Company’s executive officers in accordance with the terms of such Clawback Policy. Furthermore, under the Clawback Policy, the Company is prohibited from indemnifying any executive officer or former executive officer against the loss of erroneously awarded incentive-based compensation and from paying or reimbursing an executive officer for purchasing insurance to cover any such loss.
Consideration of Shareholder Advisory Vote on Executive Compensation
Our Compensation Committee and our Board strive to ensure our executive compensation program for our named executive officers aligns with the interests of our shareholders. At our annual meeting of shareholders held on February 9, 2023, 95.0% of the shares voted (excluding broker non-votes) on the shareholder advisory vote on the executive compensation proposal voted for approval of the compensation provided to our named executive officers in fiscal 2022, as disclosed in the proxy statement that we filed in connection with such meeting. Although this advisory vote is not binding on our Compensation Committee, the Compensation Committee considers this result to be supportive of the Company’s executive compensation programs and policies, and takes into account that support in reviewing those programs and policies.
Risk Assessment
The Compensation Committee has determined that our compensation programs are designed and administered with the appropriate balance of risk and reward in relation to our overall business strategy and such programs do not encourage our executives to take unnecessary or excessive risks that are reasonably likely to have a material adverse effect on the Company.
Summary Compensation Table
The following Summary Compensation Table (“SCT”) sets forth certain information concerning compensation paid or accrued for the fiscal years ended August 31, 2023, 2022, and 2021 by the Company to or for the benefit of (i) all individuals serving as our principal executive officer in fiscal year 2023, (ii) all individuals serving as our principal financial officer in fiscal year 2023, and (iii) our three most highly compensated executive officers, other than the foregoing individuals, who were serving as executive officers of the Company (or its subsidiaries) as of the end of the fiscal year ended August 31, 2023. We refer to these executive officers as our “Named Executive Officers” or our “NEOs.”
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| Summary Compensation Table |
| Name and Principal Position | | Fiscal Year | | Salary ($) | | Bonus ($) | | Option Awards ($) | | All other compensation ($) | | Total ($) |
| | | | | | (a) | | (b) | | (c) | | |
| Shawn O’Connor | | 2023 | | 487,479 | | | 357,800 | | | 1,094,440 | | | 2,285 | | | 1,942,005 | |
| Chief Executive Officer | | 2022 | | 450,000 | | | 259,300 | | | 600,228 | | | 33,324 | | | 1,342,852 | |
| | 2021 | | 444,231 | | | 100,000 | | | 528,040 | | | — | | | 1,072,271 | |
| | | | | | | | | | | | |
| Will Frederick | | 2023 | | 319,570 | | | 108,800 | | | 437,776 | | | 14,751 | | | 880,897 | |
| Chief Financial Officer | | 2022 | | 290,822 | | | 87,100 | | | 114,743 | | | 11,608 | | | 504,273 | |
| | 2021 | | 196,096 | | | 60,750 | | | 446,634 | | | 49,552 | | | 753,032 | |
| | | | | | | | | | | | |
| John DiBella | | 2023 | | 319,570 | | | 71,400 | | | 328,332 | | | 8,833 | | | 728,135 | |
| Business Unit President | | 2022 | | 289,986 | | | 58,800 | | | 131,572 | | | 56,406 | | | 536,764 | |
| | 2021 | | 257,453 | | | 45,600 | | | 212,479 | | | 9,101 | | | 524,633 | |
| | | | | | | | | | | | |
| Jill Fiedler-Kelly | | 2023 | | 297,904 | | | 83,100 | | | 328,332 | | | 12,766 | | | 722,102 | |
| Business Unit President | | 2022 | | 266,644 | | | 54,900 | | | 76,496 | | | 10,615 | | | 408,655 | |
| | 2021 | | 220,565 | | | 22,500 | | | 212,479 | | | 8,823 | | | 464,367 | |
| | | | | | | | | | | | |
| Dr. Brett Howell | | 2023 | | 259,989 | | | 51,400 | | | 328,332 | | | 10,278 | | | 649,999 | |
| Business Unit President | | 2022 | | 237,493 | | | 50,100 | | | 76,496 | | | 44,045 | | | 408,134 | |
| | 2021 | | 218,136 | | | 22,500 | | | 226,187 | | | 8,719 | | | 475,542 | |
(a)Amount represents bonus earned during the applicable fiscal year and paid in the following fiscal year.
(b)The amounts reported in the “Option Awards” column reflect the aggregate grant date fair value of stock options awarded during the year computed in accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718. See Note 8 to our consolidated financial statements included in our Annual Report, which was filed with the SEC on October 27, 2023 regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. See the “Grants of Plan-Based Awards” table below.
(c)Includes 401(k) matching, vacation payout, life insurance premiums, health savings matching, and relocation expense reimbursement for all listed executive officers, and consulting fees paid in fiscal 2021 to Mr. Frederick prior to his appointment as Chief Financial Officer on December 1, 2020.
Employment and Other Compensation Agreements
Mr. O’Connor’s Employment Agreement
On September 3, 2020, Shawn O’Connor, entered into a three-year employment agreement (effective as of September 1, 2020) as the Chief Executive Officer of the Company. Pursuant to the agreement, Mr. O’Connor received a one-time sign-on bonus of $100,000 in September 2020; received an annual base salary of $450,000 in fiscal 2021 and 2022, which was increased to $495,000 in fiscal 2023; and was eligible to receive an annual performance bonus consisting of the following: (i) a cash bonus of up to 50% of Mr. O’Connor’s salary, as determined by the Compensation Committee, (ii) a grant of 30,000 stock options, and (iii) an additional discretionary bonus of up to $75,000 and a grant of 7,500 stock options, as determined by the Board (in its sole discretion), based on Mr. O’Connor’s and the Company’s performance in the relevant year. The agreement also provided that we may terminate the agreement without cause upon thirty days written notice, and that upon any such termination our only obligation to Mr. O’Connor would be for a payment equal to 12 months of salary and benefits for the same period. Further, the agreement provided that we may terminate the agreement for “cause” (as defined in the agreement) and that our only obligation to Mr. O’Connor upon any such termination would be limited to the payment of Mr. O’Connor’s base salary and benefits through and until the effective date of any such termination.
On November 19, 2021, Mr. O’Connor entered into a First Amendment to Employment Agreement, which amended Mr. O’Connor’s employment agreement to provide that Mr. O’Connor shall be eligible, on an annual basis, to receive a target cash performance bonus based on individual and corporate metrics, of 50% of Mr. O’Connor’s base salary; provided, however, that the actual amount of such bonus, if any, may be less than or exceed the target amount and shall be determined by the Board, in its sole discretion, based upon recommendation by the Compensation Committee of the Board. The amendment did not alter any other terms of his employment agreement.
Subsequent to fiscal year 2023, the Company and Mr. O’Connor entered into an amended and restated employment agreement. The new agreement has materially the same terms as his prior employment agreement, as amended, except as follows: (i) the initial term of his new agreement ends December 1, 2024, after which it will automatically renew for successive one year terms until terminated in accordance with the agreement; (ii) effective on October 30, 2023, his base salary was increased to $514,800; (iii) his target cash performance bonus was increased to 75% of his base salary, provided that the actual amount paid (if any) shall be determined by the Board, in its discretion, and may be less than or exceed the target amount; (iv) he is eligible to receive a target stock option grant of 50,000 stock options, at the discretion of the Board, and (iv) incentive-based clawback provisions were added to align with the Company’s new Clawback Policy. All compensation, including base salary and bonus targets and metrics, is subject to annual review and modification by the Board, upon recommendation of the Compensation Committee.
Mr. Frederick’s Employment Agreement
On December 1, 2020, Will Frederick entered into a two-year employment agreement as the Chief Financial Officer of the Company, which agreement shall continue from year to year unless either party gives notice to the other party of its desire to change, amend, or terminate the agreement at least 60 days prior to the end of the then-existing term of the agreement. Pursuant to the agreement, Mr. Frederick received a one-time sign-on grant of 20,000 stock options; received an annual base salary of $270,000 in fiscal 2021, which was increased to $295,000 in fiscal 2022 and further increased to $324,500 in fiscal 2023; and was eligible to receive an annual performance bonus consisting of (i) a cash bonus in an amount between 25% to 35% of his base salary, with a target of 30% in fiscal 2021 (increased to 35% in fiscal 2022), as determined by the Compensation Committee, and (ii) a grant of between 5,000 and 15,000 stock options in fiscal 2021 (increased to 20,000 stock options in fiscal 2022). The agreement also provided that we may terminate the agreement without cause upon thirty days written notice, and that upon any such termination, our only obligation to Mr. Frederick would be for a payment equal to 12 months of salary and benefits for the same period. Further, the agreement provided that we may terminate the agreement for “cause” (as defined in the agreement) and that our only obligation to Mr. Frederick upon any such termination would be limited to the payment of Mr. Frederick’s salary and benefits through and until the effective date of any such termination.
Subsequent to fiscal year 2023, the Company and Mr. Frederick entered into an amended and restated employment agreement. The new agreement has materially the same terms as his prior employment agreement, as amended, except as follows: (i) effective on October 30, 2023, his base salary was increased to $337,500; (ii) he is eligible to receive a target cash performance bonus equal to 35% of his base salary, provided that the actual amount paid (if any) shall be determined by the Board, in its discretion, and may be less than or exceed the target amount; (iii) he is eligible to receive a target stock option grant of 20,000 stock options, at the discretion of the Board, and (iv) incentive-based clawback provisions were added to align with the Company’s new Clawback Policy. All compensation, including base salary and bonus targets and metrics, is subject to annual review and modification by the Board, upon recommendation of the Compensation Committee.
Mr. DiBella’s Employment Agreement
On January 1, 2022, John DiBella, entered into a two-year employment agreement as the President of the Simulations Plus Division of Simulations Plus, Inc. Pursuant to the agreement, Mr. DiBella received an annual base salary of $295,000 in fiscal 2022, which was increased to $324,500 in fiscal 2023; was eligible to receive Company stock options of between 5,000 and 15,000 per year (increased to a target of 15,000 in fiscal 2023); and was eligible to receive an annual performance bonus in an amount between 15% to 25% of salary (increased to a target of 25% in fiscal 2023), to be determined by the Compensation Committee of the Board. The agreement also provided that we may terminate the agreement without cause upon thirty days written notice, and upon any such termination, our only obligation to Mr. DiBella would be for a payment equal to the greater of (i) 12 months of salary or (ii) the amount of salary for the remainder of the term of the agreement from the date of notice of termination. Further, the agreement provided that we may terminate the agreement for “cause” (as defined in the agreement) and that our only obligation to Mr. DiBella upon any such termination would be limited to the payment of Mr. DiBella’s salary and benefits through and until the effective date of any such termination.
Subsequent to fiscal year 2023, the Company and Mr. DiBella entered into an amended and restated employment agreement. The new agreement has materially the same terms as his prior employment agreement, as amended, except as follows: (i) Mr. DiBella’s title was changed to President, PBPK/Cheminformatics Solutions/Regulatory Services; (ii) effective on October 30, 2023, his base salary was increased to $337,500; (iii) he is eligible to receive a target cash performance bonus equal to 25% of his base salary, provided that the actual amount paid (if any) shall be determined by the Board, in its discretion, and may be less than or exceed the target amount; (iv) he is eligible to receive a target stock option grant of 15,000 stock options, at the discretion of the Board, and (v) incentive-based clawback provisions were added to align with the Company’s new Clawback Policy. All compensation, including base salary and bonus targets and metrics, is subject to annual review and modification by the Board, upon recommendation of the Compensation Committee.
Jill Fiedler-Kelly’s Employment Agreement
On January 1, 2022, Jill Fiedler-Kelly, entered into a two-year employment agreement as the President of the Cognigen Division of Simulations Plus, Inc. Pursuant to the agreement, Ms. Fiedler-Kelly received an annual base salary of $275,000 in fiscal 2022, which was increased to $302,500 in fiscal 2023; was eligible to receive Company stock options of between 5,000 and 15,000 per year (increased to a target of 15,000 in fiscal 2023); and was eligible to receive an annual performance bonus in an amount between 15% to 25% of salary (increased to a target of 25% in fiscal 2023), to be determined by the Compensation Committee of the Board. The agreement also provided that we may terminate the agreement without cause upon thirty days written notice, and upon any such termination, our only obligation to Ms. Fiedler-Kelly would be for a payment equal to the greater of (i) 12 months of salary or (ii) the amount of salary for the remainder of the term of the agreement from the date of notice of termination. Further, the agreement provides that we may terminate the agreement for “cause” (as defined in the agreement) and that our only obligation to Ms. Fiedler-Kelly upon any such termination would be limited to the payment of Ms. Fiedler-Kelly’s’ salary and benefits through and until the effective date of any such termination.
Subsequent to fiscal year 2023, the Company and Ms. Fiedler-Kelly entered into an amended and restated employment agreement. The new agreement has materially the same terms as her prior employment agreement, as amended, except as follows: (i) Ms. Fiedler-Kelly’s title was changed to President, Clinical Pharmacology & Pharmacometric Services; (ii) effective on October 30, 2023, her base salary was increased to $314,600; (iii) she is eligible to receive a target cash performance bonus equal to 25% of her base salary, provided that the actual amount paid (if any) shall be determined by the Board, in its discretion, and may be less than or exceed the target amount; (iv) she is eligible to receive a target stock option grant of 15,000 stock options, at the discretion of the Board, and (v) incentive-based clawback provisions were added to align with the Company’s new Clawback Policy. All compensation, including base salary and bonus targets and metrics, is subject to annual review and modification by the Board, upon recommendation of the Compensation Committee.
Dr. Brett Howell’s Employment Agreement
On January 1, 2022, Dr. Brett Howell, entered into a two-year employment agreement as the President of the DILIsym Division of Simulations Plus, Inc. Pursuant to the agreement, Dr. Howell received an annual base salary of $240,000 in fiscal 2022, which was increased to $264,000 in fiscal 2023; was eligible to receive Company stock options of between 5,000 and 15,000 per year (increased to a target of 15,000 in fiscal 2023); and was eligible to receive an annual performance bonus in an amount between 15% to 25% of his base salary (increased to a target of 25% in fiscal 2023), to be determined by the Compensation Committee of the Board. The agreement also provided that we may terminate the agreement without cause upon thirty days written notice, and upon any such termination, our only obligation to Dr. Howell would be for a payment equal to the greater of (i) 12 months of salary or (ii) the amount of salary for the remainder of the term of the agreement from the date of notice of termination. Further, the agreement provided that we may terminate the agreement for “cause” (as defined in the agreement) and that our only obligation to Mr. Howell upon any such termination would be limited to the payment of Dr. Howell’s salary and benefits through and until the effective date of any such termination.
Subsequent to fiscal year 2023, the Company and Dr. Howell entered into an amended and restated employment agreement. The new agreement has materially the same terms as her prior employment agreement, as amended, except as follows: (i) Dr. Howell’s title was changed to President, Quantitative Systems Pharmacology Solutions; (ii) effective on October 30, 2023, his base salary was increased to $274,600; (iii) he is eligible to receive a target cash performance bonus equal to 25% of his base salary, provided that the actual amount paid (if any) shall be determined by the Board, in its discretion, and may be less than or exceed the target amount; (iv) he is eligible to receive a target stock option grant of 15,000 stock options, at the discretion of the Board, and (v) incentive-based clawback provisions were added to align with the Company’s new Clawback Policy. All compensation, including base salary and bonus targets and metrics, is subject to annual review and modification by the Board, upon recommendation of the Compensation Committee.
Other Executive Officers and Company Employees
Bonuses for other executive officers and our employees are determined equitably based on a target bonus assigned to their position within the Company. The percent of target achieved is based on a calculation of Company performance, business unit/department performance and individual performance as determined by yearly goal achievement. All calculated bonuses are then approved by executive leadership and the Board.
The Company provides 401(k) matching up to 4% of US employees’ salaries or wages up to the U.S. Internal Revenue Service maximum allowable, regardless of their position within the Company.
The Company offers a competitive total rewards program which includes good health and dental insurance plan options (with employee premiums paid by the Company), Company-paid disability and life insurance plans, flexible time off and parental leave. All employees are eligible for our training and development program, which includes reimbursement for approved training, memberships and subscriptions, and conference attendance.
Grants of Plan-Based Awards
The following table discloses information about option grants to the Named Executive Officers during the fiscal year ended August 31, 2023:
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| Name | | Grant Date | | All Other Option Awards: Number of Securities Underlying Options | | Exercise or Base price of Option Awards | | Grant Date Fair Value of Stock and Option Awards (a) |
| Shawn O’Connor | | 10/20/2022 | | 50,000 | | | $ | 43.91 | | | $ | 1,094,440 | |
| Will Frederick | | 10/20/2022 | | 20,000 | | | $ | 43.91 | | | 437,776 | |
| John DiBella | | 10/20/2022 | | 15,000 | | | $ | 43.91 | | | 328,332 | |
| Jill Fiedler-Kelly | | 10/20/2022 | | 15,000 | | | $ | 43.91 | | | 328,332 | |
| Dr. Brett Howell | | 10/20/2022 | | 15,000 | | | $ | 43.91 | | | 328,332 | |
| Total | | | | 115,000 | | | | | $ | 2,517,212 | |
(a)The amounts reported in the “Grant Date Fair Value of Stock and Option Awards” column reflect the aggregate grant date fair value of stock options awarded during the year computed in accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718. See Note 6 to our consolidated financial statements in our Annual Report on Form 10-K, which was filed with the SEC on October 27, 2023, regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options or the sale of the common stock underlying such stock options.
Pay versus Performance
Compensation Actually Paid
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| Year(a) | | SCT Total for CEO | | Compensation Actually Paid to CEO (a) | | Avg. Summary Compensation Table Total for Non-CEO NEOs | | Avg. Compensation Actually Paid to Non-CEO NEOs (b) | | Value of Initial Fixed $100 Investment Based On: | | Net Income | | Revenue |
| | | | | Company TSR (c) | | Peer Group TSR (SP600-3510) (d) | | |
| 2023 | | 1,942,005 | | | 1,477,766 | | | 745,283 | | | 488,551 | | | 76 | | | 110 | | | 9,961,000 | | | 59,577,000 | |
| 2022 | | 1,342,852 | | | 2,225,216 | | | 464,456 | | | 826,568 | | | 102 | | | 117 | | | 12,483,000 | | | 53,906,000 | |
| 2021 | | 1,072,271 | | | 693,668 | | | 554,394 | | | 394,518 | | | 75 | | | 155 | | | 9,782,000 | | | 46,466,000 | |
(a)The Company’s CEO, and only principal executive officer, for each of fiscal 2023, 2022 and 2021 was Shawn O’Connor.
(b)The Company’s non-CEO NEOs for each of fiscal 2023, 2022 and 2021 were Will Frederick, John DiBella, Jill Fiedler-Kelly and Dr. Brett Howell.
(c)Company is providing this disclosure pursuant to 17 CFR 229.402(v) for the last three fiscal years, instead of five years, and will provide disclosure for an additional year in each of the two subsequent annual filings in which this disclosure is required.
(d)Company total shareholder return (“TSR”) reflects TSR for Simulations Plus, Inc. (ticker: SLP). Peer Group TSR is calculated based on the S&P600 Health Care Equipment & Services Industry Group Index (“SP600-3510”), which is used for purposes of Item 201(e)(1)(ii) of Regulation S-K under the Exchange Act.
To calculate Compensation Actually Paid (“CAP”), the following amounts were deducted from and added to the total compensation included in the SCT, above, as required by 17 CFR 229.402(v)(3).
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| | 2023 | | 2022 | | 2021 |
| | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) |
| SCT Total | | 1,942,005 | | | 745,283 | | | 1,342,852 | | | 464,456 | | | 1,072,271 | | | 554,394 | |
| Adjustments | | | | | | | | | | | | |
| Deduction for Amounts Reported Under the “Option Awards” Column in the SCT (a) | | (1,094,440) | | | (355,693) | | | (600,228) | | | (99,827) | | | (528,040) | | | (274,445) | |
| Increase for Fair Value of Awards Granted during year that Remain Unvested as of Year End (b) | | 1,218,665 | | | 396,066 | | | 1,143,613 | | | 248,736 | | | 418,298 | | | 211,842 | |
| Increase for Fair Value of Awards Granted during year that Vest during year (b) | | — | | | — | | | — | | | — | | | — | | | — | |
| Increase/deduction for Change in Fair Value from Prior Year-end to Current Year-end of Awards Granted Prior to year that were Outstanding and Unvested as of Year-end (b) | | (354,302) | | | (181,484) | | | 303,112 | | | 105,661 | | | (292,933) | | | (142,679) | |
| Increase/deduction for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year (b) | | (234,161) | | | (115,621) | | | 35,867 | | | 107,541 | | | 24,072 | | | 45,406 | |
| Compensation Actually Paid | | 1,477,766 | | | 488,551 | | | 2,225,216 | | | 826,568 | | | 693,668 | | | 394,518 | |
(a)Represents the grant-date fair value of option awards granted each year.
(b)Reflects the value of equity calculated in accordance with the SEC methodology for determining Compensation Actually Paid for each year shown. For all option awards, our methodology for calculating the value of options remained consistent between the grant-date fair value measurement reflected in row one of the above table and the point-in-time fair value measurements reflected in the adjustment rows that follow. In all cases, we use the closing price of our common stock on the Nasdaq Global Select Market on the applicable date as a basis for fair value.
Relationship Between Compensation Actually Paid and TSR:
CEO and Non-CEO NEOs CAP in millions; Company TSR and Peer TSR in US dollars per share on return on $100 investment.
Relationship Between Compensation Actually Paid and Net Income:
CEO and non-CEO NEOs CAP in millions; Net Income in millions.
Relationship Between Compensation Actually Paid and Revenue:
CEO and non-CEO NEOs CAP in millions; Revenue in millions.
Outstanding Equity Awards at Fiscal Year-End 2023
The following table sets forth information regarding outstanding equity awards held by our Named Executive Officers as of August 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name(a) | | Number of Securities Underlying Unexercised Options (Exercisable) | | Number of Securities Underlying Unexercised Options (Unexercisable) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | Option Expiration Date |
| | | | | | | | | | |
| Shawn O’Connor | | — | | | 50,000 | | (a) | — | | | $ | 43.91 | | | 10/20/2032 |
| | 12,000 | | (a) | 18,000 | | (a) | — | | | $ | 46.09 | | | 10/26/2031 |
| | 17,500 | | (a) | 7,500 | | (a) | — | | | $ | 59.97 | | | 09/04/2030 |
| | 20,000 | | (a) | — | | (a) | — | | | $ | 36.11 | | | 09/01/2029 |
| | 20,000 | | (a) | — | | | — | | | $ | 23.75 | | | 06/26/2028 |
| Total | | 69,500 | | | 75,500 | | | — | | | | | |
| | | | | | | | | | |
| Will Frederick | | — | | | 20,000 | | (c) | — | | | $ | 43.91 | | | 10/20/2032 |
| | — | | | 5,625 | | (c) | — | | | $ | 37.89 | | | 10/20/2031 |
| | 10,000 | | (c) | 10,000 | | (c) | — | | | $ | 56.40 | | | 12/01/2030 |
| Total | | 10,000 | | | 35,625 | | | — | | | | | |
| | | | | | | | | | |
| John DiBella | | — | | | 15,000 | | (c) | — | | | $ | 43.91 | | | 10/20/2032 |
| | 2,150 | | (c) | 6,450 | | (c) | — | | | $ | 37.89 | | | 10/20/2031 |
| | 4,650 | | (c) | 4,650 | | (c) | — | | | $ | 57.67 | | | 12/07/2030 |
| | 3,000 | | (b) | 2,000 | | (b) | — | | | $ | 32.57 | | | 12/06/2029 |
| | 6,400 | | (b) | 1,600 | | (b) | — | | | $ | 19.81 | | | 12/11/2028 |
| | 26,206 | | (b) | — | | | — | | | $ | 10.05 | | | 02/23/2027 |
| | 10,300 | | (b) | — | | | — | | | $ | 9.71 | | | 02/25/2026 |
| | | | | | | | | | |
| Total | | 52,706 | | | 29,700 | | | — | | | | | |
| | | | | | | | | | |
| Dr. Brett Howell | | — | | | 15,000 | | (c) | — | | | $ | 43.91 | | | 10/20/2032 |
| | 1,250 | | (c) | 3,750 | | (c) | — | | | $ | 37.89 | | | 10/20/2031 |
| | 4,950 | | (c) | 4,950 | | (c) | — | | | $ | 57.67 | | | 12/07/2030 |
| | 2,000 | | (b) | 2,000 | | (b) | — | | | $ | 32.57 | | | 12/06/2029 |
| | 8,000 | | (b) | 4,000 | | (b) | — | | | $ | 19.81 | | | 12/11/2028 |
| | 200 | | (b) | — | | | — | | | $ | 14.35 | | | 08/02/2027 |
| Total | | 16,400 | | | 29,700 | | | — | | | | | |
| | | | | | | | | | |
| Jill Fiedler-Kelly | | — | | | 15,000 | | (c) | — | | | $ | 43.91 | | | 10/20/2032 |
| | 1,250 | | (c) | 3,750 | | (c) | — | | | $ | 37.89 | | | 10/20/2031 |
| | 4,650 | | (c) | 4,650 | | (c) | — | | | $ | 57.67 | | | 12/07/2030 |
| | 3,000 | | (b) | 2,000 | | (b) | — | | | $ | 32.57 | | | 12/06/2029 |
| | 5,600 | | (b) | 1,400 | | (b) | — | | | $ | 19.81 | | | 12/11/2028 |
| | 9,400 | | (b) | — | | | — | | | $ | 10.05 | | | 02/23/2027 |
| | 11,200 | | (b) | — | | | — | | | $ | 9.71 | | | 02/25/2026 |
| | | | | | | | | | |
| Total | | 35,100 | | | 26,800 | | | — | | | | | |
__________________
(a)Options vest on each of the first three anniversaries of the grant date at a rate of 40%, 30%, and 30% of the shares subject to the option, respectively, and have a 10-year term.
(b)Options vest as to 20% of the shares subject to the option on each of the first five anniversaries of the grant date and have a 10-year term.
(c)Options vest as to 25% of the shares subject to the option on each of the first four anniversaries of the grant date and have a 10-year term.
Equity Compensation Plan Information
The following table provides information as of August 31, 2023, regarding our equity compensation plans:
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans |
| Equity compensation plans approved by security holders | | 1,478,432 | | | $ | 34.62 | | | 846,808 | |
| Equity compensation plans not approved by security holders | | — | | | — | | | — | |
| Total | | 1,478,432 | | | $ | 34.62 | | | 846,808 | |
Option Exercises and Stock Vested
The following table sets forth information regarding stock option exercises for the Company’s NEOs during the fiscal year ended August 31, 2023:
| | | | | | | | | | | | | | |
| | Option Awards |
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) (1) |
| Shawn O’Connor | | — | | | — | |
| Will Frederick | | 1,875 | | | 1,294 | |
| John DiBella | | 63,794 | | | 2,132,131 | |
| Dr. Brett Howell | | — | | | — | |
| Jill Fiedler-Kelly | | 500 | | | 17,425 | |
(1) If the shares were sold immediately upon exercise, the value realized on exercise of the option is the difference between the actual sales price and the exercise price of the option. Otherwise, the value realized is the difference between the closing price of the Company’s common stock on the Nasdaq Global Select Market on the date of exercise and the exercise price of the option.
No restricted stock awards or restricted stock units have been issued to our named executive officers.
Termination or Change of Control
The following discussion summarizes certain information related to the total potential payments which would have been made to the named executive officers in the event of termination of their employment with the Company, including in the event of a change of control, effective August 31, 2023, the last business day of fiscal year 2023.
Employment Agreements. As of August 31, 2023, each of our named executive officers (Mr. O’Connor, Mr. Frederick, Mr. DiBella, Dr. Howell, and Ms. Fiedler-Kelly) were party to an employment agreement with the Company, all of which employment agreements were amended and restated subsequent to the year ended August 31, 2023, as discussed in additional detail in the section of this Proxy Statement entitled “Employment and Other Compensation Agreements.” Under the employment agreements (including the amended and restated agreements), if we terminate the employment of any of these named executive officers without cause, they will receive severance equal to twelve (12) months’ salary or, in some cases, the employee’s base salary for the remaining term of the agreement, whichever is greater. The Company has no further obligation to pay the employee any other benefits or compensation. Each executive’s agreement also contains an indefinite nondisclosure provision for the protection of the Company’s confidential information. See the summaries of the material terms of each of the named executive officers’ employment agreements, above, for additional information regarding amounts payable upon termination.
Pay Ratio Disclosure
The following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our other employees. We determined our median employee based on base salary (annualized in the case of full- and part-time employees who joined the Company during fiscal year 2023) of each of our employees (excluding the CEO), as of August 31, 2023. The annual total compensation of our median employee (other than the CEO) for 2023 was $158,302. As disclosed in the Summary Compensation Table appearing on page 42 of this Proxy Statement, our CEO’s annual total compensation for fiscal year 2023 was $1,942,005. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 12 to 1. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies. HOUSEHOLDING OF MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.
We have adopted householding for our shareholders who share an address. If you reside at the same address as another shareholder of the Company and wish to receive a separate copy of the applicable materials, you may do so by making a written or oral request to: Renee Bouche, Simulations Plus, Inc., at 42505 10th Street West, Lancaster, CA 93534, or call (661) 723-7723. Upon your request, we will promptly deliver a separate copy to you.
Some brokers household proxy materials, delivering a single proxy statement or notice to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be householding materials 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 proxy statement or notice, please notify your broker directly.
Any shareholders who share the same address and currently receive multiple copies of our proxy statements and annual reports, as applicable, and who wish to receive only one copy in the future may contact their bank, broker, or other holder of record, or the Company at the contact information listed above, to request information about householding.
SHAREHOLDER COMMUNICATIONS
Shareholders are encouraged to contact the Company with any requests for information or to communicate with the Board via telephone, mail, or through our website investor information request form at: http://www.simulations-plus.com/InvestorForm.aspx or through the general information request page: http://www.simulations-plus.com/contact.aspx.
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder action at our subsequent annual meetings consistent with Rule 14a-8 promulgated under the Exchange Act. For such proposals to be considered timely, they must be received in writing by our Secretary no later than 120 days before the date on which the Company first sent its proxy materials to shareholders for the prior year’s annual meeting of shareholders. For such proposals to be considered for inclusion in this Proxy Statement and the proxy relating to this Annual Meeting, they must have been received by us no later than August 25, 2023. For such proposals to be considered for inclusion in the proxy statement and proxy relating to our next annual meeting of shareholders, they must be received by us no later than August 24, 2024. Notwithstanding the foregoing, if our next annual meeting of shareholders is held more than 30 days before or after the anniversary of this Annual Meeting, then the deadline for such proposals to be considered for inclusion in the proxy statement and proxy relating to our next annual meeting of shareholders will be a reasonable time before we begin to print and send our proxy materials.
Shareholders who wish to nominate individuals for election as directors at our subsequent annual meetings must follow the process and satisfy the requirements set forth in Rule 14a-19 promulgated under the Exchange Act. For notice of such nominations to be considered timely, the notice must be submitted to our Secretary in writing and must be postmarked or electronically submitted no later than 60 days before the one-year anniversary of the annual meeting of shareholders of the Company for the prior year. Notwithstanding the foregoing, if we did not hold an annual meeting the prior year or our annual meeting of shareholders is held more than 30 days before or after the anniversary of the prior year’s annual meeting, then notice must be provided by the later of 60 days prior to the date of the current year’s annual meeting or the 10th calendar day following the day on which public announcement of the date of the annual meeting is first made by us. For nominees to be considered for inclusion in this Proxy Statement and the proxy relating to this Annual Meeting, notice thereof must have been postmarked or electronically submitted no later than December 10, 2023. For nominees to be considered for inclusion in the proxy statement and proxy relating to our next annual meeting of shareholders, notice thereof must be postmarked or electronically submitted no later than December 10, 2024.
Notice of shareholder proposals and director nominees for inclusion at our next annual meeting of shareholders should be directed to the attention of the Corporate Secretary of the Company, Will Frederick, at 42505 10th Street West, Lancaster, California 93534. Any proposal may be included in next year’s proxy materials only if such proposal complies with the rules and regulations promulgated by the SEC, including the provisions of Rule 14a-8 and Rule 14a-19 promulgated under the Exchange Act. Nothing in this section shall be deemed to require us to include in our proxy statement or our proxy relating to any meeting any shareholder proposal or nomination that does not meet all of the requirements for inclusion established by the SEC.
OTHER MATTERS
The Board knows of no other matters to be presented at the Meeting other than those described above. However, if any other matters properly come before the Meeting, it is intended that any shares voted by proxy will be voted in the discretion of the Board.
Appendix A
SECOND AMENDMENT TO
2021 EQUITY INCENTIVE PLAN
OF
SIMULATIONS PLUS, INC.
WHEREAS, the Board of Directors and stockholders of Simulations Plus, Inc. (the “Company”) have adopted the 2021 Equity Incentive Plan of Simulations Plus, Inc., dated April 9, 2021, as amended by that First Amendment to 2021 Equity Incentive Plan of the Company, dated as of February 9, 2023 (as amended, the “Plan”);
WHEREAS, pursuant to Section 4(a) of the Plan, a total of 1,550,000 shares of the common stock, par value $0.001 per share, of the Company (“Common Stock”) have been authorized and reserved for issuance under the Plan;
WHEREAS, the Company desires to increase the number of shares issuable under the Plan to 2,500,000 shares, including shares previously issued thereunder; and
WHEREAS, Section 14 of the Plan permits the Company to amend the Plan from time to time, subject to certain limitations specified therein, including stockholder approval of certain amendments.
NOW, THEREFORE, the following amendments and modifications are hereby made a part of the Plan subject to, and effective as of the date of, the approval of stockholders of the Plan on _________, 2024:
1. Section 4(a) of the Plan is hereby amended and restated to read in its entirety as follows:
(a) Shares Subject to the Plan. Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the Award Shares that may be issued pursuant to Stock Awards shall not exceed in the aggregate two million five hundred thousand (2,500,000) shares of the Company’s Common Stock. Of such amount, two million five hundred thousand (2,500,000) Award Shares may be issued pursuant to Incentive Stock Options.
2. In all other respects, the Plan, as amended, is hereby ratified and confirmed and shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has executed this Second Amendment to 2021 Equity Incentive Plan of Simulations Plus, Inc. as of ________, 2024:
| | | | | | | | |
| | |
| SIMULATIONS PLUS, INC. |
| |
| By: | | |
| Name: | | Shawn O’Connor |
| Its: | | Chief Executive Office |
PROXY
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v3.23.4
Pay vs Performance Disclosure - USD ($)
|
12 Months Ended |
Aug. 31, 2023 |
Aug. 31, 2022 |
Aug. 31, 2021 |
| Pay vs Performance Disclosure |
|
|
|
| Pay vs Performance Disclosure, Table |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year(a) | | SCT Total for CEO | | Compensation Actually Paid to CEO (a) | | Avg. Summary Compensation Table Total for Non-CEO NEOs | | Avg. Compensation Actually Paid to Non-CEO NEOs (b) | | Value of Initial Fixed $100 Investment Based On: | | Net Income | | Revenue | | | | | | Company TSR (c) | | Peer Group TSR (SP600-3510) (d) | | | | 2023 | | 1,942,005 | | | 1,477,766 | | | 745,283 | | | 488,551 | | | 76 | | | 110 | | | 9,961,000 | | | 59,577,000 | | | 2022 | | 1,342,852 | | | 2,225,216 | | | 464,456 | | | 826,568 | | | 102 | | | 117 | | | 12,483,000 | | | 53,906,000 | | | 2021 | | 1,072,271 | | | 693,668 | | | 554,394 | | | 394,518 | | | 75 | | | 155 | | | 9,782,000 | | | 46,466,000 | |
|
|
|
| Company Selected Measure Name |
Revenue
|
|
|
| Named Executive Officers, Footnote |
The Company’s CEO, and only principal executive officer, for each of fiscal 2023, 2022 and 2021 was Shawn O’Connor.The Company’s non-CEO NEOs for each of fiscal 2023, 2022 and 2021 were Will Frederick, John DiBella, Jill Fiedler-Kelly and Dr. Brett Howell.
|
|
|
| Peer Group Issuers, Footnote |
Company total shareholder return (“TSR”) reflects TSR for Simulations Plus, Inc. (ticker: SLP). Peer Group TSR is calculated based on the S&P600 Health Care Equipment & Services Industry Group Index (“SP600-3510”), which is used for purposes of Item 201(e)(1)(ii) of Regulation S-K under the Exchange Act.
|
|
|
| PEO Total Compensation Amount |
$ 1,942,005
|
$ 1,342,852
|
$ 1,072,271
|
| PEO Actually Paid Compensation Amount |
$ 1,477,766
|
2,225,216
|
693,668
|
| Adjustment To PEO Compensation, Footnote |
To calculate Compensation Actually Paid (“CAP”), the following amounts were deducted from and added to the total compensation included in the SCT, above, as required by 17 CFR 229.402(v)(3). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2023 | | 2022 | | 2021 | | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | SCT Total | | 1,942,005 | | | 745,283 | | | 1,342,852 | | | 464,456 | | | 1,072,271 | | | 554,394 | | | Adjustments | | | | | | | | | | | | | | Deduction for Amounts Reported Under the “Option Awards” Column in the SCT (a) | | (1,094,440) | | | (355,693) | | | (600,228) | | | (99,827) | | | (528,040) | | | (274,445) | | | Increase for Fair Value of Awards Granted during year that Remain Unvested as of Year End (b) | | 1,218,665 | | | 396,066 | | | 1,143,613 | | | 248,736 | | | 418,298 | | | 211,842 | | | Increase for Fair Value of Awards Granted during year that Vest during year (b) | | — | | | — | | | — | | | — | | | — | | | — | | | Increase/deduction for Change in Fair Value from Prior Year-end to Current Year-end of Awards Granted Prior to year that were Outstanding and Unvested as of Year-end (b) | | (354,302) | | | (181,484) | | | 303,112 | | | 105,661 | | | (292,933) | | | (142,679) | | | Increase/deduction for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year (b) | | (234,161) | | | (115,621) | | | 35,867 | | | 107,541 | | | 24,072 | | | 45,406 | | | Compensation Actually Paid | | 1,477,766 | | | 488,551 | | | 2,225,216 | | | 826,568 | | | 693,668 | | | 394,518 | |
(a)Represents the grant-date fair value of option awards granted each year.
(b)Reflects the value of equity calculated in accordance with the SEC methodology for determining Compensation Actually Paid for each year shown. For all option awards, our methodology for calculating the value of options remained consistent between the grant-date fair value measurement reflected in row one of the above table and the point-in-time fair value measurements reflected in the adjustment rows that follow. In all cases, we use the closing price of our common stock on the Nasdaq Global Select Market on the applicable date as a basis for fair value.
|
|
|
| Non-PEO NEO Average Total Compensation Amount |
$ 745,283
|
464,456
|
554,394
|
| Non-PEO NEO Average Compensation Actually Paid Amount |
$ 488,551
|
826,568
|
394,518
|
| Adjustment to Non-PEO NEO Compensation Footnote |
To calculate Compensation Actually Paid (“CAP”), the following amounts were deducted from and added to the total compensation included in the SCT, above, as required by 17 CFR 229.402(v)(3). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2023 | | 2022 | | 2021 | | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | CEO ($) | | Average for Non-CEO Named Executive Officers ($) | | SCT Total | | 1,942,005 | | | 745,283 | | | 1,342,852 | | | 464,456 | | | 1,072,271 | | | 554,394 | | | Adjustments | | | | | | | | | | | | | | Deduction for Amounts Reported Under the “Option Awards” Column in the SCT (a) | | (1,094,440) | | | (355,693) | | | (600,228) | | | (99,827) | | | (528,040) | | | (274,445) | | | Increase for Fair Value of Awards Granted during year that Remain Unvested as of Year End (b) | | 1,218,665 | | | 396,066 | | | 1,143,613 | | | 248,736 | | | 418,298 | | | 211,842 | | | Increase for Fair Value of Awards Granted during year that Vest during year (b) | | — | | | — | | | — | | | — | | | — | | | — | | | Increase/deduction for Change in Fair Value from Prior Year-end to Current Year-end of Awards Granted Prior to year that were Outstanding and Unvested as of Year-end (b) | | (354,302) | | | (181,484) | | | 303,112 | | | 105,661 | | | (292,933) | | | (142,679) | | | Increase/deduction for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year (b) | | (234,161) | | | (115,621) | | | 35,867 | | | 107,541 | | | 24,072 | | | 45,406 | | | Compensation Actually Paid | | 1,477,766 | | | 488,551 | | | 2,225,216 | | | 826,568 | | | 693,668 | | | 394,518 | |
(a)Represents the grant-date fair value of option awards granted each year.
(b)Reflects the value of equity calculated in accordance with the SEC methodology for determining Compensation Actually Paid for each year shown. For all option awards, our methodology for calculating the value of options remained consistent between the grant-date fair value measurement reflected in row one of the above table and the point-in-time fair value measurements reflected in the adjustment rows that follow. In all cases, we use the closing price of our common stock on the Nasdaq Global Select Market on the applicable date as a basis for fair value.
|
|
|
| Compensation Actually Paid vs. Total Shareholder Return |
Relationship Between Compensation Actually Paid and TSR:
CEO and Non-CEO NEOs CAP in millions; Company TSR and Peer TSR in US dollars per share on return on $100 investment.
|
|
|
| Compensation Actually Paid vs. Net Income |
Relationship Between Compensation Actually Paid and Net Income:
CEO and non-CEO NEOs CAP in millions; Net Income in millions.
|
|
|
| Compensation Actually Paid vs. Company Selected Measure |
Relationship Between Compensation Actually Paid and Revenue:
CEO and non-CEO NEOs CAP in millions; Revenue in millions.
|
|
|
| Total Shareholder Return Vs Peer Group |
Relationship Between Compensation Actually Paid and TSR:
|
|
|
| Total Shareholder Return Amount |
$ 76
|
102
|
75
|
| Peer Group Total Shareholder Return Amount |
110
|
117
|
155
|
| Net Income (Loss) |
$ 9,961,000
|
$ 12,483,000
|
$ 9,782,000
|
| Company Selected Measure Amount |
59,577,000
|
53,906,000
|
46,466,000
|
| PEO Name |
Shawn O’Connor.
|
|
|
| Additional 402(v) Disclosure |
Company is providing this disclosure pursuant to 17 CFR 229.402(v) for the last three fiscal years, instead of five years, and will provide disclosure for an additional year in each of the two subsequent annual filings in which this disclosure is required.
|
|
|
| PEO | Option Awards [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
$ (1,094,440)
|
$ (600,228)
|
$ (528,040)
|
| PEO | Option Awards Granted During the Year, Unvested [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
1,218,665
|
1,143,613
|
418,298
|
| PEO | Option Awards Granted During the Year, Vested [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
| PEO | Option Awards Granted in Prior Years, Unvested [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
(354,302)
|
303,112
|
(292,933)
|
| PEO | Option Awards Granted in Prior Years, Vested in Current Year [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
(234,161)
|
35,867
|
24,072
|
| Non-PEO NEO | Option Awards [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
(355,693)
|
(99,827)
|
(274,445)
|
| Non-PEO NEO | Option Awards Granted During the Year, Unvested [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
396,066
|
248,736
|
211,842
|
| Non-PEO NEO | Option Awards Granted During the Year, Vested [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
| Non-PEO NEO | Option Awards Granted in Prior Years, Unvested [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
(181,484)
|
105,661
|
(142,679)
|
| Non-PEO NEO | Option Awards Granted in Prior Years, Vested in Current Year [Member] |
|
|
|
| Pay vs Performance Disclosure |
|
|
|
| Adjustment to Compensation, Amount |
$ (115,621)
|
$ 107,541
|
$ 45,406
|
| X |
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Simulations Plus (NASDAQ:SLP)
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부터 4월(4) 2024 으로 5월(5) 2024
Simulations Plus (NASDAQ:SLP)
과거 데이터 주식 차트
부터 5월(5) 2023 으로 5월(5) 2024
