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Rockwell Medical, Inc. | |||
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• | As of December 31, 2019, we identified and reported material weaknesses in our internal control over financial reporting in connection with control deficiencies related to Information Technology General Controls (“ITGC”) in connection with change management, user access controls and segregation of duties as it relates to user access controls. Our ITGC user access security, change management, operations and third-party management controls to the ERP system were not designed effectively to provide an adequate audit trail for system change management and for the periodic review and |
• | Remediation of these material weaknesses is ongoing and among our highest priorities. In this regard, management has acted to take a number of steps with the intention of remediating these material weaknesses, including the following: |
• | In June 2019, as mentioned above, we hired our PAO, who has significant prior experience with public company accounting, SEC reporting and internal control over financial reporting. |
• | We updated and implemented our change management and user access control policies. |
• | We added additional review controls to support change management and user access controls outside of policy procedures. |
• | We are actively working to complete our evaluation of the design, implementation and operating effectiveness testing as soon as possible and believe it will be concluded in 2020. Our Audit Committee will continually assess the progress and sufficiency of these initiatives and make adjustments as and when necessary. As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, our management believes that our efforts, when completed, will remediate the material weaknesses in internal control over financial reporting as described above. |
• | In April 2020, we engaged a national public accounting firm to evaluate the design and implementation of our internal control environment and test for operating effectiveness under supervision of our management team, while reporting to our Audit Committee. |
• | Our efforts to strengthen and maintain our internal controls over financial reporting are ongoing under the leadership of our management team and with the supervision and guidance of our Audit Committee. |
• | Following the say-on-pay vote at our annual meeting of stockholders in 2019, which passed with 61% of the votes cast, we reached out to several of our largest stockholders to better understand their views on our executive compensation program and the reasons for their vote. |
• | Based on stockholder feedback, including concerns related to the alignment of pay with performance, we made several important changes to our compensation program to increase the rigor of our executive compensation program, which resulted in significantly lower compensation for our executives in 2019 compared to the previous years. |
• | The Compensation Committee, in consultation with an independent third-party compensation consultant, implemented a performance management plan in 2019 to tie incentive compensation for executives to individual and company performance-based objectives. For example, the individual |
• | The Compensation Committee also believes that the compensation decisions made for calendar year 2019 under this plan have resulted in greater alignment of pay with performance. Such decisions include: |
• | Our former CEO did not receive an annual cash bonus. |
• | Our other named executive officers received significantly below-target bonuses, ranging from 24% to 43% of their target bonuses. |
• | We did not grant any new equity awards to our former CEO. |
• | We did not grant any new equity awards to our CFO. |
• | We also were responsive to stockholder feedback in developing the compensation package for our new CEO, Russell Ellison, who was appointed in April 2020. |
• | The Compensation Committee set Dr. Ellison’s base salary at a lower amount than his predecessor and, as part of the performance management plan described above, tied Dr. Ellison’s annual cash bonus target to specific individual and company performance-based objectives. |
• | The Compensation Committee also determined that 50% of Dr. Ellison’s initial equity award grant would be comprised of performance-based stock options, which have value only to the extent that the performance conditions are satisfied. |
• | The performance conditions for Dr. Ellison’s performance-based stock options are tied to concrete objectives that align with increasing stockholder value. Such objectives, which we publicly disclosed, consist of: |
• | Achievement of annualized net sales run rate for Triferic (measured over any given fiscal quarter) $20,000,000 or more by no later than December 31, 2021 |
• | Commencement of a Phase II Study for Triferic in a second indication of Triferic by April 17, 2021 |
• | Further, the performance-based equity awards granted to Dr. Ellison are subject to stockholder approval at the Annual Meeting in connection with the approval of Proposal 4. |
• | In connection with the transformation of Rockwell described above, our board of directors has also been undergoing a significant transformation and refreshment since our annual meeting of stockholders in 2019 to align the board with Rockwell’s strategic direction. Following the Annual Meeting, the board of directors will be comprised of five members, four of which will be independent. |
• | We recognize that, amidst this transformation and with the recent resignation of Dr. Robin L. Smith in November 2019 and the decision by Ms. Lisa Colleran not to stand for reelection at the Annual Meeting on May 18, 2020, the board will temporarily not have a female director following the Annual Meeting. |
• | Board diversity is a priority for Rockwell. As stated in our Principles of Corporate Governance and our Proxy Statement, our Governance and Nominating Committee is committed to seeking highly qualified candidates inclusive of all national origins, races and genders to include in the pool from which director nominees are chosen. |
• | As part of the ongoing refreshment of our board of directors, and in line with our commitment to diversity, during 2020, we intend to increase the size of the board of directors and appoint at least one female director. |
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