SEC Form DEF 14A filed by CHF Solutions, Inc.

•

Proposal 1 - To elect two Class II directors named in the accompanying proxy statement, each to serve for a three-year term or until her or his successor has been duly elected and qualified.

•

Proposal 2 - To approve, on an advisory basis, the compensation of our named executive officers as disclosed in the accompanying proxy statement.

•

Proposal 3 - To approve, on an advisory basis, Baker Tilly US, LLP as our independent registered public accounting firm for the year ending December 31, 2021.

•

To transact any other business that may properly come before the meeting or any postponement or adjournment of the meeting.

•

Proposal 1 - To elect two Class II directors named in this proxy statement, each to serve on the Board for a three-year term or until her or his successor has been duly elected and qualified.

•

Proposal 2 - To approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement.

•

Proposal 3 - To approve, on an advisory basis, Baker Tilly US, LLP (“Baker Tilly”) as our independent registered public accounting firm for the year ending December 31, 2021.

•

To transact any other business that may properly come before the meeting or any postponement or adjournment of the meeting.

•

Industry Experience. We are an early-stage medical device company focused on commercializing our Aquadex SmartFlow® system. Experience in the medical device industry is useful in understanding our business strategy, the regulatory environment we face within the United States and abroad and our primary competitors.

•

Senior Leadership Experience. Directors who have served in senior leadership positions can provide experience and perspective in analyzing, shaping and overseeing the execution of important operational, organizational and policy issues at a senior level.

•

Financial and Accounting Expertise. Knowledge of the financial markets, corporate finance, accounting regulations and accounting and financial reporting processes can assist our directors in understanding, advising and overseeing our capital structure, financing activities, financial reporting and internal control of such activities. The Company also strives to have at least one director who qualifies as a financial expert under SEC rules.

•

Public Company Board Experience. Directors who have served on other public company boards can offer advice and insights with regard to the dynamics and operation of a board of directors, the relations of a board to the chief executive officer and other management personnel, the importance of particular agenda and oversight matters, and oversight of a changing mix of strategic, operational, governance and compliance-related matters.

•

Business Development and Mergers and Acquisitions Experience. Directors who have background in business development and in mergers and acquisitions transactions can provide insight into developing and implementing strategies for growing our business, which may include mergers and acquisitions. Useful experience in mergers and acquisitions includes an understanding of the importance of “fit” with the Company’s culture and strategy, the valuation of transactions and management’s plans for integration with existing operations.

•

to evaluate the qualifications, performance and independence of our independent registered public accounting firm and to assess the permissibility of and pre-approve all audit and permissible audit-related and non-audit services to be provided by the independent registered public accounting firm;

•

to discuss with management and our independent registered public accounting firm any major issues as to the adequacy of our internal control over financial reporting, any actions to be taken in light of significant or material control deficiencies and the adequacy of our disclosures about changes in internal control over financial reporting;

•

to establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal control over financial reporting or auditing matters, including the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

•

to review the consolidated financial statements proposed to be included in our annual report on Form 10-K and recommend to the Board whether or not such consolidated financial statements should be so included;

•

to prepare the Audit Committee Report required by SEC rules to be included in our annual proxy statement; and

•

to review the Company’s disclosures in its periodic reports on Form 10-K and Form 10-Q to be filed with the SEC and approve the filing of each such report.

•

to recommend the compensation and other terms of employment of our chief executive officer to the Board for approval and to evaluate the chief executive officer’s performance in light of relevant individual and corporate performance goals and objectives;

•

to review and approve the individual and corporate performance goals and objectives of the Company’s other executive officers, and to determine and approve the compensation and other terms of employment of such executive officers, considering, among other things, the recommendations of our chief executive officer;

•

to review the compensation paid to non-employee directors for their service on the Board and its committees and recommend any appropriate changes to the Board for approval;

•

to recommend to the Board the adoption, amendment and termination of the Company’s equity compensation plans and to administer such plans and approve grants and awards as permitted or required under such plans; and

•

to evaluate risks associated with and potential consequences of our compensation policies and practices, as applicable to all of our employees.

•

to identify, review and evaluate candidates to serve on the Board, to review and evaluate incumbent directors, and to recommend to the Board nominees for election to the Board;

•

to monitor the size of the Board;

•

to review, discuss and assess, on an annual basis, the performance of management and the Board, including its committees;

•

to recommend to the Board, on an annual basis, the chairmanship and membership of each committee, considering the interests, independence and experience of individual directors and the independence and experience requirements of the SEC and Nasdaq; and

•

to exercise general oversight over corporate governance policy matters of the Company, including developing, reviewing and assessing the Corporate Governance Guidelines and recommending appropriate changes to the Board for consideration.

(1)

This amount reflects stock options granted under the 2013 Non-Employee Directors’ Equity Incentive Plan (the “2013 Directors’ Plan”) on May 20, 2020. The amounts reported represent the grant date fair value of the stock options. Valuation assumptions used in determining the grant date fair value are included in Note 7 to the consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020. The grant date fair value of the stock options granted on May 20, 2020 to all directors was approximately $2.92 per share.

(2)

Dr. Costanzo elected not to receive any equity compensation for her role as a director.

(3)

As of December 31, 2020, each non-employee director had the following number of shares underlying outstanding options (both vested and unvested): Mr. Brandt 792; Dr. Costanzo 0; Mr. Salveson 824; Mr. Waller 839, and Mr. Watson 824.

(1)

For each named executive officer, amounts include employer matching contributions made on the officer’s behalf to the Company’s 401(k) Plan, contributions to the officer’s health savings account and Company payments for life insurance premiums. In addition, the amounts for Mr. Erb and Ms. Drayton include a one-time payment equal to 50% of such officer’s accrued paid-time-off that exceeded the amount that is permitted to carry over from one fiscal year to the next fiscal year due to a change in the Company’s paid-time-off policy effective January 1, 2019.

(2)

Mr. Erb retired as President and Chief Executive Officer, effective January 16, 2021. He will continue to serve as a director and Chairman of the Board and, until June 2021, will be employed by the Company on a part-time basis.

(3)

Mr. Jaramillo commenced employment with the Company effective May 7, 2019 and was promoted to President and Chief Executive Officer effective January 16, 2021.

(4)

Reflects a stock option granted under the Company’s New-Hire Equity Incentive Plan, as amended (the “New-Hire Plan”), in connection with such officer’s hiring, based on $102.60, the closing price of per share of our common stock on the date of grant.

(1)

Retired as President and Chief Executive Officer, effective January 16, 2021.

(2)

Amounts for 2019 reflect that such officer commenced employment with the Company effective May 7, 2019. Served as chief commercial officer from May 2019 until June 2020, and chief operating officer and president from June 2020 until January 2021.

(1)

Consists of stock options granted under the Company’s Second Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”). The underlying shares generally vest as follows: 25% of the shares vest on the one-year anniversary of the grant date; the remaining shares vest in 36 equal consecutive monthly increments thereafter, so that all of the shares will be vested on the four-year anniversary of the grant date.

(2)

Consists of stock options granted under the Company’s 2017 Equity Incentive Plan (the “2017 Plan”). The underlying shares generally vest as follows: 25% of the shares vest on the one-year anniversary of the grant date; the remaining shares vest in 36 equal consecutive monthly increments thereafter, so that all of the shares will be vested on the four-year anniversary of the grant date.

(3)

Consists of stock options granted under the New-Hire Plan. The underlying shares generally vest as follows: 25% of the shares vest on the one-year anniversary of the grant date; the remaining shares vest in 36 equal consecutive monthly increments thereafter, so that all of the shares will be vested on the four-year anniversary of the grant date.

•

other than for cause or upon the participant’s death or disability, the participant may exercise his or her option (to the extent the option was vested as of the date of termination) within such period of time ending on the earlier of (i) the date three months following the termination or (ii) the expiration of the term of the option. If the option is not exercised within such period, it will terminate.

•

upon the participant’s disability, the participant may exercise his or her option (to the extent the option was vested as of the date of termination) within such period of time ending on the earlier of (i) the date 12 months following the termination or (ii) the expiration of the term of the option. If the option is not exercised within such period, it will terminate.

•

as a result of the participant’s death, or if the participant dies within the period during which the option may be exercised after the termination of the participant’s continuous service for a reason other than death, the option may be exercised (to the extent the option was vested as of the date of death) by the participant’s estate within the period ending on the earlier of (i) the date 18 months following the date of death or (ii) the expiration of the term of the option. If the option is not exercised within such period, it will terminate.

•

for cause, the option will terminate upon the date of termination, and the participant will be prohibited from exercising his or her option from and after such time.

•

An annual base salary of $385,000.00, reviewed at least annually;

•

An opportunity for Mr. Jaramillo to receive an annual performance bonus in an amount of up to fifty-five percent (55%) of Mr. Jaramillo’s annual base salary for such fiscal year based upon achievement of certain performance goals to be established by the Board;

•

An opportunity to receive equity awards as determined by the Compensation Committee of the Board based on Mr. Jaramillo’s performance;

•

Prior to January 31, 2022, an opportunity to receive a stock option to purchase a number of shares of the Company’s common stock equal to 2.4% of the outstanding shares of common stock and preferred stock calculated on an as-converted basis to shares of the Company’s common stock basis, following approval of the Board;

•

Participation in welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available generally or to other senior executive officers of the Company;

•

Prompt reimbursement for all reasonable expenses incurred by Mr. Jaramillo in accordance with the plans, practices, policies and programs of the Company; and

•

Twenty-two days paid time off (PTO), to accrue and to be used in accordance with the Company’s policies and practices in effect from time to time, as well as all recognized Company holidays.

•

A base salary of $225,000, on an annualized basis, for the Employment Period;

•

An opportunity for Mr. Erb to receive an annual performance bonus in an amount of up to $56,250 based on performance in the following areas: relationships with capital markets, relationships with medical societies, transition to Mr. Jaramillo and such other areas a determined by the Board;

•

An opportunity to receive equity awards as determined by the Compensation Committee based on Mr. Erb’s performance;

•

Participation in welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available generally or to other senior executive officers of the Company and to the extent that Mr. Erb is eligible to participate in accordance with its terms;

•

Cost of continuation coverage under the Company’s group health plans for a period not to exceed twelve (12) months, if Mr. Erb becomes eligible for, and properly and timely elects, during the Employment Period continuation coverage under Section 4980B of the Internal Revenue Code of 1986;

•

Prompt reimbursement for all reasonable expenses incurred by Mr. Erb in accordance with the plans, practices, policies and programs of the Company; and

•

Eleven (11) days paid time off (PTO), on an annualized basis, to accrue and to be used in accordance with the Company’s policies and practices in effect from time to time, as well as all recognized Company holidays.

*

Less than one percent.

(1)

Except as otherwise described below, amounts reflect the number of shares that such holder could acquire through (i) the exercise of outstanding stock options, (ii) the exercise of outstanding warrants to purchase common stock, and (iii) the conversion of outstanding Series F Preferred Stock, in each case within 60 days after March 31, 2021.

(2)

Based on 6,531,942 shares outstanding as of March 31, 2021.

(3)

Consists of (i) 1,309 shares issuable upon the exercise of outstanding stock options, (ii) 700 shares issuable upon the exercise of outstanding warrants to purchase common stock and (iv) 18,200 shares issuable upon conversion of outstanding shares of Series F Convertible Preferred Stock (assuming all 100 shares of Series F Convertible Preferred Stock held by Mr. Erb are converted at once and rounded up to the nearest whole share).

(4)

Based on the Schedule 13G filed by Bigger Capital Fund, LP, Bigger Capital Fund GP, LLC, District 2 Capital Fund LP, District 2 Capital LP, District 2 GP LLC, District 2 Holdings LLC and Michael Bigger with the SEC on March 23, 2021. Consists of (i) 375,000 shares of common stock beneficially owned by Bigger Capital Fund, LP, (ii) 125,000 shares of common stock beneficially owned by District 2 Capital Funhd LP, and (iii) 15,000 shares of common stock beneficially owned by Mr. Bigger. The number of shares under “Right to Acquire” consists of (i) 65,994 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock beneficially owned by Bigger Capital Fund, LP and (ii) 3,333 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock beneficially owned by District 2 Capital Fund LP. Bigger Capital Fund GP, LLC is the general partner of, and may be deemed to beneficially own the securities owned by, Bigger Capital Fund, LP. Each of (i) District 2 Capital LP, as the investment manager of District 2 Capital Fund LP, (ii) District 2 GP LLC, as the general partner of District 2 Capital Fund LP, and (iii) District 2 Holdings LLC, as the managing member of District 2 GP LLC, may be deemed to beneficially own securities owned by District 2 Capital Fund LP. Mr. Bigger is the managing member of Bigger Capital Fund GP, LLC and is the managing member of District 2 Holdings LLC and may be deemed to beneficially own the securities held by Bigger Capital Fund, LP and District 2 Capital Fund LP. The percentage reported constitutes the percentage ownership of the outstanding common stock held by the reporting persons without reflecting for the exercise of the warrants. Pursuant to the terms of the warrants, the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise. The principal business office address for each of Bigger Capital Fund, LP, Bigger Capital Fund GP, LLC, and Michael Bigger is 2250 Red Springs Drive, Las Vegas, NV 89135, and the principal business office address for each of District 2 Capital Fund LP, District 2 Capital LP, District 2 GP LLC, and District 2 Holdings LLC is 175 W Carver Street, Huntington, NY 11743. Bigger Capital Fund, LP and Bigger Capital Fund GP, LLC report shared voting and investment powers over 375,000 shares of common stock and 65,994 shares issuable upon the exercise of outstanding warrants to purchase common stock; District 2 Capital Fund LP, District 2 Capital LP, District 2 GP LLC, and District 2 Holdings LLC report shared voting and investment powers over 125,000 shares of common stock and 3,333 shares issuable upon the exercise of outstanding warrants to purchase common stock; and Mr. Bigger reports shared voting and investment powers over 500,000 shares of common stock and 69,327 shares issuable upon the exercise of outstanding warrants to purchase common stock. Each of District 2 Capital LP, District 2 GP LLC, District 2 Holdings LLC and Mr. Bigger disclaims beneficial ownership of the shares of Common Stock beneficially owned by District 2 Capital Fund LP.

(5)

Based on the Schedule 13G filed by Empery Asset Management, LP, Ryan M. Lane and Martin D. Hoe on March 24, 2021. Empery Asset Management, LP (the “Investment Manager) is the investment manager of, and may be deemed to beneficially own securities owned by the funds to which it serves as Investment Manager (the “Empery Funds”). Each of Mr. Lane and Mr. Hoe is a managing member of Empery AM GP, the general partner of the Investment Manager, and may be deemed to be the beneficial owner of the securities owned by the Empery Funds. The number of shares under “Right to Acquire” consists of (i) 370,000 shares of common stock and (ii) 479,333 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock. Each of the reporting persons shares voting and investment power over the shares. The percentage in this table reflects that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise.

•

reviewed and discussed the Company’s audited consolidated financial statements with management and the independent registered public accounting firm;

•

discussed with the independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) and the SEC;

•

assessed the permissibility of, and pre-approved, all audit, audit-related and non-audit services provided by the independent registered public accounting firm; and

•

received the written disclosures and letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence.

(1)

Audit fees in 2020 and 2019 consisted of fees relating to the audit of the Company’s annual consolidated financial statements included in our Annual Report on Form 10-K, the review of interim condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q, the review of the Company’s registration statements and the completion of comfort letter procedures associated with the Company’s securities offerings.

(2)

Audit-related fees in 2020 and 2019 consisted of fees relating to the review of the Company’s registration statements and the completion of comfort letter procedures associated with the Company’s securities offerings.

(3)

Tax fees in 2020 and 2019 consisted of fees for tax compliance, tax advice and tax planning services. Such fees primarily related to federal and state tax compliance and planning.

(4)

Includes fees in the amount of $15,614and $9,037 that were paid in 2020 and 2019, respectively, to affiliates of Baker Tilly for tax services outside of the U.S.

•

Align the interests of management with those of stockholders;

•

Provide fair and competitive compensation;

•

Integrate compensation with the Company’s business plans;

•

Reward both business and individual performance; and

•

Attract and retain key executives that are critical to the success of the Company.

(1)

Consists of shares of our common stock that may be issued pursuant to outstanding stock options under the 2011 Plan, the 2017 Plan and the 2013 Directors’ Plan.

(2)

Consists of 51,590 shares of our common stock remaining available for future issuance under the 2017 Plan and 6,568 shares of our common stock remaining available for future issuance under the 2013 Directors’ Plan. No additional awards may be issued under the 2002 Stock Plan or the 2011 Equity Incentive Plan.

(3)

Consists of shares of our common stock that may be issued pursuant to outstanding stock options under the New-Hire Plan. The Board approved the New-Hire Plan in July 2013. The New-Hire Plan provides for the grant of the following awards: options not intended to qualify as incentive stock options under Section 422 of the Code, restricted stock awards, RSU awards, stock appreciation rights and other stock awards. Eligible award recipients are individuals entering into employment with the Company who were not previously employees or directors of the Company or following a bona fide period of non-employment. All awards must constitute inducements material to such individuals’ entering into employment with the Company within the meaning of the Nasdaq listing rules, and all awards must be granted either by the Compensation Committee or a majority of the Company’s independent directors. Promptly following the grant of an award under the New-Hire Plan, the Company must (i) issue a press release disclosing the material terms of the award and (ii) notify Nasdaq that it granted such award in reliance on the “inducement grant exemption” from Nasdaq’s stockholder approval requirements for equity compensation plans.