DEFA14A: Cue Biopharma Challenges ISS Recommendation on 2025 Stock Incentive Plan, Citing Miscalculated Dilution

Cue Biopharma, Inc. has issued a supplement to its proxy statement, disagreeing with Institutional Shareholder Services' recommendation against its 2025 Stock Incentive Plan, asserting ISS double-counted shares and inflated plan cost.

Summary

• This document is a supplement to Cue Biopharma, Inc.'s definitive proxy statement filed on April 25, 2025, for the 2025 Annual Meeting of Stockholders scheduled for Wednesday, June 4, 2025.
• The supplement addresses a report issued by the proxy advisory firm Institutional Shareholder Services (ISS) on May 15, 2025, which recommended stockholders vote against the company's 2025 Stock Incentive Plan (Proposal 5).
• Cue Biopharma respectfully disagrees with ISS's recommendation, stating that ISS incorrectly calculated the plan cost by double-counting shares.
• The company asserts that ISS included 6,336,365 shares remaining available under the Cue Biopharma, Inc. 2016 Omnibus Incentive Plan (Current Plan) in addition to the maximum 6,200,000 shares requested for approval under the 2025 Plan.
• Cue Biopharma clarifies that if the 2025 Plan is approved, no further awards will be granted under the Current Plan, and the maximum shares available under the 2025 Plan will not exceed the shares available under the Current Plan as of the Annual Meeting Date.
• Based on its own calculation, using only the shares requested under the 2025 Plan, the company estimates its plan cost to be approximately 24.6% for available shares.
• As of April 16, 2025, after giving effect to a recently completed underwritten public offering, the company had 12,338,461 outstanding stock options with a weighted average exercise price of $4.91 and a weighted average remaining contractual term of 7.43 years.
• The number of common stock outstanding as of April 16, 2025, was 75,349,881, and the calculated equity overhang based on maximum total shares available for new awards and current outstanding stock options is 24.6%.

Sentiment

Score: 4

Explanation: The document addresses a negative recommendation from ISS regarding a key corporate governance proposal. While the company provides a strong rebuttal and clarification, the existence of the 'against' recommendation itself is a negative factor that could impact the vote outcome. The proactive clarification is a positive, but the underlying issue is a challenge.

Positives

• The company proactively issued a detailed clarification to address concerns raised by a major proxy advisory firm (ISS), demonstrating transparency and responsiveness.
• Cue Biopharma provided its own calculation of the plan cost at approximately 24.6% for available shares, which, if accepted by shareholders, suggests a lower dilution impact than implied by ISS's initial assessment.

Negatives

• Institutional Shareholder Services (ISS), a prominent proxy advisory firm, recommended that stockholders vote against the company's 2025 Stock Incentive Plan (Proposal 5).
• The disagreement with ISS could lead to increased scrutiny from institutional investors and potentially make it more challenging to secure stockholder approval for the 2025 Stock Incentive Plan.

Risks

• There is a risk that stockholders may vote against Proposal 5 (the 2025 Stock Incentive Plan) due to the negative recommendation from ISS, which could hinder the company's ability to grant new equity awards and incentivize employees.
• Misinterpretation or continued disagreement regarding equity compensation plan details could lead to negative investor sentiment or voting outcomes.

Future Outlook

The document primarily focuses on clarifying details of the proposed 2025 Stock Incentive Plan and addressing a proxy advisory firm's recommendation. It does not provide broader forward-looking statements regarding financial performance, strategic initiatives, or operational guidance beyond the immediate need for stockholder approval of the equity plan.

Management Comments

• "We respectfully disagree with the ISS recommendation for the reasons outlined below, and we strongly encourage our stockholders to vote FOR Proposal 5 in the 2025 Proxy Statement."
• "We believe that ISS, in connection with its vote recommendation, calculated plan cost incorrectly by including — and therefore double counting — the up to 6,336,365 shares remaining available for future grants of awards under the Cue Biopharma, Inc. 2016 Omnibus Incentive Plan... in addition to the maximum number of shares requested of 6,200,000 for approval under the 2025 Plan, resulting in an inflated plan cost calculation and excessive dilution."
• "Pursuant to the 2025 Plan terms, as described in the 2025 Proxy Statement and consistent with the Boards and the Companys intentions, it is not possible for both the shares remaining available under the Current Plan and the maximum number of shares that could become available under the 2025 Plan to be granted."

Industry Context

This filing highlights the significant influence of proxy advisory firms like ISS on corporate governance matters, particularly regarding executive and employee compensation plans. Disagreements between companies and these firms over methodologies for calculating equity plan costs and potential dilution are common, as such recommendations can heavily sway institutional investor votes. The biotechnology sector, in particular, relies heavily on equity compensation to attract and retain specialized talent, making the approval of such plans critical.

Comparison to Industry Standards

• Proxy advisory firms like ISS typically evaluate equity compensation plans against proprietary benchmarks for dilution, burn rate, and equity overhang, often comparing them to industry peers.
• The company's calculated equity overhang of 24.6% should be assessed against typical overhang percentages for biotechnology companies of similar size and stage, as these can vary significantly across industries and company lifecycles.
• While the document does not name specific comparable companies or projects, the dispute with ISS suggests that ISS's initial calculation of the plan's cost or dilution likely exceeded what is considered acceptable or typical for such plans within the industry, leading to their 'against' recommendation.

Corporate Governance

Stakeholder Impact

• Shareholders: The outcome of the vote on the 2025 Stock Incentive Plan directly impacts potential future dilution from equity grants. The company's clarification aims to assure shareholders that the dilution impact will be less than implied by ISS's calculation.
• Employees: The approval of the 2025 Stock Incentive Plan is critical for the company's ability to continue offering equity-based compensation, which is a key component of employee incentives, recruitment, and retention, particularly in the competitive biotechnology industry.

Next Steps

• Stockholders are encouraged to vote on Proposal 5 (Approval of Cue Biopharma, Inc. 2025 Stock Incentive Plan) at the Annual Meeting of Stockholders on June 4, 2025.

Key Dates

Recommendation

Keywords

Cue Biopharma, SEC filing, DEFA14A, proxy statement, stock incentive plan, ISS, Institutional Shareholder Services, corporate governance, equity compensation, shareholder vote, dilution, CUE, biotechnology, biopharma