Item 5.02. Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On December 6, 2021, Adial Pharmaceuticals, Inc.
(the “Company”) appointed Cary Claiborne as the Company’s Chief Operating Officer. On
November 2, 2021, Mr. Claiborne was appointed to serve as a Class I member of the Company’s Board of Directors (the “Board”)
and will continue to serve as both a director and an executive officer of the Company.
In connection with the appointment of Mr. Claiborne
as Chief Operating Officer of the Company, the Company and Mr. Claiborne entered into a three-year employment agreement (the “Employment
Agreement”). Pursuant to the terms of the Employment Agreement, Mr. Claiborne receives an annual base salary of $304,000, has a
target bonus opportunity equal to 25% of his base salary and devotes no less than 80% of his business time to the affairs of the Company.
Mr. Claiborne’s annual salary is subject to increase at the discretion of the Board. The Board may, in its discretion, pay a portion
of Mr. Claiborne’s annual bonus in the form of cash or equity or equity-based awards (or any combination thereof). Mr. Claiborne
is also subject to certain restrictive covenants, including a non-competition (applicable during employment and for 24 months thereafter),
customer non-solicitation and employee and independent contractor non-solicitation (each applicable during employment and for 12 months
thereafter), as well as confidentiality (applicable during employment and 7 years thereafter) and non-disparagement restrictions (applicable
during employment and at all times thereafter).
In the event that Mr. Claiborne’s employment
is terminated by the Company other than for Cause, or upon his resignation for Good Reason (as such terms are defined in the Employment
Agreement), Mr. Claiborne will be entitled to any unpaid bonus earned in the year prior to the termination, a pro-rata portion of the
bonus earned during the year of termination, continuation of base salary for 6 months, plus 12 months of COBRA premium reimbursement.
In the event that Mr. Claiborne’s employment
is terminated due to his death or Disability, Mr. Claiborne (or his estate) will be entitled to any unpaid bonus earned in the year prior
to the termination, a pro-rata portion of the bonus earned during the year of termination, 12 months of COBRA premium reimbursement and
accelerated vesting of (a) all equity awards received in payment of base salary or an annual bonus and (b) with respect to any other equity
award, the greater of the portion of the unvested equity award that would have become vested within 12 months after the termination date
had no termination occurred and the portion of the unvested equity award that is subject to accelerated vesting (if any) upon such termination
under the applicable equity plan or award agreement (with performance goals deemed earned at not less than target performance, and with
any equity award that is in the form of a stock option or stock appreciation right to remain outstanding and exercisable for 12 months
following the termination date or, if longer, such period as provided under the applicable equity plan or award agreement (but in no event
beyond the expiration date of the applicable option or stock appreciation right).
All severance payments to Mr. Claiborne will be
subject to the execution and non-revocation of a release of claims by Mr. Claiborne or his estate, as applicable.
There are no family relationships
between Mr. Claiborne and any of the Company’s directors or executive officers, nor does Mr. Claiborne have any direct or indirect
material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K. Other than as described below,
there were no arrangements or understandings by which Mr. Claiborne was appointed as the Company’s Chief Operating Officer.
In connection with his
appointment as Chief Operating Officer of the Company, Mr. Claiborne was awarded an option to purchase 130,000 shares of the Company’s
common stock at an exercise price of $2.77 per share, vesting pro rata on a monthly basis over a thirty-six month period, and exercisable
for a period of ten years from the date of grant.
Mr. Claiborne previously
served as CFO and board member of Indivior PLC, a publicly traded specialty pharmaceutical company developing medicines to treat addiction
and serious mental illnesses, from November 2014 until February 2018, when he left Indivior and focused his efforts on Prosperity Capital
Management, LLC, a Private Investment and Advisory firm, which he founded in 2001, and where he is currently the CEO. Among his accomplishments,
Mr. Claiborne led Indivior’s spin off from its then parent company, Reckitt Benckiser to become an independent, publicly listed
company. While at Indivior, he established and oversaw corporate reporting, internal audit, tax, treasury, external audit and information
technology.
Prior to joining Indivior,
from 2011 until 2014 Mr. Claiborne served as the CFO of Sucampo Pharmaceuticals, Inc., a global biopharmaceutical company, which was later
sold to Mallinckrodt. Before joining Sucampo, Mr. Claiborne served as CFO and Corporate Secretary of Osiris Therapeutics, Inc. and oversaw
corporate finance during the company’s initial public offering. Other previous positions include executive officer or finance roles
in a number of companies including, without limitation New Generation Biofuels, Inc. (Nasdaq: NGBF), where he served as CFO and then CEO,
Constellation Energy, The Home Depot, MCI, and GE Capital, and GE, where he worked for 15 years. Cary was also a member of the board of
directors of MedicAlert Foundation from 2013-2016, where he served as the Chairman of their Audit & Finance Committees.
Mr. Claiborne graduated
from Rutgers University with a B.A. in Business Administration and from Villanova University with an M.B.A. and was a National Association
of Corporate Directors (NACD) Governance Fellow.
Upon Mr. Claiborne’s
appointment as Chief Operating Officer, Mr. Truluck resigned as Chief Operating Officer but remains as the Company’s Chief Financial
Officer.