KemPharm Inc Annual Report 2019

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FY2019 Annual Report · KemPharm Inc

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
(Amendment No. 1)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-36913

KemPharm, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)

20-5894398
(I.R.S. Employer Identification No.)

1180 Celebration Boulevard, Suite 103, Celebration, FL 34747
(Address of Principal Executive Offices and Zip Code)

(321) 939-3416
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $0.0001 par value

Trading Symbol
KMPH

Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
(Nasdaq Capital Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2019, the last business day
of the registrant’s most recently completed second fiscal quarter, was approximately $38,659,464, based upon the closing sales price for the registrant’s
common stock, as reported on the Nasdaq Stock Market, on June 28, 2019. The calculation of the aggregate market value of voting and non-voting
common equity excludes 6,767,421 shares of common stock the registrant held by executive officers, directors and stockholders that the registrant
concluded were affiliates of the registrant on that date. Exclusion of such shares should not be construed to indicate that any such person possesses the
power, direct or indirect, to direct or cause the direction of management or policies of the registrant or that such person is controlled by or under common
control with the registrant.

As of April 7, 2020, the registrant had 57,160,111 shares of common stock outstanding.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A to Form 10-K for the fiscal year ended December 31, 2019 is being filed to provide the additional information
required by Part III of Form 10-K. In addition, we are also including Exhibits 31.1, 31.2, 32.1 and 32.2 required by the filing of this Amendment No. 1.

Except as otherwise stated herein, this Amendment No. 1 on Form 10-K/A does not change the previously reported financial statements or any of the other
disclosures contained in Part I or Part II of the Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on February 28, 2020, or the
Annual Report. Accordingly, this Amendment No. 1 on Form 10-K/A should be read in conjunction with the Annual Report and the Company’s filings
made with the SEC subsequent to the filing of the Annual Report. The filing of this Amendment No. 1 is not an admission that the Annual Report, when
originally filed, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.

Unless the context otherwise requires, we use the terms “KemPharm,” “Company,” “we,” “us” and “our” in this Amendment No. 1 on Form 10-K/A to
refer to KemPharm, Inc.

TABLE OF CONTENTS

PART III

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services

Signatures
Exhibit Index

Page

3
7
20
23
28

29
31

ITEM
10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

EXECUTIVE OFFICERS

PART III

The following table sets forth information concerning our executive officers and a significant employee, including their ages as of December 31, 2019:

Name
Executive Officers

Travis C. Mickle, Ph.D

Sven Guenther, Ph.D
R. LaDuane Clifton, CPA

Significant Employees

Timothy J. Sangiovanni, CPA

Age

Position

47
47

President, Chief Executive Officer and Chairman of the
Board
Executive Vice President, Research and Development
Chief Financial Officer, Secretary and Treasurer

Vice President, Corporate Controller

Executive Officers

Travis C. Mickle, Ph.D.

Biographical information regarding Dr. Mickle is set forth under “Directors Continuing in Office Until the 2022 Annual Meeting.”

Sven Guenther, Ph.D.

Dr. Guenther joined our company as our group leader of research in 2007 and served as a member of our board of directors from April 2012 to April 2015,
and has served as our executive vice president, research and development since May 2014. Prior to joining our company, Dr. Guenther served as a research
scientist for New River Pharmaceuticals from 2003 to 2007. Dr. Guenther received his Ph.D. degree from the University of Iowa.

R. LaDuane Clifton, CPA

Mr. Clifton has served as our chief financial officer since June 2015 and as our secretary and treasurer since February 2016. Previously, Mr. Clifton served
as our vice president of finance and corporate controller from April 2015 to June 2015. Prior to joining our company, Mr. Clifton served in a variety of
positions with The LGL Group, Inc., a publicly held producer of industrial and commercial products and services, from August 2009 to February 2015,
including chief financial officer, secretary and treasurer from December 2012 to February 2015, chief accounting officer and secretary from March 2010 to
December 2012, and corporate controller from August 2009 to March 2010. From August 2008 to August 2009, Mr. Clifton served as the chief financial
officer of a21, Inc., a publicly held holding company with businesses in stock photography and the online retail and manufacture of framed art, and as its
corporate controller from March 2007 to August 2008. Mr. Clifton served in a variety of finance and medical cost analysis roles with Aetna, Inc., a publicly
held provider of healthcare benefits, from August 1991 to August 2004. Mr. Clifton was an auditor with KPMG, LLP from August 2004 to March 2007.
Mr. Clifton received his B.B.A. and M.B.A. degrees from the University of North Florida and is a certified public accountant in the state of Florida.

Significant Employees

Timothy J. Sangiovanni, CPA

Mr. Sangiovanni has served as our vice president, corporate controller since February 2017. Previously, Mr. Sangiovanni served as our director of financial
reporting since August 2015. Prior to joining our company, Mr. Sangiovanni served as manager of internal audit – worldwide, with Tupperware Brands
Corporation, a publicly-held marketer of home and personal care products from April 2013 to August 2015. From January 2007 to March 2013, Mr.
Sangiovanni served in a variety of roles with KPMG, LLP, including audit associate, senior audit associate and audit manager. Mr. Sangiovanni was a
billing analyst with Switch and Data Facilities, Inc. (n/k/a Equinix, Inc.) from October 2005 to December 2006. Mr. Sangiovanni received his B.A. in
Accounting from the University of South Florida and is a certified public accountant in the state of Florida.

BOARD OF DIRECTORS

Our board of directors, or our Board, is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors,
and each class has a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director
elected by the Board to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the
full term of that class and until the director’s successor is duly elected and qualified.

The Board presently has five members. There are two directors in the class whose term of office expires in 2020. Each of the nominees listed below is
currently a director of the Company who was previously elected by the stockholders. If elected at the Annual Meeting, each of these nominees would serve
until the 2023 annual meeting of our stockholders and until his successor has been duly elected and qualified, or, if sooner, until the director’s death,
resignation or removal. It is our policy to encourage directors and nominees for director to attend the Annual Meeting. All of our directors attended the
2019 annual meeting of our stockholders.

Directors Continuing in Office until the 2020 Annual Meeting

Richard W. Pascoe

Mr. Pascoe, age 55 as of December 31, 2019, has served as a director of our company since January 2014 and our lead independent director since
November 2014. Since January 2019, Mr. Pascoe has served as the chairman of the board of directors and chief executive officer of Histogen Inc, a
biologics company. From March 2013 to January 2019, Mr. Pascoe was the chief executive officer and director of Apricus Biosciences. From August 2008
to March 2013, Mr. Pascoe was the president and chief executive officer and a director of Pernix Sleep, Inc. (formerly known as Somaxon Pharmaceuticals,
Inc.), a specialty pharmaceutical company. Prior to Pernix, from 2005 to 2008, Mr. Pascoe worked for ARIAD Pharmaceuticals, Inc., a specialty
pharmaceutical company, where he was most recently senior vice president and chief operating officer. Mr. Pascoe also serves as a director of Seelos
Therapeutics, Inc, a specialty pharmaceutical company. Mr. Pascoe received his B.S. degree from the United States Military Academy at West Point. Our
Board believes that Mr. Pascoe’s experience as a pharmaceutical company executive provides him with the qualifications and skills to serve as a director of
our company.

David S. Tierney

Dr. Tierney, age 56 as of December 31, 2019, has served as a director of our company since March 2015. From September 2019 until January 2020, Dr.
Tierney served as President & CEO of BiopharmX (BPMX:NYSEAMERICAN) a dermatology drug development company. From March 2014 until March
2018 Dr. Tierney was President & CEO of Icon Bioscience, a private ophthalmology company which was merged into Psivida, Inc to form Eyepoint
Pharmaceuticals. From January 2013 until March 2014, Dr. Tierney was a venture partner at Signet Healthcare Partners, a New York City based life science
private equity fund. Dr. Tierney served as President & COO and as a member of the board of directors of Oceana Therapeutics, Inc., a private specialty
pharmaceutical company, from its organization in 2008 through its sale to Salix Pharmaceuticals, Ltd. in December 2011. Dr. Tierney served as the
president and chief executive officer and as a member of the board of directors of Valera Pharmaceuticals, Inc., a specialty pharmaceutical company,
between August 2000 and April 2007, when Valera completed a merger with lndevus Pharmaceuticals, Inc. From January 2000 to August 2000, Dr. Tierney
served as president of Biovail Technologies, a division of Biovail Corporation, a Canadian drug delivery company. From March 1997 to January 2000, Dr.
Tierney was senior vice president of drug development at Roberts Pharmaceutical Corporation and from December 1989 to March 1997, Dr. Tierney was
employed by Elan Corporation, a pharmaceutical company, in a variety of management positions. Dr. Tierney is also a director of Catalyst Pharmaceuticals,
Inc (CPRX:NASDAQ), BiopharmX (BPMX:NYSEAMERICAN) and Bimeda, Inc a private global veterinary pharmaceutical company. Dr. Tierney
received his medical degree from the Royal College of Surgeons in Dublin, Ireland and was subsequently trained in internal medicine. Our Board believes
that Dr. Tierney's experience as a pharmaceutical company executive provides him with the qualifications and skills to serve as a director of our company.

Directors Continuing in Office Until the 2021 Annual Meeting

Matthew R. Plooster

Mr. Plooster, age 38 as of December 31, 2019, has served as a director of our company since March 2011. Mr. Plooster co-founded Bridgepoint Investment
Banking, a division of Bridgepoint Holdings, LLC , where he has served as a managing director since March 2012. Previously, Mr. Plooster worked as an
investment banker from 2004 to 2012 at various firms including, Morgan Stanley and Deutsche Bank. Mr. Plooster received his Certificate in Business
Excellence from Columbia Business School and his B.A. degree from the University of Chicago. Our Board believes that Mr. Plooster’s experience as an
investor in and transaction experience with healthcare companies, as well as other board of director’s experience, provides him with the qualifications and
skills to serve as a director of our company.

Joseph B. Saluri

Mr. Saluri, age 53 as of December 31, 2019, has served as a director of our company since January 2014. Since August 2018, Mr. Saluri has served as
chairman of the board and chief executive officer of BlueAllele, LLC, a start-up biotechnology company. Mr. Saluri previously served as executive vice
president and general counsel for, Calyxt, Inc. from June 2017 to March 2018. Prior to his employment with Calyxt, Inc., Mr. Saluri served as vice
president and general counsel for Stine Seed Company and its affiliates from July 1999 to March 2017. Prior to his employment with Stine, Mr. Saluri
practiced as an attorney and solicitor at law with Nicholas Critelli Associates, PC, in Des Moines, Iowa and London, England from June 1993 to June 1999.
Mr. Saluri served as a director of Newlink Genetics Corporation, a public biopharmaceutical company from May 2010 to July 2017. Mr. Saluri received his
J.D. degree from Drake University Law School and his B.S.B.A. degree from Drake University. Our Board believes that Mr. Saluri’s extensive legal
background and experience in corporate management, finance and investor relations provides him with the qualifications and skills to serve as a director of
our company.

Director Continuing in Office Until the 2022 Annual Meeting

Travis C. Mickle, Ph.D.

Dr. Mickle, age 46 as of December 31, 2019, is a co-founder of our company and has served as a member of our Board since our inception in 2006 and
chairman of our Board since November 2014. Dr. Mickle served as our president and chief scientific officer from 2006 to October 2010, and has served as
our president and chief executive officer since October 2010. Prior to founding our company, Dr. Mickle spent five years with New River Pharmaceuticals,
a specialty pharmaceutical company, where he was a senior research scientist from 2001 to 2002, the director of chemistry from 2002 to 2003 and the
director of drug discovery and CMC from 2003 to 2005. Dr. Mickle received his Ph.D. degree from the University of Iowa and his B.A. degree from
Simpson College. Our Board believes that Dr. Mickle’s leadership of our company since its inception, knowledge of our company as founder and
experience with pharmaceutical companies provides him with the qualifications and skills to serve as a director of our company.

INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

Independence of the Board of Directors

As required under the Nasdaq Stock Market, or Nasdaq, listing standards, a majority of the members of our Board must qualify as “independent,” as
affirmatively determined by the Board. Our Board consults with our counsel to ensure that the Board’s determinations are consistent with relevant
securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as in
effect from time to time.

Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family
members, and the Company, its senior management and its independent registered public accounting firm, the Board has affirmatively determined that the
following four directors are independent directors within the meaning of the applicable Nasdaq listing standards: Messrs. Pascoe, Plooster, Saluri, and
Tierney.

In making this determination, the Board found that none of these directors had a material or other disqualifying relationship with us. The Board considered
the current and prior relationships that each non-employee director has with us and all other facts and circumstances our Board deemed relevant in
determining their independence, including the beneficial ownership of our capital stock by each non-employee director. Dr. Mickle, our president and chief
executive officer, is not an independent director by virtue of his employment with the Company.

INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS

The Board has three committees: the audit committee of the Board, or the Audit Committee, the compensation committee of the Board, or the
Compensation Committee, and the nominating and corporate governance committee of the Board, or the Nominating and Corporate Governance
Committee. The following table provides membership and meeting information for 2019 for each of the Board committees:

Name
Travis C. Mickle, Ph.D.
Richard W. Pascoe (2)
Matthew R. Plooster
Joseph B. Saluri
Danny L. Thompson (3)
David S. Tierney
Total meetings in 2019

Audit (1)

Compensation

X
X*
X
6

X
X*

X
4

Nominating
and
Corporate
Governance

X
X*

X
2

* Committee Chairperson
(1) Our Board has determined that each member of the Audit Committee is an independent director under the Nasdaq listing
rules and under Rule 10A-3 under Securities Exchange Act of 1934, as amended, or the Exchange Act.
(2) Our Board has determined that Mr. Pascoe is an "audit committee financial expert" as defined by SEC rules and
regulations and based on a qualitative assessment of Mr. Pascoe's level of knowledge and experience based on a number of
factors including his previous business experience as described above under the section titled "Directors Continuing in
Office until the 2020 Annual Meeting."
(3) Mr. Thompson resigned as a Director and Chairperson of the Audit Committee on September 18, 2019. At that time,
Mr. Pascoe was appointed Chairperson of the Audit Committee and Mr. Tierney was appointed to replace Mr. Thompson on
the Audit Committee.

Code of Ethics

We have adopted the KemPharm, Inc. Code of Business Conduct and Ethics, or the Code of Conduct, that applies to all officers, directors and employees.
The Code of Conduct is available on our website at www.kempharm.com. If we make any substantive amendments to the Code of Conduct or grant any
waiver from a provision of the Code of Conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on
our website.

ITEM
11.

EXECUTIVE COMPENSATION

Our chief executive officer and two of our other most highly compensated executive officers for the year ended December 31, 2019 are listed below:

● Travis C. Mickle, Ph.D., our president, chief executive officer and chairman of the board;

● Sven Guenther, Ph.D., our executive vice president, research and development; and

● R. LaDuane Clifton, CPA, our chief financial officer, secretary and treasurer:

We refer to these executive officers as our named executive officers.

Summary Compensation Table

The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the years ended December 31,
2019 and 2018, as applicable.

Name and Principal Position
Travis C. Mickle, Ph.D

President, chief executive officer and
chairman of the board

Sven Guenther, Ph.D

Executive vice president, research and
development

R. LaDuane Clifton, CPA

Chief financial officer, secretary and
treasurer

Year
2019
2018

2019
2018

Salary
($)
527,875
512,500

363,875
353,333

348,500
337,500

Option
Awards
($) (1)
825,807
899,879

311,906
302,948

All Other
Compensation
($) (2)
6,492
11,000

11,950
11,440

4,520
6,876

Total
($)
1,360,174
1,423,379

687,731
693,606

664,926
647,324

(1) The amounts reflect the full grant date fair value for awards granted during 2019 and 2018, respectively. The grant date
fair value was computed in accordance with ASC Topic 718, Compensation—Stock Compensation. Unlike the
calculations contained in our financial statements, this calculation does not give effect to any estimate of forfeitures
related to service-based vesting, but assumes that the executive will perform the requisite service for the award to vest
in full. The assumptions we used in valuing options are described in Note L to our audited financial statements
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

(2) See “Narrative to Summary Compensation Table—Other Compensation” for a description of the items in this column.

Compensation Committee Processes and Procedures

Our executive compensation is reviewed on an annual basis by our Compensation Committee. Our chief executive officer may not participate in, or be
present during, any deliberations or determinations of the Compensation Committee regarding his compensation. The charter of the Compensation
Committee grants the Compensation Committee full access to all books, records, facilities and personnel of the Company. In addition, under the
Compensation Committee’s charter, the Compensation Committee has the authority to obtain, at the expense of the Company, advice and assistance from
internal and external legal, accounting or other advisors and other external resources that the Compensation Committee considers necessary or appropriate
in the performance of its duties. The Compensation Committee has direct responsibility for the oversight of the work of any advisers engaged for the
purpose of advising the Compensation Committee. In particular, the Compensation Committee has the authority to retain compensation consultants to assist
in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.
Under the Compensation Committee’s charter, the Compensation Committee may select, or receive advice from, a compensation consultant, legal counsel
or other adviser to the Compensation Committee, other than in-house legal counsel and certain other types of advisers, only after taking into consideration
six factors, prescribed by the SEC and Nasdaq, that bear upon the adviser’s independence. However, there is no requirement that any adviser be
independent.

During 2018, with consideration of the factors prescribed by the SEC and Nasdaq, the Compensation Committee extended its engagement with Radford, an
Aon Hewitt company, as a compensation consultant. The Compensation Committee requested that Radford provide an update to its report from 2017 in
which Radford provided the following:

●

an evaluation of the efficacy of the Company’s existing compensation strategy and practices in supporting and reinforcing the Company’s long-term
strategic goals; and

● assistance in refining the Company’s compensation strategy and implementation of a non-employee director and executive compensation programs.

As part of its engagement, the Compensation Committee requested that Radford review the comparative group of companies previously selected, and to use
the updated comparative group to perform analyses of competitive performance and compensation levels prevailing within that group and to perform
analyses of competitive performance and compensation levels for that group. Radford developed recommendations that were presented to the
Compensation Committee for its consideration. Following discussion with Radford and management, the Compensation Committee recommended that our
Board approve the recommendations from Radford for our non-employee directors in 2018.

In 2019, the Compensation Committee did not engage any compensation consultants, but considered the report and recommendations of Radford from
2018 when making compensation decisions for our non-employee directors and executive offices in 2019.

The Compensation Committee endeavors to make significant adjustments to annual compensation, determine bonus and equity awards and establish new
performance objectives at one or more meetings held during the first quarter of the year. However, the Compensation Committee also considers matters
related to individual compensation, such as compensation for new executive hires, as well as high-level strategic issues, such as the efficacy of our
compensation strategy, potential modifications to that strategy and new trends, plans or approaches to compensation, at various meetings throughout the
year. Generally, the Compensation Committee’s process comprises two related elements: the determination of compensation levels and the establishment of
performance objectives for the current year. For executives other than the chief executive officer, the Compensation Committee solicits and considers
evaluations and recommendations submitted to it by the chief executive officer. In the case of the chief executive officer, the evaluation of his performance
is conducted by the Compensation Committee, which determines any adjustments to his compensation as well as awards to be granted. For all executive
officers, as part of its deliberations, the Compensation Committee may review and consider, as appropriate, materials such as financial reports and
projections, operational data, tax and accounting information, tally sheets that set forth the total compensation that may become payable to executives in
various hypothetical scenarios, executive stock ownership information, company stock performance data, analyses of historical executive compensation
levels and current Company-wide compensation levels and recommendations of the Compensation Committee’s compensation consultant, including
analyses of executive compensation paid at other companies identified by the consultant.

Narrative to Summary Compensation Table

We review compensation at least annually for all employees, including our executives. In setting executive base salaries and bonuses and granting equity
incentive awards, we consider compensation for comparable positions in the market, the historical compensation levels of our executives, individual
performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term results that are in the
best interests of our stockholders, and a long-term commitment to our company. We do not target a specific competitive position or a specific mix of
compensation among base salary, bonus or long-term incentives. The Compensation Committee has historically determined our executives’ compensation.
Our Compensation Committee typically reviews and discusses management’s proposed compensation with the chief executive officer for all executives
other than the chief executive officer. Based on those discussions and its discretion, our Compensation Committee, without members of management
present, discusses and ultimately approves the compensation of our executive officers.

Annual Base Salary

Our named executive officers’ base salaries are reviewed periodically by our Compensation Committee, and adjustments may be made upon the approval
of the Compensation Committee.

Effective March 1, 2018, our Compensation Committee approved an increase in Dr. Mickle’s, Dr. Guenther’s and Mr. Clifton annual base salaries to
$515,000, $355,000, and $340,000 respectively.

Effective March 1, 2019, our Compensation Committee approved an increase in Dr. Mickle’s, Dr. Guenther’s and Mr. Clifton annual base salaries to
$530,450, $365,650, and $350,200 respectively.

Effective March 1, 2020, our Compensation Committee approved an increase in Dr. Guenther’s annual base salary to $376,620.

Annual Bonus and Non-Equity Incentive Plan Awards

Our Board and Compensation Committee may make cash bonus and non-equity incentive plan awards in their discretion.

In April 2019, our Compensation Committee determined that no cash awards would be paid to our executive officers for their services in 2018 and in
February 2020, our Compensation Committee determined that no cash awards would be paid to our executive officers for their services in 2019.

Long-Term Incentives

Our 2014 equity incentive plan, or the 2014 Plan, authorizes us to make grants to eligible recipients of non-qualified stock options, incentive stock options
and other stock-based awards. All of our awards under this plan have been in the form of stock options.

We typically grant stock options at the start of employment to each executive and our other employees. Through December 31, 2019, we have not
maintained a policy of granting additional equity on an annual basis, but we have retained discretion to provide additional targeted grants in appropriate
circumstances.

We award stock options to employees who are not officers of the Company on the date the single person non-officer stock award subcommittee of the
Compensation Committee approves the grant. If employees are officers of the Company we award stock options on the date the Compensation Committee
approves the grant. We set the option exercise price as the last reported sale price of our common stock on The Nasdaq Stock Market on the date of grant.

In January 2018, we granted Dr. Mickle an option to purchase 225,000 shares of our common stock. The shares subject to this option will vest in equal
annual installments over a period of four years. The exercise price of this option is $5.50 per share, which equaled the closing sale price per share of our
common stock as reported on The Nasdaq Stock Market on the date of grant. In February 2019, we granted Dr. Mickle an option to purchase 420,000
shares of our common stock. The shares subject to this option will vest in equal annual installments over a period of four years. The exercise price of this
option is $2.66 per share, which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of
grant. In November 2019, we granted Dr. Mickle an option to purchase 36,000 shares of our common stock. The shares subject to this option will vest in
full and become immediately exercisable upon the achievement of specified product development milestones. The exercise price of this option is
$0.5161 per share, which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of grant. In
February 2020, we granted Dr. Mickle an option to purchase 420,000 shares of our common stock. The shares subject to this option will vest in full and
become immediately exercisable upon the achievement of specified product development milestones. The exercise price of this option is $0.374 per share,
which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of grant. All shares underlying
these options will vest in full and become immediately exercisable upon a change of control of the Company or if the Dr. Mickle is terminated without
cause or resigns for good reason (each as defined in Dr. Mickle’s employment agreement, discussed under “Employment Arrangements and Potential
Payments upon Termination of Employment” herein). With respect to equity awards that vest based on the attainment of performance goals, the
performance goals will be deemed to have met as of the date of termination.

In January 2018, we granted Dr. Guenther an option to purchase 75,000 shares of our common stock. The shares subject to this option will vest in equal
annual installments over a period of four years. The exercise price of this option is $5.50 per share, which equaled the closing sale price per share of our
common stock as reported on The Nasdaq Stock Market on the date of grant. In February 2019, we granted Dr. Guenther an option to purchase 160,000
shares of our common stock. The shares subject to this option will vest in equal annual installments over a period of four years. The exercise price of this
option is $2.66 per share, which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of
grant. In November 2019, we granted Dr. Guenther an option to purchase 56,000 shares of our common stock. The shares subject to this option will vest in
full and become immediately exercisable upon the achievement of specified product development milestones. The exercise price of this option is
$0.5161 per share, which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of grant. In
February 2020, we granted Dr. Guenther an option to purchase 160,000 shares of our common stock. The shares subject to this option will vest in full and
become immediately exercisable upon the achievement of specified product development milestones. The exercise price of this option is $0.374 per share,
which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of grant. All shares underlying
these options will vest in full and become immediately exercisable upon a change of control of the Company or if the Dr. Guenther is terminated without
cause or resigns for good reason (each as defined in Dr. Guenther’s employment agreement, discussed under “Employment Arrangements and Potential
Payments upon Termination of Employment” herein). With respect to equity awards that vest based on the attainment of performance goals, the
performance goals will be deemed to have met as of the date of termination.

In January 2018, we granted Mr. Clifton an option to purchase 75,000 shares of our common stock. The shares subject to this option will vest in equal
annual installments over a period of four years. The exercise price of this option is $5.50 per share, which equaled the closing sale price per share of our
common stock as reported on The Nasdaq Stock Market on the date of grant. In February 2019, we granted Mr. Clifton an option to purchase 160,000
shares of our common stock. The shares subject to these options will vest in equal annual installments over a period of four years. The exercise price of
these options are $2.66 per share, which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date
of grant. In November 2019, we granted Mr. Clifton an option to purchase 36,000 shares of our common stock. The shares subject to this option will vest in
full and become immediately exercisable upon the achievement of specified product development milestones. The exercise price of this option is
$0.5161 per share, which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of grant. In
February 2020, we granted Mr. Clifton an option to purchase 160,000 shares of our common stock. The shares subject to this option will vest in full and
become immediately exercisable upon the achievement of specified product development milestones. The exercise price of this option is $0.374 per share,
which equaled the closing sale price per share of our common stock as reported on The Nasdaq Stock Market on the date of grant. All shares underlying
these options will vest in full and become immediately exercisable upon a change of control of the Company or if the Mr. Clifton is terminated without
cause or resigns for good reason (each as defined in Mr. Clifton’s employment agreement, discussed under “Employment Arrangements and Potential
Payments upon Termination of Employment” herein). With respect to equity awards that vest based on the attainment of performance goals, the
performance goals will be deemed to have met as of the date of termination.

Other Compensation

Other amounts shown in the “All Other Compensation” column in the Summary Compensation Table relate to Company contributions to the 401(k) plan,
premiums we paid for life and disability insurance policies on behalf of the named executive officer, dependent care reimbursements and tax gross-up
payments.

Except for the benefits described above, we do not provide perquisites or personal benefits to our named executive officers. We do, however, pay the
premiums for medical, dental and vision insurance for all of our employees, including our named executive officers.

Employment Arrangements and Potential Payments upon Termination of Employment

In May 2014, we entered into an employment agreement with Dr. Mickle, under which Dr. Mickle serves as our president and chief executive officer.
Under this agreement, upon the execution of a release of claims, Dr. Mickle is eligible to receive severance benefits in specified circumstances.

In the event that we terminate Dr. Mickle without cause or he resigns for good reason, Dr. Mickle will be entitled to receive (a) an amount equal to 18
months of his annual base salary, less applicable deductions, payable in accordance with our normal payroll schedule, (b) a pro rata bonus award payable
on the first regularly scheduled pay day following the 60th day after his termination, (c) 18 months of continued health coverage and (d) full vesting of his
outstanding equity awards, except that if such termination occurs within 60 days before, upon or within one year following a sale that constitutes a “change
in control event” as defined in Section 409A of the Internal Revenue Code of 1986, as amended, or the Code, then in lieu of the payments described in
clause (a) Dr. Mickle will be entitled to receive a lump sum payment equal to one and one-half his annual salary plus his target annual bonus on the first
regularly scheduled pay day following the 60th day after his termination. In the event that we terminate Dr. Mickle with cause, Dr. Mickle resigns without
good reason, or his employment is terminated due to mutual agreement, death or disability, then Dr. Mickle will not be entitled to receive severance
benefits. Under the terms of Dr. Mickle’s employment agreement, if we enter into any change of control, all then unvested shares subject to outstanding
options shall become fully vested and immediately exercisable immediately prior to such change in control.

The following definitions have been adopted in Dr. Mickle’s employment agreement:

● “cause” means (a) executive is convicted of, or pleads nolo contendere to, a crime constituting a misdemeanor involving dishonesty or moral
turpitude or any crime constituting a felony, (b) executive neglects, refuses or fails to perform executive’s material duties, (c) executive commits a
material act of dishonesty or otherwise engages in or is guilty of gross negligence or willful misconduct in the performance of executive’s duties or
(d) executive materially breaches the provisions of any written non-competition, non-disclosure or non-solicitation agreement, or any other
agreement with us provided, however, that executive shall have 15 days following a notice of termination specifying a condition under clause (b), (c)
or (d) constituting cause to cure such condition; and

● “good reason” means (a) material diminution by us of the executive’s authority, duties or responsibilities the duration of which is greater than 15
days and which is not the result of his acts or omissions which constitute cause, (b) a material change in the geographic location at which the
executive must perform services under the agreement, (c) a material diminution in his base salary which is not the result of an across-the-board
reduction in base salaries of other senior executives of the Company or (d) any action or inaction that constitutes a material breach by us of the
agreement, including our failure to pay any amounts due to the executive or our failure to obtain from a successor the express assumption of the
agreement.

In April 2016, we entered into an amended and restated employment agreement with Dr. Guenther, under which Dr. Guenther serves as our executive vice
president, research and development. Under this agreement, upon the execution of a release of claims, Dr. Guenther is eligible to receive severance benefits
in specified circumstances.

In the event that we terminate Dr. Guenther without cause or he resigns for good reason, Dr. Guenther will be entitled to receive (a) an amount equal to 12
months of his annual base salary, less applicable deductions, payable in accordance with our normal payroll schedule, (b) a pro rata bonus award payable
on the first regularly scheduled pay day following the 60th day after his termination, (c) 12 months of continued health coverage and (d) full vesting of his
outstanding equity awards, except that if such termination occurs within 60 days before, upon or within one year following a sale that constitutes a “change
in control event” as defined in Section 409A of the Code then in lieu of the payment described in clause (a) Dr. Guenther will be entitled to a lump sum
payment equal to his annual base salary on the first regularly scheduled pay day following the 60th day after his termination. In the event that we terminate
Dr. Guenther with cause, Dr. Guenther resigns without good reason, or the employment is terminated due to mutual agreement, death or disability, then Dr.
Guenther will not be entitled to receive severance benefits. Under the terms of Dr. Guenther’s employment agreement, if we enter into any change of
control, all then unvested shares subject to outstanding options shall become fully vested and immediately exercisable immediately prior to such change in
control.

The following definitions have been adopted in Dr. Guenther’s employment agreement:

● “cause” means (a) executive performed an act or acts of willful and material malfeasance or misconduct with respect to the performance of his duties
and responsibilities as an employee and executive officer or under the agreement that results in material harm to us that remains uncorrected for 15
days after receipt of written notice, (b) executive’s continued failure to devote his full business time and attention and his best efforts to the faithful
performance of his material duties and responsibilities (other than a failure resulting from disability) that remains uncorrected for 15 days after
receipt of written notice, (c) executive’s material breach of any material provision of the agreement that remains uncorrected for 15 days after receipt
of written notice, (d) executive commits an act of fraud, embezzlement, misappropriation, or personal dishonesty against us (which, if proven, would
constitute a felony) or (e) the conviction of, or plea of nolo contendere by, executive to a crime constituting a felony; and

● “good reason” means (a) material diminution by us of executive’s authority, duties or responsibilities, the duration of which is greater than 15 days
and which is not the result of his acts or omissions which constitute cause (b) a material change in the geographic location at which executive must
principally perform services under the agreement, (c) a material diminution in his base salary which is not the result of his acts or omissions which
constitute cause or (d) any action or inaction that constitutes a material breach by us of the agreement, including our failure to pay any amounts due
to executive or our failure to obtain from a successor the express assumption of the agreement.

In June 2015, we entered into an amended and restated employment agreement with Mr. Clifton under which he serves as our chief financial officer. Under
this agreement, Mr. Clifton is eligible to receive severance benefits in specified circumstances.

In the event that we terminate Mr. Clifton without cause or he resigns for good reason, Mr. Clifton will be entitled to receive (a) an amount equal to 12
months of his annual base salary, less applicable deductions, payable in accordance with our normal payroll schedule, (b) a pro rata bonus award payable
on the first regularly scheduled pay day immediately after his termination, (c) 12 months of continued health coverage and (d) full vesting of his
outstanding equity awards, except that if such termination occurs upon or within one year following a sale that constitutes a “change in control event” as
defined in Section 409A of the Code then in lieu of the payment described in clause (a) Mr. Clifton will be entitled to a lump sum payment equal to his
annual base salary on the first regularly scheduled pay day immediately following the effective date of his termination. In the event that we terminate
Mr. Clifton with cause, Mr. Clifton resigns without good reason, or the employment is terminated due to mutual agreement, death or disability, then
Mr. Clifton will not be entitled to receive severance benefits. Under the terms of Mr. Clifton’s amended and restated employment agreement, as amended, if
we enter into any change of control, all then unvested shares subject to outstanding options shall become fully vested and immediately exercisable
immediately prior to such change in control.

The following definitions have been adopted in Mr. Clifton’s employment agreement:

● “good reason” means (a) material diminution by us of executive’s authority, duties or responsibilities the duration of which is greater than 15 days
and which is not the result of his acts or omissions which constitute cause, (b) a material change in the geographic location at which executive must
perform services under the agreement, (c) a material diminution in executive's base salary which is not the result of his acts or omissions which
constitute cause or (d) any action or inaction that constitutes a material breach by us of the agreement, including our failure to pay any amounts due
to executive or our failure to obtain from a successor the express assumption of the agreement.

Outstanding Equity Awards at End of 2019

The following table provides information about outstanding stock options held by each of our named executive officers at December 31, 2019. All of these
options were granted under our stock incentive plan, or the 2007 Plan, or our 2014 Plan.

Option Awards

Name
Travis C. Mickle, Ph.D

Sven Guenther, Ph.D

R. LaDuane Clifton, CPA

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
53,333
26,666
220,000
112,500
112,500
56,250
—
—
20,000
50,000
37,500
37,500
18,750
—
—
21,333
45,000
15,000
37,500
37,500
18,750
—
—

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
—
—
—

37,500(1)(2)
112,500(1)(3)
168,750(1)(4)
420,000(1)(5)
36,000(1)(6)

12,500(1)(2)
37,500(1)(3)
56,250(1)(4)
160,000(1)(5)
56,000(1)(6)

—
—

—
—
—

12,500(1)(2)
37,500(1)(3)
56,250(1)(4)
160,000(1)(5)
36,000(1)(6)

Option
Exercise
Price
($)
$5.85
$5.85
$20.45
$12.62
$3.55
$5.50
$2.66
$0.5161
$5.85
$20.45
$12.62
$3.55
$5.50
$2.66
$0.5161
$11.00
$18.29
$20.45
$12.62
$3.55
$5.50
$2.66
$0.5161

Option
Expiration
Date

08/17/2022
07/30/2024
09/04/2025
02/10/2026
01/26/2027
01/24/2028
02/05/2029
11/24/2029
07/09/2024
09/03/2025
02/10/2026
01/26/2027
01/24/2028
02/05/2029
11/24/2029
04/01/2025
06/25/2025
09/03/2025
02/10/2026
01/26/2027
01/24/2028
02/05/2029
11/24/2029

(1)

(2)

(3)

(4)

(5)

(6)

All shares underlying these option grants will vest in full and become immediately exercisable (i) in the event that the
option holder is terminated by us without cause or resigns for good reason or (ii) immediately prior to any change in
control of KemPharm.
The shares underlying this option will vest in equal annual installments over a period of four years beginning on
February 11, 2017 through February 11, 2020.
The shares underlying this option will vest in equal annual installments over a period of four years beginning on
January 27, 2018 through January 27, 2021.
The shares underlying this option will vest in equal annual installments over a period of four years beginning on
January 25, 2019 through January 25, 2022.
The shares underlying this option will vest in equal annual installments over a period of four years beginning on
February 6, 2020 through February 6, 2023.
The shares subject to this option will vest in full and become immediately exercisable upon the achievement of
specified product development milestones.

Pension Benefits

Our named executive officers did not participate in, or otherwise receive any benefits under, any pension or retirement plan sponsored by us during 2019 or
2018.

Nonqualified Deferred Compensation

Our named executive officers did not participate in, or otherwise receive any benefits under, any nonqualified deferred compensation plan sponsored by us
during 2019 or 2018.

Equity Incentive Plans

2014 Equity Incentive Plan

Our Board adopted and our stockholders have approved our 2014 Plan. The 2014 Plan became effective on April 15, 2015. As of December 31, 2019,
options exercisable for 4,885,964 shares of our common stock have been granted and 106,114 shares of our common stock have been issued under our
2014 Plan. Our 2014 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Code to our employees and our parent
and subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock awards, restricted stock unit awards, stock
appreciation rights, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. Our
2014 Plan also provides for the grant of performance cash awards to our employees, consultants and directors.

Authorized Shares

The maximum number of shares of our common stock that may be issued under our 2014 Plan as of December 31, 2019 was 5,076,694 shares. The
number of shares of our common stock reserved for issuance under our 2014 Plan will automatically increase on January 1 of each year, for a period of
ten years, from January 1, 2016 continuing through January 1, 2024, by 4.0% of the total number of shares of our common stock outstanding on
December 31 of the preceding calendar year, or a lesser number of shares as may be determined by our Board. On January 1, 2020, the maximum
number of shares of our common stock reserved for issuance under our 2014 Plan was increased by 1,454,031 shares as a result of this automatic
increase. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the 2014 Plan is 13,600,000. The
aggregate maximum number of shares subject to awards granted during a single fiscal year to any non-employee director, taken together with any cash
fees paid to such non-employee director during the fiscal year, cannot exceed $500,000 in total value, calculating the value of any such awards based on
the grant date fair value of such awards for financial reporting purposes and excluding the value of any dividend equivalent payments paid pursuant to
any award granted in a previous fiscal year.

Shares issued under our 2014 Plan may be authorized but unissued or reacquired shares of our common stock. Shares subject to stock awards granted
under our 2014 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number
of shares available for issuance under our 2014 Plan. Additionally, shares issued pursuant to stock awards under our 2014 Plan that we repurchase or that
are forfeited, as well as shares reacquired by us as consideration for the exercise or purchase price of a stock award or to satisfy tax withholding
obligations related to a stock award, will become available for future grant under our 2014 Plan.

Administration

Our Board, or a duly authorized committee thereof, has the authority to administer our 2014 Plan. Our Board has delegated its authority to administer our
2014 Plan to our Compensation Committee under the terms of the Compensation Committee’s charter. Our Board, or a duly authorized committee
thereof, may also delegate to one or more of our officers the authority to (a) designate employees other than officers to receive specified stock awards
and (b) determine the number of shares of our common stock to be subject to such stock awards. Our Compensation Committee has delegated this
authority to our chief executive officer, Travis C. Mickle, but not for himself and not for our executive officers. Subject to the terms of our 2014 Plan, the
administrator has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the
number of shares subject to each stock award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards,
together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and
conditions of the award agreements for use under our 2014 Plan.

The administrator has the power to modify outstanding awards under our 2014 Plan. Subject to the terms of our 2014 Plan, the administrator has the
authority to reprice any outstanding option or stock appreciation right, cancel and re-grant any outstanding option or stock appreciation right in exchange
for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles,
with the consent of any adversely affected participant.

Certain Limits

No participant may be granted stock awards covering more than 3,400,000 shares of our common stock under our 2014 Plan during any calendar year
pursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise price
or strike price of at least 100% of the fair market value of our common stock on the date of grant. Additionally, no participant may be granted in a
calendar year a performance stock award covering more than 3,400,000 shares of our common stock or a performance cash award having a maximum
value in excess of $5,000,000 under our 2014 Plan.

Performance Awards

Our 2014 Plan permits the grant of performance-based stock and cash awards. Our Compensation Committee can structure such awards so that the stock
or cash will be issued or paid pursuant to such award only following the achievement of specified pre-established performance goals during a designated
performance period.

Corporate Transactions

Our 2014 Plan provides that in the event of a specified corporate transaction, including a consolidation, merger, or similar transaction involving our
company, the sale, lease or other disposition of all or substantially all of the assets of our company or the consolidated assets of our company and our
subsidiaries, or a sale or disposition of at least 50% of the outstanding capital stock of our company, the administrator will determine how to treat each
outstanding stock award. The administrator may:

● arrange for the assumption, continuation or substitution of an stock award by a successor corporation;

● arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation;

● accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction;

● arrange for the lapse, in whole or in part, of any reacquisition or repurchase right held by us; or

● cancel the stock award prior to the transaction in exchange for a cash payment, which may be reduced by the exercise price payable in

connection with the stock award.

The administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner. The
administrator may take different actions with respect to the vested and unvested portions of a stock award.

Change in Control

The administrator may provide, in an individual award agreement or in any other written agreement between us and the participant, that the stock award
will be subject to additional acceleration of vesting and exercisability in the event of a change in control. In the absence of such a provision, no such
acceleration of the stock award will occur.

Plan Amendment or Termination

Our board has the authority to amend, suspend, or terminate our 2014 Plan, provided that such action does not materially impair the existing rights of
any participant without such participant’s written consent. No incentive stock options may be granted after the tenth anniversary of the date our Board
adopts our 2014 Plan.

2007 Plan

Our 2007 Plan was adopted by our Board and approved by our stockholders in June 2007. Awards outstanding under our 2007 Plan prior to completion of
our initial public offering continue to be governed by their existing terms under the 2007 Plan. No further awards will be made under the 2007 Plan.

As of December 31, 2019, options to purchase 306,258 shares of our common stock were outstanding under the 2007 Plan.

Administration

Our Board or the Compensation Committee of our Board act as the administrator of the 2007 Plan. The administrator has the complete discretion to make
all decisions relating to the plan and outstanding awards.

Eligibility

Employees, non-employee directors and consultants were eligible to participate in our 2007 Plan however only employees were eligible for the grant of
incentive stock options.

Types of Awards

Our 2007 Plan provides for the award of incentive and non-statutory stock options and the award of incentive stock (including phantom stock credits to
acquire incentive stock).

The administrator may (a) grant awards under the 2007 Plan conditional upon an election by a participant to defer payment of a portion of his or her
salary, (b) give a participant a choice between two types of awards or combinations of awards, (c) grant awards in the alternative so that acceptance of or
exercise of one award cancels the right of a participant to another and (d) grant awards in any combination or combinations and subject to any condition
or condition consistent with the terms of the 2007 Plan that the administrator in its sole discretion may determine.

Terms of Awards

Subject to the terms of the 2007 Plan, the administrator determines the terms of all awards. The exercise price for stock options granted under the 2007
Plan may not be less than 100% of the fair market value of our common stock on the grant date; however, the exercise price for an incentive stock option
granted to a holder of more than 10% of our stock may not be less than 110% of such fair market value on the grant date. Options are generally
transferable only by will or the laws of descent and distribution, and may be exercised during the holder’s lifetime only by the holder or, in the case of a
non-statutory stock option, by the holder’s guardian or legal representative.

The term of options granted under the 2007 Plan may not exceed ten years and will generally expire sooner if the optionee’s service terminates. Options
vest at the times determined by the administrator.

Shares may be awarded under the 2007 Plan in consideration for services rendered to us or sold under the 2007 Plan. Shares awarded or sold under the
2007 Plan may be fully vested at grant or subject to special forfeiture conditions or rights of repurchase as determined by the administrator.

Change in Control

Until June 2014, our form of incentive stock option agreement provided for acceleration of vesting upon a change of control for incentive stock option
awards issued under our 2007 Plan. All unvested shares subject to such an incentive stock option award will vest in full and become immediately
exercisable immediately prior to the effective date of a change of control transaction.

Our form of non-qualified stock option agreement provides for similar acceleration of vesting upon a change of control for non-qualified stock option
awards issued under our 2007 Plan. All unvested shares subject to a non-qualified stock option award will vest in full and become immediately
exercisable if the holder is terminated without cause within 24 months after the consummation of a change of control transaction.

Changes in Capitalization

If any change is made in the shares of the common stock by reason of any merger, consolidation, reorganization, recapitalization, stock dividend, split up,
combination of shares, exchange of shares, change in corporate structure, or otherwise, appropriate adjustments will be made by the administrator to the
kind and number of shares and price per share of stock subject to each outstanding award under our 2007 Plan. Any increase in the shares, or the right to
acquire shares, as the result of such an adjustment will be subject to the same terms and conditions that apply to the award for which such increase was
received. No fractional shares of common stock will be issued under the 2007 Plan on account of any such adjustment, and rights to shares always will
be limited after such an adjustment to the lower full share.

Amendment and Termination

Our Board may at any time amend the 2007 Plan. However, our Board must obtain approval of our stockholders or any amendment requiring such
approval under federal tax or federal securities laws. In addition, our Board may not alter or impair any award previously granted under the 2007 Plan
without the consent of the holder of such award. The 2007 Plan will terminate ten years after the earliest of the date the 2007 Plan was adopted by our
Board, the date our stockholder approved the 2007 Plan or a date determined by our Board.

401(k) Plan

We maintain a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis.
Eligible employees are able to defer eligible compensation subject to applicable annual Code limits. Currently, we match 100% of each eligible employee’s
contributions up to 4% of total eligible compensation. In June 2019, we temporarily suspended this match as a cash conservation measure, and reinstated
this match in September 2019. Employees’ pre-tax contributions are allocated to each participant’s individual account and are then invested in selected
investment alternatives according to the participants’ directions. Employees are immediately and fully vested in their contributions, and our matching
contribution is also immediately and fully vested when made. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k)
plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and
earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan.

Limitations on Liability and Indemnification Matters

Our amended and restated certificate of incorporation contains provisions that limit the liability of our current and former directors for monetary damages
to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages
for any breach of fiduciary duties as directors, except liability for:

● any breach of the director’s duty of loyalty to the corporation or its stockholders;

● any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

● unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law;

● any transaction from which the director derived an improper personal benefit.

This limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.

Our amended and restated certificate of incorporation and our amended and restated bylaws provide that we are required to indemnify our directors to the
fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that, upon satisfaction of certain conditions, we are required to
advance expenses incurred by a director in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be
permitted to indemnify him or her under the provisions of Delaware law. Our amended and restated bylaws also provide our Board with discretion to
indemnify our officers and employees when determined appropriate by the board. We have entered into and expect to continue to enter into agreements to
indemnify our directors and executive officers. With certain exceptions, these agreements provide for indemnification for related expenses including,
among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe
that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors. We also maintain customary
directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may
discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative
litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s
investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by
these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which
indemnification is sought and, other than the securities litigation matter we previously disclosed under Item 3—Legal Proceedings in our annual report on
Form 10-K, we are not aware of any threatened litigation that may result in claims for indemnification.

Rule 10b5-1 Sales Plans

Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of
our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer
when entering into the plan, without further direction from them. The director or officer may amend a Rule 10b5-1 plan in some circumstances and may
terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in
possession of material nonpublic information subject to compliance with the terms of our insider trading policy.

DIRECTOR COMPENSATION

In February 2016, our Compensation Committee adopted a non-employee director compensation policy The policy provides for stipends to be paid to each
of our non-employee directors for service on the Board and for service on the Audit Committee, the Compensation Committee and the Nominating and
Corporate Governance Committee. In May 2019, our Compensation Committee amended the policy to grant Restricted Stock Award, or RSAs, in lieu of
cash payments for all the outstanding stipends and future stipends, pending further action of the committee, owed to our non-employee directors under the
policy. In September 2019, the Compensation Committee elected to discontinue the grant of RSAs in lieu of cash payment policy for all stipends going
forward and amended the non-employee director compensation policy to reduce the compensation owed to our non-employee directors by twenty-five
percent. As of December 31, 2019 the stipends payable under this policy were as follows:

Board of Directors
Audit Committee
Compensation Committee
Nominating and Corporate Governance Committee
Lead Independent Director

Member
Annual
Service
Stipend
($)
26,250
5,625
3,750
3,750
11,250

Chairman
Additional
Annual
Service
Stipend
($)
—
11,250
7,500
5,625
—

These stipends are payable in four equal quarterly installments on the last day of each quarter. In addition to stipends the non-employee director
compensation policy also provides for an annual option grant for each non-employee director for service on our Board.

Pursuant to our non-employee director compensation policy, as amended, on the date of each annual meeting of our stockholders, each director who
continues to serve as a non-employee member of our Board following such stockholders meeting will be automatically granted a stock option.

Effective February 2019, the Compensation Committee amended and restated the non-employee director compensation policy to increase the number of
shares subject to each non-employee director’s annual option grant, who continues to serve as a non-employee member of our Board following the annual
meeting of our stockholders, from 15,000 shares of our common stock to 30,000 of our common stock. These stock options will vest and become
exercisable in full on the earliest of (i) the first anniversary of the grant date, (ii) the day before the first annual stockholders meeting occurring after the
grant date or (iii) immediately prior to a change in control of the Company, subject in each case to the director’s continued service on such vesting date.

In April 2019, in accordance with the non-employee director compensation policy, we granted annual option grants for 30,000 shares of our common stock
to each of our then serving non-employee directors, Messrs. Pascoe, Plooster, Saluri, Thompson and Tierney. The exercise price of these options is $1.62
per share which was equal to the closing sale price of our common stock as reported on The Nasdaq Stock Market on the date of grant. These options will
vest in full on the earlier of (i) the first anniversary of the date of grant, (ii) one day prior to the date of the first annual meeting of our stockholders
following the date of grant or (iii) immediately prior to a change in control of the Company, subject in each case to the director’s continued service on such
vesting date.

2019 Director Compensation Table

The following table sets forth information regarding compensation earned for service on our Board during 2019 by our non-employee directors. Dr. Mickle,
our president and chief executive officer, was also a director during 2019 but did not receive any additional compensation for his service as a director. Dr.
Mickle’s compensation as an executive officer is set forth above under “Executive Compensation—Summary Compensation Table.”

Name
Richard W. Pascoe
Matthew R. Plooster
Joseph B. Saluri
Danny L. Thompson
David S. Tierney

Fees Earned
or Paid in
Cash
($)
26,250 (3)
20,625 (4)
20,625 (5)
10,781 (6)
18,281 (7)

Stock
Awards (1)
($)

31,249
27,499
27,499
28,749
22,498

Option
Awards (2)
($)
34,033
34,033
34,033
34,033
34,033

Total
($)

91,532
82,157
82,157
73,563
74,812

(1) This column reflects the full grant date fair value as measured pursuant to ASC Topic 718 for RSAs granted in lieu of
the quarterly cash compensation payable our non-employee director compensation policy as then in effect to each
director for service as a member of the Board, and applicable committees thereof, in the first and second quarters of
2019. The assumptions we used in valuing RSAs are described in Note L to our audited financial statements included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

(2) This column reflects the full grant date fair value for options granted during the year as measured pursuant to ASC
Topic 718 as stock-based compensation in our financial statements. Unlike the calculations contained in our financial
statements, this calculation does not give effect to any estimate of forfeitures related to service-based vesting but
assumes that the director will perform the requisite service for the award to vest in full. The assumptions we used in
valuing options are described in Note L to our audited financial statements included in our Annual Report on Form 10-
K for the fiscal year ended December 31, 2019.

(3) Represents stipends awarded for Mr. Pascoe’s service on our Board, as our lead independent director, as a member of
our Audit Committee and as a member of our Compensation Committee during the third and fourth quarter of 2019, as
well as for serving as the chairman of the Audit Committee during the fourth quarter of 2019.

(4) Represents stipends awarded for Mr. Plooster’s service on our Board, as the chairman of our Compensation Committee
and as a member of our Nominating and Corporate Governance Committee during the third and fourth quarter of 2019.
(5) Represents stipends awarded for Mr. Saluri’s service on our Board, as a member of our Audit Committee and as the

chairman of our Nominating and Corporate Governance Committee during the third and fourth quarter of 2019.

(6) Represents stipends awarded for Mr. Thompson’s service on our Board and as the chairman of our Audit Committee

during the third quarter of 2019. Mr. Thompson resigned as a member of our Board in September 2019.

(7) Represents stipends awarded for Mr. Tierney’s service on our Board, as a member of our Compensation Committee and
as a member of our Nominating and Corporate Governance Committee during the third and fourth quarter of 2019, as
well as for serving on our Audit Committee during the fourth quarter of 2019.

The table below shows the aggregate number of option awards outstanding for each of our non-employee directors as of December 31, 2019:

Name
Richard W. Pascoe
Matthew R. Plooster
Joseph B. Saluri
Danny L. Thompson
David S. Tierney

Aggregate
Option
Awards
Outstanding
(#)
82,333 (1)
87,000 (2)
82,333 (1)
78,333 (3)
82,333 (1)

(1) As of December 31, 2019, 52,333 shares underlying these options were vested. The remaining 30,000 shares
underlying these options will vest on the earlier of (i) April 24, 2020 or (ii) one day prior to the date of the Annual
Meeting.

(2) As of December 31, 2019, 57,000 shares underlying these options were vested. The remaining 30,000 shares
underlying these options will vest on the earlier of (i) April 24, 2020 or (ii) one day prior to the date of the Annual
Meeting.
As of December 31, 2019, 78,333 shares underlying these options were vested. In September 2019, Mr. Thompson
resigned from the Board in 2019. At that time the Compensation Committee elected to accelerate the vesting on all his
outstanding options and extend the expiration date of each such option until the date assigned at the original grant date.

(3)

ITEM
12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common stock as of April 7, 2020 for:

● each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock;

● each of our named executive officers;

● each of our directors; and

● all of our current executive officers and directors as a group.

The percentage ownership information shown in the table is based upon 57,160,111 shares of common stock outstanding as of April 7, 2020.

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common
stock issuable pursuant to (i) the conversion of outstanding convertible notes, assuming a conversion date of June 6, 2020, and (ii) the exercise of stock
options or warrants that are either immediately exercisable or exercisable on or before June 6, 2020, which is 60 days after April 7, 2020. These shares are
deemed to be outstanding and beneficially owned by the person holding those convertible notes, options or warrants for the purpose of computing the
percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, 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 applicable community property laws.

Except as otherwise noted below, the address for persons listed in the table is c/o KemPharm, Inc., 1180 Celebration Blvd., Suite 103, Celebration, FL
34747.

Name of Beneficial Owner
Principal Stockholders:
Delaware Street Capital Master Fund, L.P. (1)
Named Executive Officers and Directors:
Travis C. Mickle, Ph.D. (2)
Sven Guenther, Ph.D. (3)
R. LaDuane Clifton, CPA (4)
Richard W. Pascoe (5)
Matthew R. Plooster (6)
Joseph B. Saluri (7)
David S. Tierney (8)
All current directors and executive officers as a group (7) persons) (9)

Number
of Shares
Beneficially
Owned

Percentage
of Shares
Beneficially
Owned

5,566,386

3,277,280
297,602
299,083
100,906
112,629
103,232
101,705
4,292,437

9.5%

5.7
*
*
*
*
*
*
7.3%

Represents beneficial ownership of less than 1%.

*
(1) Consists of 4,095,914 shares of common stock and 1,470,472 shares issuable upon the conversion of convertible
promissory notes through June 6, 2020 held by Delaware Street Capital Master Fund, L.P. (the “Fund”). In accordance
with the terms of the convertible promissory notes, the holder thereof may not convert or exercise this convertible
promissory note if such conversion or exercise would result in such holder and its affiliates and any other person or
entities with which such holder would constitute a Section 13(d) “group” beneficially owning more than 9.985% of the
then issued and outstanding shares of our common stock. This conversion limitation may not be waived and any
purported conversion that is inconsistent with this conversion limitation is null and void. The shares held by the Fund
are indirectly beneficially owned by (a) DSC Advisors, L.P. (“DSCA”), as investment manager of the Fund, (b) DSC
Managers, L.L.C., as general partner of the Fund, (c) DSC Advisors, L.L.C. (“DSCA LLC”), as general partner of
DSCA, and (d) Andrew G. Bluhm, the principal of DSCA LLC. The principal business address of Delaware Street
Capital Master Fund, L.P. is 900 North Michigan, Suite 1600, Chicago, IL 60611.

(2) Consists of (a) 1,778,117 shares of common stock held directly by Dr. Mickle, (b) 157,197 shares of common stock
held by the Travis C. Mickle 2015 Dynasty Trust dated 7/21/2015, for which Ms. Christal M.M. Mickle ("Ms. Mickle")
serves as trustee, (c) 243,880 shares of common stock held by the Christal M.M. Mickle 2015 Gift Trust dated
7/21/2015, for which Dr. Mickle serves as trustee, (d) 21,466 shares of common stock held by the TCM Family Trust
u/d/p April 30, 2009, for which Dr. Mickle and Ms. Mickle serve as co-trustees, (e) 123,217 shares of common stock
held by the Mickle Family Trust u/d/p April 30, 2009, for which Dr. Mickle and Ms. Mickle serve as co-trustees, (f)
100,604 shares of common stock held jointly by Dr. Mickle and Ms. Mickle, (g) 16,550 shares of common stock held
by Mickle Investments LLC, for which Dr. Mickle and Ms. Mickle serve as members and (h) 836,249 shares of
common stock underlying options held by Dr. Mickle that are exercisable within 60 days of April 7, 2020.

(3) Consists of (a) 43,852 shares of common stock held directly by Dr. Guenther and (b) 253,750 shares of common stock