Pelthos Therapeutics Inc

Proposal No. 3 requests shareholder approval of the Pelthos Therapeutics Inc. 2026 Equity Incentive Plan, a replacement equity plan intended to supplant the 2023 Plan and authorize a new share reserve (500,000 initial shares plus carryover of unallocated and forfeitable shares from the 2023 Plan) together with a 10-year evergreen that adds 5% of outstanding shares annually unless the Board elects otherwise. Management seeks approval to ensure it has sufficient share capacity to continue granting stock options, RSUs, SARs, performance awards and other equity-based incentives to employees, non-employee directors and service providers, and to preserve the ability to grant ISOs under Section 422. The Board frames the proposal as necessary to align employee/director incentives with shareholder interests, to attract and retain talent in a competitive market, and to support a pay-for-performance compensation philosophy. The filing discloses governance features intended to mitigate shareholder concerns, including an annual cap on non-employee director compensation (generally $750,000, $1,000,000 in the initial year) and detailed share-counting rules; it also discloses that current overhang is ~20% and would rise to ~24% if the plan is approved. The proposal also highlights operational consequences of not approving the plan—management may need to replace equity with cash compensation, increasing cash burn and potentially weakening alignment—while noting the Board retains discretion to reduce or eliminate the evergreen. From a financial and governance perspective, approval would allow continued use of equity for retention and incentives but would increase potential dilution and overhang; investors should weigh the benefits of ongoing equity incentives and retention against the incremental dilution and the plan's 5% annual refresh mechanism. The Board’s recommendation is to approve the plan because it believes the plan balances the Company’s talent needs with shareholder dilution concerns and preserves flexibility for compensation practices subject to committee oversight.