Dynavax Technologies Corporation
DYNAVAX TECHNOLOGIES CORP (Form: DEF 14A, Received: 04/22/2016 16:14:36)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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DYNAVAX TECHNOLOGIES CORPORATION

2929 Seventh Street, Suite 100

Berkeley, California 94710

NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS

May 31, 2016

Dear Stockholder:

You are cordially invited to attend the 2016 Annual Meeting of Stockholders of Dynavax Technologies Corporation, a Delaware corporation, or the Company. The meeting will be held on May 31, 2016, at 9:00 a.m. Pacific Time, at the Company’s executive offices at 2929 Seventh Street, Suite 100, Berkeley, California 94710 for the following purposes:

 

  1. To elect our nominees for Class I directors to hold office until the 2019 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified.

 

  2. To amend and restate the Dynavax Technologies Corporation 2011 Equity Incentive Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the plan by 3,200,000, and to approve the award limits and other terms applicable to awards intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code.

 

  3. To amend and restate the Dynavax Technologies Corporation 2014 Employee Stock Purchase Plan to increase the aggregate number of shares of common stock authorized for issuance under the plan by 200,000.

 

  4. To approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Proxy Statement accompanying this Notice.

 

  5. To ratify the selection of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2016.

 

  6. To conduct any other business properly brought before the meeting or any adjournment(s) thereof.

These items of business are more fully described in the Proxy Statement accompanying this Notice.

The record date for the 2016 Annual Meeting is April 6, 2016. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholders’ Meeting to Be Held at 9:00 a.m., Pacific Time, on May 31, 2016 at 2929 Seventh Street, Suite 100, Berkeley, California 94710.

The proxy statement and annual report to stockholders

are available at http://investors.dynavax.com/annuals-proxies.cfm.

The Board of Directors recommends that you vote FOR the proposals identified above.

 

By Order of the Board of Directors
/s/ Michael S. Ostrach
Michael S. Ostrach
Secretary

Berkeley, California

April 22, 2016

 

Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.


DYNAVAX TECHNOLOGIES CORPORATION

2929 Seventh Street, Suite 100

Berkeley, California 94710

PROXY STATEMENT

FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS

May 31, 2016

QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING

Why am I receiving these materials?

We have sent you this proxy statement and the enclosed proxy card because the Board of Directors, or Board, of Dynavax Technologies Corporation, or the Company or Dynavax, or we or us, is soliciting your proxy to vote at the 2016 Annual Meeting of Stockholders, or Annual Meeting. You are invited to attend the Annual Meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.

We intend to mail this proxy statement and accompanying proxy card on or about April 26, 2016, to all stockholders of record entitled to vote at the Annual Meeting.

How do I attend the Annual Meeting?

The Annual Meeting will be held on May 31, 2016 at 9:00 a.m. Pacific Time, at our executive offices at 2929 Seventh Street, Suite 100, Berkeley, California 94710. Directions to the Annual Meeting may be found at http://www.dynavax.com/contact . Information on how to vote in person at the Annual Meeting is discussed below. For admission to the Annual Meeting, stockholders may be asked to present proof of identification and a statement from their bank, broker or other nominee reflecting their beneficial ownership of our common stock as of April 6, 2016, as well as a proxy from the record holder to the stockholder.

Who can vote at the Annual Meeting?

Only stockholders of record at the close of business on April 6, 2016, will be entitled to vote at the Annual Meeting. On this record date, there were 38,495,502 shares of common stock outstanding and entitled to vote.

Stockholder of Record: Shares Registered in Your Name

If on April 6, 2016, your shares were registered directly in your name with our transfer agent, then you are a stockholder of record. As a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to fill out and return the enclosed proxy card to ensure your vote is counted.

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

If on April 6, 2016, your shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your broker or other agent.

 

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What am I voting on?

We are asking you to vote on five (5) proposals:

 

1. To elect our nominees for Class I directors to hold office until the 2019 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified.

 

2. To amend and restate the Dynavax Technologies Corporation 2011 Equity Incentive Plan (the “2011 Plan”) to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the 2011 Plan by 3,200,000, and to approve the award limits and other terms applicable to awards intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code.

 

3. To amend and restate the Dynavax Technologies Corporation 2014 Employee Stock Purchase Plan (the “2014 ESPP”) to increase the aggregate number of shares of common stock authorized for issuance under the 2014 ESPP by 200,000.

 

4. To approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in this proxy statement.

 

5. To ratify the selection of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2016.

 

6. To conduct any other business properly brought before the meeting or any adjournment(s) thereof.

What if another matter is properly brought before the Annual Meeting?

The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with her or his best judgment.

How do I vote?

You may either vote “For” all the nominees to the Board or you may “Withhold” your vote for any nominee you specify. For each of the other matters to be voted on, you may vote “For” or “Against” or abstain from voting. The procedures for voting are fairly simple:

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the Annual Meeting and vote in person even if you have already voted by proxy.

 

   

To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive. Directions to the Annual Meeting may be found at http://www.dynavax.com/contact .

 

   

To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct.

 

   

To vote using the telephone, simply follow the instructions on the enclosed proxy card. Voting by telephone has the same effect as voting by mail. You may vote by telephone until 11:59 p.m., Eastern Time, May 30, 2016.

 

   

To vote using the internet, simply follow the instructions on the enclosed proxy card. You may vote by using the internet until 11:59 p.m., Eastern Time, May 30, 2016.

 

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Beneficial Owner: Shares Registered in the Name of Broker or Bank

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Dynavax. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy form.

 

We provide internet proxy voting to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.

How many votes do I have?

On each matter to be voted upon, you have one vote for each share of common stock you own as of April 6, 2016.

What happens if I do not vote?

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record and do not vote by completing your proxy card, by telephone, through the internet or in person at the Annual Meeting, your shares will not be voted.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If you are a beneficial owner and do not instruct your broker, bank, or other agent how to vote your shares, the question of whether your broker or nominee will still be able to vote your shares depends on whether the New York Stock Exchange, or NYSE, deems the particular proposal to be a “routine” matter. Brokers and nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported. Accordingly, your broker or nominee may not vote your shares on Proposals 1, 2, 3 or 4 without your instructions, but may vote your shares on Proposal 5.

What if I return a proxy card but do not make specific choices?

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted:

 

  1. Proposal 1: “For” election of our nominees for Class I directors.

 

  2. Proposal 2: “For” the approval of an amendment and restatement of the 2011 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the 2011 Plan by 3,200,000, and the approval of the award limits and other terms applicable to awards intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code;

 

  3. Proposal 3: “For” the approval of an amendment and restatement of the 2014 ESPP to increase the aggregate number of shares of common stock authorized for issuance under the 2014 ESPP by 200,000;

 

  4. Proposal 4: “For” the advisory approval of executive compensation; and

 

  5. Proposal 5: “For” ratification of the selection of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2016.

 

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If any other matter is properly presented at the Annual Meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. In addition to mailing these proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

What does it mean if I receive more than one proxy card?

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

Can I change my vote after submitting my proxy?

Yes. You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:

 

   

You may submit another properly completed proxy card with a later date.

 

   

You may send a timely written notice that you are revoking your proxy to Dynavax Technologies Corporation, Attention: Corporate Secretary, 2929 Seventh Street, Suite 100, Berkeley, California 94710.

 

   

You may attend the Annual Meeting and vote in person. Simply attending the Annual Meeting will not, by itself, revoke your proxy.

Your proxy card with the most recent date is the one that will be counted.

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

When are stockholder proposals due for next year’s Annual Meeting?

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by December 27, 2016, to Dynavax Technologies Corporation, Attention: Corporate Secretary, 2929 Seventh Street, Suite 100, Berkeley, California 94710. However, if our 2017 Annual Meeting of Stockholders is not held between May 1, 2017, and June 30, 2017, then the deadline will be a reasonable time before we begin to print and send our proxy materials. If you wish to submit a proposal that is not to be included in next year’s proxy materials or nominate a director, you must do so no later than April 1, 2017, and no earlier than March 2, 2017. However, if our 2017 Annual Meeting of Stockholders is not held between May 1, 2017, and June 30, 2017, then you must submit your proposal not less than 60 days nor more than 90 days prior to the time we send our proxy materials.

How are votes counted?

Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count, with respect to the proposal to elect directors, votes “For” and “Withhold”; and, with respect to other proposals, votes “For” and “Against,” abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal, and will have the same effect as “Against” votes. Broker non-votes will not be counted towards the vote total for any proposal.

 

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How many votes are needed to approve each proposal?

 

   

Proposal 1, to elect our nominees for Class I directors, the three nominees receiving the most “For” votes from the holders of shares present in person or represented by proxy and entitled to vote on the election of directors will be elected. Only votes “For” or “Withhold” will affect the outcome. If a nominee receives a greater number of “Withhold” votes than “For” votes, such nominee will submit his or her offer of resignation for consideration by our Nominating and Corporate Governance Committee in accordance with our Majority Vote Policy discussed in more detail on page 68 of this proxy statement.

 

   

Proposal 2, to amend and restate the 2011 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the plan by 3,200,000, and to approve the award limits and other terms applicable to awards intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code, must receive “For” votes from the holders of a majority of shares present and cast either in person or by proxy at the meeting. If you return your proxy and select “Abstain,” it will have the same effect as an “Against” vote. Broker non-votes will have no effect.

 

   

Proposal 3, to amend and restate the 2014 ESPP to increase the aggregate number of shares of common stock authorized for issuance under the plan by 200,000, must receive “For” votes from the holders of a majority of shares present and cast either in person or by proxy at the meeting. If you return your proxy and select “Abstain,” it will have the same effect as an “Against” vote. Broker non-votes will have no effect.

 

   

Proposal 4, advisory approval of the compensation of the Company’s named executive officers, will be considered to be approved if it receives “For” votes from the holders of a majority of shares present in person or represented by proxy and entitled to vote on the matter. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.

 

   

Proposal 5, to ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for our fiscal year ending December 31, 2016, must receive “For” votes from the holders of a majority of shares present in person or by proxy and entitled to vote. If you “Abstain” from voting, it will have the same effect as an “Against” vote. As Proposal 5 is considered a “routine” matter, we do not expect to receive any broker non-votes.

What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid Annual Meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares entitled to vote are present at the Annual Meeting in person or represented by proxy. On the record date, there were 38,495,502 shares outstanding and entitled to vote.

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the Annual Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the holders of a majority of shares present at the Annual Meeting in person or represented by proxy may adjourn the Annual Meeting to another date.

How can I find out the results of the voting at the Annual Meeting?

Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a current report on Form 8-K within four business days following the voting. If we are unable to obtain final results in that time, we will announce the preliminary results and subsequently file a second current report on Form 8-K with the final results.

What proxy materials are available on the internet?

The 2016 proxy statement and 2015 Annual Report on Form 10-K are available at http://investors.dynavax.com/annuals-proxies.cfm.

 

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Householding of Proxy Materials

The Securities and Exchange Commission, or SEC, has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single set of Annual Meeting materials addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. A number of brokers with account holders who are Dynavax stockholders will be “householding” our proxy materials. A single set of Annual Meeting materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate set of Annual Meeting materials, please notify your broker and we will promptly deliver to you a separate set of our Annual Meeting materials. Direct your written request to Dynavax Technologies Corporation, Attention: Corporate Secretary, 2929 Seventh Street, Suite 100, Berkeley, California 94710, (510) 848-5100. Stockholders who currently receive multiple copies of the Annual Meeting materials at their addresses and would like to request “householding” of their communications should contact their brokers.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

Our Board is divided into three classes, 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 elected and qualified.

Our Board presently has nine members. There are three directors in the class whose term of office expires in 2016: Dennis A. Carson, M.D., Eddie Gray and Laura Brege, each of whom is a nominee for director and currently a director of the Company. Dr. Carson was previously elected by the stockholders in 2013. Our Board elected Mr. Gray to the Board in May 2013 when he joined the Company as Chief Executive Officer upon recommendation of our Nominating and Corporate Governance Committee, based on its review of his experience and qualifications. Our Board elected Ms. Brege to the Board in February 2015 upon recommendation of our Nominating and Corporate Governance Committee, based on its review of her experience and qualifications. If each nominee is elected at the Annual Meeting, each of these nominees will serve until the 2019 Annual Meeting and until his or her successor is elected and has qualified, or, if sooner, until the director’s death, resignation or removal. There were two directors in attendance at our 2015 Annual Meeting.

Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors. The three nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below. Although the election of directors at the Annual Meeting is uncontested and directors are elected by a plurality of votes cast, and we therefore anticipate that each of the named nominees for director will be elected at the Annual Meeting, under our Corporate Governance Guidelines, any nominee for director is required to submit an offer of resignation for consideration by the Nominating and Corporate Governance Committee if such nominee for director (in an uncontested election) receives a greater number of “Withhold” votes than “For” votes. In such case, the Nominating and Corporate Governance Committee will then consider all of the relevant facts and circumstances and recommend to the Board the action to be taken with respect to such offer of resignation. For more information on this policy see the section entitled “Corporate Governance.” If any nominee becomes unavailable for election as a result of an unexpected occurrence, your shares will be voted for the election of a substitute nominee proposed by our Board. Each person nominated for election has agreed to serve if elected. Our Board has no reason to believe that any nominee will be unable to serve.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F E ACH N AMED N OMINEE .

Set forth below is certain biographical information as of April 6, 2016, for the nominees and each person whose term as a director will continue after the Annual Meeting.

 

Name

   Age     

Position

Arnold L. Oronsky, Ph.D.

     75       Chairperson of the Board

Francis R. Cano, Ph.D.

     71       Director

Dennis A. Carson, M.D.

     69       Director

Laura Brege

     58       Director

Eddie Gray

     57       Chief Executive Officer (“CEO”) and Director

Daniel L. Kisner, M.D.

     69       Director

Peggy V. Phillips

     62       Director

Stanley A. Plotkin, M.D.

     83       Director

Natale Ricciardi

     67       Director

 

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C LASS I D IRECTORS N OMINEES

Dennis A. Carson, M.D.

Dr. Carson has been a member of our Board since December 1997. Dr. Carson is a noted researcher in the fields of autoimmune and immunodeficiency diseases and is co-discoverer with Dr. Eyal Raz of the immunostimulatory sequences (ISS) that form the basis of our technology. He has played key roles in the founding of Vical, Inc., a gene therapy company, IDEC Pharmaceuticals, a biopharmaceutical company, and Triangle Pharmaceuticals, a pharmaceutical company. Dr. Carson is former director of the Rebecca and John Moores Cancer Center at the University of California, San Diego and has been a professor in the Department of Medicine at the University of California, San Diego since 1990. The Board believes that Dr. Carson’s significant experience in research and development provides important insights for the strategy of the Company, particularly with regard to scientific opportunities for development by the Company, and qualifies Dr. Carson to be nominated as a director. He is a member of the National Academy of Sciences, the American Academy of Arts and Sciences, and the Institute of Medicine, as well as the American Association for Cancer Research, the American Society for Clinical Investigation, the American Society of Hematology and the Association of American Physicians. He received his M.D. from Columbia University and his B.A. from Haverford College. Dr. Carson completed his residency in internal medicine and a postdoctoral fellowship at the University of California, San Diego.

Eddie Gray – CEO and Director

Mr. Gray joined Dynavax as Chief Executive Officer and was appointed to our Board in May 2013. Most recently, Mr. Gray served as the President of Pharmaceuticals Europe and a member of the corporate executive team at GlaxoSmithKline plc (GSK) from 2008 until 2013 and as Senior Vice President and General Manager of Pharmaceuticals UK from 2001 through 2007. Prior to the formation of GSK, Mr. Gray was with SmithKline Beecham from 1988 through 2000 serving in various positions of increasing responsibility, including Vice President and Director of Anti-Infectives Marketing in the U.S., Vice President and Director of the Vaccines Business Unit in the U.S., and Vice President and General Manager of Pharmaceuticals in Canada. Our Board believes that Mr. Gray’s more than 30 years of pharmaceutical industry experience, including, most recently, as the President of Pharmaceuticals Europe at GSK, a leading pharmaceutical company, and other senior management roles at GSK and its predecessor, where he was responsible for the launch, commercialization and strategic development of vaccines and other products, enables him to provide commercial and strategic leadership to the Company and qualifies Mr. Gray to be nominated as a director. Mr. Gray received a Bachelor of Science degree in Chemistry and Management Studies from the University of London and an MBA from the Cranfield School of Management in the UK.

Laura Brege

Ms. Brege has been a member of our Board since February 2015. Since September 2015, she has served as managing director of Cervantes Life Science Partners, LLC, a consulting firm providing integrated business solutions to life sciences companies. She has over 20 years of executive management experience in the pharmaceutical, biotechnology and venture capital industries. From September 2012 to July 2015, Ms. Brege was President and Chief Executive Officer of Nodality Inc., a life sciences company focused on innovative personalized medicine. Prior to joining Nodality in 2012, Ms. Brege held several senior-level positions at Onyx Pharmaceuticals, Inc., a biopharmaceutical and biotherapeutics company, from 2006 until 2012, including positions as Executive Vice President and Chief Operating Officer. While at Onyx she led multiple functions, including commercialization, strategic planning, corporate development, and medical, scientific and government affairs. Prior to Onyx, Ms. Brege was a General Partner at Red Rock Capital Management, a venture capital firm specializing in early stage financing for technology companies. Previously Ms. Brege was Senior Vice President and Chief Financial Officer at COR Therapeutics, where she helped build the company from an early stage R&D company through commercial launch of a successful cardiovascular product. Earlier in her career, she served as Chief Financial Officer at Flextronics, Inc. and Treasurer of The Cooper Companies. She serves on the board of directors of the following public pharmaceutical companies: Acadia Pharmaceuticals, Inc., Aratana Therapeutics, Inc., Pacira Pharmaceuticals, Inc.

 

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and Portola Pharmaceuticals. During the past five years, Ms. Brege also served on the boards of directors of Angiotech Pharmaceuticals, Inc., a biotechnology company, and Delcath Systems, Inc., a pharmaceutical company. Our Board believes that Ms. Brege’s background in finance and management of biotechnology companies provides important strategic insights for the Board in setting strategy and reviewing the operations of the Company, as well as qualifies Ms. Brege to be nominated as a director. Ms. Brege earned her undergraduate degrees from Ohio University (Honors Tutorial College) and her MBA degree from the University of Chicago.

C LASS II D IRECTORS C ONTINUING IN O FFICE U NTIL THE 2017 A NNUAL M EETING

Daniel L. Kisner, M.D.

Dr. Kisner has been a member of our Board since July 2010. From 2003 to 2010, Dr. Kisner served as a partner at Aberdare Ventures and prior to that as President and CEO of Caliper Technologies, leading its evolution from a start-up focused on microfluidic lab-on-chip technology to a publicly traded, commercial organization. Prior to Caliper, he was the President and Chief Operating Officer of Isis Pharmaceuticals, Inc., a biomedical pharmaceutical company. Previously, Dr. Kisner was Division Vice President of Pharmaceutical Development for Abbott Laboratories and Vice President of Clinical Research and Development at SmithKline Beecham Pharmaceuticals. In addition, he held a tenured position in the Division of Oncology at the University of Texas, San Antonio School of Medicine and is certified by the American Board of Internal Medicine in Internal Medicine and Medical Oncology. Additionally, he is currently serving on the boards of Conatus Pharmaceuticals, Inc., a biotechnology company, Lpath, Inc., a biotechnology company and Zynerba Pharmaceuticals, a biotechnology company. Dr. Kisner previously served as Chairman of the board for Tekmira Pharmaceuticals, a biopharmaceutical company, until March 2015. Our Board believes that Dr. Kisner’s background with larger, complex technology-based organizations as well as his significant experience with corporate transactions, including investing in venture-backed life science companies provides the Board with insights for setting strategy of the Company. He holds a B.A. from Rutgers University and an M.D. from Georgetown University.

Natale (“Nat”) Ricciardi

Mr. Ricciardi has been a member of our Board since June 2013. Mr. Ricciardi spent his entire 39-year career at Pfizer Inc., a biopharmaceutical company, retiring in 2011 as a member of the Pfizer Executive Leadership Team. While holding the positions of President, Pfizer Global Manufacturing, and Senior Vice President of Pfizer Inc. from 2004 until 2011, Mr. Ricciardi was directly responsible for all of Pfizer’s internal and external supply organization, a global enterprise that grew to more than 100 manufacturing facilities supplying small and large molecule pharmaceuticals, vaccines, consumer, nutrition and animal health products. Mr. Ricciardi maintained responsibility for global manufacturing activities from 2004 through 2011. Previously, from 1999 to 2004, he had oversight for Pfizer’s U.S. manufacturing operations and from 1995 to 1999 was Vice President of Manufacturing for Pfizer’s Animal Health Group. Mr. Ricciardi served on the boards of the National Association of Manufacturers and Mediacom Communications Corporation until its privatization in 2011. He is currently a member of the board of the 21st Century Foundation of The City College of New York. He is also on the Advisory Board of HealthCare Royalty Partners and the board of directors of Asterias Biotherapeutics, Inc., serving as Chair of the Compensation Committee and member of the Audit Committee, and Rapid Micro Biosystems, Inc. Our Board believes Mr. Ricciardi’s 39-year career at Pfizer Inc., a leading pharmaceutical company, including as a member of the Pfizer Executive Leadership Team and direct responsibility for all of Pfizer’s internal supply organization, including global manufacturing, provides the Board with insights for reviewing the operations of the Company. Mr. Ricciardi earned a degree in Chemical Engineering from The City College of New York and an MBA in Finance and International Business from Fordham University.

Stanley A. Plotkin, M.D.

Dr. Plotkin has been a member of our Board since August 2005. Dr. Plotkin is Emeritus Professor of the University of Pennsylvania. Until 1991, he was Professor of Pediatrics and Microbiology at the University of

 

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Pennsylvania and Professor of Virology at the Wistar Institute and, at the same time, Director of Infectious Diseases and Senior Physician at the Children’s Hospital of Philadelphia. In 1991, Dr. Plotkin left the University to join the vaccine manufacturer Pasteur-Mérieux-Connaught (today, Sanofi Pasteur), where for seven years he was Medical and Scientific Director, based at Marnes-la-Coquette, outside Paris. Until 2009, he was an Executive Advisor to Sanofi Pasteur. The Board believes that Dr. Plotkin’s significant experience in development and manufacturing of vaccines provides significant insights for the strategy of the Company with respect to key technical and operational issues in vaccine development. Dr. Plotkin’s career included an internship at Cleveland Metropolitan General Hospital, residency in pediatrics at the Children’s Hospital of Philadelphia and the Hospital for Sick Children in London and three years in the Epidemic Intelligence Service of the Centers for Disease Control of the U.S. Public Health Service. He has been chairman of the Infectious Diseases Committee and the AIDS Task Force of the American Academy of Pediatrics, liaison member of the Advisory Committee on Immunization Practices and Chairman of the Microbiology and Infectious Diseases Research Committee of the National Institutes of Health.

C LASS III D IRECTORS C ONTINUING IN O FFICE U NTIL THE 2018 A NNUAL M EETING

Arnold L. Oronsky, Ph.D.

Dr. Oronsky has been a member of our Board since November 1996 and became Chairman in February 2006. Dr. Oronsky has been a managing director with InterWest Partners, a venture capital firm, since 2009. Prior to joining InterWest Partners in 1994, Dr. Oronsky was Vice President of Discovery Research for the Lederle Laboratories division of American Cyanamid, a pharmaceutical company. From 1973 until 1976, Dr. Oronsky was head of the inflammation, allergy and immunology research program at Ciba-Geigy Pharmaceutical Company. Dr. Oronsky also serves as a senior lecturer in the Department of Medicine at The Johns Hopkins Medical School. Dr. Oronsky has won numerous grants and awards and has published over 125 scientific articles. Dr. Oronsky currently serves on the boards of directors of Tesaro, Inc., an oncology-focused biopharmaceutical company, and Applied Genetic Technologies Corporation, a biotechnology company. Dr. Oronsky also served on the board of directors of MacroGenics, Inc., a biopharmaceutical company, from 2000 to 2014. The Board believes that Dr. Oronsky’s significant experience in growing and developing life sciences companies, particularly in the immunology area, provides significant leadership and insights for the Board in defining the strategy of the Company. He received his Ph.D. from Columbia University, College of Physicians and Surgeons and his A.B. from New York University.

Francis R. Cano, Ph.D.

Dr. Cano was appointed to our Board in November 2009. Dr. Cano has been President and Founder of Cano Biotech Corp., a consulting firm focusing on the vaccine business, since 1996 and also serves on the board of Biomerica, Inc., a developer and manufacturer of diagnostic products. Previously, Dr. Cano served on the board of Arbor Vita Corporation, a biopharmaceutical company. From 1993 to 1996, Dr. Cano was President and Chief Operating Officer for Aviron, a biopharmaceutical company, which was later acquired by MedImmune in 2001. As a Co-Founder of Aviron, he completed two rounds of venture financing, a licensing agreement with SmithKline Biologicals and in-licensed Flu-Mist influenza vaccine from the National Institutes of Health. For 21 years, Dr. Cano worked with the Lederle Laboratories Division of American Cyanamid, most recently as Vice President and General Manager of the Biologicals unit. The Board believes that Dr. Cano’s experience as a founder of and advisor to established vaccine businesses provides significant insights for the strategy of the Company with respect to key technical and operational issues in vaccine development. He earned a Ph.D. in Microbiology from Pennsylvania State University, served as a Research Associate at Rutgers Institute of Microbiology, and holds a M.S. in Microbiology and a B.S. in Biology from St. John’s University.

Peggy V. Phillips

Ms. Phillips has been a member of our Board since August 2006. Ms. Phillips served on the board of directors of Tekmira Pharmaceuticals from February 2014 to March 2015. Ms. Phillips served on the board of directors of

 

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Portola Pharmaceuticals, a biopharmaceutical company, from 2006 to 2013. From 2003 until 2011, Ms. Phillips served on the board of the Naval Academy Foundation. From 1996 until 2002, she served on the board of directors of Immunex Corporation, a biotechnology company, and, from 1999, she served as the Chief Operating Officer until the company was acquired by Amgen in 2002. During her career at Immunex, she held positions of increasing responsibility in research, development, manufacturing, sales and marketing. As Senior Vice President for Pharmaceutical Development and General Manager for Enbrel ® from 1994 until 1998, she was responsible for clinical development and regulatory affairs as well as the launch, sales and marketing of the product. Prior to joining Immunex, Ms. Phillips worked at Miles Laboratories. The Board believes that Ms. Phillips provides significant experience in development and commercialization of biotechnology products. Her background and experience with larger, complex organizations provides significant operational and strategic insights in assessing the strategy of the Company. Ms. Phillips holds a B.S. and a M.S. in microbiology from the University of Idaho.

 

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PROPOSAL 2

APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE 2011 EQUITY INCENTIVE PLAN AND APPROVAL OF THE TERMS APPLICABLE TO AWARDS INTENDED TO QUALIFY AS “PERFORMANCE-BASED COMPENSATION” FOR PURPOSES OF SECTION 162(M) OF THE INTERNAL REVENUE CODE

The Board is requesting stockholder approval of an amendment and restatement of the Dynavax Technologies Corporation 2011 Equity Incentive Plan (the “2011 Plan”). We refer to such amendment and restatement of the 2011 Plan in this proxy statement as the “Amended 2011 Plan”. In addition, we are requesting that stockholders approve the terms of the Amended 2011 Plan relating to awards intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

The Amended 2011 Plan contains the following material changes from the 2011 Plan:

 

   

Subject to adjustment for certain changes in our capitalization, the aggregate number of shares of our common stock that may be issued under the Amended 2011 Plan will not exceed 8,743,442 shares, which is an increase of 3,200,000 shares over the aggregate number of shares of our common stock that may be issued under the 2011 Plan.

 

   

The 2011 Plan contains a “fungible share counting” structure, whereby the number of shares of our common stock available for issuance under the 2011 Plan will be reduced by (i) one share for each share issued pursuant to a stock option or stock appreciation right with an exercise price that is at least 100% of the fair market value of our common stock on the date of grant (an “Appreciation Award”) granted under the 2011 Plan and (ii) 1.33 shares for each share issued pursuant to a stock award that is not an Appreciation Award (a “Full Value Award”) granted under the 2011 Plan on or after May 27, 2015. The Amended 2011 Plan retains such fungible share counting structure, except that the number of shares of our common stock available for issuance under the Amended 2011 Plan will be reduced by 1.60 shares for each share issued pursuant to a stock award that is a Full Value Award granted under the Amended 2011 Plan on or after May 31, 2016. As part of such fungible share counting structure, the number of shares of our common stock available for issuance under the Amended 2011 Plan will be increased by (i) one share for each share that becomes available again for issuance under the terms of the Amended 2011 Plan subject to an Appreciation Award and (ii) 1.60 shares for each share that becomes available again for issuance under the terms of the Amended 2011 Plan subject to a Full Value Award on or after May 31, 2016.

 

   

Any stock options or stock appreciation rights granted on or after May 31, 2016 under the Amended 2011 Plan will not vest or be exercisable until at least 12 months following the date of grant of the stock option or stock appreciation right, except that up to 5% of the share reserve of the Amended 2011 Plan may be subject to stock options or stock appreciation rights granted on or after May 31, 2016 under the Amended 2011 Plan that do not meet such vesting and exercisability requirements. The 2011 Plan does not contain any such vesting and exercisability requirements.

 

   

The maximum term of stock options and stock appreciation rights granted under the Amended 2011 Plan is seven years. Under the 2011 Plan, such maximum term is 10 years.

 

   

The aggregate value of all cash and equity-based compensation granted or paid by us to any individual for service as a non-employee director of the Board with respect to any fiscal year of the Company will not exceed (i) a total of $200,000 with respect to any such cash compensation and (ii) $800,000 in total value with respect to any such equity-based compensation (including awards granted under the Amended 2011 Plan and any other equity-based awards), calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes. The Board may make an exception to such limits for any non-employee director in extraordinary circumstances, as the Board may determine in its discretion, provided that any non-employee director who is granted or paid such additional compensation may not participate in the decision to grant or pay such additional compensation.

 

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The Amended 2011 Plan includes certain additional business criteria that may be utilized for performance goals with respect to certain performance-based awards (as described in the summary below).

 

   

The 2011 Plan includes a list of certain adjustments that may be made by the Board or Compensation Committee of the Board (the “Compensation Committee”) in the method of calculating the attainment of performance goals with respect to certain performance-based awards. The Amended 2011 Plan retains such list of adjustments, except that the phrase “‘extraordinary items’ as determined under generally accepted accounting principles” in the 2011 Plan is replaced with the phrase “items that are ‘unusual’ in nature or occur ‘infrequently’ as determined under generally accepted accounting principles” in the Amended 2011 Plan. This change is proposed because the concept of “extraordinary items” was recently eliminated from generally accepted accounting principles, but the definitions of “unusual” and “infrequently” were retained.

 

   

The Amended 2011 Plan provides that (i) awards granted under the Amended 2011 Plan will be subject to recoupment in accordance with any clawback policy that we are required to adopt pursuant to the listing standards of any national securities exchange or association on which our securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law and (ii) the Board may impose other clawback, recovery or recoupment provisions in an award agreement, including a reacquisition right in respect of previously acquired shares or other cash or property upon the occurrence of cause. The 2011 Plan does not contain any such provision.

Why You Should Vote for the Amended 2011 Plan

Equity Incentive Awards Are an Important Part of Our Compensation Philosophy

The Amended 2011 Plan is critical to our ongoing effort to build stockholder value by establishing a commercial organization based on our lead program HEPLISAV-B, advancing a robust pipeline of immuno-oncology clinical stage development programs, and discovering other cutting-edge TLR-based vaccines and immunotherapies. Our success in commercializing products and advancing our clinical development pipeline in cancer immunotherapy depends on our ability to attract, retain, and motivate key talent with expertise in these areas. Like all biotechnology companies, we actively compete for highly-qualified talent and we continue to believe that equity compensation is a critical component to attract, retain, and motivate key employees and effectively align employee compensation with stockholder interests. The purpose of the increase in available shares under the Amended 2011 Plan is to provide us with a sufficient reserve of common stock to have competitive equity incentive programs that enable us to compete with our peer group for key talent.

Traditionally, stock options have been the primary focus of our equity program. The potential value of stock options is realized only if our share price increases, and so we believe stock options provide a strong incentive for individuals to work to grow our business and build stockholder value and are most attractive to individuals who share our entrepreneurial spirit. In addition, we have also granted restricted stock unit awards, or RSUs, in recent years in order to attract and retain exceptional employees. In February 2016, our Compensation Committee granted RSUs that vest solely upon achievement of a clinical development milestone in response to stockholder feedback that a portion of each NEO’s long-term equity incentives should vest based on achievement of specific performance goals tied to our business strategy.

 

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During the last three years (from 2013 through 2015), on average approximately 56% of our equity-based awards were granted to employees other than our named executive officers, or NEOs. The table below shows equity-based awards granted to our Chief Executive Officer, or CEO, and NEOs as a percentage of total grants (the “Concentration Ratio”) over such three year period, both with and without executive new-hire grants. For purposes of the table below, the number of equity-based awards includes all stock options and RSUs granted in each year. Within the past three years, our executive new hires consisted of two of our current NEOs: our CEO, Eddie Gray, and our Senior Vice President of Operations and Quality, David Novack.

 

Year

   2015 (1)     2014 (2)     2013 (3)     3 Year
Average
 

Grants to CEO

     225,000        275,001        150,000        216,667   

Grants to All NEOs (including the CEO)

     543,501        384,501        233,000        387,001   

All Grants

     1,375,647        737,366        586,390        899,801   

Concentration Ratio (CEO)

     16.4     37.3     25.6     26.4

Concentration Ratio (CEO without CEO new-hire grants )

     16.4     30.2     0.0     15.5

Concentration Ratio (all NEOs, including the CEO)

     39.5     52.2     39.7     43.8

Concentration Ratio (all NEOs, including the CEO, without NEO new-hire grants )

     39.5     46.7     13.0     33.1

 

(1)  

In 2015, no new-hire grants were made to our NEOs.

 

(2)  

In 2014, the following new-hire grants were made to our NEOs: 75,001 shares of common stock.

 

(3)  

In 2013, the following new-hire grants were made to our NEOs: 180,000 shares of common stock.

We Manage Our Equity Incentive Award Use Carefully, and Dilution Is Reasonable

We continue to believe that equity incentive awards such as stock options and RSUs are a vital part of our overall compensation program. Our compensation philosophy reflects broad-based eligibility for equity incentive awards, and we grant awards to substantially all of our employees. However, we recognize that equity incentive awards dilute existing stockholders, and, therefore, we must responsibly manage the growth of our equity compensation program. We are committed to effectively monitoring our equity compensation share reserve, including our “burn rate,” to ensure that we maximize stockholders’ value by granting the appropriate number of equity incentive awards necessary to attract, reward, and retain employees.

The following table shows our responsible historical dilution and burn rate percentages.

 

As of December 31

   2015     2014     2013  

Full Dilution (1)

     11.88     10.30     10.46

Gross Burn Rate (2)

     4.18     2.80     2.99

 

(1)  

Full Dilution is calculated as (shares available for grant + shares subject to outstanding equity incentive awards)/(weighted average common stock outstanding + shares available for grant + shares subject to outstanding equity incentive awards).

 

(2)  

Gross Burn Rate is calculated as (shares subject to options granted + shares subject to other equity incentive awards granted)/weighted average common stock outstanding.

The Size of Our Share Reserve Increase Request Is Reasonable

If our request to increase the share reserve of the Amended 2011 Plan by 3,200,000 shares is approved, we will have approximately 4,100,000 shares available for grant after our Annual Meeting, which we anticipate being a one-year pool of shares and necessary to provide a sufficient amount of equity for attracting, retaining, and motivating employees. We anticipate returning to stockholders for additional shares in 2017.

The size of our request is also reasonable in light of the equity granted to our employees and directors over the last three years, which is comparatively lower than the majority of our peer companies.

 

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Overhang

The following table provides certain additional information regarding our equity incentive program.

 

          
      As of April 6, 2016 (1)  

Total number of shares of common stock subject to outstanding stock options

    3,743,109   

Weighted-average exercise price of outstanding stock options

  $ 22.96   

Weighted-average remaining term of outstanding stock options

    7.01   

Total number of shares of common stock subject to outstanding full value awards

    549,526   

Total number of shares of common stock available for grant under the 2011 Plan

    862,209   

Total number of shares of common stock available for grant under other equity incentive plans

    —     

Total number of shares of common stock outstanding

    38,495,502   

Per-share closing price of common stock as reported on NASDAQ Capital Market

  $ 21.78   

 

(1)  

This table includes the stock options that were granted under the 2011 Plan in February 2016 subject to stockholder approval of this Proposal 2 that are described in the table below under “New Plan Benefits under Amended 2011 Plan.”

Burn Rate

The following table provides detailed information regarding the activity related to our equity incentive plans for fiscal year 2015.

 

       Fiscal Year 2015  

Total number of shares of common stock subject to stock options granted

     1,338,661   

Total number of shares of common stock subject to full value awards granted

     36,986   

Weighted-average number of shares of common stock outstanding

     32,881,333   

Burn Rate

     4.18

The Amended 2011 Plan Combines Compensation and Governance Best Practices

The Amended 2011 Plan includes provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices including:

 

   

Stockholder approval is required for additional shares .    The Amended 2011 Plan does not contain an annual “evergreen” provision. The Amended 2011 Plan authorizes a fixed number of shares, so that stockholder approval is required to issue any additional shares.

 

   

Repricing is not allowed .    The Amended 2011 Plan prohibits the repricing of stock options and stock appreciation rights without prior stockholder approval.

 

   

No discounted stock options or stock appreciation rights .    All stock options and stock appreciation rights must have an exercise price equal to or greater than the fair market value of our common stock on the date the stock option or stock appreciation right is granted.

 

   

Reasonable share counting provisions .    In general, when awards granted under the Amended 2011 Plan lapse or are canceled, the shares reserved for those awards will be returned to the share reserve and be available for future awards. However, shares of common stock received from the exercise of stock options or withheld for taxes will not be returned to our share reserve.

 

   

Minimum vesting requirements .    The Amended 2011 Plan provides that no stock option or stock appreciation right granted on or after May 31, 2016 will vest until at least 12 months following the date of grant of the stock option or stock appreciation right, except that up to 5% of the share reserve of the

 

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Amended 2011 Plan may be subject to stock options or stock appreciation rights granted on or after May 31, 2016 that do not meet such vesting requirements.

 

   

Limit on non-employee director compensation .    The aggregate value of all cash and equity-based compensation granted or paid by us to any individual for service as a non-employee director of the Board with respect to any fiscal year of the Company will not exceed (i) a total of $200,000 with respect to any such cash compensation and (ii) $800,000 in total value with respect to any such equity-based compensation (including awards granted under the Amended 2011 Plan and any other equity-based awards), calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes. The Board may make an exception to such limits for any non-employee director in extraordinary circumstances, as the Board may determine in its discretion, provided that any non-employee director who is granted or paid such additional compensation may not participate in the decision to grant or pay such additional compensation.

 

   

Awards subject to forfeiture/clawback .    Awards granted under the Amended 2011 Plan will be subject to recoupment in accordance with any clawback policy that we are required to adopt pursuant to the listing standards of any national securities exchange or association on which our securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose other clawback, recovery or recoupment provisions in an award agreement, including a reacquisition right in respect of previously acquired shares or other cash or property upon the occurrence of cause.

Performance-Based Awards

Approval of the Amended 2011 Plan by our stockholders will also constitute approval of terms and conditions set forth therein that will permit us to grant stock options, stock appreciation rights and performance-based stock and cash awards under the Amended 2011 Plan that may qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code. Section 162(m) of the Code disallows a deduction to any publicly held corporation and its affiliates for certain compensation paid to “covered employees” in a taxable year to the extent that compensation to a covered employee exceeds $1 million. However, some kinds of compensation, including qualified “performance-based compensation,” are not subject to this deduction limitation. For compensation awarded under a plan to qualify as “performance-based compensation” under Section 162(m) of the Code, among other things, the following terms must be disclosed to and approved by the stockholders before the compensation is paid: (i) a description of the employees eligible to receive such awards; (ii) a per-person limit on the number of shares subject to stock options, stock appreciation rights and performance-based stock awards, and the amount of cash subject to performance-based cash awards, that may be granted to any employee under the plan in any year; and (iii) a description of the business criteria upon which the performance goals for performance-based awards may be granted (or become vested or exercisable). Accordingly, we are requesting that our stockholders approve the Amended 2011 Plan, which includes terms and conditions regarding eligibility for awards, annual per-person limits on awards and the business criteria for performance-based awards granted under the Amended 2011 Plan (as described in the summary below).

In February 2016, our Compensation Committee granted a number of stock options to certain employees (including our executive officers) under the 2011 Plan subject to stockholder approval of this Proposal 2. The number of shares subject to each such stock option is indicated in the table under “New Plan Benefits under Amended 2011 Plan” below. Accordingly, approval of this Proposal 2 by our stockholders will also constitute approval of such stock options for purposes of Section 162(m) of the Code.

We believe it is in the best interests of the Company and our stockholders to preserve the ability to grant “performance-based compensation” under Section 162(m) of the Code. However, in certain circumstances, we may determine to grant compensation to covered employees that is not intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. Moreover, even if we grant compensation that is intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, we cannot guarantee that such compensation ultimately will be deductible by us.

 

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Summary of the Amended 2011 Plan

A summary of the principal features of the Amended 2011 Plan follows below. The summary is qualified by the full text of the Amended 2011 Plan that is attached as Appendix A to this proxy statement.

Types of Awards

The Amended 2011 Plan provides for the following types of awards: incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, performance cash awards, and other stock-based awards. We refer to these stock awards in this Proposal 2 collectively as the “stock awards” or “awards”.

Eligibility

Awards may be granted under the Amended 2011 Plan to employees (including officers) of us or our affiliates and to members of our Board. Pursuant to applicable tax law, we may only grant incentive stock options to our employees (including officers) and employees of our affiliates. As of April 6, 2016, we had approximately 240 employees and eight non-employee directors.

Section 162(m) Limits

Under the Amended 2011 Plan, subject to adjustment for certain changes in our capitalization, no participant will be eligible to be granted during any calendar year more than: (i) a maximum of 1,000,000 shares of our common stock subject to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the fair market value of our common stock on the date of grant; (ii) a maximum of 1,000,000 shares of our common stock subject to performance stock awards; and (iii) a maximum of $5,000,000 subject to performance cash awards. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to any covered employee imposed by Section 162(m) of the Code.

Non-Employee Director Compensation Limit

The aggregate value of all cash and equity-based compensation granted or paid by us to any individual for service as a non-employee director of the Board with respect to any fiscal year of the Company will not exceed (i) a total of $200,000 with respect to any such cash compensation and (ii) $800,000 in total value with respect to any such equity-based compensation (including awards granted under the Amended 2011 Plan and any other equity-based awards), calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes. The Board may make an exception to such limits for any non-employee director in extraordinary circumstances, as the Board may determine in its discretion, provided that any non-employee director who is granted or paid such additional compensation may not participate in the decision to grant or pay such additional compensation.

Administration

The Amended 2011 Plan is administered by our Board, which may in turn delegate authority to administer the Amended 2011 Plan to a committee. Our Board has delegated administration of the Amended 2011 Plan to the Compensation Committee, but has retained the authority to concurrently administer the Amended 2011 Plan with the Compensation Committee and may, at any time, revest in itself some or all of the powers previously delegated to the Compensation Committee. Subject to the terms of the Amended 2011 Plan, the Compensation Committee may determine the recipients, numbers and types of stock awards to be granted, and terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the

 

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Compensation Committee also determines the fair market value applicable to a stock award and the exercise price of stock options and stock appreciation rights granted under the Amended 2011 Plan.

In the discretion of the Board, the Compensation Committee may consist solely of two or more “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act, or solely of two or more “outside directors” within the meaning of Section 162(m) of the Code. The Compensation Committee has the authority to delegate its administrative powers under the Amended 2011 Plan to a subcommittee consisting of members of the Compensation Committee. The Amended 2011 Plan also permits delegation to one or more officers of the ability to determine the recipients, number of shares and types of stock awards (to the extent permitted by law) to be granted to employees other than our officers, subject to a maximum limit on the aggregate number of shares subject to stock awards that may be granted by such officers.

Stock Available for Awards

Subject to adjustment for certain changes in our capitalization, the aggregate number of shares of our common stock that may be issued under the Amended 2011 Plan (the “Share Reserve”) will not exceed 8,743,442 shares, which is equal to the sum of (i) 60,889 shares (which is the number of shares subject to the Prior Plans’ Available Reserve (as defined below)), (ii) an additional 1,500,000 shares that were approved at our 2011 special meeting of stockholders, (iii) an additional 1,000,000 shares that were approved at our 2013 annual meeting of stockholders, (iv) an additional 2,250,000 shares that were approved at our 2015 annual meeting of stockholders, (v) an additional 3,200,000 shares that are subject to approval by our stockholders under this Proposal 2, and (vi) an additional number of shares in an amount not to exceed 732,553 shares (which number consists of the Returning Shares (as defined below), if any, as such shares become available from time to time).

The term “Prior Plans’ Available Reserve” refers to any available shares that, as of the effective date of the 2011 Plan, were reserved under our 2004 Stock Incentive Plan, 2010 Employment Inducement Award Plan and 1997 Equity Incentive Plan (each, a “Prior Plan”) but were not subject to stock awards that were granted under the Prior Plans as of the effective date of the 2011 Plan, less any shares that were added to the 2004 Stock Incentive Plan share reserve on the first business day in 2011 by operation of the evergreen provision in such plan.

The term “Returning Shares” refers to any shares subject to outstanding stock awards granted under the Prior Plans that expire or terminate prior to exercise or settlement or are forfeited because of the failure to vest, to the extent such shares would have otherwise returned to a Prior Plan in accordance with its terms had such Prior Plan been in active existence at such time.

The number of shares of our common stock available for issuance under the Amended 2011 Plan will be reduced by: (i) one share for each share issued pursuant to an Appreciation Award granted under the Amended 2011 Plan; (ii) one share for each share issued pursuant to a Full Value Award granted under the Amended 2011 Plan prior to May 27, 2015; (iii) 1.33 shares for each share issued pursuant to a Full Value Award granted under the Amended 2011 Plan on or after May 27, 2015 but prior to May 31, 2016; and (iv) 1.60 shares for each share issued pursuant to a Full Value Award granted under the Amended 2011 Plan on or after May 31, 2016.

The number of shares of our common stock available for issuance under the Amended 2011 Plan will be increased by: (i) one share for each Returning Share or 2011 Plan Returning Share (as defined below) subject to an Appreciation Award; (ii) one share for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Amended 2011 Plan prior to May 27, 2015; (iii) 1.33 shares for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Amended 2011 Plan on or after May 27, 2015 but prior to May 31, 2016; and (iv) 1.60 shares for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Amended 2011 Plan on or after May 31, 2016.

The following shares of our common stock (collectively, the “2011 Plan Returning Shares”) will become available again for issuance under the Amended 2011 Plan: (i) any shares subject to a stock award that are not

 

18


issued because such stock award expires or otherwise terminates without all of the shares covered by such stock award having been issued; (ii) any shares subject to a stock award that are not issued because such stock award is settled in cash; and (iii) any shares issued pursuant to a stock award that are forfeited back to or repurchased by us because of a failure to vest.

The following shares of our common stock will not become available again for issuance under the Amended 2011 Plan: (i) any shares that are reacquired or withheld (or not issued) by us to satisfy the exercise or purchase price of a stock award granted under the Amended 2011 Plan or a Prior Plan (including any shares subject to such award that are not delivered because such award is exercised through a reduction of shares subject to such award (i.e., “net exercised”)); (ii) any shares that are reacquired or withheld (or not issued) by us to satisfy a tax withholding obligation in connection with a stock award granted under the Amended 2011 Plan or a Prior Plan; and (iii) any shares repurchased by us on the open market with the proceeds of the exercise or purchase price of a stock award granted under the Amended 2011 Plan or a Prior Plan.

Appropriate adjustments will be made to the Share Reserve, to the other numerical limits described in the Amended 2011 Plan (such as the limit on the number of shares that may be issued as incentive stock options and the limit on the number of shares that may be awarded to any one participant in any calendar year for purposes of Section 162(m) of the Code) and to outstanding awards in the event of any change in our common stock without the receipt of consideration by us through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, other than the conversion of convertible securities.

Repricing Prohibition

Under the Amended 2011 Plan, neither the Board nor any committee has the authority to reprice any outstanding stock option or stock appreciation right by reducing the exercise price of the stock option or stock appreciation right or to cancel any outstanding stock option or stock appreciation right that has an exercise price greater than the then-current fair market value of our common stock in exchange for cash or other stock awards under the Amended 2011 Plan, unless our stockholders have approved such an action within 12 months prior to such an event.

Terms of Options

A stock option is the right to purchase shares of our common stock at a fixed exercise price for a fixed period of time. Stock option grants may be incentive stock options or nonstatutory stock options. Each option is evidenced by a stock option agreement. The Board determines the terms of a stock option including the exercise price, the form of consideration paid on exercise, the vesting schedule, restrictions on transfer and the term.

Generally, the exercise price of a stock option may not be less than 100% of the fair market value of the stock subject to the option on the date of grant.

Options granted under the Amended 2011 Plan will vest at the rate specified in the option agreement; provided, however , that no stock option granted on or after May 31, 2016 will vest until at least 12 months following the date of grant of the stock option, except that up to 5% of the Share Reserve may be subject to stock options or stock appreciation rights granted on or after May 31, 2016 that do not meet such vesting requirements.

In general, the term of an option granted under the Amended 2011 Plan may not exceed seven years. Unless the terms of an optionee’s stock option agreement provides otherwise, if an optionee’s continuous service relationship with us, or any of our affiliates, ceases for any reason other than disability or death, the optionee may generally exercise any vested options for a period of three months following the cessation of service. The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable

 

19


securities laws or our insider trading policy, but may not be extended beyond the original seven-year term. If an optionee’s service relationship with us, or any of our affiliates, ceases due to disability or death, or an optionee dies within a certain period following cessation of service, the optionee or a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. In no event may any option be exercised beyond the expiration of its term.

Acceptable forms of consideration for the purchase of our common stock issued under the Amended 2011 Plan may include cash, payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board, common stock previously owned by the optionee, payment through a net exercise feature, or other approved forms of legal consideration.

Generally, an optionee may not transfer a stock option other than by will or the laws of descent and distribution or pursuant to a domestic relations order. However, to the extent permitted under the terms of the applicable stock option agreement, an optionee may designate a beneficiary who may exercise the option following the optionee’s death.

Tax Limitations on Incentive Stock Options

The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionee during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are generally treated as nonstatutory stock options. In addition, the maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the Amended 2011 Plan is 11,000,000 shares. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless the following conditions are satisfied:

 

   

the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and

 

   

the term of any incentive stock option award must not exceed five years from the date of grant.

Terms of Restricted Stock Awards

Restricted stock awards are awards of shares of our common stock. Each restricted stock award is evidenced by an award agreement that sets forth the terms and conditions of the award. A restricted stock award may be granted in consideration for cash, the recipient’s services performed for us or an affiliate of ours or other form of legal consideration. Shares of our common stock acquired under a restricted stock award may be subject to forfeiture in accordance with the vesting schedule determined at the time of grant. Rights to acquire shares of our common stock under a restricted stock award may be transferred only upon such terms and conditions as are set forth in the restricted stock award agreement.

Terms of Restricted Stock Unit Awards

A restricted stock unit is a right to receive stock or cash (or a combination of cash and stock) equal to the value of a share of stock at the end of a set period. No stock is issued at the time of grant. Each restricted stock unit award is evidenced by an agreement that sets forth the terms and conditions of the award. Restricted stock unit awards may be subject to vesting in accordance with a vesting schedule determined at grant. Dividend equivalents may be credited in respect of shares of our common stock covered by a restricted stock unit award.

When a participant’s continuous service with us or any of our affiliates terminates for any reason, the unvested portion of the restricted stock unit award will be forfeited unless otherwise provided in the restricted stock unit award agreement.

 

20


Terms of Stock Appreciation Rights

Stock appreciation rights are granted pursuant to a stock appreciation rights agreement. Each stock appreciation right is denominated in common stock share equivalents. The Board determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant.

A stock appreciation right granted under the Amended 2011 Plan vests at the rate specified in the stock appreciation right agreement as determined by the Board; provided, however , that no stock appreciation right granted on or after May 31, 2016 will vest until at least 12 months following the date of grant of the stock appreciation right, except that up to 5% of the Share Reserve may be subject to stock options or stock appreciation rights granted on or after May 31, 2016 that do not meet such vesting requirements.

When a stock appreciation right is exercised, the holder is entitled to an amount equal to the product of (a) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (b) the number of shares of common stock with respect to which the stock appreciation right is exercised. We may pay the amount of the appreciation in cash or shares of our common stock or a combination of both.

The Board determines the term of stock appreciation rights granted under the Amended 2011 Plan, up to a maximum of seven years. Unless the terms of a holder’s stock appreciation rights agreement provides otherwise, if a holder’s continuous service with us, or any of our affiliates, ceases for any reason other than disability or death, the holder may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws or our insider trading policy. If a holder’s service relationship with us, or any of our affiliates, ceases due to disability or death, or a holder dies within a certain period following cessation of service, the holder or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In no event may a stock appreciation right be exercised beyond the expiration of its term.

Terms of Performance Awards

The Amended 2011 Plan provides for the grant of performance stock awards and performance cash awards. A performance award may vest or be exercised upon achievement of pre-determined performance goals during a specified period. A performance award may also require the completion of a specified period of continuous service. The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained will be determined by the Board or, to the extent necessary to comply with Section 162(m) of the Code, the Compensation Committee.

Section 162(m) of the Code disallows a deduction to any publicly held corporation and its affiliates for certain compensation paid to “covered employees” in a taxable year to the extent that compensation to a covered employee exceeds $1 million. However, some kinds of compensation, including qualified “performance-based compensation,” are not subject to this deduction limitation. While we believe it is in the best interests of the Company and our stockholders to preserve the ability to grant “performance-based compensation” under Section 162(m) of the Code, in certain circumstances, we may determine to grant compensation to covered employees that is not intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. Moreover, even if we grant compensation that is intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, we cannot guarantee that such compensation ultimately will be deductible by us.

In granting a performance award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Compensation Committee will set a period of time, or a performance period, over

 

21


which the attainment of one or more goals, or performance goals, will be measured. Within the time period prescribed by Section 162(m) of the Code, at the time when the achievement of the performance goals remains substantially uncertain (no later than the earlier of the 90th day of a performance period and the date on which 25% of the performance period has elapsed, and in any event at a time when the achievement of the performance goals remains substantially uncertain), the Compensation Committee will establish the performance goals, based upon one or more criteria, or performance criteria, enumerated in the Amended 2011 Plan and described below. Prior to the payment of any compensation under any award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Compensation Committee will certify (in writing) whether the performance goals have been satisfied. Notwithstanding satisfaction of the achievement of any performance goals, the number of shares of common stock, stock options, cash or other consideration granted, issued, retainable or vested under an award on account of such satisfaction may be reduced by the Compensation Committee, as determined in its sole discretion.

Performance-based stock and cash awards may be made subject to one or more of the following criteria: (i) earnings (including earnings per share and net earnings); (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization (EBITDA); (iv) total stockholder return; (v) return on equity or average stockholder’s equity; (vi) return on assets, investment, or capital employed; (vii) stock price or stock price performance; (viii) margin (including gross margin); (ix) net income (before or after taxes); (x) operating income; (xi) operating income after taxes; (xii) pre-tax profit; (xiii) operating cash flow; (xiv) sales or revenue targets; (xv) increases in revenue or product revenue; (xvi) expenses and cost reduction goals; (xvii) improvement in or attainment of working capital levels; (xviii) economic value added (or an equivalent metric); (xix) market share; (xx) cash flow; (xxi) cash flow per share; (xxii) share price performance; (xxiii) debt reduction; (xxiv) implementation or completion of projects or processes; (xxv) customer satisfaction; (xxvi) stockholders’ equity; (xxvii) capital expenditures; (xxviii) debt levels; (xxix) operating profit or net operating profit; (xxx) workforce diversity; (xxxi) growth of net income or operating income; (xxxii) billings; (xxxiii) submission to, or approval by, a regulatory body (including but not limited to the U.S. Food and Drug Administration) of an applicable filing for a product candidate or other product development milestones; (xxxiv) acquisitions, divestitures, joint ventures, strategic alliances, licenses or collaborations; (xxxv) spin-offs, split-ups, reorganizations, recapitalizations, restructurings, financings (debt or equity) or refinancings; (xxxvi) manufacturing or process development, clinical trial or research objectives; and (xxxvii) to the extent that an award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board.

The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (i) in the award agreement at the time the award is granted or (ii) in such other document setting forth the performance goals at the time the goals are established, we will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated goals; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of items that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and/or the award of an annual cash incentive under our Annual Incentive Program; and (10) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item. In addition, we retain the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of the goals. The performance goals may differ from participant to participant and from award to award.

 

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Terms of Other Stock Awards

The Board may grant other forms of stock awards that are valued in whole or in part by reference to the value of our common stock. Subject to the provisions of the Amended 2011 Plan, the Board has the authority to determine the persons to whom and the dates on which such other stock awards will be granted, the number of shares of common stock (or cash equivalents) to be subject to each award, and other terms and conditions of such awards. Such awards may be granted either alone or in addition to other stock awards granted under the Amended 2011 Plan. Such other forms of stock awards may be subject to vesting in accordance with a vesting schedule determined at grant.

Clawback Policy

Awards granted under the Amended 2011 Plan will be subject to recoupment in accordance with any clawback policy that we are required to adopt pursuant to the listing standards of any national securities exchange or association on which our securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose other clawback, recovery or recoupment provisions in an award agreement, including a reacquisition right in respect of previously acquired shares or other cash or property upon the occurrence of cause.

Corporate Transactions; Changes in Control

Corporate Transaction .    In the event of certain corporate transactions (as defined below), the Board has the discretion to take one or more of the following actions with respect to outstanding stock awards under the Amended 2011 Plan:

 

   

arrange for the assumption, continuation, or substitution of a stock award by a surviving or acquiring entity (or its parent company);

 

   

arrange for the assignment of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award to the surviving or acquiring corporation (or its parent company);

 

   

accelerate the vesting and exercisability of a stock award followed by the termination of the stock award;

 

   

arrange for the lapse of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award;

 

   

cancel or arrange for the cancellation of a stock award, to the extent not vested or not exercised, in exchange for such cash consideration, if any, as the Board may determine in its sole discretion; and

 

   

arrange for the surrender of a stock award in exchange for a payment equal to the excess of (a) the value of the property the holder of the stock award would have received upon the exercise of the stock award, over (b) any exercise price payable by such holder in connection with such exercise.

The Board need not take the same action for all stock awards.

For purposes of the Amended 2011 Plan, a corporate transaction will be deemed to occur in the event of (i) the consummation of a sale of all or substantially all of our consolidated assets, (ii) the consummation of a sale of at least 90% of our outstanding securities, (iii) the consummation of a merger or consolidation in which we are not the surviving corporation, or (iv) the consummation of a merger or consolidation in which we are the surviving corporation but shares of our outstanding common stock are converted into other property by virtue of the transaction.

Change in Control.     In the event of certain change in control events (as defined in the Amended 2011 Plan), the Board will have the discretion to take any one or more of the actions described above under “Corporate Transaction” with respect to outstanding stock awards under the Amended 2011 Plan. A stock award may be subject

 

23


to additional acceleration of vesting and exercisability upon or after a change in control event, as may be provided in the stock award agreement or in any other written agreement between us or any affiliate and the participant.

The acceleration of vesting of an award in the event of a corporate transaction or a change in control event under the Amended 2011 Plan may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of us.

Duration, Suspension, Termination, and Amendment

The Board may suspend or terminate the Amended 2011 Plan at any time. Unless sooner terminated by our Board, the Amended 2011 Plan shall automatically terminate on November 11, 2020, which is the day before the tenth anniversary of the date the 2011 Plan was adopted by the Compensation Committee. No awards may be granted under the Amended 2011 Plan while the Amended 2011 Plan is suspended or after it is terminated.

The Board may amend the Amended 2011 Plan at any time. However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the Amended 2011 Plan as required by applicable law or listing requirement.

Tax Withholding

The Board may require a participant to satisfy any federal, state, local, or foreign tax withholding obligation relating to a stock award by (a) causing the participant to tender a cash payment; (b) withholding shares of common stock from the shares of common stock issued or otherwise issuable to the participant in connection with the award; (c) withholding cash from an award settled in cash or from other amounts payable to the participant; or (d) by other method set forth in the award agreement.

Federal Income Tax Information

The following is a summary of the principal U.S. federal income taxation consequences to participants and us with respect to participation in the Amended 2011 Plan. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Given that the tax consequences to any recipient depend on his or her particular situation, each recipient should consult the recipient’s tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award. The Amended 2011 Plan is not qualified under the provisions of Section 401(a) of the Code, and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974.

Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income as well as the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of our tax reporting obligations.

Incentive Stock Options

The Amended 2011 Plan provides for the grant of stock options that qualify as “incentive stock options,” as defined in Section 422 of the Code. Under the Code, an optionee generally is not subject to ordinary income tax upon the grant or exercise of an incentive stock option. If the optionee holds a share received on the exercise of an incentive stock option for more than two years from the date the option was granted and more than one year from the date the option was exercised, which is referred to as the required holding period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax basis in that share will be long-term capital gain or loss.

If, however, an optionee disposes of a share acquired on exercise of an incentive stock option before the end of the required holding period, which is referred to as a disqualifying disposition, the optionee generally will recognize

 

24


ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date the incentive stock option was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an incentive stock option exceeds the exercise price of that option generally will be an adjustment included in the optionee’s alternative minimum taxable income for the year in which the option is exercised. If, however, there is a disqualifying disposition of the share in the year in which the option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive stock option is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the option is exercised.

We are not allowed an income tax deduction with respect to the grant or exercise of an incentive stock option or the disposition of a share acquired on exercise of an incentive stock option after the required holding period. If there is a disqualifying disposition of a share, however, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee.

Nonstatutory Stock Options

Generally, there is no taxation upon the grant of a nonstatutory stock option if the option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date. On exercise, an optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. If the optionee is employed by us or one of our affiliates, that income will be subject to withholding tax. Generally, the optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and the optionee’s capital gain holding period for those shares will begin on that date. We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the optionee.

Restricted Stock Awards

Generally, the recipient of a restricted stock award will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is not vested when it is received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.

 

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Restricted Stock Units

Generally, no taxable income is recognized upon receipt of a RSU award. The participant will recognize ordinary income in the year in which the shares subject to that unit are actually issued to the participant in an amount equal to the fair market value of the shares on the date of issuance. Generally, we will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time the shares are issued.

Stock Appreciation Rights

Generally, stock appreciation rights are subject to similar tax rules as nonstatutory stock options. This means that, generally, no taxable income is realized upon the receipt of a stock appreciation right. Upon exercise of the stock appreciation right, the fair market value of the shares (or cash in lieu of shares) received, less any strike price paid for such shares, is recognized as ordinary income to the participant in the year of such exercise.

Generally, with respect to employees, we are required to withhold from the payment made on exercise of the stock appreciation right or from regular wages or supplemental wage payments an amount based on the ordinary income recognized. We will generally be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant.

Section 162(m)

Compensation of persons who are “covered employees” of the Company is subject to the tax deduction limits of Section 162(m) of the Code. Awards that qualify as “performance-based compensation” are exempt from the limitations of Section 162(m), thereby permitting us to claim the full federal tax deduction otherwise allowed for such compensation. The Amended 2011 Plan is intended to enable us to grant awards that will be exempt from the deduction limits of Section 162(m). Under Section 162(m), compensation attributable to stock options and stock appreciation rights generally may be eligible to qualify as performance-based compensation if, among other requirements, (i) such awards are approved by a compensation committee composed solely of “outside directors,” (ii) the plan contains a per-employee limitation on the number of shares for which such awards may be granted during a specified period, (iii) the per-employee limitation is approved by the stockholders, and (iv) the exercise or strike price of the award is no less than the fair market value of the stock on the date of grant. Compensation attributable to restricted stock, RSUs, performance awards and other stock-based awards generally may be eligible to qualify as performance-based compensation, if, among other requirements, (i) the award is approved by a compensation committee composed solely of “outside directors,” (ii) the award is granted, becomes vested or is settled, as applicable, only upon the achievement of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain, (iii) a committee of outside directors certifies in writing prior to the granting (or vesting or settlement) of the award that the performance goal has been satisfied, and (iv) prior to the granting (or vesting or settlement) of the award, the stockholders have approved the material terms of the award (including the class of employees eligible for such award, the business criteria on which the performance goal is based, and the maximum amount, or formula used to calculate the amount, payable upon attainment of the performance goal).

 

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Awards Granted Under the 2011 Plan

The following table sets forth, for each of the individuals and various groups indicated, the total number of shares of our common stock subject to awards that have been granted under the 2011 Plan as of April 6, 2016.

2011 Equity Incentive Plan

 

Name and Position

   Number of  Shares (1)  

Eddie Gray

CEO and Director

     1,000,001   

Michael S. Ostrach

Senior Vice President, Chief Financial Officer and Chief Business Officer

     311,000   

Robert L. Coffman, Ph.D.

Senior Vice President and Chief Scientific Officer

     275,001   

Robert Janssen, M.D.

Chief Medical Officer and Vice President, Clinical Development

     220,750   

David F. Novack

Senior Vice President, Operations and Quality

     227,000   

All current executive officers as a group

     2,033,752   

All current directors who are not executive officers as a group

     180,325   

Each nominee for election as a director:

  

Dennis A. Carson, Ph.D.

     19,750   

Eddie Gray

     1,000,001   

Laura Brege

     12,675   

Each associate of any executive officers, current directors or director nominees

     —     

Each other person who received or is to receive 5% of awards

  

Eddie Gray

     1,000,001   

Michael S. Ostrach

     311,000   

Robert L. Coffman, Ph.D.

     275,001   

Robert Janssen, M.D.

     220,750   

David F. Novack

     227,000   

All employees, including all current officers who are not executive officers, as a group

     2,023,629   

 

(1)  

With respect to certain employees (including our executive officers), this column includes certain stock options that were granted under the 2011 Plan in February 2016, and such stock options are subject to stockholder approval of this Proposal 2. The number of shares subject to each such stock option is indicated in the table under “New Plan Benefits under Amended 2011 Plan” below.

 

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New Plan Benefits under Amended 2011 Plan

 

Name and Position

   Number of Shares  

Eddie Gray

CEO and Director

     280,000 (1)  

Michael S. Ostrach

Senior Vice President, Chief Financial Officer and Chief Business Officer

     84,000 (1)  

Robert L. Coffman, Ph.D.

Senior Vice President and Chief Scientific Officer

     84,000 (1)  

Robert Janssen, M.D.

Chief Medical Officer and Vice President, Clinical Development

     80,000 (1)  

David F. Novack

Senior Vice President, Operations and Quality

     64,000 (1)  

All current executive officers as a group

     592,000 (1)  

All current directors who are not executive officers as a group

     60,000 per calendar year (2)  

All employees, including all current officers who are not executive officers, as a group

     48,000 (1)  

 

(1)  

Awards granted under the Amended 2011 Plan to our executive officers and other employees are discretionary and are not subject to set benefits or amounts under the terms of the Amended 2011 Plan. However, in February 2016, our Compensation Committee granted a number of stock options to certain employees (including our executive officers) under the 2011 Plan subject to stockholder approval of this Proposal 2, and the number of shares subject to each such stock option is indicated in this table.

 

(2)  

Awards granted under the Amended 2011 Plan to our non-employee directors are discretionary and are not subject to set benefits or amounts under the terms of the Amended 2011 Plan. However, pursuant to our current compensation program for non-employee directors, each of our current non-employee directors is eligible to receive an annual grant of a stock option to purchase 7,500 shares of our common stock. On and after the date of the Annual Meeting, any such stock options will be granted under the Amended 2011 Plan if this Proposal 2 is approved by our stockholders. For additional information regarding our current compensation program for non-employee directors, please see “Director Compensation” below.

Vote Required

The affirmative vote of the holders of a majority of shares present and cast either in person or by proxy at the Annual Meeting will be required to approve this Proposal 2. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum but are not counted for any purpose in determining whether this Proposal 2 has been approved.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F P ROPOSAL 2.

 

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PROPOSAL 3

APPROVAL OF AN AMENDMENT AND RESTATEMENT OF

THE 2014 EMPLOYEE STOCK PURCHASE PLAN

The Board is requesting stockholder approval of an amendment and restatement of the Dynavax Technologies Corporation 2014 Employee Stock Purchase Plan (the “2014 ESPP”). We refer to such amendment and restatement of the 2014 ESPP in this proxy statement as the “Amended 2014 ESPP”.

The Amended 2014 ESPP contains the following material change from the 2014 ESPP:

 

   

Subject to adjustment for certain changes in our capitalization, the maximum number of shares of our common stock that may be issued under the Amended 2014 ESPP will be 250,000 shares, which is an increase of 200,000 shares over the maximum number of shares of our common stock that may be issued under the 2014 ESPP.

Approval of the Amended 2014 ESPP will allow us to continue to provide our employees with the opportunity to acquire an ownership interest in the Company through their participation in the Amended 2014 ESPP, thereby encouraging them to remain in our service and more closely aligning their interests with those of our stockholders.

If this Proposal 3 is approved by our stockholders, an additional 200,000 shares of our common stock will be available for issuance under the Amended 2014 ESPP. As of April 6, 2016, a total of 9,330 shares of our common stock remained available for issuance under the 2014 ESPP. We do not maintain any other employee stock purchase plans. As of April 6, 2016, a total of 38,495,502 shares of our common stock were outstanding.

Summary of the Amended 2014 ESPP

A summary of the principal features of the Amended 2014 ESPP follows below. The summary is qualified by the full text of the Amended 2014 ESPP that is attached as Appendix B to this proxy statement.

Purpose

The purpose of the Amended 2014 ESPP is to provide a means by which our employees may be given an opportunity to purchase shares of our common stock, to assist us in retaining the services of our employees, to secure and retain the services of new employees and to provide incentives for such persons to exert maximum efforts for our success. The rights to purchase common stock granted under the Amended 2014 ESPP are intended to qualify as options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code.

Administration

The Board has the power to administer the Amended 2014 ESPP and may also delegate administration of the Amended 2014 ESPP to a committee comprised of one or more members of the Board. The Board has delegated administration of the Amended 2014 ESPP to the Compensation Committee, but may, at any time, revest in itself some or all of the powers previously delegated to the Compensation Committee. Each of the Board and the Compensation Committee is considered to be a Plan Administrator for purposes of this Proposal 3. The Plan Administrator has the power to construe and interpret both the Amended 2014 ESPP and the rights granted under it. The Plan Administrator has the power, subject to the provisions of the Amended 2014 ESPP, to determine when and how rights to purchase our common stock will be granted, the provisions of each offering of such rights (which need not be identical), and whether employees of any of our parent or subsidiary companies will be eligible to participate in the Amended 2014 ESPP.

Stock Subject to Amended 2014 ESPP

Subject to adjustment for certain changes in our capitalization, the maximum number of shares of our common stock that may be issued under the Amended 2014 ESPP is 250,000 shares, which is equal to the sum of (i) 50,000

 

29


shares that were approved at our 2014 annual meeting of stockholders and (ii) an additional 200,000 shares that are subject to approval by our stockholders under this Proposal 3. If any rights granted under the Amended 2014 ESPP terminate without being exercised in full, the shares of common stock not purchased under such rights again become available for issuance under the Amended 2014 ESPP. The shares of common stock purchasable under the Amended 2014 ESPP will be shares of authorized but unissued or reacquired common stock, including shares repurchased by us on the open market.

Offerings

The Amended 2014 ESPP will be implemented by offerings of rights to purchase our common stock to all eligible employees. The Plan Administrator will determine the duration of each offering period, provided that in no event may an offering period exceed 27 months. The Plan Administrator may establish separate offerings which vary in terms (although not inconsistent with the provisions of the Amended 2014 ESPP or the requirements of applicable laws). Each offering period will have one or more purchase dates, as determined by the Plan Administrator prior to the commencement of the offering period. The Plan Administrator has the authority to alter the terms of an offering prior to the commencement of the offering period, including the duration of subsequent offering periods. When an eligible employee elects to join an offering period, he or she is granted a right to purchase shares of our common stock on each purchase date within the offering period. On the purchase date, all contributions collected from the participant are automatically applied to the purchase of our common stock, subject to certain limitations (which are described further below under “Eligibility”).

The Plan Administrator has the discretion to structure an offering so that if the fair market value of our common stock on the first trading day of a new purchase period within the offering period is less than or equal to the fair market value of our common stock on the first day of the offering period, then that offering will terminate immediately as of that first trading day, and the participants in such terminated offering will be automatically enrolled in a new offering beginning on the first trading day of such new purchase period.

Eligibility

Any individual who is employed by us (or by any of our parent or subsidiary companies if such company is designated by the Plan Administrator as eligible to participate in the Amended 2014 ESPP) may participate in offerings under the Amended 2014 ESPP, provided such individual has been employed by us (or our parent or subsidiary, if applicable) for such continuous period preceding the first day of the offering period as the Plan Administrator may require, but in no event may the required period of continuous employment be equal to or greater than two years. In addition, the Plan Administrator may provide that an employee will not be eligible to be granted purchase rights under the Amended 2014 ESPP unless such employee is customarily employed for more than 20 hours per week and more than five months per calendar year. The Plan Administrator may also provide in any offering that certain of our employees who are “highly compensated” as defined in the Code are not eligible to participate in the Amended 2014 ESPP.

No employee will be eligible to participate in the Amended 2014 ESPP if, immediately after the grant of purchase rights, the employee would own, directly or indirectly, stock possessing 5% or more of the total combined voting power or value of all classes of our stock or of any of our parent or subsidiary companies, including any stock which such employee may purchase under all outstanding purchase rights and options. In addition, no employee may purchase more than $25,000 worth of our common stock (determined based on the fair market value of the shares at the time such rights are granted) under all our employee stock purchase plans and any employee stock purchase plans of our parent or subsidiary companies for each calendar year during which such rights are outstanding.

As of April 6, 2016, we had approximately 240 employees.

 

30


Participation in the Amended 2014 ESPP

An eligible employee may enroll in the Amended 2014 ESPP by delivering to us, within the time specified in the offering, an enrollment form authorizing contributions as specified by the Plan Administrator, which may be up to 10% of such employee’s earnings during the offering period. Each participant will be granted a separate purchase right for each offering in which he or she participates. Unless an employee’s participation is discontinued, his or her purchase right will be exercised automatically at the end of each purchase period at the applicable purchase price.

Purchase Price

The purchase price per share at which shares of our common stock are acquired pursuant to purchase rights on each purchase date during an offering period will not be less than the lower of (i) 85% of the fair market value of a share of our common stock on the first day of the offering period or (ii) 85% of the fair market value of a share of our common stock on the applicable purchase date.

As of April 6, 2016, the closing price of our common stock as reported on the NASDAQ Capital Market was $21.78 per share.

Payment of Purchase Price; Payroll Deductions

The purchase of shares during an offering period generally will be funded by a participant’s payroll deductions accumulated during the offering period. A participant may change his or her rate of contributions, if and as permitted in the offering. All contributions made for a participant are credited to his or her account under the Amended 2014 ESPP and deposited with our general funds.

Purchase Limits

In connection with each offering made under the Amended 2014 ESPP, the Plan Administrator may specify (i) a maximum number of shares of our common stock that may be purchased by any participant pursuant to such offering, (ii) a maximum number of shares of our common stock that may be purchased by any participant on any purchase date pursuant to such offering, (iii) a maximum aggregate number of shares of our common stock that may be purchased by all participants pursuant to such offering, and/or (iv) a maximum aggregate number of shares of our common stock that may be purchased by all participants on any purchase date pursuant to such offering. If the aggregate purchase of shares of our common stock issuable upon exercise of purchase rights granted under such offering would exceed any such maximum aggregate number, then, in the absence of any action by the Plan Administrator otherwise, a pro rata allocation of available shares of our common stock will be made in as nearly a uniform manner as will be practicable and equitable.

Withdrawal

Participants may withdraw from a given offering by delivering a withdrawal form to us and terminating their contributions. Such withdrawal may be elected at any time prior to the end of an offering, except as otherwise provided by the Plan Administrator. Upon such withdrawal, we will distribute to the employee his or her accumulated but unused contributions without interest, and such employee’s right to participate in that offering will terminate. However, an employee’s withdrawal from an offering does not affect such employee’s eligibility to participate in subsequent offerings under the Amended 2014 ESPP.

Termination of Employment

Except as required by law, a participant’s outstanding purchase rights under any offering under the Amended 2014 ESPP will terminate immediately upon either (i) termination of the participant’s employment with us (or any of our parent or subsidiary companies if such company is designated by the Plan Administrator as eligible to participate in the Amended 2014 ESPP) or (ii) any other circumstance or event that causes the participant to no longer be eligible to participate in the offering. In such event, we will distribute to the participant his or her accumulated but unused contributions without interest.

 

31


Restrictions on Transfer

Rights granted under the Amended 2014 ESPP are not transferable except by will, the laws of descent and distribution, or, if permitted by us, by a beneficiary designation. During the lifetime of the participant, such rights may only be exercised by the participant.

Changes in Capitalization

In the event of certain changes in our capitalization, the Plan Administrator will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Amended 2014 ESPP; (ii) the class(es) and number of securities subject to, and the purchase price applicable to outstanding offerings and purchase rights; and (iii) the class(es) and number of securities that are the subject of the purchase limits under each ongoing offering.

Effect of Certain Corporate Transactions

In the event of a corporate transaction (as defined in the Amended 2014 ESPP and described below), each outstanding purchase right under the Amended 2014 ESPP will be assumed or continued or a similar right will be substituted for such purchase right by the surviving or acquiring corporation (or its parent or subsidiary), unless the Plan Administrator determines to shorten any offering periods then in progress by setting a new purchase date prior to the corporate transaction. If the Plan Administrator sets such a new purchase date, then the Plan Administrator will notify each participant in writing at least 10 business days prior to the new purchase date that the purchase date for the participant’s outstanding purchase rights has been changed to such new purchase date and that either: (i) the participant’s outstanding purchase rights will be exercised automatically on such new purchase date, unless the participant withdraws from the applicable offering prior to such new purchase date, and such purchase rights will terminate immediately after such exercise; or (ii) in lieu of such exercise, we will pay to the participant on such new purchase date an amount in cash, cash equivalents, or property as determined by the Plan Administrator that is equal to the difference in the fair market value of the shares of common stock subject to the participant’s outstanding purchase rights on such new purchase date and the applicable exercise price due had such purchase rights been exercised automatically on such new purchase date, and such purchase rights will terminate immediately after such payment.

For purposes of the Amended 2014 ESPP, a corporate transaction generally will be deemed to occur in the event of the consummation of: (i) a merger or consolidation in which we are not the surviving entity, except for a transaction the principal purpose of which is to change the state in which we are incorporated; (ii) the sale, transfer or other disposition of all or substantially all of our assets (including the capital stock of our subsidiary corporations); (iii) our complete liquidation or dissolution; (iv) any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which we are the surviving entity but in which securities possessing more than 40% of the total combined voting power of our outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger but excluding any such transaction or series of related transactions that the Plan Administrator determines will not be a corporate transaction; or (v) acquisition in a single or series of related transactions by any person or related group of persons (other than us or by an employee benefit plan sponsored by us) of beneficial ownership of securities possessing more than 50% of the total combined voting power of our outstanding securities but excluding any such transaction or series of related transactions that the Plan Administrator determines will not be a corporate transaction.

Duration, Amendment and Termination

The Plan Administrator may amend, suspend or terminate the Amended 2014 ESPP at any time. However, except in regard to certain capitalization adjustments, any amendment must be approved by our stockholders if such approval is required by applicable law or listing requirements.

 

32


Any outstanding purchase rights granted before an amendment, suspension or termination of the Amended 2014 ESPP will not be materially impaired by any such amendment, suspension or termination, except (i) with the consent of the employee to whom such purchase rights were granted, (ii) as necessary to comply with any laws, listing requirements or governmental regulations (including Section 423 of the Code), or (iii) as necessary to obtain or maintain favorable tax, listing or regulatory treatment.

Federal Income Tax Information

The following is a summary of the principal United States federal income taxation consequences to participants and us with respect to participation in the Amended 2014 ESPP. This summary is not intended to be exhaustive and does not discuss the income tax laws of any local, state or foreign jurisdiction in which a participant may reside. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any participant may depend on his or her particular situation, each participant should consult the participant’s tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of an option or the disposition of common stock acquired under the Amended 2014 ESPP. The Amended 2014 ESPP is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended.

Rights granted under the Amended 2014 ESPP are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan which qualifies under the provisions of Section 423 of the Code.

A participant will be taxed on amounts withheld for the purchase of shares of our common stock as if such amounts were actually received. Otherwise, no income will be taxable to a participant as a result of the granting or exercise of a purchase right until a sale or other disposition of the acquired shares. The taxation upon such sale or other disposition will depend upon the holding period of the acquired shares.

If the shares are sold or otherwise disposed of more than two years after the beginning of the offering period and more than one year after the shares are transferred to the participant, then the lesser of the following will be treated as ordinary income: (i) the excess of the fair market value of the shares at the time of such sale or other disposition over the purchase price; or (ii) the excess of the fair market value of the shares as of the beginning of the offering period over the purchase price (determined as of the beginning of the offering period). Any further gain or any loss will be taxed as a long-term capital gain or loss.

If the shares are sold or otherwise disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the shares on the purchase date over the purchase price will be treated as ordinary income at the time of such sale or other disposition. The balance of any gain will be treated as capital gain. Even if the shares are later sold or otherwise disposed of for less than their fair market value on the purchase date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the shares on such purchase date. Any capital gain or loss will be short-term or long-term, depending on how long the shares have been held.

There are no federal income tax consequences to us by reason of the grant or exercise of rights under the Amended 2014 ESPP. We are entitled to a deduction to the extent amounts are taxed as ordinary income to a participant for shares sold or otherwise disposed of before the expiration of the holding periods described above (subject to the requirement of reasonableness and the satisfaction of tax reporting obligations).

 

33


Plan Benefits under 2014 ESPP

The following table sets forth, for each of the individuals and various groups indicated, the total number of shares of our common stock that have been purchased under the 2014 ESPP as of April 6, 2016.

2014 ESPP

 

Name and Position

   Number of Shares  

Eddie Gray

CEO and Director

     —     

Michael S. Ostrach

Senior Vice President, Chief Financial Officer and Chief Business Officer

     —     

Robert L. Coffman, Ph.D.

Senior Vice President and Chief Scientific Officer

     —     

Robert Janssen, M.D.

Chief Medical Officer and Vice President, Clinical Development

     —     

David F. Novack

Senior Vice President, Operations and Quality

     862   

All current executive officers as a group

     862   

All current directors who are not executive officers as a group

     —     

Each nominee for election as a director:

  

Dennis A. Carson, Ph.D.

     —     

Eddie Gray

     —     

Laura Brege

     —     

Each associate of any executive officers, current directors or director nominees

     —     

Each other person who received or is to receive 5% of purchase rights

     —     

All employees, including all current officers who are not executive officers, as a group

     39,808   

New Plan Benefits under Amended 2014 ESPP

Participation in the Amended 2014 ESPP is voluntary and each eligible employee will make his or her own decision regarding whether and to what extent to participate in the Amended 2014 ESPP. In addition, we have not approved any grants of purchase rights that are conditioned on stockholder approval of this Proposal 3. Accordingly, we cannot determine the benefits or amounts that will be received in the future by individual employees or groups of employees under the Amended 2014 ESPP. Our non-employee directors will not be eligible to participate in the Amended 2014 ESPP.

Vote Required

The affirmative vote of the holders of a majority of shares present and cast either in person or by proxy at the Annual Meeting will be required to approve this Proposal 3. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum but are not counted for any purpose in determining whether this Proposal 3 has been approved.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F P ROPOSAL 3.

 

34


PROPOSAL 4

ADVISORY VOTE ON EXECUTIVE COMPENSATION

In accordance with SEC rules, Dynavax stockholders are being asked to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement, which is commonly referred to as a “say-on-pay vote.” At our 2011 Annual Meeting, our stockholders voted in favor of holding a say-on-pay vote once every three years. Subsequently, in February 2016, as part of a number of corporate governance reforms made in response to feedback from our stockholders and the proxy advisory firms, our Board of Directors adopted a policy changing the frequency of our say-on-pay vote from once every three years to every year. Accordingly, we are holding a say-on-pay vote at this year’s Annual Meeting.

This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers, which results from our compensation philosophy, policies and practices as discussed in this proxy statement. The compensation of our named executive officers subject to the say-on-pay vote is described in the Compensation Discussion and Analysis, the accompanying tables, and the related narrative disclosure contained in this proxy statement.

Our Compensation Committee is responsible for designing and administering our executive compensation programs. Our Compensation Committee firmly believes that Dynavax’s executive compensation programs should reward our named executive officers for performance, and that when key performance objectives are not achieved, the compensation of our named executive officers should reflect as much. We believe that the compensation of our named executive officers, as disclosed in this proxy, reflects this philosophy. In addition, our Compensation Committee believes that the compensation programs for our named executive officers have been instrumental in helping Dynavax be able to attract, retain and motivate our executive team, thereby enabling our company to be in a position to move forward with our business strategy.

Our Board of Directors is now asking our stockholders to indicate their support for the compensation of our named executive officers as described in this proxy statement by casting a non-binding advisory vote “For” the following resolution:

“RESOLVED, that the compensation paid to Dynavax’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

Although this vote is advisory and the outcome is not binding on our Board of Directors, the views expressed by our stockholders, whether through this vote or otherwise, are important to us. As a result, the Board of Directors and the Compensation Committee will carefully review the results of this vote, and they will consider these results in making future decisions about our executive compensation programs and arrangements.

Unless our Board of Directors modifies its policy on the frequency of future advisory votes on the compensation of our named executive officers, the next advisory vote on the compensation of our named executive officers will be held at the 2017 annual meeting of stockholders.

Approval of this advisory proposal requires the vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F P ROPOSAL 4.

 

35


PROPOSAL 5

RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected Ernst & Young LLP, or Ernst & Young, as our independent registered public accounting firm for the fiscal year ending December 31, 2016. Ernst & Young has audited our financial statements since 2001. Representatives of Ernst & Young are expected to be present at the Annual Meeting. Ernst & Young will have an opportunity to make a statement if it so desires and will be available to respond to appropriate questions.

If the stockholders fail to ratify the selection of Ernst & Young, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Ernst & Young. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum but are not counted for any purpose in determining whether this matter has been approved; however, Proposal 5 is considered a “routine” matter, and therefore no broker non-votes are expected to exist in connection with this Proposal 5.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F P ROPOSAL 5.

A UDIT F EES

In connection with the audit of our 2015 financial statements, we entered into an engagement agreement with Ernst & Young which sets forth the terms by which Ernst & Young will perform audit services for us.

The following table represents aggregate fees billed to the Company for the fiscal years ended December 31, 2015 and 2014 by Ernst & Young, our principal auditors. The Audit Committee pre-approved all service fees described below.

 

     Fiscal Year Ended  
     2015      2014  

Audit Fees (1)

   $ 1,095,234       $ 971,123   

Audit Related Fees

     —           —     

Tax Fees (2)

     —           4,000   

All Other Fees (3)

     1,995         1,995   
  

 

 

    

 

 

 

Total Fees

   $ 1,097,229       $ 977,118   
  

 

 

    

 

 

 

 

(1)  

Audit fees include fees for the audit of our consolidated financial statements and interim reviews of our quarterly financial statements, including compliance with the provisions of Section 404 of the Sarbanes-Oxley Act as well as fees related to registration statements, consents and other services related to SEC matters. In each of 2015 and 2014, audit fees included fees related to a comfort letter in connection with an equity offering.

 

(2)  

Tax fees include preparation of international subsidiary statutory tax returns.

 

(3)  

All other fees represent subscription fees for an online accounting research tool and related database.

P RE - APPROVAL P OLICIES A ND P ROCEDURES

Our Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm, Ernst & Young. Under the policy, the Audit

 

36


Committee pre-approves specified services in the defined categories of audit services, audit-related services, tax services and all other services up to specified amounts. Pre-approval may be given as part of the Audit Committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an interim basis by the Audit Committee Chair, as needed and on a case-by-case basis before the independent registered public accounting firm is engaged to provide each service.

The Audit Committee has determined that services rendered by Ernst & Young are compatible with maintaining the principal auditors’ independence.

 

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EXECUTIVE OFFICERS

The following table sets forth certain information with respect to our executive officers as of April 6, 2016:

 

Name

   Age     

Position

Eddie Gray (1)

     57       Chief Executive Officer and Director

Michael S. Ostrach

     64       Senior Vice President, Chief Financial Officer and Chief Business Officer

Robert L. Coffman, Ph.D.

     69       Senior Vice President and Chief Scientific Officer

Robert Janssen, M.D.

     62       Chief Medical Officer and Vice President, Clinical Development

David F. Novack

     54       Senior Vice President, Operations and Quality

 

(1)  

Please see “Class I Directors Continuing In Office Until the 2019 Annual Meeting” in this proxy statement for more information about Mr. Gray.

Michael S. Ostrach – Senior Vice President, Chief Financial Officer and Chief Business Officer

Mr. Ostrach is our Senior Vice President, Chief Financial Officer and Chief Business Officer. Mr. Ostrach joined Dynavax in October 2006 as Vice President, Chief Business Officer and General Counsel, and became Principal Financial Officer in September 2013, Chief Financial Officer in March 2015 and Senior Vice President in February 2016. Mr. Ostrach held the position of Dynavax’s General Counsel from October 2006 to September 2015. From 2005 to 2006, he was Chief Operating Officer, Chief Financial Officer and General Counsel at Threshold Pharmaceuticals. From 1997 to 2004, Mr. Ostrach was at Kosan Biosciences, most recently as President and Chief Operating Officer. Mr. Ostrach began his corporate career at Cetus Corporation, where he served in several capacities between 1981 and 1991, initially as General Counsel and finally as Senior Vice President of Corporate Affairs and General Counsel. Following the acquisition of Cetus by Chiron Corporation in 1991, Mr. Ostrach became President of Chiron Technologies. He holds a B.A. from Brown University and a J.D. from Stanford Law School.

Robert L. Coffman, Ph.D. – Senior Vice President and Chief Scientific Officer

Dr. Coffman was appointed Senior Vice President and Chief Scientific Officer of Dynavax in February 2014, and prior to that he was Vice President and Chief Scientific Officer of Dynavax since December 2000. Prior to joining Dynavax in 2000, Dr. Coffman was a founding member of the DNAX Research Institute in Palo Alto, California. Dr. Coffman has authored over 200 scientific publications, is a member of the National Academy of Sciences and the American Academy of Microbiology, and has received a number of prestigious awards for his work. With colleague Dr. Tim Mosmann, he defined the two principal subtypes of helper T cells, termed Th1 and Th2 cells, and demonstrated the central relationship between their differences in cytokine expression and function. Dr. Coffman defined basic mechanisms of T-cell regulation in asthma and infectious and parasitic diseases, and demonstrated the central role of regulatory CD4+ T cells in preventing inflammatory bowel disease. At Dynavax, Dr. Coffman has pioneered the development of agonists and antagonists for Toll-Like Receptors (“TLRs”), key recognition receptors in innate immunity. Dr. Coffman received an A.B. in Microbiology from Indiana University and a Ph.D. in Immunology from the University of California, San Diego.

Robert Janssen, M.D. – Chief Medical Officer and Vice President, Clinical Development

Dr. Janssen was appointed Chief Medical Officer and Vice President, Clinical Development and Regulatory Affairs in July 2013. He most recently served as Dynavax’s Vice President, Medical Affairs since November 2012 and was previously Senior Director, Clinical Development at Dynavax from 2010 through 2012, during which time he was extensively involved with Phase 3 clinical development of HEPLISAV-B and its U.S. and European licensing applications. Prior to joining Dynavax, Dr. Janssen was Vice President, Medical Affairs at Gilead from 2008 to 2010 where he was responsible for oversight of physician and health care provider education focused on

 

38


HIV and hepatitis B therapies. Until 2008, Dr. Janssen spent 23 years at the U.S. Centers for Disease Control and Prevention (“CDC”), most recently as the Director of the Division of HIV/AIDS Prevention from 2000 to 2008. Under his leadership, CDC first explored HIV treatment as a mode of HIV prevention and launched several of the earliest Phase 3 trials of pre-exposure prophylaxis for HIV. Dr. Janssen received a Bachelor of Arts degree with Honors in Humanities from Stanford University and his M.D. degree from the University of Southern California. He is a neurologist with training in virology at the University of Pennsylvania. Dr. Janssen has been the beneficiary of numerous honors and awards during his career. He has published over 130 scientific articles in a variety of journals and has served as a reviewer for leading scientific journals.

David F. Novack – Senior Vice President, Operations and Quality

Mr. Novack joined Dynavax in March 2013 as Senior Vice President, Operations and Quality. Mr. Novack was formerly with Novartis Vaccines & Diagnostics where he served since 2009 as the Global Head of Technical Operations and Supply Chain for Diagnostics and previously from 2007 to 2009 as the Global Head of Vaccine Manufacturing Strategy. Prior to Novartis, Mr. Novack was the Vice President, Business Development for Vaxin, Inc., a vaccine company, from 2004 to 2006. From 1993 until 2004, Mr. Novack worked at MedImmune, formerly Aviron, serving in several capacities including business development, manufacturing, contract operations and most recently as Senior Director, Supply Chain Operations. Previously, from 1989 to 1993, Mr. Novack was with American Cyanamid Company in various roles. Mr. Novack received a B.S. in Biology from State University of New York and an M.B.A. from Columbia University.

C OMPENSATION D ISCUSSION A ND A NALYSIS

Overview

This Compensation Discussion and Analysis discusses our executive compensation policies and how and why our Compensation Committee arrived at specific compensation decisions for the year ended December 31, 2015, for the following NEOs whose compensation is set forth in the Summary Compensation Table and other compensation tables contained in this proxy statement:

 

   

Eddie Gray, Chief Executive Officer and Director;

 

   

Michael S. Ostrach, Senior Vice President, Chief Financial Officer and Chief Business Officer;

 

   

Robert L. Coffman, Ph.D., Senior Vice President and Chief Scientific Officer;

 

   

Robert Janssen, M.D., Chief Medical Officer and Vice President, Clinical Development; and

 

   

David F. Novack, Senior Vice President, Operations and Quality.

We present our Compensation Discussion and Analysis in the following sections:

 

1.        Executive Summary .    In this section, we highlight our 2015 corporate performance, certain governance aspects of our executive compensation program and the Compensation Committee’s response to stockholder feedback.

     p. 40   

2.       Executive Compensation Program .    In this section, we describe the Company’s executive compensation philosophy and process and the material elements of our executive compensation program.

     p. 43   

3.       2015 Executive Compensation Decisions .    In this section, we provide an overview of the Compensation Committee’s executive compensation decisions for 2015 and certain actions taken before or after 2015 when doing so enhances the understanding of our executive compensation program.

     p. 49   

4.       Other Executive Compensation Matters .    In this section, we review the accounting and tax treatment of compensation and the relationship between our compensation program and risk.

     p. 56   

 

39


Executive Summary

Business Overview

We are a clinical-stage biopharmaceutical company that uses toll-like receptor (“TLR”) biology to discover and develop novel vaccines and therapeutics. Our development programs are focused on vaccine adjuvants and cancer immunotherapy. Our lead product candidates are HEPLISAV-B, an investigational adult hepatitis B vaccine, and SD-101, an investigational cancer immunotherapeutic currently in several phase 1/2 studies. Our NEOs are responsible for executing our business strategy of:

 

   

Transforming the Company into a commercial organization by obtaining FDA approval of HEPLISAV-B and successfully launching this product;

 

   

Advancing a robust pipeline of immuno-oncology clinical stage development programs; and

 

   

Discovering other cutting edge TLR-based vaccines and immunotherapies.

Our executive compensation program is designed to reward achievement of the specific strategic goals that we believe will advance this business strategy and create long-term value for our stockholders.

Corporate Performance Highlights

The highlights of our Company performance for 2015 and early 2016 include:

 

   

Successfully completing HBV-23, which was a phase 3 trial comparing the safety and immunogenicity of HEPLISAV-B with the currently marketed vaccine, Engerix-B. In January 2016 we reported preliminary top line results from the study and in March 2016 we submitted a biologics license application (“BLA”) to the FDA.

 

   

Raising $184 million in net proceeds in an underwritten public offering and through an At Market Issuance Sales Agreement. We used this money to fund activities associated with completing HBV-23, prepare for the anticipated commercial launch of HEPLISAV-B, including augmenting our manufacturing operations and quality systems, and hire key positions to enhance and support our commercial infrastructure, as well as support the clinical development of SD-101.

 

   

Announcing clinical collaborations with Merck to investigate the combination of our SD-101 with Merck’s KEYTRUDA and MK-1966. In October 2015, a Dynavax sponsored clinical study was initiated evaluating SD-101 in combination with KEYTRUDA. In December 2015 we reported encouraging data from our clinical trial evaluating SD-101 in patients with lymphoma.

 

   

Defining and implementing additional clinical, preclinical and early stage research programs in oncology.

 

   

Increasing the market value of our common stock by 43% in 2015 and outperforming the following indices:

 

Index    Percentage change for 2015  

NASDAQ Biotechnology Index (NBI)

     11

NYSE ARCA Biotechnology Index (BTK)

     11

SPDR S&P Biotech ETF (XBI)

     13

NASDAQ Composite Index (IXI)

     6

S&P 500 (SNP)

     -1

Dynavax (DVAX)

     43

 

40


Compensation Governance Highlights

 

    

What we do

         

What we do not do

þ

   Design executive compensation program to align pay with performance    x    No excessive change in control or severance payments

þ

   Majority of pay is variable and not guaranteed (over 85% for our Chief Executive Officer in 2015)    x   

No repricing of underwater stock options without stockholder approval

þ

   Prohibit hedging and discourage pledging by executive officers and directors (no pledging in 2015)    x   

No tax gross-ups

þ

   Grant equity awards with performance-based vesting (starting in 2016)    x   

No perquisites

þ

   Conduct an annual say-on-pay vote (starting in 2016)    x   

No guaranteed bonuses

þ

   Seek input from, listen to and respond to stockholders      

Consideration of Our 2014 Say-on-Pay Vote and Related Stockholder Engagement

We held our first stockholder advisory vote on executive compensation, commonly referred to as a “say-on-pay vote,” at our 2011 stockholder annual meeting. At that meeting, over 99% of the shares that were voted on this proposal were cast in favor of our say-on-pay proposal. At that time, our stockholders also voted in favor of holding a say-on-pay vote once every three years and subsequently, our Board adopted a policy consistent with that preference. Accordingly, we held our second say-on-pay vote at our 2014 stockholder annual meeting and at that meeting, over 64% of the shares that were voted on this proposal were cast in favor of our say-on-pay proposal. In the absence of a say-on-pay vote in 2015, we received feedback from our stockholders on our executive compensation program in connection with the reelection of our Compensation Committee members, who each received support from approximately 69% of the shares cast.

As a result of our 2014 say-on-pay vote and the level of support for the reelection of our Compensation Committee members in 2015, we increased our efforts to solicit feedback from our stockholders regarding our executive compensation program. Specifically, we sought feedback from our 30 largest stockholders and obtained feedback from about one-third of them in 2015.

 

41


Changes to Compensation Programs as a Result of Stockholder Engagement and Proxy Advisory Firm Feedback

Our interaction with stockholders and analysis of the feedback from proxy advisory firms prompted changes to our compensation program. We take seriously the views of our stockholders and based on the feedback we received, as set forth below, we modified certain compensation program and governance practices. We will continue to solicit input from our stockholders on a regular basis.

 

   Topic   What We Heard   What We Did

  Annual Incentive Program

  Be more transparent with respect to goals and achievement of goals.   Below under “Annual Incentive Program”, we provide transparency with respect to the corporate and individual goals and achievement underlying our annual incentive program and related payments.

  Long-Term Equity Incentives

  Acknowledgement that options require an appreciation in stock price from the date of grant in order to provide economic value to the recipient and that options are prevalent in the biopharmaceutical industry but preference for a portion of each NEO’s long-term equity incentives to vest based on achievement of specific performance goals related to our business strategy. Specifically, our stockholders acknowledged the value of performance goals associated with clinical development milestones for us as a pre-commercial company.   In 2016, 20% of each NEO’s long-term equity incentives were granted in the form of RSUs that vest solely upon achievement of a clinical development milestone.

  Peer Group

  Maintain a relevant peer group of companies within reasonable size parameters and similar business focus.   As described below under “2015 Peer Group”, our Compensation Committee updated our peer group with guidance from its independent compensation consultant to maintain a peer group of companies with which we compete for executive talent that were of similar size to the Company in terms of market capitalization, product portfolio and pipeline and number of employees.

  Stock Ownership Guidelines

  Consider adopting stock ownership guidelines to further align the long-term interests of NEOs and stockholders.   We encourage our NEOs to hold a significant equity interest in our Company, but we have not set specific stock ownership guidelines. As of December 31, 2015, our CEO owned stock and the right to exercise vested in-the-money options equal in value to 6.5x his base salary and each of our NEOs owned stock and the right to exercise vested in-the-money options equal in value to at least 1.6x his base salary.

 

42


   Topic   What We Heard   What We Did

  Related Governance Matters

  Continue to improve corporate governance, stockholder rights and transparency.  

•      As further described above in Proposal 4, our Compensation Committee decided to seek stockholder feedback in the form of a say-on-pay vote annually instead of triennially as we originally determined in 2011 in response to stockholder support for a triennial vote.

 

•      As further described below under “Corporate Governance”, we adopted Corporate Governance Guidelines and posted them on our website.

 

•      As further described below under “Corporate Governance”, our Board adopted a majority vote policy so that any nominee who receives a greater number of “Withhold” votes than “For” votes must submit an offer of resignation to our Nominating and Corporate Governance Committee.

Executive Compensation Program

Philosophy and Objectives

We believe our NEOs’ compensation should align our executives’ success with that of our stockholders over the long-term through achievement of strategic corporate objectives that are fundamental to our business model and that will create long-term stockholder value. Our executive compensation programs are designed to be competitive with our peer group to enable us to attract, motivate, reward, and retain outstanding talent. Our compensation programs are based on the following key principles:

 

   

A significant component of pay is linked with performance and the achievement of our strategic goals.

 

   

Alignment of our executives’ interests with those of our stockholders through equity compensation.

 

   

Overall compensation that is competitive in the industry in which we compete for executive talent.

 

   

Recognition of individual contributions, teamwork and corporate performance.

Compensation-Setting Process

Role of the Compensation Committee and Management

The Compensation Committee oversees and administers our executive compensation programs. The Compensation Committee acts pursuant to a charter adopted by our Board, which can be found at our website, www.dynavax.com .

 

43


The Compensation Committee approves our corporate goals and the individual goals of our NEOs after considering the Company’s recommendations on these matters. The Compensation Committee annually reviews the base salaries, cash incentives and equity compensation of our NEOs and periodically reviews other elements of our compensation. Compensation decisions are based primarily on the following:

 

   

Peer and Industry Data – The Compensation Committee uses peer and industry data provided by its consultant, Arnosti Consulting Inc. (“Arnosti”), as a reference in setting base salaries and target cash compensation, determining appropriate levels and mix of equity compensation and determining the type and portion of compensation tied to performance goals.

 

   

Annual Performance Reviews – The Chair of the Compensation Committee conducts annual performance reviews of our CEO through interviews and written assessments from the independent members of our Board and the CEO’s direct reports. The feedback from the CEO’s direct reports provides the Chair and the Board with 360 degree feedback, a valuable input in assessing the CEO’s leadership and overall performance. Our CEO conducts and presents the performance reviews of the other NEOs to the Compensation Committee after the end of each fiscal year. In reviewing and determining the compensation of each NEO, the Compensation Committee also considers individual factors, such as: potential for future contributions to Company growth, industry experience and retention concerns.

 

   

CEO Recommendations – The Compensation Committee seeks input from our CEO for setting the salary and target cash compensation levels for the other NEOs, and also for purposes of setting annual performance metrics and target amounts under the Annual Incentive Program.

Role of Compensation Consultant

Arnosti was engaged by the Compensation Committee in 2010 as its independent compensation consultant. Since then, the Compensation Committee has met regularly with Arnosti, both with and without management present, depending upon the topic being discussed.

In February 2015 and again in April 2016, the Compensation Committee reviewed whether the work of Arnosti as a compensation consultant raised any conflict of interest, taking into consideration the following factors:

 

   

The provision of other services to the Company;

 

   

The amount of fees paid to Arnosti by the Company;

 

   

Arnosti’s policies and procedures that are designed to prevent conflicts of interest;

 

   

Any business or personal relationship of Arnosti or the individual compensation advisors employed by Arnosti with an executive officer of the Company; and

 

   

Any Company stock owned by Arnosti or the individual compensation advisors employed by Arnosti.

Based on the Compensation Committee’s review of this information, it determined the work of Arnosti and the individual compensation advisors employed by Arnosti as compensation consultants in support of the specific analyses and needs of the Compensation Committee in its efforts for fiscal year 2015, did not create any conflict of interest. The Compensation Committee has the sole authority to direct, terminate or continue Arnosti’s services, although the Company pays the cost for Arnosti’s services.

In 2015, Arnosti provided advice to the Compensation Committee on several different aspects of its responsibilities related to our compensation programs and practices. Specifically, during 2015, Arnosti assisted the Compensation Committee as follows:

 

   

Reviewed and analyzed compensation levels of our NEOs in comparison to those of our peer companies;

 

   

Provided general information concerning executive compensation trends and developments;

 

   

Provided recommendations to the Compensation Committee on refining our peer group;

 

44


   

Provided an assessment of the annual meeting voting results;

 

   

Provided the Board with a review of competitive data from the peer group on Board compensation; and

 

   

Reviewed the Compensation Discussion and Analysis for inclusion in our proxy statement.

2015 Peer Group

Our Compensation Committee generally uses a peer group for a general understanding of market compensation practices and our positioning within the peer group with respect to each element of our compensation program. In some circumstances, our Compensation Committee targets compensation components to meet specific benchmarks, such as targeting a base salary at the 50 th percentile. However, our Compensation Committee believes that over-reliance on benchmarking can result in compensation that is unrelated to the value delivered by the NEOs because compensation benchmarking does not take the specific performance of the NEOs, or the performance of the Company, into account. The Compensation Committee also considers various sources of third party compensation information, such as Radford’s Global Life Science Survey, in connection with its compensation decisions.

In November 2014, our Compensation Committee approved a peer group of biotechnology companies at a similar stage of product development with which we compete for executive talent that were of similar size to the Company in terms of market capitalization, product portfolio, pipeline and number of employees. To align with our strategic plan, which includes commercialization of HEPLISAV-B and expansion of our pipeline with early clinical development in cancer immunotherapy, our peer group includes companies that are both oncology and non-oncology focused and companies that have their own manufacturing operations. There are only three commercial companies (Anika, Biocryst, and Corcept) in our peer group. As of October 8, 2014, which was shortly before the 2015 peer group was approved, the companies in the 2015 peer group had market capitalizations between $102 million (Vical, Inc.) and $1,630 million (Nektar) and the median market capitalization of our peer group was $428 million. At that time, our market capitalization was $381 million. The following table summarizes the key statistics of each of the companies in our 2015 peer group:

 

Company  

Market
Capitalization

on October 8,

2014

(in millions)

    Number of
Employees
          Company Description

ANIKA THERAPEUTICS INC

  $ 562        102          Develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair.

ARENA PHARMACEUTICALS INC

  $ 844        310          Focused on discovering, developing and commercializing novel drugs that target G protein-coupled receptors, or GPCRs, to address unmet medical needs.

BIOCRYST PHARMACEUTICALS INC

  $ 836        40          Designs, optimizes and develops novel drugs that block key enzymes involved in the pathogenesis of diseases.

CORCEPT THERAPEUTICS INC

  $ 280        38          Engaged in the discovery, development and commercialization of drugs for the treatment of severe metabolic and psychiatric disorders.

CYTOKINETICS INC

  $ 124        85          Clinical-stage biopharmaceutical company focused on the discovery and development of novel small molecule therapeutics that modulate muscle function for the potential treatment of serious diseases and medical conditions.

 

45


Company  

Market
Capitalization

on October 8,

2014

(in millions)

    Number of
Employees
          Company Description

DEPOMED INC

  $ 873        291          Specialty pharmaceutical company initially focused on pain and other conditions and diseases of the central nervous system.

GERON CORP

  $ 315        46          Biopharmaceutical company developing first-in-class therapies for cancer.

NEKTAR THERAPEUTICS

  $ 1,630        445          Clinical-stage biopharmaceutical company developing a pipeline of drug candidates that utilize PEGylation and advanced polymer conjugate technology platforms.

NOVAVAX INC

  $ 1,070        213          Clinical-stage biopharmaceutical company focused on developing recombinant protein nanoparticle vaccines to address a broad range of infectious diseases.

OREXIGEN THERAPEUTICS, INC.

  $ 448        50          Biopharmaceutical company focused on the development of pharmaceutical product candidates for the treatment of obesity.
PEREGRINE PHARMACEUTICALS INC   $ 241        180          Biopharmaceutical company with a portfolio of innovative monoclonal antibodies in clinical trials for the treatment and diagnosis of cancer.

REPLIGEN CORP

  $ 707        116          Develops, manufactures and markets high-value, consumable bioprocessing products for life sciences companies and biopharmaceutical manufacturing companies worldwide.

RIGEL PHARMACEUTICALS INC

  $ 162        129          Clinical-stage drug development company that discovers and develops novel, small-molecule drugs for the treatment of inflammatory and autoimmune diseases, as well as muscle disorders.

SANGAMO BIOSCIENCES INC

  $ 716        85          Clinical stage biopharmaceutical company focused on the research, development and commercialization of engineered DNA-binding proteins for the development of novel therapeutic strategies for unmet medical needs.

SYNTA PHARMACEUTICALS CORP

  $ 304        134          Focused on discovering, developing, and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions, including cancer and chronic inflammatory diseases.
THRESHOLD PHARMACEUTICALS INC   $ 194        58          Expertise in the tumor microenvironment to discover and develop therapeutic agents that selectively target tumor cells for the treatment of patients living with cancer.

 

46


Company  

Market
Capitalization

on October 8,

2014

(in millions)

    Number of
Employees
          Company Description

VICAL INC

  $ 102        67          Research and develop biopharmaceutical products based on patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.

XENOPORT INC

  $ 349        92          Focused on developing and commercializing a portfolio of internally discovered product candidates with an initial focus on neurological disorders.

XOMA CORP

  $ 428        180          Discovers and develops innovative antibody-based therapeutics.

The following table shows the companies that were in our 2014 peer group and removed from our 2015 peer group either because they had market capitalizations below $100 million or because they were acquired.

 

Company

 

Market
Capitalization

on October 8,
2014

(in millions)

    Number of
Employees
          Company Description

AFFYMAX INC

  $ 6        2          Discovering, developing and delivering innovative therapies that improve the lives of patients with kidney disease and other serious and often life-threatening illnesses.

ALEXZA PHARMACEUTICALS INC.

  $ 37        90          Focused on the research, development and commercialization of novel proprietary products for the acute treatment of central nervous system conditions.

CYTORI THERAPEUTICS, INC.

  $ 39        115          Developing cell therapies for the treatment of cardiovascular disease, burns and other soft tissue injuries.

IDENIX PHARMACEUTICALS INC

    acquired        107          Biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the United States and France.

INTERMUNE INC

    acquired        269          Focused on the research, development and commercialization of innovative therapies in pulmonology and orphan fibrotic diseases.

SUNESIS PHARMACEUTICALS INC

  $ 86        32          Focused on the development and commercialization of new oncology therapeutics for the treatment of solid and hematologic cancers.

TARGACEPT INC

  $ 81        39          Engaged in the development of novel NNR Therapeutics(TM) for the treatment of diseases and disorders of the nervous system.

 

47


Elements of Executive Compensation

Our executive team continues to manage a changing and increasingly complex business. We strive to recognize these efforts by compensating our NEOs for the demands and risks associated with our business through three elements that are designed to reward performance in a simple and straightforward manner—base salaries, annual performance-based cash incentives and long-term equity awards. During our 2015 stockholder outreach, our key stockholders expressed support for the elements of our executive compensation program, including our continued use of stock options as one portion of long-term equity awards. However, several stockholders also recommended granting a portion of long-term equity awards with performance-based vesting. As reflected in the chart below, we responded to the feedback from our stockholders by introducing performance-based vesting for a portion of our 2016 long-term equity awards.

The table below summarizes the purpose and key characteristics of each of our compensation elements.

 

Element   Purpose   Key Characteristics

Base salary

  Provides a fixed level of compensation for performing the essential day-to-day elements of the job; gives executives a degree of certainty in light of having a majority of their compensation at risk.   Fixed compensation that is reviewed annually and adjusted if and when appropriate; reflects each NEO’s performance, experience, skills, level of responsibility and the breadth, scope and complexity of the position as well as the competitive marketplace for executive talent specific to our industry.
Annual Incentive Program   Motivates executive officers to achieve corporate and individual business goals, which we believe increase stockholder value, while providing flexibility to respond to opportunities and changing market conditions.  

•      Annual cash incentive based on corporate and individual performance compared to pre-established goals. Our CEO’s incentive is based entirely on corporate goals.

 

•      Corporate goals focus on overarching objectives for the Company, while individual objectives represent key performance expectations at the departmental or individual level.

 

•      Corporate goals are aligned with our business strategy and weighted by relative importance so that achievement can be objectively measured.

Long-Term Equity Incentives (Stock Option)   Motivates executive officers to achieve our business objectives by tying incentives to the appreciation of our common stock over the long term.  

Stock options with an exercise price equal to or greater than the fair market value on the date of grant vesting over four years; the ultimate value realized, if any, depends on the appreciation of our common stock price and if our stock price does not appreciate, there is no value realized.

 

In determining the aggregate size of equity grants in any given year, the Compensation Committee generally considers the same factors described above under “Base Salaries” as well as the criticality of the executive to the long-term achievement of corporate goals.

 

48


Element   Purpose   Key Characteristics
Long-Term Equity Incentives (RSUs)   Motivates executive officers to achieve our corporate objectives by tying compensation to the performance of our common stock over the long term and/or the achievement of business and clinical development goals over the long term; motivates our executive officers to remain with the Company by mitigating swings in incentive values during periods when market volatility weighs on our stock price.  

Restricted stock unit awards may vest based on continued service over a specified period of time and/or achievement of performance goals; the ultimate value realized varies with our common stock price.

 

In February 2016, 20% of our executive officers’ annual grants were performance-based restricted stock unit awards vesting solely upon achievement of a clinical development milestone.

Other compensation   Our executive officers participate in the same benefits offered to all other employees, which promote employee health and welfare and assist in attracting and retaining our executive officers.   Indirect compensation element consisting of programs such as medical, vision, dental, life and accidental death, long-term care and disability insurance as well as a 401(k) plan with a Company matching contribution, and other plans and programs made available to eligible employees.
Severance and Change in Control Benefits   Serves our retention objectives by helping our named executive officers maintain continued focus and dedication to their responsibilities to maximize stockholder value, including in the event of a transaction that could result in a change in control of our Company.   Provides protection in the event of a termination of employment under specified circumstances, including following a change in control of our Company as described below under “Potential Payments Upon Change in Control or Involuntary Termination.”

2015 Executive Compensation Decisions

Base Salaries

When determining base salary adjustments, the Compensation Committee generally targets a level at or near the 50 th percentile of our peer group, but also considers each individual’s industry experience and tenure, internal pay equity, and any particular retention concerns. As such, Mr. Gray, Dr. Coffman and Mr. Ostrach have base salaries at or above the 50 th percentile because of their broad industry experience, expertise, and tenure with the Company. With respect to Dr. Janssen’s and Mr. Novack, their base salaries are below the 50 th percentile as a result of the Compensation Committee’s objective to balance external competitiveness with internal pay equity and the Company’s annual salary budget. The 2015 base salary increases were made after the Compensation Committee considered each individual’s performance and Company performance.

 

Name

   2015 Base
Salary
     % Increase
from Prior
Year
 

Eddie Gray

   $ 566,500         10.0

Michael S. Ostrach

   $ 390,000         10.1

Robert L. Coffman, Ph.D.

   $ 453,200         3.0

Robert Janssen, M.D.

   $ 369,513         3.0

David F. Novack

   $ 375,000         21.4

 

49


Annual Incentive Program

In early 2015, the Compensation Committee established the corporate goals described below. We are a clinical-stage biopharmaceutical company and so our objective corporate goals are directly aligned with our specific strategic goals, including advancing our development programs, that we believe will create long-term value for stockholders. In February 2016, the Compensation Committee evaluated the accomplishments and performance of the Company against such corporate goals. We have omitted details about the 2015 goals or achievement of goals in the table below only where we believe disclosing such details would result in competitive harm. After its consideration of the Company’s performance, as more specifically described in the following chart, the Compensation Committee rated our 2015 corporate achievement at 109% of our 2015 corporate goals.

 

Corporate Goal    Weighting     Corporate Achievement    Corporate
Achievement
Percentage
 

HEPLISAV-B Advancement

 

Complete HBV-23 study and deliver Complete Response Letter commitments to enable HEPLISAV-B towards a BLA submission

 

Complete all activities related to commercialization of HEPLISAV-B

     40  

Successful completion of:

 

  •      TheHBV-23 Phase 3 study of HEPLISAV-B and communication of top line results, enabling HEPLISAV towards a BLA submission

 

  •      Activitiesrelated to pre-inspection readiness

 

  •      Pre-launchactivities in commercial and manufacturing

 

  •      Improvementsin our manufacturing and quality systems

 

The Compensation Committee determined we exceeded this goal because of several factors, including:

 

  •      HBV-23was a complex study with over 8,300 adult subjects.

 

  •      Additionally,the size and complexity of HBV-23 is believed to be the largest US study of an adult hepatitis B vaccine, larger than any done by our large pharmaceutical competitors. Dynavax is a mid-size biotechnology company with a US headcount of 137 and a clinical team of 24 employees as of December 31, 2015.

     46

 

50


Corporate Goal    Weighting      Corporate Achievement    Corporate
Achievement
Percentage
 

Advance the Pipeline

 

Advance clinical development of SD-101 and AZ1419

 

Advance early research development

     30   

Progressed and broadened our cancer immunotherapy pipeline, including:

 

  •      Completedclinical collaborations with Merck to combine our SD-101 with Merck’s KEYTRUDA and MK1966

 

  •      Collaboratedon AZ1419 clinical development with AstraZeneca

 

  •      Continuedprogress in advancing early research and development projects, including identification of our next immuno-oncology clinical candidate

 

  •      Initiatedand advanced SD-101 clinical studies

     30

Quality – Implement quality systems and programs to foster a corporate “ Quality ” culture

 

Complete training in quality and compliance

 

Implement quality systems and controls as well as metrics/key performance indicators to enhance quality programs

     15   

  •      Completedplanned enhancements and training in quality and compliance

 

  •      Completedlaunch of additional modules of electronic quality management system

     15

 

51


Corporate Goal    Weighting      Corporate Achievement    Corporate
Achievement
Percentage
 

Execute on the Dynavax business plan

 

Manage spending to budget and maintain approximately one-year of cash at year end 2014/Q1 2015

 

Increase market cap by least 10% against appropriate biotech indices

 

Implement system and talent strategies to maintain critical path programs and enable the Company to a successful commercialization of HEPLISAV-B

     15   

  •      Multi-componentfinancing strategy and effective budget management, resulted in $196 million cash balance at year end, positioning the Company to fund the HEPLISAV-B launch and our research and development programs

 

  •      43%increase in market cap significantly exceeded indices

 

  •      Successin hiring and retaining key talent allowed the Company to exceed key business objectives. Talent management assessment completed and follow-on programs designed for 2016.

 

The Compensation Committee determined we exceeded this goal because we successfully raised more cash than planned through sales of equity at favorable valuations.

 

Additionally, our corporate communications activities and the positive news flow from our corporate achievements enabled the performance of our stock price to significantly exceed several indices, as described above under “Corporate Performance Highlights.”

     18

Total

     100           109

 

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As described above, our Chief Executive Officer does not have individual goals separate from the Company’s corporate objectives. For our other NEOs, their total cash incentive payout for 2015 was based on a weighting of 50% corporate and 50% individual goals. Our CEO recommends individual goals for each NEO, which are aligned with our business strategy and linked with corporate goals, and our Compensation Committee approves these goals. The 2015 individual goals for the NEOs include those listed below. These specific goals were in addition to the general responsibilities each officer had for managing his respective functional or operational area. In early 2016, the Compensation Committee evaluated the performance of the NEOs against their individual goals for 2015. Based on the recommendation of our CEO, as well as the observations by Compensation Committee members of these officers and its own assessment of each NEO’s effectiveness, the Compensation Committee determined the level of achievement of each NEO’s individual performance goals as follows:

 

       
Name    2015 Individual Goals    Individual Achievement    Individual
Achievement
Percentage
 

Michael S. Ostrach

  

1)      Generate and implement cash generation and conservation strategies

 

2)      Increase and broaden communication and investor relations activities

 

3)      Develop business development strategies across programs that are implementable with/for the right opportunities

 

4)      Retain, develop, and/or hire talent to deliver on our business strategies to commercialize the Company, advance our programs in immuno-oncology, and progress our scientific platform

   Mr. Ostrach exceeded in that his financing strategies allowed the Company to raise $184 million at favorable valuations and in excess of expectations. The successful equity offerings along with his investor relations outreach created the opportunity for our stock to outperform relevant indices, as described above in “Corporate Performance Highlights.” Mr. Ostrach also managed completion of clinical collaboration agreements with Merck. Mr. Ostrach met his other goals.      125
Robert L. Coffman, Ph.D.   

1)      Advance preclinical oncology programs to the clinic

 

2)      Develop and implement strategies that will continue to broaden our scientific platform

 

3)      Retain, develop, and/or hire talent to deliver on our business strategies to advance programs in immuno-oncology and progress our scientific platform

   Dr. Coffman exceeded in generating and advancing multiple oncology preclinical and research programs, including a clinical candidate. Dr. Coffman met his other goals.      115

 

53


       
Name    2015 Individual Goals    Individual Achievement    Individual
Achievement
Percentage
 
Robert Janssen, M.D.   

1)      Complete HBV-23 study for HEPLISAV-B to enable commercialization

 

2)      Develop and implement strategies to advance immuno-oncology programs in the clinic

 

3)      Develop and implement inspection readiness strategies to ensure a positive inspection outcome to commercialize HEPLISAV-B

 

4)      Retain, develop, and/or hire talent to deliver on our business strategies to commercialize the Company, advance our programs in immuno-oncology, and progress our scientific platform

   Dr. Janssen exceeded in timely completing HBV-23, including data base lock, and BLA preparation enabling BLA submission for HEPLISAV-B as well as advancing the lymphoma and melanoma clinical trials. Dr. Janssen met his other goals.      115

David Novack

  

1)      Deliver on all CMC related activities that enable the Company’s BLA submission for commercialization of HEPLISAV-B

 

2)      Develop and implement manufacturing strategies for commercialization of HEPLISAV-B and to advance our immuno-oncology programs in the clinic

 

3)      Continue to implement quality assurance strategies required for a commercial organization

 

4)      Retain, develop, and/or hire talent to deliver on our business strategies to commercialize the Company, advance our programs in immuno-oncology, and progress our scientific platform

   Mr. Novack exceeded in CMC development and BLA preparation activities that enabled our BLA submission for HEPLISAV-B and manufacturing preparation to support commercial launch. Mr. Novack met his other goals.      115

 

54


After making these determinations regarding levels of corporate and individual performance achieved against the pre-established performance goals, the Compensation Committee (and the full Board with respect to Mr. Gray) reviewed and approved the cash incentive payouts noted below. As noted above, for the NEOs other than the CEO, their cash incentive payouts are based 50% on achievement of corporate goals and 50% on achievement of individual goals. There were no changes to the NEOs’ target annual cash incentive percentages between 2014 and 2015.

 

Name

   2015 Target Annual
Cash Incentive
     2015 Actual Annual Cash Incentive Paid  
      Achievement of
Corporate Goals
     Achievement of
Individual Goals
        
   % of
Base
Salary
    $      % of Target
Annual Cash
Incentive
    $      % of Target
Annual Cash
Incentive
    $      Total  

Eddie Gray

     60   $ 339,900         109   $ 370,491         N/A        N/A       $ 370,491   

Michael S. Ostrach

     50   $ 195,000         54.5   $ 106,275         62.5   $ 121,875       $ 228,150   

Robert L. Coffman, Ph.D.

     50   $ 226,600         54.5   $ 123,497         57.5   $ 130,295       $ 253,792   

Robert Janssen, M.D.

     50   $ 184,757         54.5   $ 100,693         57.5   $ 106,235       $ 206,928   

David F. Novack

     50   $ 187,500         54.5   $ 102,187         57.5   $ 107,813       $ 210,000   

Long-Term Equity Incentive Awards

In making annual long-term equity incentive awards to NEOs in February 2015, the Compensation Committee considered each NEO’s total options outstanding as of December 31, 2014, his performance during 2014, the potential amount that could be realized at different hypothetical stock prices upon exercise of those awards, each NEO’s percentage of ownership of the Company, and peer company data for similarly situated executives. The Compensation Committee generally targets the value of each NEO’s long-term equity incentive award at approximately the 60 th percentile of the peer group and makes final determinations based on its judgment in accordance with our pay-for-performance philosophy, which allows for above-market rewards for exceptional performance. The Compensation Committee determined to grant only stock options as long-term incentive awards in 2015 because of the ultimate value realized, if any, depends on the appreciation of our common stock price and if our stock price does not appreciate, there is no value realized and therefore there is a direct alignment with the long-term interests of our stockholders.

 

Name

   Shares Subject
to February
2015 Stock
Option Awards
 

Eddie Gray

     225,000   

Michael S. Ostrach

     67,000   

Robert L. Coffman, Ph.D.

     75,000   

Robert Janssen, M.D.

     56,000   

David F. Novack

     75,000   

In August 2015 the Compensation Committee analyzed the outstanding equity awards held by individuals who had been employed by the Company for at least seven years. As part of this analysis, the Compensation Committee reviewed each NEO’s outstanding stock options, the potential amount, if any, that could be realized at different hypothetical stock prices upon exercise of each outstanding stock option and the termination date of each stock option. As a result of this analysis, the Compensation Committee decided to grant Mr. Ostrach a stock option grant for 29,000 shares and Dr. Coffman a stock option grant for 16,501 shares. The Compensation Committee believes these awards will help retain and motivate these highly experienced and essential members of our management team.

In response to feedback from our stockholders, 20% of each of our NEO’s 2016 annual grants were performance-based restricted stock unit awards vesting solely upon achievement of a regulatory approval objective.

 

55


Equity Compensation Policies .    Our Compensation Committee approves equity awards for NEOs and authorizes the CEO to approve equity awards for all other employees based on approved pools for annual and new hire grants. This applies to both new-hire and annual equity awards. Awards are approved either at a regularly-scheduled meeting of the Compensation Committee or by unanimous written consent. The effective date of the grant is generally the date of the meeting, or the date the last person executes the unanimous written consent.

The exercise price of the stock options is not less than the closing price of our common stock on the NASDAQ Capital Market on the grant date of the stock option. We have no practice of timing grants of stock options or restricted stock awards to coordinate with the release of material non-public information, and we have not timed the release of material non-public information for purposes of affecting the value of the compensation awarded to our NEOs or any other employee.

We encourage our NEOs to hold a significant equity interest in our Company, but we have not set specific stock ownership guidelines.

We have a policy that prohibits our executive officers, directors and other members of management from engaging in short sales, transactions in put or call options, hedging transactions or other inherently speculative transactions with respect to our stock.

Other Executive Compensation Matters

Tax Effects of Executive Compensation

Our Compensation Committee considers the impact of the deduction limitation imposed by Section 162(m) of the Code in establishing and implementing compensation policies and practices. The Compensation Committee may grant compensation that qualifies as performance-based compensation when it determines that it is in the best interest of the Company, but we have not established a policy that requires all compensation paid to our NEOs to be fully deductible. Rather, the deductibility of such compensation is one of the factors considered in establishing and implementing our executive compensation programs, along with the need to design compensation programs that appropriately motivate our senior management and our goal to attract and retain key executives by remaining competitive in our pay practices.

The Compensation Committee also considers the impact of Section 409A of the Code, and in general, our executive plans and programs are designed to comply with the requirements of that section so as to avoid possible adverse tax consequences that may result from non-compliance.

Accounting Considerations

The accounting impact of our compensation programs is one of many factors that the Compensation Committee considers in determining the structure and size of our executive compensation programs. In general, the Company accounts for equity compensation paid to our employees under the Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC 718, which requires us to estimate and record an expense over the service period of the equity award, and our cash compensation is recorded as an expense at the time the obligation is accrued.

Compensation Recovery Policy

Amounts paid and awards granted under our Amended 2011 Plan are subject to recoupment in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and any applicable regulations under the Act, any clawback policy the Company adopts or as is required by applicable law. In addition, as a public company subject to the provisions of Section 304 of the Sarbanes-Oxley Act of 2002, if we are required as a result of misconduct to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our chief executive officer and chief financial officer may be legally required to reimburse

 

56


us for any bonus or other incentive-based or equity-based compensation they receive. In addition, we will comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act once the SEC final regulations on the subject become effective.

Compensation Risk Analysis

During fiscal 2015, our Compensation Committee reviewed our compensation policies as generally applicable to our employees in order to determine whether any such programs were likely to present a material risk to the Company. As part of its assessment, the Compensation Committee considered, among other things, the allocation of compensation among base salary and short- and long-term compensation, our approach to establishing Company-wide and individual financial, operational and other performance targets, and the nature of our key performance metrics. As a result of this review and analysis, the Compensation Committee’s determined that our policies and programs do not encourage excessive or inappropriate risk taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on the Company.

Report of the Compensation Committee of the Board of Directors on Executive Compensation

In early 2016, the Compensation Committee discussed with management the Compensation Discussion and Analysis, contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

The material in this report is not “soliciting material,” is furnished to, but not deemed “filed” with, the SEC and is not deemed to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, other than the Company’s Annual Report on Form 10-K, where it shall be deemed to be “furnished,” whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Ms. Peggy V. Phillips, Chairperson

Dr. Francis R. Cano, Ph.D.

Dr. Daniel Kisner, M.D.

 

57


S UMMARY C OMPENSATION T ABLE

The following table shows for the fiscal years ended December 31, 2015, 2014 and 2013, compensation awarded to or paid to, or earned by, NEOs.

 

Name and Principal Position

  Year     Salary     Bonus (1)     Stock
Awards (2)
    Option
Awards (3)
    Non-Equity
Incentive Plan
Compensation (4)
    All Other
Compensation (5)
    Total  

Eddie Gray

    2015      $ 566,500      $ —        $ —        $ 3,004,616      $ 370,491      $ 2,000      $ 3,943,607   

CEO and Director

    2014      $ 515,000      $ —        $ 855,000      $ 3,564,909      $ 432,600      $ —        $ 5,367,509   
    2013      $ 333,333      $ 200,000      $ —        $ 3,030,000      $ 50,000      $ 200,250      $ 3,813,583   

Michael S. Ostrach

    2015      $ 390,000      $ —        $ —        $ 1,420,353      $ 228,150      $ 2,000      $ 2,040,503   

Senior Vice President, Chief
Financial Officer and Chief
Business Officer

    2014      $ 354,152      $ —        $ 181,000      $ 425,331      $ 221,345      $ —        $ 1,181,828   
    2013      $ 342,176      $ —        $ —        $ 561,960      $ 185,000      $ 3,616      $ 1,092,752   
               

Robert L. Coffman, Ph.D.

    2015      $ 453,200      $ —        $ —        $ 1,300,631      $ 253,792      $ 2,000      $ 2,009,623   

Senior Vice President and
Chief Scientific Officer

    2014      $ 440,000      $ —        $ 42,250      $ —        $ 286,000      $ —        $ 768,250   
    2013      $ 282,620      $ —        $ —        $ 505,764      $ 175,000      $ 250      $ 963,634   

Robert Janssen, M.D.

    2015      $ 369,513      $ —        $ —        $ 747,816      $ 206,928      $ 2,000      $ 1,326,257   

Chief Medical Officer and
Vice President, Clinical
Development

    2014      $ 358,750      $ —        $ 181,000      $ 283,554      $ 246,641      $ —        $ 1,069,945   
    2013      $ 323,878      $ —        $ 175,500      $ —        $ 145,000      $ 4,361      $ 648,739   
               

David F. Novack

    2015      $ 375,000      $ —        $ —        $ 1,001,539      $ 210,000      $ 2,000      $ 1,588,539   

Senior Vice President,
Operations and Quality

    2014      $ 309,000      $ —        $ 362,000      $ 346,566      $ 208,575      $ —        $ 1,226,141   
    2013      $ 230,769      $ 75,000      $ —        $ 587,100      $ 155,000      $ 1,932      $ 1,049,801   

 

(1)  

Represents for Mr. Gray, the portion of his 2013 annual cash incentive award guaranteed under his employment agreement, and for Mr. Novack, a signing bonus that was subject to clawback in the event he terminated employment prior to completion of a full year of service.

 

(2)

Represents the aggregate grant date fair value of stock awards granted in the fiscal year in accordance with ASC 718. See note 13 of our “Notes to Consolidated Financial Statements” in our annual report on Form 10-K filed with the SEC on March 8, 2016 for a discussion of assumptions we made in determining the compensation costs included in this column. With regard to stock awards with performance-based vesting, the grant date fair value assumes the highest level of achievement of related performance conditions.

 

(3)  

Represents the aggregate grant date fair value of option awards granted in the fiscal year in accordance with ASC 718. See note 13 of our “Notes to Consolidated Financial Statements” in our annual report on Form 10-K filed with the SEC on March 8, 2016 for a discussion of assumptions we made in determining the compensation costs included in this column.

 

(4)  

Represents the annual incentive bonuses earned pursuant to our annual incentive bonus plan for services rendered in the fiscal year. For further discussion see the section entitled “Compensation Discussion and Analysis – 2015 Executive Compensation Decisions – Annual Incentive Plan.”

 

(5)

Includes $2,000 401(k) matching contribution for each NEO made by the Company in 2015. Represents for 2013 the following amounts for each NEO: For Mr. Ostrach, Dr. Coffman, Dr. Janssen and Mr. Novack: premiums and claims paid under the Exec-U-Care medical program (which terminated on December 31, 2013); for Mr. Gray: $200,000 paid pursuant to his employment agreement to cover all relocation expenses and $250 in Exec-U-Care coverage.

 

58


G RANTS O F P LAN B ASED A WARDS

The following table shows certain information regarding grants of plan-based awards to NEOs during the fiscal year ended December 31, 2015.

 

Name

   Grant Date      Estimated
Future
Payouts
Under
Non-
Equity
Incentive
Plan
Awards
Target (1)
($)
     All Other
Option
Awards:
Number of
Securities
Underlying
Options (2)
(#)
     Exercise
or Base
Price of
Option
Awards

($/Share)
     Grant Date
Fair Value
of Option
Awards (3)  ($)
 

Eddie Gray

        339,900         —           —           —     
     2/9/2015            225,000         16.00         3,004,616   

Michael S. Ostrach

        195,000         —           —           —     
     2/9/2015            67,000         16.00         894,708   
     8/27/2015            29,000         28.45         525,645   

Robert L. Coffman, Ph.D.

        226,600         —           —           —     
     2/9/2015            75,000         16.00         1,001,539   
     8/27/2015            16,501         28.45         299,092   

Robert Janssen, M.D.

        184,757         —           —           —     
     2/9/2015            56,000         16.00         747,816   

David F. Novack

        187,500         —           —           —     
     2/9/2015            75,000         16.00         1,001,539   

 

(1)  

Represents the target cash incentive award in fiscal year 2015 as further described under “Compensation Discussion and Analysis – Elements of Executive Compensation”; our Annual Incentive Program does not specify minimum or maximum levels. Cash incentive awards paid to our NEOs on account of fiscal year 2015 performance are reported in the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table.”

 

(2)

All options were granted under the 2011 Plan and vest as to 25% of the shares subject to the award 12 months after the vesting commencement date, with the remainder vesting as to 1/48 th of the shares each month thereafter. The exercise price of all options was the closing price of our common stock on the date of grant.

 

(3)

Represents the aggregate grant date fair value of option awards granted in fiscal year 2015 in accordance with ASC 718. See Note 13 of our “Notes to Consolidated Financial Statements” in our annual report on Form 10-K filed with the SEC on March 8, 2016 for a discussion of the assumptions we made in determining the compensation costs included in this column.

N ARRATIVE D ISCLOSURE TO S UMMARY C OMPENSATION T ABLE AND G RANTS OF P LAN B ASED A WARDS T ABLE

The material terms of NEOs’ annual compensation and the explanations of the amounts of base salary, annual cash-based incentives, and equity-based awards in proportion to total compensation are described under “Compensation Discussion and Analysis” in this proxy statement. Our severance and change in control benefits are described under “Summary of Change in Control and Involuntary Termination Arrangements” in this proxy statement.

As discussed in the “Compensation Discussion and Analysis,” the fiscal year 2015 cash incentive amounts were paid pursuant to the annual cash incentive compensation program, based on the achievement of certain corporate and individual performance goals. Equity-based awards were granted in 2015 under our 2011 Plan and generally vest over four years from the date of grant, subject to continued employment. The exercise price of all options was set as the closing market price of our common stock on the grant date.

 

59


O UTSTANDING E QUITY A WARDS A T F ISCAL Y EAR E ND

The following table shows certain information regarding outstanding equity awards for NEOs as of December 31, 2015.

 

          Option Awards     Stock Awards  

Name

        Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares or
Units that
Have Not
Vested (#)
    Market Value
of Stock that
Have Not
Vested ($) (4)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares or
Other
Rights
that Have
Not
Vested (#)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares or
Other
Rights that
Have Not
Vested ($)
 

Eddie Gray

    (2 )       96,876        53,124      $ 22.10        4/30/2023           
    (2 )       35,938        39,063      $ 17.40        1/30/2024           
    (2 )       68,750        81,250      $ 17.10        2/3/2024           
    (2 )       —          225,000      $ 16.00        2/8/2025           
    (3 )       —          —          —          —          50,000      $ 1,208,000       

Michael S. Ostrach

      25,000        —        $ 61.70        10/30/2016           
      4,000        —        $ 53.10        2/2/2018           
      3,750        —        $ 5.40        3/9/2019           
      2,673        —        $ 15.80        2/18/2020           
      25,000        —        $ 31.40        1/5/2021           
    (2 )       17,626        374      $ 34.80        1/30/2022           
    (2 )       14,167        5,833      $ 30.80        2/4/2023           
    (2 )       12,375        14,625      $ 17.10        2/3/2024           
    (2 )       —          67,000      $ 16.00        2/8/2025           
    (2 )       —          29,000      $ 28.45        8/26/2025           
    (3 )       —          —          —          —          10,000      $ 241,600       

Robert L. Coffman, Ph.D.

      5,000        —        $ 58.50        2/13/2016           
      4,000        —        $ 61.90        2/1/2017           
      7,501        —        $ 53.10        2/2/2018           
      7,500        —        $ 5.40        3/9/2019           
      10,000        —        $ 15.80        2/18/2020           
      30,000        —        $ 31.40        1/5/2021           
    (2 )       17,625        375      $ 34.80        1/30/2022           
    (2 )       12,750        5,250      $ 30.80        2/4/2023           
    (2 )       —          75,000      $ 16.00        2/8/2025           
    (2 )       —          16,501      $ 28.45        8/26/2025           

Robert Janssen, M.D.

      6,000        —        $ 13.60        4/6/2020           
      2,250        —        $ 31.40        1/5/2021           
    (2 )       2,395        105      $ 36.80        1/31/2022           
    (2 )       11,876        3,124      $ 41.40        10/30/2022           
    (2 )       8,250        9,750      $ 17.10        2/3/2024           
    (2 )       —          56,000      $ 16.00        2/8/2025           
    (1 )       —          —          —          —              15,000      $ 362,400   
    (3 )       —          —          —          —          10,000      $ 241,600       

David F. Novack

    (2 )       20,627        9,373      $ 21.40        3/24/2023           
    (2 )       10,084        11,916      $ 17.10        2/3/2024           
    (2 )       —          75,000      $ 16.00        2/8/2025           
    (3 )       —          —          —          —          20,000      $ 483,200       

 

(1)  

This amount represents the maximum number of shares subject to this stock award. Stock awards will be earned upon achievement of certain performance conditions.

 

(2)  

Options vest at the rate of 1/4th of the shares on the first anniversary of the vesting commencement date, with 1/48th of the total number of shares vesting each month thereafter.

 

(3)  

RSUs vests on the three (3) year anniversary of the grant date. RSUs for Eddie Gray will vest on February 4, 2017. The remaining RSUs will vest on March 11, 2017.

 

(4)  

Based on the closing price per share on December 31, 2015 of $24.16.

 

60


O PTION E XERCISES A ND S TOCK V ESTED

The following table provides information on stock awards that vested, including the number of shares acquired upon vesting and the value realized, determined as described below, for the named executive officers in the fiscal year ended December 31, 2015. There were no option exercises during the fiscal year ended December 31, 2015.

 

     Stock Awards  

Name

   Number of Shares
Acquired on
Vesting (#)
     Value Realized
on Vesting
($)
 

Eddie Gray

     —           —     

Michael S. Ostrach

     —           —     

Robert L. Coffman, Ph.D.

     2,500         41,175 (1)  

Robert Janssen, M.D.

     —           —     

David F. Novack

     —           —     

 

(1)  

The value realized on vesting is determined by multiplying the number of shares of stock, or 2,500, by the market value of the underlying shares as reported by the NASDAQ Capital Market on the vesting date, or $16.47.

P ENSION B ENEFITS

None of the NEOs participates in or has an account balance under any pension or qualified or non-qualified defined benefit retirement plans sponsored by the Company.

N ON -Q UALIFIED D EFERRED C OMPENSATION

None of the NEOs participates in or has an account balance under any non-qualified defined contribution plans or other non-qualified deferred compensation plans maintained by the Company.

P OTENTIAL P AYMENTS U PON C HANGE IN C ONTROL OR I NVOLUNTARY T ERMINATION

Summary of Change in Control and Involuntary Termination Arrangements.

To promote retention of certain key executives, our Board has authorized the Company to enter into Management Continuity and Severance Agreements with each NEO. We refer to the agreements in effect as of December 31, 2015 as the “Management Agreements.” In order to be eligible to receive benefits under the Management Agreements, our NEOs and other officers must execute a general waiver and release of claims, and such release must become effective in accordance with its terms.

 

61


Change in Control.

Immediately prior to the effective date of a Change in Control, each NEO shall receive accelerated vesting (full vesting for Mr. Gray and two years vesting for our other officers) of equity awards that are held by such NEO on the effective date of such Change in Control. The Management Agreements generally define a Change in Control to mean the occurrence of a change in the majority ownership of the voting securities of the Company, a merger that results in change in the majority ownership of the voting securities of the Company, or the sale of all or substantially all of the assets (including as part of a liquidation of the Company). The table below outlines the potential payments and benefits payable to each current NEO in the event of a Change in Control (without termination of employment) of the Company, assuming such event had occurred on December 31, 2015. In April 2016, the Management Agreements with Mr. Ostrach, Dr. Coffman, Dr. Janssen and Mr. Novack were updated to eliminate this benefit and provide for full accelerated vesting in connection with a Change in Control only in the event of a related termination of employment.

 

Name

   Aggregate Number Of
Equity Award Shares
Subject to Accelerated
Vesting on CIC
     Value of Accelerated
Equity
Awards (1)
 

Eddie Gray

     448,437       $ 3,991,126   

Michael S. Ostrach

     84,081       $ 482,567   

Robert L. Coffman, Ph.D.

     68,375       $ 433,492   

Robert Janssen, M.D.

     51,895       $ 387,215   

David F. Novack

     73,497       $ 537,021   

 

(1) Represents the value of stock and accelerated stock option and award vesting if the event took place on December 31, 2015. The value is calculated based on the closing price per share on December 31, 2015. The value is calculated based on the “spread” between the closing price per share on December 31, 2015 of $24.16 and the exercise price of the vested awards, to the extent such vested awards were “in the money.”

Qualifying Termination in Connection with a Change in Control.

Under the Management Agreements, if, on or during the two-year period following a Change in Control, the NEO’s employment is involuntarily terminated, the NEO will, subject to the execution of a release of claims, be entitled to receive:

 

   

a lump-sum cash payment equal to a specified number of months (ranging from 12 to 24) of the executive’s then-effective annual base salary;

 

   

a lump-sum cash payment equal to the NEO’s target annual variable cash compensation (ranging from 100% to 200% of such target) for the year of termination;

 

   

cash payments equal to the applicable COBRA premiums for up to the same number of months as the NEO receives in base salary, as set forth in the first bullet (the “COBRA Payment”); and

 

   

the extension of exercisability of all stock options to purchase the Company’s common stock for a period of 3 years following termination of employment (but in any event not beyond each option’s expiration date).

In addition, if any payments or benefits would constitute a “parachute payment” within the meaning of Section 280G of the Code and such payments would be subject to the excise tax imposed by Section 4999 of the Code, then such payments will either be (1) provided to the NEO in full or (2) reduced to such lesser amount that would result in no portion of such payments being subject to the excise tax, whichever amount after taking into account all applicable taxes, including the excise tax, would result in the NEO’s receipt, on an after-tax basis, of the greatest amount of such payments.

Under the terms of Mr. Gray’s Management Agreement, he will receive 24 months of base salary, 200% of his target annual cash incentive, the COBRA Payment, accelerated vesting of all outstanding time-vesting options and restricted stock awards, and up to 3 years to exercise his vested options.

 

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Our other NEOs will receive 12 months of base salary, 100% of the target annual variable cash compensation, the COBRA Payment, an additional 2 years of accelerated vesting of outstanding time-vesting options (or full acceleration after the April 2016 amendments), and up to 3 years to exercise their vested options.

The table below outlines the potential payments and benefits payable to each NEO in the event of such executive’s termination in connection with a Change in Control of the Company, assuming such event had occurred on December 31, 2015.

 

Name

   Severance
Payment
     Continuation
of Benefits
     Value of
Accelerated
Stock

Awards (1)
     Total  

Eddie Gray

   $ 1,812,800       $ 52,766       $ 3,991,126       $ 5,856,692   

Michael S. Ostrach

   $ 585,000       $ 42,139       $ 482,567       $ 1,109,706   

Robert L. Coffman, Ph.D.

   $ 679,800       $ 29,649       $ 433,492       $ 1,142,941   

Robert Janssen, M.D.

   $ 554,270       $ 29,649       $ 387,215       $ 971,134   

David F. Novack

   $ 562,500       $ 42,015       $ 537,021       $ 1,141,536   

 

(1)  

Represents the value of accelerated stock option and award vesting if the event took place on December 31, 2015. The value is calculated based on the “spread” between the closing price per share on December 31, 2015 of $24.16 and the exercise price of the vested awards, to the extent such vested awards were “in the money.”

Involuntary Termination.

Under the terms of the Management Agreements, upon an “involuntary” termination without “cause” or, if applicable, upon a resignation for “good reason” (as defined below), the NEO will, subject to the execution of a release of claims, be entitled to receive:

 

   

a lump-sum cash payment equal to the specified number of months (ranging from 6 to 24) of the executive’s then-effective annual base salary;

 

   

the COBRA Payment;

 

   

accelerated vesting of all time-vesting options to purchase the Company’s common stock that are held by Mr. Gray (and six additional months of accelerated vesting for all other NEOs) on the effective date of termination; and

 

   

for Mr. Gray, the extension of exercisability of all stock options to purchase the Company’s common stock for a period of 3 years following termination of employment (but in any event not beyond each option’s expiration date).

Under the terms of the Management Agreements:

 

   

Mr. Gray will receive 24 months of base salary, 200% of his target annual cash incentive, the COBRA Payment, accelerated vesting of his then-outstanding employee stock options and restricted stock awards, and up to 3 years to exercise the vested options; and

 

   

Our other NEOs will receive 6 months of base salary, the COBRA Payment, and 6 months additional vesting.

 

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The table below outlines the potential payments and benefits payable to each NEO in the event of such NEO’s involuntary termination had occurred on December 31, 2015.

 

Name

   Severance
Payment
     Continuation
of Benefits
     Value of
Accelerated
Stock Awards (1)
     Total  

Eddie Gray

   $ 1,812,800       $ 52,766       $ 3,991,126       $ 5,856,692   

Michael S. Ostrach

   $ 195,000       $ 21,069       $ 183,282       $ 399,351   

Robert L. Coffman, Ph.D.

   $ 226,600       $ 14,825       $ 153,000       $ 394,425   

Robert Janssen, M.D.

   $ 184,757       $ 14,825       $ 130,125       $ 329,707   

David F. Novack

   $ 187,500       $ 21,008       $ 208,254       $ 416,762   

 

(1)  

Represents the value of accelerated stock option and award vesting if the event took place on December 31, 2015. The value is calculated based on the “spread” between the closing price per share on December 31, 2015 of $24.16 and the exercise price of the vested awards, to the extent such vested awards were “in the money”.

For purposes of the Management Agreements, “cause” generally means (1) gross negligence or willful misconduct in the performance of duties to the Company, where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries; (2) repeated unexplained or unjustified absence from the Company; (3) a material and willful violation of any federal or state law; (4) commission of any act of fraud with respect to the Company; or (5) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board.

For purposes of the Management Agreements, “good reason” generally means the NEO’s voluntary termination following (1) a material reduction or change in job duties, responsibilities, and requirements inconsistent with the NEO’s position with the Company and his or her prior duties, responsibilities, and requirements, or a material change in the level of management to which the NEO reports; (2) any material reduction of base compensation (other than in connection with a general decrease in base salaries for most officers of the successor corporation); or (3) the refusal to relocate to a facility or location more than 35 miles from the Company’s current location. The NEO must provide 90 days’ notice of the event giving rise to good reason, give the Company 30 days’ to cure (if curable), and any resignation for good reason must occur within 180 days after the occurrence of the event giving rise to such resignation right.

 

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DIRECTOR COMPENSATION

N ON -E MPLOYEE D IRECTOR C OMPENSATION P HILOSOPHY

Our non-employee director compensation philosophy is based on the following guiding principles:

 

   

Aligning the long-term interests of stockholders and directors; and

 

   

Compensating directors appropriately and adequately for their time, effort and experience

The elements of director compensation consist of annual cash retainers and equity awards, as well as customary and usual expense reimbursement in attending Board and committee meetings. In an effort to align the long-term interests of our stockholders and non-employee directors, the mix of cash and equity compensation has historically been, and is currently, weighted more heavily to equity.

C ASH C OMPENSATION A RRANGEMENTS

During 2015, each member of our Board who was not an employee or officer of the Company received the following cash compensation for Board services:

 

   

A $65,000 annual retainer for service as chairman of the Board and a $40,000 annual retainer for service as a member of the Board.

 

   

A $20,000 annual retainer for the Chair of the Audit Committee and a $7,500 annual retainer for each additional member of the Audit Committee.

 

   

A $15,000 annual retainer for the Chair of the Compensation Committee and a $7,000 annual retainer for each additional member of the Compensation Committee.

 

   

A $10,000 annual retainer for the Chair of the Nominating and Governance Committee and $5,000 annual retainer for each additional member of the Nominating and Governance Committee.

We also reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our Board and committees of our Board.

E QUITY A WARDS

On February 5, 2015, we amended our compensation program for non-employee directors to provide that:

 

   

Each director and the chairman of the Board automatically receives an initial equity award, or Initial Grant, consisting of a non-qualified stock option to purchase 15,000 shares and 25,000 shares, respectively, of Dynavax common stock upon the date each such person is elected or appointed to the Board.

 

   

On the date of each annual meeting of the Company’s stockholders, each non-employee director also automatically receives a subsequent equity award, or Subsequent Grant, consisting of a non-qualified stock option to purchase 7,500 shares of Dynavax common stock. Based on the non-employee director’s election date, the first Subsequent Grant shall be reduced to 75% of the Subsequent Grant if the service period from the election date to the annual meeting is between 7 and 10 months, 50% of the Subsequent Grant if the service period from the election date to the annual meeting is between 4 and 7 months, and 25% of the Subsequent Grant if the service period from the election date to the annual meeting is between 1 and 4 months.

Each Initial Grant vests in equal annual installments over 4 years on the anniversary of the grant date. Each Subsequent Grant vests in full on the one-year anniversary of the grant date. The exercise price per share of each Initial Grant and Subsequent Grant shall be one hundred percent of the fair market value per share on the date of grant.

 

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Our Board may approve additional cash and equity awards for our non-employee directors.

D IRECTOR C OMPENSATION T ABLE

The following table shows for the fiscal year ended December 31, 2015, certain information with respect to the compensation of all non-employee directors of the Company:

 

Name

   Fees Earned
or Paid in
Cash (1)
     Option
Awards (2)(3)(4)
     Total  

Arnold L. Oronsky, Ph.D.

   $ 72,500       $ 294,558       $ 367,058   

Laura Brege (5)

   $ 45,000       $ 172,902       $ 217,902   

Francis R. Cano, Ph.D.

   $ 52,000       $ 232,955       $ 284,955   

Dennis A. Carson, M.D.

   $ 40,000       $ 151,751       $ 191,751   

Denise M. Gilbert, Ph.D.

   $ 30,000       $ —         $ 30,000   

Daniel L. Kisner, M.D.

   $ 57,000       $ 294,558       $ 351,558   

Peggy V. Phillips

   $ 62,500       $ 294,558       $ 357,058   

Stanley A. Plotkin, M.D.

   $ 40,000       $ 151,751       $ 191,751   

Natale Ricciardi

   $ 42,500       $ 130,750       $ 173,250   

 

(1)  

Consists of fees earned or paid in 2015 for Board and committee meeting membership as described above.

 

(2)  

Represents the aggregate grant date fair value of stock options granted in the fiscal year in accordance with ASC 718. See note 13 of our “Notes to Consolidated Financial Statements” in our annual report on Form 10-K filed with the SEC on March 8, 2016, for a discussion of assumptions we made in determining the compensation costs included in this column.

 

(3)  

As of December 31, 2015, each non-employee director held stock options to purchase the following numbers of shares of our common stock: Dr. Oronsky held options to purchase 32,950 shares of our common stock; Ms. Brege held options to purchase 12,675 shares of our common stock; Dr. Cano held options to purchase 25,050 shares of our common stock; Dr. Carson held options to purchase 21,750 shares of our common stock; Dr. Gilbert held options to purchase 8,500 shares of our common stock; Dr. Kisner held options to purchase 28,450 shares of our common stock; Ms. Phillips held options to purchase 32,700 shares of our common stock; Dr. Plotkin held options to purchase 20,750 shares of our common stock; and Mr. Ricciardi held options to purchase 12,750 share of our common stock.

 

(4)  

Includes a one-time grant made to each non-employee director, except for Dr. Gilbert who resigned from the Board effective March 5, 2015, in October 2015. The one-time grant was made after taking into account the Company’s historical non-employee director compensation structure, the time commitment expected of the Company’s non-employee directors, the existing ownership position of each non-employee director, the economic position of the Company and the potential dilutive effect of equity awards on the Company’s stockholders. These one-time grants consisted of the following: Dr. Oronsky received a stock option to purchase 13,200 shares of our common stock, Ms. Brege received a stock option to purchase 8,800 shares of our common stock, Dr. Cano received a stock option to purchase 8,800 shares of our common stock, Dr. Carson received a stock option to purchase 3,000 shares of our common stock, Dr. Kisner received a stock option to purchase 13,200 shares of our common stock, Ms. Phillips received a stock option to purchase 13,200 shares of our common stock, Dr. Plotkin received a stock option to purchase 3,000 shares of our common stock and Mr. Ricciardi received a stock option to purchase 1,500 shares of our common stock.

 

(5)  

Ms. Brege joined the Board on February 5, 2015.

 

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E QUITY C OMPENSATION P LANS

The following table shows activity under our equity compensation plans as of the fiscal year ended December 31, 2015.

 

Plan Category

   Number of
securities to
be issued upon exercise
of outstanding options,
warrants and rights
     Weighted-average
exercise price of
outstanding
options, warrants
and rights
     Number
of securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected in
the first column)
 

Equity compensation plans approved by security holders:

        

2004 Stock Incentive Plan

     292,901       $ 34.83         —     

2011 Equity Incentive Plan

     2,780,925       $ 20.52         2,097,384   

2014 Employee Stock Purchase Plan

     —         $ —           28,021 (1)  

Equity compensation plans not approved by security holders:

           —     

2010 Employment Inducement Award Plan (2)

     12,450       $ 16.81         —     
  

 

 

       

 

 

 

Total

     3,086,276       $ 21.86         2,125,405   
  

 

 

       

 

 

 

 

(1)  

As of December 31, 2015, an aggregate of 28,021 shares remained available for future issuance under the 2014 Employee Stock Purchase Plan, and as of April 6, 2016, up to a maximum of 9,330 shares may be purchased in the current purchase period.

 

(2)  

In order to induce qualified individuals to join our Company, our Board adopted the 2010 Employment Inducement Award Plan, or the 2010 Inducement Plan, effective January 8, 2010, which provided for the issuance of up to 150,000 shares of Company common stock to new employees of the Company. Stockholder approval of the 2010 Inducement Plan was not required under NASDAQ Marketplace Rule 5635(c)(4). Upon the effectiveness of the 2011 Plan, no additional awards were granted under either the 2004 Stock Incentive Plan or the 2010 Inducement Plan. All shares currently subject to awards outstanding under the 2004 Stock Incentive Plan or 2010 Inducement Plan, which awards expire or are forfeited, will be included in the reserve for the 2011 Plan to the extent such shares would otherwise return to such plans. Awards granted under the 2010 Inducement Plan have a term of 10 years. Exercisability, option price and other terms are determined by the plan administrator, but the option price cannot be less than 100% of fair market value of those shares on the date of grant. Stock options granted under the 2010 Inducement Plan generally vest over a period of four years, with the exception of performance based awards which will vest upon achievement of certain performance conditions.

 

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CORPORATE GOVERNANCE

C ORPORATE G OVERNANCE G UIDELINES

In February 2016, our Board adopted Corporate Governance Guidelines that set forth key principles to guide the Board in its exercise of responsibilities and serve the interests of the Company and our stockholders. Our Corporate Governance Guidelines can be found on the Corporate Governance page under the Investors and Media – Corporate Governance section of our website at www.dynavax.com. In addition, these guidelines are available in print to any stockholder who requests a copy. Please direct all requests to our Corporate Secretary, Dynavax Technologies Corporation, 2929 Seventh Street, Suite 100, Berkeley, California 94710.

M AJORITY V OTE P OLICY

Our Corporate Governance Guidelines include a provision whereby any nominee for director in an uncontested election would submit an offer of resignation for consideration by the Nominating and Corporate Governance Committee of the Board, if such nominee receives a greater number of “Withhold” votes than “For” votes. The Nominating and Corporate Governance Committee would then consider all of the relevant facts and circumstances and recommend to the Board the action to be taken with respect to such offer of resignation. Promptly following the Board’s decision, we would disclose that decision and an explanation of such decision in a filing with the SEC or a press release.

I NDEPENDENCE O F T HE B OARD O F D IRECTORS

As required under the NASDAQ Stock Market, or NASDAQ listing standards, and our Corporate Governance Guidelines, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the board of directors. In addition, applicable NASDAQ rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating committees be independent within the meaning of applicable NASDAQ rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.

Consistent with these considerations, our Board undertook a review of the independence of each director and considered whether any director has a material relationship that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. After review of all relevant 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 directors are independent directors within the meaning of the applicable NASDAQ listing standards: Ms. Phillips, Ms. Brege and Mr. Ricciardi as well as Drs. Carson, Cano, Gilbert, Kisner, Oronsky and Plotkin. In making these determinations, the Board found that none of these directors has a material or other disqualifying relationship with the Company. Dr. Gilbert resigned from the Board in 2015 and was replaced by Ms. Brege.

In determining the independence of Dr. Carson, the Board took into account his role as the university-nominated representative on the evaluation committee to oversee aspects of the agreement between the Regents of the University of California and Dynavax and determined that this relationship would not interfere with Dr. Carson’s exercise of independent judgment in carrying out his responsibilities as a director.

By virtue of his employment with the Company, Eddie Gray, our Chief Executive Officer is not an independent director.

B OARD L EADERSHIP S TRUCTURE

Our Board is currently chaired by Dr. Oronsky. The duties of the chairman include presiding over all meetings of the Board; preparing the agenda for Board meetings in consultation with the CEO and other members of our Board; calling and presiding over meetings of non-employee directors; and managing the Board’s process for annual

 

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evaluation of the CEO. Accordingly, the chairman has substantial ability to shape the work of our Board. Our Board currently believes that separation of the positions of chairman and CEO reinforces the independence of our Board in its oversight of our business and affairs. In addition, such separation helps create an environment that is more conducive to objective evaluation and oversight of management’s performance, increasing management accountability and improving the ability of our Board to monitor whether management’s actions are in the best interests of our Company and its stockholders.

Our Board also believes there may be advantages to having an independent chairman for matters such as communications and relations between our Board, the CEO and other senior management and in assisting our Board in reaching consensus on particular strategies and policies. Having a chairman separate from the CEO also allows the chairman to focus on assisting the CEO and other senior management in seeking and adopting successful business strategies and risk management policies and in making successful choices in management succession.

B OARD S R OLE I N R ISK O VERSIGHT

Risk assessment and oversight are an integral part of our governance and management processes. Our Board encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing the Company. Throughout the year, senior management reviews these risks with the Board at regular Board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.

Our Board does not have a standing risk management committee but rather administers this oversight function directly through our Board as a whole as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing strategic risk exposure, including overseeing our healthcare compliance program pertaining to healthcare laws, regulations and industry standards applicable to pharmaceutical companies. Our Audit Committee has the responsibility to oversee our major financial risk exposures and the steps our management has taken to monitor and control these exposures as well as oversight of our enterprise risk management program. The Audit Committee also monitors compliance with legal and regulatory requirements, oversees the performance of our internal audit function and approves or disapproves any related-persons transactions. Our Nominating and Governance Committee monitors the effectiveness of our corporate governance guidelines and manages the process for annual director self-assessment and evaluation of the Board. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.

M EETINGS O F T HE B OARD O F D IRECTORS

Our Board met six times during fiscal year 2015. All Board members attended at least 75% or more of the aggregate of the meetings of the Board and of the committees, on which the member served, held during the period of services as a director or committee member.

 

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C OMMITTEES O F T HE B OARD O F D IRECTORS

Our Board has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. The following table provides membership and meeting information for fiscal year 2015 for each of the Board committees:

 

Name

   Audit     Compensation     Nominating  

Arnold L. Oronsky, Ph.D.

     X       

Francis R. Cano, Ph.D.

       X        X   

Laura Brege (1)

     X    

Daniel L. Kisner, M.D.

       X        X

Peggy V. Phillips

     X        X  

Natale Ricciardi

         X   

Total Members (2)

     3        3        3   

Total Meetings

     4        7        1   

 

* Committee Chairperson

 

(1)  

Dr. Gilbert resigned from the Board after the Audit Committee meeting effective March 5, 2015, and Ms. Laura Brege became the chairperson of the Audit Committee thereafter.

 

(2)  

As of December 31, 2015.

Below is a description of each committee of our Board. Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities. Our Board has determined that each member of each committee meets the applicable NASDAQ listing standards and related rules and regulations regarding “independence” and that each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to the Company.

Audit Committee

The Audit Committee for 2015 was comprised of three directors: Dr. Gilbert (Chairperson), Dr. Oronsky and Ms. Phillips. Dr. Gilbert was the Chairperson of the Audit Committee until she resigned from the Board after the Audit Committee meeting effective March 5, 2015. Ms. Brege replaced Dr. Gilbert as the Chairperson of the Audit Committee. In addition to determining that all members of the Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the NASDAQ listing standards), the Board determined that Dr. Gilbert and later Ms. Brege qualified as an “audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Dr. Gilbert’s and Ms. Brege’s level of knowledge and experience based on a number of factors, including each of Dr. Gilbert and Ms. Brege’s formal education and experience as a chief financial officer. The Audit Committee was established by the Board in accordance with Section 3(a)(58)(A) of the Exchange Act to oversee the Company’s corporate accounting and financial reporting processes and audits of its financial statements. The Audit Committee operates under a written charter that is available on the Company’s website at http://investors.dynavax.com/corporate-governance.cfm.

Among other things, the charter specifically requires our Audit Committee to:

 

   

review and monitor the policies and procedures adopted by the Company to fulfill its responsibilities regarding the fair and accurate presentation of the Company’s financial statements;

 

   

appoint, compensate, and oversee the work of the Company’s independent registered public accounting firm;

 

   

approve and monitor all audit and non-audit services performed by the Company’s independent registered public accounting firm;

 

   

investigate, review and report the propriety and ethical implications of any transactions between the Company and any related persons;

 

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consult and discuss with management and the independent registered public accounting firm regarding the effectiveness of the Company’s internal controls over financial reporting;

 

   

establish procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

 

   

review and evaluate the Company’s accounting principles and systems of internal controls; and

 

   

review and discuss the disclosure of the Company’s annual audited financial statements and quarterly financial statements, including reviewing the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Management is responsible for the financial reporting process, including the system of internal controls and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. Ernst & Young, the Company’s independent registered public accounting firm, is responsible for auditing or reviewing those financial statements. The Audit Committee monitors and reviews these processes.

Report of the Audit Committee of the Board of Directors

During 2015, the Audit Committee met on four occasions. During these meetings the Committee met with Ernst & Young, without the presence of the Company’s management. During the course of these meetings, we:

 

   

discussed with management and Ernst & Young management’s continued testing and evaluation of its system of internal control over financial reporting. We also reviewed Ernst & Young’s Report of Independent Registered Public Accounting Firm included in the Annual Report on Form 10-K, or Annual Report, related to its audit of the effectiveness of the Company’s internal control over financial reporting;

 

   

reviewed and discussed with management and Ernst & Young the annual audited financial statements before filing the Annual Report with the SEC, addressing the acceptability of the Company’s accounting principles and such other matters as applicable auditing standards require us to discuss; the Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees (“AS 16”) , as adopted by the Public Company Accounting Oversight Board (“PCAOB”) and recommended to the Board that the financial statements should be included in the Annual Report;

 

   

reviewed and discussed with management and Ernst & Young the Company’s quarterly unaudited financial statements before the issuance of its quarterly financial results press releases and the filing of its Quarterly Reports on Form 10-Q with the SEC;

 

   

discussed with management and Ernst & Young significant financial reporting matters, including liquidity and capital requirements, and the accounting for significant transactions;

 

   

appointed and oversaw the work and compensation of Ernst & Young, including the review of engagement agreement terms;

 

   

reviewed and provided guidance with respect to the external audit and the Company’s relationship with Ernst & Young by (1) reviewing Ernst & Young’s proposed audit scope, approach, compensation and independence; (2) obtaining written statements and disclosures from Ernst & Young regarding relationships and services with the Company which may impact independence as required by Ethics and Independence Rule 3526, “Communications with Audit Committees Concerning Independence”; (3) discussing with Ernst & Young the financial statements and audit findings, including any significant adjustments, management judgments and accounting estimates, significant new accounting policies and whether there were disagreements with management; and (4) obtaining assurance from Ernst & Young that the requirements of Section 10A of the Exchange Act have been met; and

 

   

reviewed, in conjunction with the Company’s legal counsel, all legal matters that could have a significant impact on the Company’s financial statements or compliance policies.

 

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Based on our reviews and discussions as described above, and based on the report of Ernst & Young, we recommended to the Board, and the Board approved, that the audited financial statements be included in the Company’s Annual Report for the year ended December 31, 2015, filed with the SEC. We also approved, subject to stockholder ratification, the selection of Ernst & Young as the Company’s independent registered public accounting firm for 2016. In making this recommendation, we considered whether Ernst & Young’s provision of services other than audit services is compatible with maintaining independence of our independent registered public accounting firm. Although we have the sole authority to appoint the independent registered public accounting firm, we continued the long-standing practice of recommending that the Board ask the stockholders at their Annual Meeting to ratify the appointment of Ernst & Young as the Company’s independent registered public accounting firm.

The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing .

Ms. Laura Brege, Chairperson

Dr. Arnold L. Oronsky, Ph.D.

Ms. Peggy V. Phillips

Compensation Committee

Our Compensation Committee is composed of three directors: Ms. Phillips (Chairperson) and Drs. Kisner and Cano. All members of the Compensation Committee are independent as required by NASDAQ Rule 5605(d) (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards), are “outside directors” for purposes of Section 162(m) of the Code and are “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act.

The Compensation Committee acts on behalf of the Board to review, recommend for adoption, and oversee the Company’s compensation strategy, policies, plans and programs. The Compensation Committee operates under a written charter that is available on the Company’s website at http://investors.dynavax.com/corporate-governance.cfm. Among other things, the charter specifically requires our Compensation Committee to:

 

   

Annually review and approve the Company’s corporate goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of such goals and objectives, and recommend to the Board the CEO’s compensation level based on this evaluation. In determining the long-term incentive component of the CEO’s compensation, the Compensation Committee will consider the Company’s performance and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies, and the awards given to the Company’s CEO in past years;

 

   

annually review and make recommendations to the Board with respect to incentive compensation plans and equity-based plans;

 

   

administer the Company’s incentive-compensation plans and equity-based plans as in effect and as adopted from time to time by the Board provided that the Board shall retain the authority to interpret such plans;

 

   

annually review and approve for the Company’s executive officers as defined in Rule 16a-1(f) of the Exchange Act: i) annual base salary levels; ii) annual incentive compensation levels; iii) long-term incentive compensation levels; and iv) employment agreements, severance agreements, change of control agreements/provisions and any other compensatory arrangements, in each case as, when and if appropriate;

 

   

make regular reports to the Board; and

 

   

perform such other functions and have such other powers consistent with the Compensation Committee Charter, the Company’s Bylaws and governing laws as the Compensation Committee or the Board may deem appropriate.

 

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Under its charter, our Compensation Committee may form, and delegate authority to, subcommittees, as appropriate. Our Compensation Committee has authorized and delegated authority to our CEO to grant stock options to employees and consultants who are not officers of the Company from pre-approved pools and in accordance with guidelines designated for new hire and annual grants. The purpose of this delegation is to enhance the flexibility of option administration within the Company and to facilitate the timely grant of options to non-executive employees, particularly new employees, within specified limits and values approved by our Compensation Committee.

During 2015, our Compensation Committee met seven times to review disclosure and certification requirements regarding executive compensation and to discuss our current compensation practices. During the course of these meetings, we:

 

   

assessed the achievement of corporate goals as they related to executive compensation during the first quarter of the year;

 

   

reviewed and approved corporate and NEO annual goals for the new year in the first quarter;

 

   

reviewed and recommended to the Board annual compensation, cash incentive payment and equity incentive awards for Mr. Gray;

 

   

approved performance and related compensation payments to the Company’s other NEOs, including annual compensation, cash incentive payments and equity incentive awards;

 

   

reviewed and approved a retention program for key employees critical to the approval of HEPLISAV-B and advancing the Company’s oncology program;

 

   

reviewed and approved the share request to be added to the Amended 2011 Plan and updates related to Section 162(m);

 

   

approved an aggregate limit on options subject to grant by Mr. Gray based on approved hiring plans and ranges of grants for prospective hires.

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended December 31, 2015, Ms. Phillips and Drs. Cano and Kisner, each served as a member of the Compensation Committee. None of the members of our Compensation Committee at any time has been one of our officers or employees or an officer or employee of one of our subsidiaries at any time during the fiscal year ended December 31, 2015. None of our executive officers currently serve, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our Board or Compensation Committee.

Nominating and Governance Committee

Our Nominating and Governance Committee is composed of three directors: Drs. Kisner (Chairperson) and Cano, and Mr. Ricciardi. All members of the Nominating and Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards). The Nominating and Governance Committee is responsible for identifying, reviewing and evaluating candidates to serve as directors of the Company (consistent with criteria approved by the Board), reviewing and evaluating incumbent directors and identifying with the CEO candidates for appointment or election to the Board.

In identifying potential director candidates, the Nominating and Governance Committee considers Board candidates through a variety of methods and sources. These include suggestions from current Board members, senior management, stockholders, professional search firms and other sources. At this time, the Nominating and Governance Committee does not have a policy with regard to the consideration of director candidates recommended by stockholders. Our Nominating and Corporate Governance Committee reviews all candidates in the same manner

 

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regardless of the source of the recommendation. In the case of a new director candidate, the Nominating and Governance Committee also determines whether the nominee is independent based upon applicable NASDAQ listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. Among the qualifications to be considered in the selection of candidates are broad experience in business, finance or administration, familiarity with the Company’s industry, and prominence and reputation. Since prominence and reputation in a particular profession or field of endeavor are what bring most persons to the Board’s attention, there is further consideration of whether the individual has the time available to devote to the work of the Board and one or more of its committees. In addition, our Nominating and Governance Committee will consider whether the candidate assists in achieving a mix of members that represents a diversity of backgrounds and experience, including with respect to age, gender, international background, race and specialized experience. Each year, our Nominating and Governance Committee reviews its Board membership criteria and assesses the composition of the Board against the criteria.

The Nominating and Governance Committee discussed committee business a number of times during the year and held one formal meeting. The Nominating and Governance Committee has adopted a written charter that is available to stockholders on the Company’s website at http://investors.dynavax.com/corporate-governance.cfm.

S TOCKHOLDER C OMMUNICATIONS W ITH T HE B OARD O F D IRECTORS

Stockholders may communicate with our Board by directing comments, concerns, and questions to the Corporate Secretary at Dynavax Technologies Corporation, 2929 Seventh Street, Suite 100, Berkeley, California 94710. Communications will be distributed to the Board, or to any individual directors as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, our Board has requested that certain items that are unrelated to the duties and responsibilities of the Board be filtered, including product complaints or inquiries, new product suggestions, résumés and other forms of job inquiries, surveys, or business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that any communication that is filtered out must be made available to any non-employee director upon request. Stockholders may also communicate with our Board as a group through our website at http://investors.dynavax.com/contactBoard.cfm. All communications directed to the Audit Committee in accordance with our whistleblower policy that relate to questionable accounting or auditing matters involving the Company will be promptly and directly forwarded to the chairperson of the Audit Committee. Every effort has been made to ensure that the views of stockholders are heard by the Board or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner. We believe our responsiveness to stockholder communications to the Board has been excellent.

 

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CERTAIN TRANSACTIONS

There has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeds $120,000 and in which any current director, executive officer, holder of more than 5% of our common stock or any immediate family member of any of the foregoing persons had or will have a direct or indirect material interest other than compensation arrangements, described under the sections entitled “Executive Compensation” and “Compensation of Directors,” other than with respect to the indemnification agreements described below, and as described below under “Participation in Public Offering.”

Certain Transactions With or Involving Related Persons

Participation in Public Offering

On July 28, 2015, we completed an underwritten public offering of 5,227,273 shares of our common stock at a price to the public of $27.50 per share. Net cash proceeds from the public offering were approximately $135 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Based on information provided to us, Federated Investors, Inc., which beneficially own more than 5% of our outstanding common stock, purchased 100,000 shares in the public offering from the underwriters for a total purchase price of $2.8 million (based on the price to the public of $27.50 per share). To our knowledge, no other holder of 5% or more of our outstanding common stock participated in the offering. None of our directors or executive officers participated in the offering, nor did any of such persons have a direct or indirect material interest in the offering. Since this offering was public, with the price to the public in the offering determined by a book building process with the underwriters, the offering was not specifically reviewed in advance as a related-party transaction. However, the offering was approved by our Board and a Pricing Committee of our Board, and consistent with our Audit Committee charter, the Audit Committee subsequently reviewed the offering.

Indemnity Agreements

We have entered into indemnity agreements with some of our officers and directors which provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware law.

Policies and Procedures

Our Audit Committee is responsible for reviewing and approving all related party transactions, which would include a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000, not including transactions involving compensation for services provided to Dynavax as an employee, director, consultant or similar capacity by a related person. Related parties include any of our directors or executive officers, certain of our stockholders and their immediate family members. This obligation is set forth in writing in the Audit Committee charter. A copy of the Audit Committee charter is available on our website at www.dynavax.com in the Investor Relations section under “Corporate Governance.”

Where a transaction has been identified as a related-person transaction, management would present information regarding the proposed related-person transaction to the Audit Committee (or, where Audit Committee approval would be inappropriate, to another independent body of the Board) for consideration and approval or ratification. The presentation would include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to Dynavax of the transaction and whether any alternative transactions were available. To identify related-person transactions in advance, the Audit Committee relies on information

 

75


supplied by our executive officers and directors. In considering related-person transactions, the Audit Committee takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs and benefits to Dynavax, (b) the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (c) the terms of the transaction, (d) the availability of other sources for comparable services or products and (e) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. In determining whether to approve, ratify or reject a related-person transaction, the Audit Committee considers, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of Dynavax and our stockholders, as the Audit Committee determines in the good faith exercise of its discretion.

S ECTION 16( A ) B ENEFICIAL O WNERSHIP R EPORTING C OMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater-than-ten-percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2015, such SEC filing requirements were satisfied.

C ODE O F B USINESS C ONDUCT A ND E THICS

We have adopted the Dynavax Code of Business Conduct and Ethics that applies to all officers, directors and employees. Our Code of Business Conduct and Ethics is available upon written request. We will provide a written copy of the Dynavax Code of Business Conduct and Ethics to anyone without charge, upon request written to Dynavax Technologies Corporation, Attention: Chief Compliance Officer, 2929 Seventh Street, Suite 100, Berkeley, California 94710-2753, (510) 848-5100. If we make any substantive amendments to or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. There have been no waivers under the Code of Business Conduct and Ethics as of April 6, 2016.

 

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SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of the Company’s common stock as of January 29, 2016 by: (i) each director and nominee for director; (ii) the NEOs; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its common stock.

 

Name and Address of Beneficial Holder

   Number of
Shares (2)
     Percent of Shares
Beneficially
Owned (3)
 

5% Stockholders:

     

BlackRock, Inc. (4)

     2,240,598         5.83

40 East 52nd Street

     

New York, New York 10022

     

Federated Investors, Inc. (5)

     2,977,629         7.74

Federated Investors Tower

     

Pittsburgh, Pennsylvania 15222-3779

     

FMR, LLC (6)

     2,636,982         6.86

245 Summer Street

     

Boston, Massachusetts 02210

     

OrbiMed Advisors LLC (7)

     2,472,200         6.43

601 Lexington Avenue, 54th Floor

     

New York, NY 10022

     

NEOs and Directors (1)

             

Eddie Gray (8)

     282,188         *   

Michael S. Ostrach (9)

     134,120         *   

Robert L. Coffman, Ph.D. (10)

     115,933         *   

Robert Janssen, M.D. (11)

     50,221         *   

David F. Novack (12)

     55,001         *   

Arnold L. Oronsky, Ph.D. (13)

     48,756         *   

Laura Brege (14)

     500         *   

Francis R. Cano, Ph.D. (15)

     14,950         *   

Dennis A. Carson, M.D. (16)

     18,062         *   

Daniel L. Kisner, M.D. (17)

     9,250         *   

Peggy V. Phillips (18)

     25,802         *   

Stanley A. Plotkin, M.D. (19)

     11,250         *   

Natale Ricciardi (20)

     2,750         *   

All executive officers and directors as a group (13 persons) (21)

     768,783         2.00

 

* Less than one percent.

 

(1)  

The address of each of the NEOs and directors is c/o Dynavax Technologies Corporation, 2929 Seventh Street, Suite 100, Berkeley, California 94710.

 

(2)  

To our knowledge, except as set forth in the footnotes to this table, and subject to applicable community property laws, each person named in this table has sole voting and investment power with respect to the shares set forth opposite such person’s name.

 

(3)  

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the securities. Shares of our common stock subject to options currently exercisable or that will become exercisable within 60 days after January 29, 2016, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of any other person. Applicable percentages are based on 38,459,964 shares of our common stock outstanding as of January 29, 2016, adjusted as required by the rules of the SEC.

 

(4)  

This information is based solely on a Schedule 13G/A filed by BlackRock, Inc., on January 26, 2016, with the SEC. BlackRock beneficially owns and has sole dispositive power over 2,240,598 shares of common stock, of which 2,154,041 are held with sole voting power. The

 

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  address of the principal business and office of BlackRock, Inc. and its affiliates is BlackRock Inc., 40 East 52nd Street, New York, NY 10022. The Schedule 13G/A provides information only as of December 31, 2015, and, consequently, the beneficial ownership of the above-mentioned reporting person may have changed between December 31, 2015 and January 29, 2016.

 

(5)  

This information is based solely on a Schedule 13G/A filed by Federated Investors, Inc., on February 11, 2016, with the SEC. Federated Investors, Inc. (the “Parent”) is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated Global Investment Management Corp. (the “Investment Advisers”), which act as investment advisers to registered investment companies and separate accounts that own shares of common stock. The Investment Advisers are wholly owned subsidiaries of FII Holdings, Inc., which is wholly owned subsidiary of the Parent. All of the Parent’s outstanding voting stock is held in the Voting Shares Irrevocable Trust (the “Trust”) for which John F. Donahue, Rhodora J. Donahue and J. Christopher Donahue act as trustees (collectively, the “Trustees”). The Parent and the Trust each have sole voting power over all 2,977,629 shares of common stock. The Trustees have joined in filing the Schedule 13G because of the collective voting control that they exercise over the Parent. In accordance with Rule 13d-4 under the Securities Act of 1934, as amended, the Parent, the Trust, and each of the Trustees declare that this statement should not be construed as an admission that they are the beneficial owners, and the Parent, the Trust, and each of the Trustees expressly disclaim beneficial ownership. The address of the principal business and office of Federated Investors, Inc. and its affiliates is Federated Investors Towers, Pittsburgh, PA 15222-3779. The Schedule 13G/A provides information only as of December 31, 2015, and, consequently, the beneficial ownership of the above-mentioned reporting person may have changed between December 31, 2015 and January 29, 2016.

 

(6)  

This information is based solely on a Schedule 13G filed by FMR, LLC, on February 12, 2016, with the SEC. FMR, LLC beneficially owns and has sole dispositive power over 2,636,982 shares of common stock, of which 500 are held with sole voting power. Abigail P. Johnson, is a Director, the Vice Chairman, the Chief Executive Officer and President of FMR, LLC. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR, LLC, representing 49% of the voting power of FMR, LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR, LLC. Neither FMR, LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (“Fidelity Funds”) advised by Fidelity Management & Research Company, a wholly owned subsidiary of FMR, LLC, which power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Management & Research Company carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees. The address of the principal business and office of FMR, LLC. and its affiliates is, 245 Summer Street, Boston, Massachusetts 02210. The Schedule 13G provides information only as of December 31, 2015, and, consequently, the beneficial ownership of the above-mentioned reporting person may have changed between December 31, 2015 and January 29, 2016.

 

(7)  

This information is based solely on a Schedule 13G filed by OrbiMed Advisors, LLC, on February 16, 2016, with the SEC. OrbiMed Advisors, LLC beneficially owns and has shared dispositive power over 770,800 shares of common stock. OrbiMed Capital, LLC beneficially owns and has shared dispositive power over 1,701,400 shares of common stock. Samuel D. Isaly, as the managing member of OrbiMed Advisors, LLC and OrbiMed Capital, LLC, beneficially owns and has shared dispositive power over 2,472,200 shares of common stock. The address of the principal business and office of OrbiMed Advisors LLC. and its affiliates is, 601 Lexington Avenue, 54th Floor, New York, NY 10022. The Schedule 13G provides information only as of December 31, 2015, and, consequently, the beneficial ownership of the above-mentioned reporting person may have changed between December 31, 2015 and January 29, 2016.

 

(8)  

Consists of 2,500 shares of common stock owned directly by Mr. Gray and options to purchase 279,688 shares of common stock exercisable within 60 days of January 29, 2016.

 

(9)  

Consists of 8,772 shares of common stock owned directly by Mr. Ostrach and options to purchase 125,348 shares of common stock exercisable within 60 days of January 29, 2016.

 

(10)  

Consists of 6,308 shares of common stock owned directly by Dr. Coffman and options to purchase 109,625 shares of common stock exercisable within 60 days of January 29, 2016.

 

(11)  

Consists of 3,596 shares of common stock owned directly by Dr. Janssen, 948 of which were purchased through the employee stock purchase plan; and options to purchase 46,625 shares of common stock exercisable within 60 days of January 29, 2016.

 

(12)  

Consists of 1,510 shares of common stock owned directly by Mr. Novack, 1,060 of which were purchased through the employee stock purchase plan; and options to purchase 53,491 shares of common stock exercisable within 60 days of January 29, 2016.

 

(13)  

Consists of 37,506 shares of common stock owned directly by Dr. Oronsky and options to purchase 11,250 shares of common stock exercisable within 60 days of January 29, 2016.

 

(14)  

Consists of options to purchase 500 shares of common stock exercisable within 60 days of January 29, 2016.

 

(15)  

Consists of 6,200 shares of common stock owned directly by Dr. Cano and options to purchase 8,750 shares of common stock exercisable within 60 days of January 29, 2016.

 

(16)  

Consists of 6,812 shares of common stock owned directly by Dr. Carson and options to purchase 11,250 shares of common stock exercisable within 60 days of January 29, 2016.

 

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(17)  

Consists of 1,500 shares of common stock owned directly by Dr. Kisner and options to purchase 7,750 shares of common stock exercisable within 60 days of January 29, 2016.

 

(18)  

Consists of 13,802 shares of common stock owned directly by Ms. Phillips and options to purchase 12,000 shares of common stock exercisable within 60 days of January 29, 2016.

 

(19)  

Consists of 1,000 shares of common stock owned directly by Dr. Plotkin and options to purchase 10,250 shares of common stock exercisable within 60 days of January 29, 2016.

 

(20)  

Consists of options to purchase 2,750 shares of common stock exercisable within 60 days of January 29, 2016.

 

(21)  

Total number of shares includes 89,506 shares of common stock in aggregate held as of January 29, 2016, by our executive officers and directors and entities affiliated with such executive officers and directors. Also includes options to purchase 679,277 shares of common stock exercisable within 60 days of January 29, 2016.

P ERFORMANCE G RAPH

The chart below compares total stockholder return on an investment of $100 in cash on December 31, 2010, for: our common stock, The NASDAQ Stock Market (U.S. companies), and the NASDAQ Pharmaceutical Preparation Index. All values assume reinvestment of the full amount of all dividends.

Note: Dynavax management cautions that the stock price performance shown in the graph below should not be considered indicative of potential future stock price performance.

 

 

LOGO

 

This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of Dynavax Technologies Corporation under the Securities Act, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

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OTHER MATTERS

The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

 

By Order of the Board of Directors
/s/ Michael S. Ostrach

Michael S. Ostrach

Secretary

April 22, 2016

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, is available without charge upon written request to: Dynavax Technologies Corporation, Attention: Corporate Secretary, 2929 Seventh Street, Suite 100, Berkeley, California 94710.

 

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Appendix A

D YNAVAX T ECHNOLOGIES C ORPORATION

2011 E QUITY I NCENTIVE P LAN

A DOPTED BY THE B OARD OF D IRECTORS : N OVEMBER  12, 2010

A PPROVED BY THE S TOCKHOLDERS : J ANUARY  5, 2011

A MENDED AND R ESTATED BY THE B OARD OF D IRECTORS : A PRIL  10, 2013

A PPROVED BY THE S TOCKHOLDERS : M AY  29, 2013

A MENDED AND R ESTATED BY THE C OMPENSATION C OMMITTEE : A PRIL  16, 2015

A PPROVED BY THE S TOCKHOLDERS : M AY  27, 2015

A MENDED AND R ESTATED BY THE B OARD OF D IRECTORS : A PRIL 22, 2016

A PPROVED BY THE S TOCKHOLDERS : [            , 2016]

T ERMINATION D ATE : N OVEMBER  11, 2020

 

1. G ENERAL .

(a) Successor to and Continuation of Prior Plans. The Plan is intended as the successor to and continuation of the Dynavax Technologies Corporation 2004 Stock Incentive Plan (the “ 2004 Plan ”), the Dynavax Technologies Corporation 2010 Employment Inducement Award Plan (the “ 2010 Inducement Plan ”), and the Dynavax Technologies Corporation 1997 Equity Incentive Plan (the “ 1997 Plan ,” and together with the 2004 Plan and the 2010 Inducement Plan, the “ Prior Plans ”). Following the Effective Date, no additional stock awards shall be granted under the Prior Plans. Any available shares that, as of the Effective Date, are reserved under the Prior Plans but not subject to stock awards that have been granted under the Prior Plans as of the Effective Date, less any shares that may be added to the 2004 Plan share reserve on the first business day in 2011 by operation of the evergreen provision in Section 3(a) of the 2004 Plan (such number of available shares, the “ Prior Plans’ Available Reserve ”) shall become available for issuance pursu