Dynavax Technologies Corporation
DYNAVAX TECHNOLOGIES CORP (Form: PRE 14A, Received: 04/11/2017 16:11:22)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.         )

 

 

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DYNAVAX TECHNOLOGIES CORPORATION

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DYNAVAX TECHNOLOGIES CORPORATION

2929 Seventh Street, Suite 100

Berkeley, California 94710

NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS

May 31, 2017

Dear Stockholder:

You are cordially invited to attend the 2017 Annual Meeting of Stockholders of Dynavax Technologies Corporation, a Delaware corporation, or the Company. The meeting will be held on May 31, 2017, 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 II directors to hold office until the 2020 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 1,600,000.

 

  3. To approve an amendment to the Company’s Sixth Amended and Restated Certificate of Incorporation, as amended, to increase the authorized number of shares of common stock from 69,500,000 to 139,000,000.

 

  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 indicate, on an advisory basis, the preferred frequency of stockholder advisory votes on the compensation of the Company’s named executive officers.

 

  6. 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, 2017.

 

  7. 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 2017 Annual Meeting is April 6, 2017. 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, 2017 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
   
Steven N. Gersten
Secretary

Berkeley, California

April    , 2017

 

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 2017 ANNUAL MEETING OF STOCKHOLDERS

May 31, 2017

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 2017 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, 2017, 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, 2017 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, 2017, 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, 2017, will be entitled to vote at the Annual Meeting. On this record date, there were 46,255,134 shares of common stock outstanding and entitled to vote.

Stockholder of Record: Shares Registered in Your Name

If on April 6, 2017, 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, 2017, 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 six proposals:

 

1. To elect our nominees for Class II directors to hold office until the 2020 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 “Amended 2011 Plan”) to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the Amended 2011 Plan by 1,600,000.

 

3. To approve an amendment to the Company’s Sixth Amended and Restated Certificate of Incorporation, as amended (the “Charter”), to increase the authorized number of shares of common stock from 69,500,000 to 139,000,000.

 

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

 

5. To indicate, on an advisory basis, the preferred frequency of stockholder advisory votes on the compensation of the Company’s named executive officers.

 

6. 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, 2017.

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, 2017.

 

   

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, 2017.

 

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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, 2017.

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 applicable stock exchange 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, 4 or 5 without your instructions, but may vote your shares on Proposal 6.

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 II directors.

 

  2. Proposal 2: “For” the approval of an amendment and restatement of the Amended 2011 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the Amended 2011 Plan by 1,600,000;

 

  3. Proposal 3: “For” the approval of an amendment to the Company’s Charter to increase the authorized number of shares of common stock from 69,500,000 to 139,000,000;

 

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

 

  5. Proposal 5: “For” one year as the preferred frequency of advisory votes to approve executive compensation; and

 

  6. Proposal 6: “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, 2017.

 

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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, 2017 to Dynavax Technologies Corporation, Attention: Corporate Secretary, 2929 Seventh Street, Suite 100, Berkeley, California 94710. However, if our 2018 Annual Meeting of Stockholders is not held between May 1, 2018, and June 30, 2018, 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 (including a director nomination) 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, 2018, and no earlier than March 2, 2018. However, if our 2017 Annual Meeting of Stockholders is not held between May 1, 2018, and June 30, 2018, then you must submit your proposal (or director nomination) not less than 60 days nor more than 90 days prior to the time we send our proxy materials.

How many votes are needed to approve each proposal?

 

   

Proposal 1, to elect our nominees for Class II 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 53 of this proxy statement.

 

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Proposal 2, to amend and restate the Amended 2011 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the plan by 1,600,000, 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 3, to amend the Company’s Charter to increase the authorized number of shares of common stock from 69,500,000 to 139,000,000, must receive “For” votes from the holders, either in person or by proxy, of a majority of the outstanding shares. If you return your proxy and select “Abstain,” it will have the same effect as an “Against” vote. Broker non-votes will have the same effect as “Against” votes.

 

   

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, the advisory vote on the frequency of stockholder advisory votes on executive compensation, the frequency receiving the votes from the holders of a majority of shares present and cast either in person or by proxy at the meeting will be considered the frequency preferred by the stockholders. If you “Abstain” from voting, your abstention will be counted towards the vote total, but will not be counted as a vote in favor of any of the frequency options, and thus will have the effect of reducing the likelihood that any frequency receives a majority vote. Broker non-votes will have no effect.

 

   

Proposal 6, to ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for our fiscal year ending December 31, 2017, 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 6 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 46,255,134 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 2017 proxy statement and 2016 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 2017: Daniel L. Kisner, M.D., Natale (“Nat”) Ricciardi and Stanley A. Plotkin, M.D., each of whom is a nominee for director and currently a director of the Company. Dr. Kisner, Mr. Ricciardi and Dr. Plotkin were previously elected by the stockholders in 2014. If each nominee is elected at the Annual Meeting, each of these nominees will serve until the 2020 Annual Meeting and until his successor is elected and has qualified, or, if sooner, until the director’s death, resignation or removal. There were 7 directors in attendance at our 2016 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, 2017, 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.

     76      Chairperson of the Board

Francis R. Cano, Ph.D.

     72      Director

Dennis A. Carson, M.D.

     70      Director

Laura Brege

     59      Director

Eddie Gray

     58      Chief Executive Officer (“CEO”) and Director

Daniel L. Kisner, M.D.

     70      Director

Peggy V. Phillips

     63      Director

Stanley A. Plotkin, M.D.

     84      Director

Natale Ricciardi

     68      Director

 

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C LASS II D IRECTORS N OMINEES

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, Nativis Inc., a medical device 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 and qualifies him to be nominated as a director. 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 is currently a member of the board of directors of Asterias Biotherapeutics, Inc., a biotechnology company, Rapid Micro Biosystems, Inc., a healthcare environmental technology company, and Prestige Brands Holdings, Inc., a healthcare and household product company. Mr. Ricciardi also serves as a member of the board of directors of the 21st Century Foundation of The City College of New York and as a member of the Advisory Board of HealthCare Royalty Partners. 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 and qualifies him to be nominated as a director. 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 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 and qualifies him to be nominated as a director. Dr. Plotkin’s career included an

 

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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. Dr. Plotkin received the Bruce Medal in Preventive Medicine of the American College of Physicians, the Distinguished Physician Award of the Pediatric Infectious Diseases Society, the Clinical Virology Award of the Pan American Society for Clinical Virology, the Richard Day Master Teacher in Pediatrics Award of the Alumni Association of New York Downstate Medical College, and the Marshall Award of the European Society for Pediatric Diseases. In June 1998, he received the French Legion of Honor Medial; in June 2001, the Distinguished Alumnus Award of the Children’s Hospital of Philadelphia; in September 2006, the gold medal from the same hospital; in May 2002, the Sabin Gold Medal; in September 2004, the Fleming (Bristol) Award of the Infectious Diseases Society of America; in May 2007, the Medal of the Fondation Mérieux; and in 2009, the Finland Award of the National Foundation for Infectious Diseases and the Hilleman Award of the American Society for Microbiology. He was elected to the Institute of Medicine of the National Academy of Sciences in 2005 and to the French Academy of Medicine in 2007. Dr. Plotkin holds honorary doctoral degrees from the University of Rouen (France) and the Complutense University of Madrid (Spain). Named lectures in his honor have been established at the Pediatric Academic Societies annual meeting and at the International Advanced Vaccinology Course in Annecy, France. His bibliography includes nearly 700 articles and he has edited several books, including the standard textbook on vaccines, now in its 5 th edition. He developed the rubella vaccine now in standard use throughout the world, is codeveloper of the newly licensed pentavalent rotavirus vaccine, and has worked extensively on the development and application of other vaccines, including anthrax, oral polio, rabies, varicella and cytomegalovirus. Dr. Plotkin received a B.A. degree from New York University and an M.D. from the State University of New York Medical School in Brooklyn.

C LASS I D IRECTORS C ONTINUING IN O FFICE U NTIL THE 2019 A NNUAL M EETING

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 serve 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

 

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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 serve 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. and Portola Pharmaceuticals, Inc. 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 and her participation as a member of the audit committees of other public 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 serve on the Company’s Audit Committee. Ms. Brege attended all Board and Audit Committee meetings of the Company and all meetings of the boards and committees on which she sits at other companies during the past year. Ms. Brege earned her undergraduate degrees from Ohio University (Honors Tutorial College) and her MBA degree from the University of Chicago.

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 and qualifies him to serve as a director. He received his Ph.D. from Columbia University, College of Physicians and Surgeons and his A.B. from New York University.

 

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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, including as its 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 and qualifies him to serve as a director. 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 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 and qualifies her to serve as a director. 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

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”.

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 10,343,442 shares, which is an increase of 1,600,000 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) 1.60 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 31, 2016. 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 1.35 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, 2017. 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) 1.35 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, 2017.

 

   

The 2011 Plan contains a minimum vesting requirement for stock options and stock appreciation rights. The Amended 2011 Plan extends such minimum vesting requirement to all types of awards, such that no award granted on or after May 31, 2017 may vest until at least 12 months following the date of grant of such award, except that up to 5% of the share reserve of the Amended 2011 Plan may be subject to awards granted on or after May 31, 2017 that do not meet such vesting requirements.

 

   

The Amended 2011 Plan provides that (i) no dividends or dividend equivalents may be paid with respect to any shares of our common stock subject to an award before the date such shares have vested, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of the applicable award agreement (including any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to us on the date such shares are forfeited to or repurchased by us due to a failure to vest.

Why You Should Vote for the Amended 2011 Plan

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.

 

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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 award granted on or after May 31, 2017 may vest until at least 12 months following the date of grant of such award, except that up to 5% of the share reserve of the Amended 2011 Plan may be subject to awards granted on or after May 31, 2017 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.

 

   

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.

 

   

Restrictions on dividends.     The Amended 2011 Plan provides that (i) no dividends or dividend equivalents may be paid with respect to any shares of our common stock subject to an award before the date such shares have vested, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of the applicable award agreement (including any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to us on the date such shares are forfeited to or repurchased by us due to a failure to vest.

Overhang

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

 

       As of March 31, 2017  

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

     3,669,768  

Weighted-average exercise price of outstanding stock options

   $ 20.49  

Weighted-average remaining term of outstanding stock options

     6.38  

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

     1,877,762  

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

     1,118,268  

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

     —  

 

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       As of April 6, 2017  

Total number of shares of common stock outstanding

     46,255,134  

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

   $ 5.35  

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. In addition, the vesting of some of our equity awards granted to our named executive officers are contingent on meeting pre-defined performance criteria, thereby ensuring alignment with value creation.

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

 

As of December 31

   2016     2015     2014  

Full Dilution (1)

     16.90 %     11.88 %     10.30 %

Gross Burn Rate (2)

     5.90 %     4.18 %     2.80 %

 

(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 Full Dilution percentage increase in 2016 is due to an increase in the aggregate number of shares of common stock authorized for issuance under the Amended 2011 Plan by 3,200,000 shares and equity incentive awards granted to employees in 2016.

The Gross Burn Rate percentage increase in 2016 is due to performance-based equity incentive awards granted to employees, a portion of which terminated without vesting, and an increase in equity incentive awards granted to employees, as compared to 2015, as result of hiring personnel to support the expected commercialization of a product candidate.

The Size of Our Share Reserve Increase Request Is Reasonable

If our request to increase the share reserve of the Amended 2011 Plan by 1,600,000 shares is approved, we will have approximately 2,718,268 shares available for grant after our Annual Meeting, which we anticipate being a maximum of a one-year pool of shares. We anticipate returning to stockholders for additional shares in 2018.

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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Burn Rate

The following table provides detailed information regarding the activity related to our equity incentive plans for fiscal years 2014, 2015 and 2016.

 

      Fiscal Year 2016     Fiscal Year 2015     Fiscal Year 2014  

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

    1,414,262       1,338,661       581,866  

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

    856,258       36,986       155,500  

Weighted-average number of shares of common stock outstanding

    38,505,856       32,881,333       26,289,000  

Burn Rate

    5.90     4.18     2.80

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, 2017, we had approximately 190 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 Internal Revenue Code of 1986, as amended (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-

 

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based awards), calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes.

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 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 10,343,442 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 were approved at our 2016 annual meeting of stockholders, (vi) an additional 1,600,000 shares that are subject to approval by our stockholders under this Proposal 2, and (vii) 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

 

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Amended 2011 Plan on or after May 27, 2015 but prior to May 31, 2016; (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 but prior to May 31, 2017; and (v) 1.35 shares for each share issued pursuant to a Full Value Award granted under the Amended 2011 Plan on or after May 31, 2017.

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; (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 but prior to May 31, 2017; and (v) 1.35 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, 2017.

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 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.

 

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Minimum Vesting Requirements

Under the Amended 2011 Plan, no award granted on or after May 31, 2017 may vest until at least 12 months following the date of grant of such award, except that up to 5% of the share reserve of the Amended 2011 Plan may be subject to awards granted on or after May 31, 2017 that do not meet such vesting requirements.

Dividends and Dividend Equivalents

The Amended 2011 Plan provides that dividends or dividend equivalents may be paid or credited with respect to any shares of our common stock subject to an award, as determined by the Board and contained in the applicable award agreement; provided, however , that (i) no dividends or dividend equivalents may be paid with respect to any such shares before the date such shares have vested, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of the applicable award agreement (including any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to us on the date such shares are forfeited to or repurchased by us due to a failure to vest.

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 (subject to the limitations described in “Minimum Vesting Requirements” above).

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 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, the Board may permit transfer of an option in a manner that is not prohibited by applicable tax and securities laws upon the optionee’s request. In addition, an optionee may designate a beneficiary who may exercise the option following the optionee’s death. Notwithstanding the foregoing, no option may be transferred to any financial institution without prior stockholder approval.

 

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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 (subject to the limitations described in “Minimum Vesting Requirements” above). 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; provided, however , that no restricted stock award may be transferred to any financial institution without prior stockholder approval.

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 (subject to the limitations described in “Minimum Vesting Requirements” above).

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.

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 (subject to the limitations described in “Minimum Vesting Requirements” above).

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.

 

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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 (subject to the limitations described in “Minimum Vesting Requirements” above).

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 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);

 

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(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.

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 (subject to the limitations described in “Minimum Vesting Requirements” above).

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.

 

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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 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.

 

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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 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.

 

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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.

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.

 

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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, 2017.

2011 Equity Incentive Plan

 

Name and Position

   As of
April 6, 2017
Number of Shares
 

Eddie Gray

CEO and Director

     1,288,751  

Michael S. Ostrach

Senior Vice President, Chief Financial Officer and Chief Business Officer

     442,484  

Robert L. Coffman, Ph.D.

Senior Vice President and Chief Scientific Officer

     416,281  

Robert Janssen, M.D.

Vice President and Chief Medical Officer

     346,375  

David F. Novack

Senior Vice President, Operations and Quality

     349,402  

All current executive officers as a group

     2,843,293  

All current directors who are not executive officers as a group

     240,325  

Each nominee for election as a director:

  

Daniel L. Kisner, M.D.

     37,450  

Stanley A. Plotkin, M.D.

     27,250  

Natale Ricciardi

     20,250  

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

     1,288,751  

Michael S. Ostrach

     442,484  

Robert L. Coffman, Ph.D.

     416,281  

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

     4,832,404  

 

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New Plan Benefits under Amended 2011 Plan

 

Name and Position

   Number of Shares  

Eddie Gray

     150,000 (1)  

CEO and Director

  

Michael S. Ostrach

     99,609 (1)  

Senior Vice President, Chief Financial Officer and Chief Business Officer

  

Robert L. Coffman, Ph.D.

     109,405 (1)  

Senior Vice President and Chief Scientific Officer

  

Robert Janssen, M.D.

     93,750 (1)  

Vice President and Chief Medical Officer

  

David F. Novack

     90,527 (1)  

Senior Vice President, Operations and Quality

  

All current executive officers as a group

     543,291 (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

     192,077 (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 2017, our Compensation Committee approved for grant in June 2017 a number of stock options and restricted stock unit awards to certain employees (including our executive officers) under the Amended 2011 Plan subject to stockholder approval of this Proposal 2, and the number of shares subject to each such award, if granted in the form of a restricted stock unit award, is indicated in this table. However, each such individual may instead elect to receive his or her award in the form of a stock option, in which case the number of shares subject to each such stock option will be 1.35 times the number of shares 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 TO THE SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 69,500,000 TO 139,000,000

The Board is requesting stockholder approval of an amendment to the Company’s Sixth Amended and Restated Certificate of Incorporation, as amended (the “Charter”), to increase the authorized number of the Company’s shares of common stock from 69,500,000 to 139,000,000 shares (the “Charter Amendment”). This description is qualified by the full text of the Charter Amendment that is attached as Appendix B to this proxy statement.

The additional common stock to be authorized by adoption of the amendment would have rights identical to the currently outstanding common stock of the Company. Stockholders have no preemptive rights to acquire shares of common stock issued by the Company under its Charter. This means that current stockholders do not have a prior right to purchase any new issue of our capital stock in order to maintain their proportionate ownership of common stock. Adoption of the proposed amendment and issuance of the common stock would not affect the rights of the holders of currently outstanding common stock of the Company, except for effects incidental to increasing the number of shares of the Company’s common stock outstanding, such as dilution of the earnings per share and voting rights of current holders of common stock. The issuance of additional shares of our common stock, or the perception that additional shares may be issued, may adversely affect the market price of our common stock. The additional shares of common stock authorized by the approval of this Proposal 3 could be issued by our Board without further vote of our stockholders except as may be required in particular cases by our Restated Certificate of Incorporation, applicable law, regulatory agencies or the rules of the NASDAQ Stock Market.

In addition to the 46,255,134 shares of common stock outstanding on April 6, 2017, there were:

 

   

140,946 shares of common stock reserved for future issuance under the Company’s 2004 Stock Incentive Plan;

 

   

12,450 shares of common stock reserved for future issuance under the Company’s 2010 Employment Inducement Plan;

 

   

1,118,268 shares of common stock reserved for future issuance under the Company’s Amended 2011 Plan, which may be further amended upon approval of Proposal 2; and

 

   

137,865 shares of common stock reserved for future issuance under the Company’s Amended and Restated 2014 Employee Stock Purchase Plan.

 

   

4,995,320 shares of common stock reserved for future issuance under the Company’s 2015 At Market Issuance Sales Agreement with Cowen and Company, LLC.

Additionally, as of April 6, 2017, no shares of preferred stock were outstanding.

We have financed our operations and internal growth primarily through public offerings and private placements of our common stock and funding from collaborations and government grants. We do not currently have any commitments for future external funding and, until we can generate a sufficient amount of product revenue, which we may never do, we expect to finance future cash needs through one or more of the following: public or private equity offerings; debt financings; collaboration and licensing arrangements, which often involve the possibility of an equity investment; and interest income earned on the investment of our cash and short-term investments.

Although the Board has no immediate plans to issue the additional shares of common stock it desires to have the shares available to provide additional flexibility to use its common stock for business and financial purposes in the future as well to have sufficient shares available to provide appropriate equity incentives for our employees. The additional shares may be used for various purposes without further stockholder approval. These purposes may include raising capital; providing equity incentives to employees, officers, directors, consultants and/or advisors;

 

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establishing strategic relationships with other companies; expanding our business through the acquisition of other businesses, products or technologies; and other purposes. For example, we will need to raise substantial additional funds to, among other things, finance our operations, clinical trials and the initial commercial activities for our lead product HEPLISAV-B, if it is approved. Thus, we will need to obtain significant amounts of additional capital and the additional shares may be used for a financing if we have an appropriate opportunity. Although we may pursue other sources of funding, such as corporate collaborations and partnerships, if we are not successful with these efforts or if our Board otherwise determines that a financing through issuing additional shares is attractive, we want to be in a position to act quickly depending on market conditions. If this Proposal 3 is not approved by our stockholders, it is possible that financing alternatives for the Company may be limited by the lack of sufficient unissued and unreserved authorized shares of common stock, and stockholder value may be harmed by this limitation. In addition, our success depends in part on our continued ability to attract, retain and motivate highly qualified management and clinical and scientific personnel, and if this Proposal 3 is not approved by our stockholders, the lack of sufficient unissued and unreserved authorized shares of common stock to provide future equity incentive opportunities the Compensation Committee of our Board deems appropriate could adversely impact our ability to achieve these goals.

If our stockholders do not approve this Proposal 3, we may not be able to access the capital markets; complete corporate collaborations or partnerships; attract, retain and motivate employees; or pursue other business opportunities integral to our growth and success.

Our Board believes that the proposed increase in authorized common stock will make sufficient shares available to provide the additional flexibility necessary to pursue our strategic objectives. Over the past several years, flexibility has allowed us to pursue a number of strategic and financing transactions. For example, in 2015, we issued an aggregate of 7,352,712 shares of our common stock in an underwritten public offering and through an At The Market Agreement for gross proceeds of approximately $194 million to fund clinical development and other research and development activities and for working capital and general corporate purposes. In the first quarter of 2017, we sold 6,697,568 shares of our common stock through an At The Market Agreement for gross proceeds of approximately $30 million. Unless our stockholders approve this Proposal 3, we will not have sufficient unissued and unreserved authorized shares of common stock to engage in similar transactions or to meet exigent needs to implement new or revised equity compensation arrangements in the future.

The additional common stock to be authorized by stockholder approval of this Proposal 3 would have rights identical to the currently outstanding shares of our common stock. Approval of this Proposal 3 and issuance of the additional authorized shares of common stock would not affect the rights of the holders of currently outstanding shares of our common stock, except for effects incidental to increasing the number of shares of our common stock outstanding, such as dilution of any earnings per share and voting rights of current holders of common stock. Under our Amended and Restated Certificate of Incorporation, stockholders do not have preemptive rights to subscribe to additional securities that may be issued by the Company, which means that current stockholders do not have a prior right thereunder to purchase any new issue of common stock in order to maintain their proportionate ownership interests in the Company.

The proposed amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock could, under certain circumstances, have an anti-takeover effect. The additional shares of common stock that would become available for issuance if this Proposal 3 is approved could also be used by us to oppose a hostile takeover attempt or to delay or prevent changes in control or our management of the Company. For example, pursuant to our current Rights Agreement, dated November 5, 2008, between the Company and Mellon Investor Services LLC under certain circumstances related to an acquisition of shares via a tender or exchange offer whereby a person becomes the beneficial owner of 20% or more of our common stock in a transaction not approved by the Board, Preferred Shares could be issued to our current stockholders upon the exercise of the Rights. Additionally, without further stockholder approval, the Board could strategically sell shares of common stock in a private transaction to purchasers who would oppose a takeover or favor the current Board. Although this proposal to increase the authorized common stock has been prompted by business and financial

 

29


considerations and not by the threat of any hostile takeover attempt (nor is the Board currently aware of any such attempts directed at us), nevertheless, stockholders should be aware that approval of this Proposal 3 could facilitate future efforts by us to deter or prevent changes in control of the Company, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices.

If the amendment is adopted, it will become effective upon filing of a Certificate of Amendment of the Company’s Charter with the Secretary of State of the State of Delaware and the newly authorized shares would be available for issuance. No further stockholder authorization would be required prior to the issuance of such shares by the Company, except where stockholder approval is required under Delaware corporate law or NASDAQ rules.

The affirmative vote of the holders, cast either in person or by proxy, of a majority of the outstanding shares will be required to approve this Proposal 3. Abstentions and broker non-votes will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes.

T HE B OARD O F D IRECTORS R ECOMMENDS

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

 

30


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.” 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 2018 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.

 

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PROPOSAL 5

ADVISORY VOTE ON THE FREQUENCY OF SOLICITATION OF

ADVISORY STOCKHOLDER APPROVAL OF EXECUTIVE COMPENSATION

Section 14A of the Exchange Act enables the Company’s stockholders, at least once every six years, to indicate their preference regarding how frequently the Company should solicit a non-binding advisory vote on the compensation of the Company’s named executive officers as disclosed in the Company’s proxy statement. 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 improvements 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, the Company is asking stockholders to indicate whether they would prefer an advisory vote every year, every other year or every three years. Alternatively, stockholders may abstain from casting a vote. For the reasons described below, the Board of Directors recommends that the stockholders select a frequency of one year.

After considering the benefits and consequences of each alternative, the Board of Directors recommends that the advisory vote on the compensation of the Company’s named executive officers be submitted to the stockholders once every one year. The Board of Directors believes that an annual advisory vote on the compensation of the Company’s named executive officers is the best approach for the Company. In formulating its recommendation, the Board of Directors considered that an annual advisory vote on executive compensation will allow stockholders to provide direct input on the Company’s compensation philosophy, policies and practices every year. Additionally, an annual advisory vote on executive compensation is consistent with the Company’s policy of seeking input from, and engaging in discussions with, its stockholders on executive compensation and corporate governance matters.

Accordingly, the Board is asking stockholders to indicate their preferred voting frequency by voting for one, two or three years or abstaining from voting on this proposal. The alternative among one year, two years or three years that receives the votes 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 deemed to be the frequency preferred by the stockholders and will be the alternative selected in the following resolution to be submitted to the stockholders for a vote at the annual meeting:

“RESOLVED, that the frequency of every [one year][two years][three years] is hereby APPROVED as the frequency preferred by stockholders for the solicitation of advisory stockholder approval of the compensation paid to the Company’s named executive officers.”

While the Board of Directors believes that its recommendation is appropriate at this time, the stockholders are not voting to approve or disapprove that recommendation, but are instead asked to indicate their preferences, on an advisory basis, as to whether the non-binding advisory vote on the approval of the Company’s executive officer compensation practices should be held every year, every other year or every three years. The option among those choices that receives the votes 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 deemed to be the frequency preferred by the stockholders.

The Board of Directors and the Compensation Committee value the opinions of the stockholders in this matter and, to the extent there is any significant vote in favor of one frequency over the other options, even if less than a majority, the Board of Directors will consider the stockholders’ concerns and evaluate any appropriate next steps. However, because this vote is advisory and, therefore, not binding on the Board of Directors or the Company, the Board of Directors may decide that it is in the best interests of the stockholders that the Company hold an advisory vote on executive compensation more or less frequently than the option preferred by the stockholders. The vote will not be construed to create or imply any change or addition to the fiduciary duties of the Company or the Board of Directors.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F “O NE Y EAR ” O N P ROPOSAL 5.

 

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PROPOSAL 6

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, 2017. 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 6 is considered a “routine” matter, and therefore no broker non-votes are expected to exist in connection with this Proposal 6.

T HE B OARD O F D IRECTORS R ECOMMENDS

A V OTE I N F AVOR O F P ROPOSAL 6.

A UDIT F EES

In connection with the audit of our 2016 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, 2016 and 2015 by Ernst & Young, our principal auditors. The Audit Committee pre-approved all service fees described below.

 

     Fiscal Year Ended  
     2016      2015  

Audit Fees (1)

   $ 1,300,804    $ 1,095,234  

Audit Related Fees

     —        —  

Tax Fees (2)

     —        —  

All Other Fees (3)

     1,995      1,995  
  

 

 

    

 

 

 

Total Fees

   $ 1,302,799    $ 1,097,229  
  

 

 

    

 

 

 

 

(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 2016 and 2015, 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

 

33


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, 2017:

 

Name

   Age     

Position

Eddie Gray (1)

     58      Chief Executive Officer and Director

Michael S. Ostrach

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

Robert L. Coffman, Ph.D.

     70      Senior Vice President and Chief Scientific Officer

Robert Janssen, M.D.

     63      Chief Medical Officer and Vice President, Clinical Development

David F. Novack

     55      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

 

35


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, the 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 received 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 philosophy and practices and provides an overview of the Compensation Committee’s 2016 decisions for the following named executive officers (“NEOs”) whose compensation is set forth in the Summary Compensation Table and other related 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 this Compensation Discussion and Analysis in the following sections:

 

1.        Executive Summary .    Provides an overview of our 2016 and early 2017 corporate performance, certain governance aspects of our executive compensation program and the Compensation Committee’s response to stockholder feedback.

     p. 37  

2.        Executive Compensation Program .    Describes the Company’s executive compensation philosophy and process and the material elements of our executive compensation program.

     p. 40  

3.        2016 Executive Compensation Decisions .    Provides a synopsis of the Compensation Committee’s executive compensation decisions for 2016 and certain actions taken before or after 2016 when doing so enhances the understanding of our executive compensation program.

     p. 44  

4.        Other Executive Compensation Matters .    Reviews the accounting and tax treatment of compensation and the relationship between our compensation program and risk.

     p. 48  

 

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Executive Summary

Business Overview, Corporate Developments in 2016 and Early 2017 and Relationship to Executive Compensation

We are a clinical-stage immunotherapy company focused on leveraging the power of the body’s innate and adaptive immune responses through toll-like receptor (“TLR”) stimulation. Our current product candidates are being investigated for use in multiple cancer indications, as a vaccine for the prevention of hepatitis B and as a disease modifying therapy for asthma. Our lead product candidates are SD-101, an investigational cancer immunotherapeutic in several phase 1/2 studies and HEPLISAV-B, a Phase 3 investigational adult hepatitis B vaccine. Given the nature of our Company, we believe delivery of long term value to our shareholders is the best measure of our performance.

Heading into 2016, we had diversified our portfolio such that our focus for the year was balanced between obtaining U.S. Food and Drug Administration (“FDA”) approval of HEPLISAV-B and advancing our oncology program. As a result of this diversification, we viewed our success in 2016 and beyond as being based on our progress regarding HEPLISAV-B and our oncology program. Thus, we designed our 2016 executive compensation program to reward achievement of the specific related objectives we believed would advance our business strategy and create long-term value for our stockholders. In particular, our 2016 annual incentive program was aligned with our corporate objectives by selecting corporate goals as follows:

 

   

Commercialization goals for HEPLISAV-B were weighted at 35%,

 

   

Objectives specific to advancing our oncology pipeline were weighted at 35%, and

 

   

Quality and other business plan goals that supported advancing our business and portfolio strategies were weighted at 30% together.

Our NEOs were focused on executing our business strategy of transforming the Company into a commercial organization by obtaining FDA approval of HEPLISAV-B and successfully launching it, advancing a robust pipeline of immuno-oncology clinical stage development programs and discovering other cutting edge TLR-based vaccines and immunotherapies.

During 2016 and early 2017, the Company had a number of positive developments, including continued progress in our oncology program, as reflected by encouraging early data. The positive developments regarding oncology coupled with the receipt of a Complete Response Letter from the FDA regarding HEPLISAV-B in late 2016, led us to reshape our business strategy in early 2017 to place greater emphasis on advancing our immuno-oncology program, while maintaining sufficient resources to advance HEPLISAV-B toward an FDA approval decision in 2017. Key events that took place for our Company in 2016 and early 2017 are reflected below. This was against the backdrop of a difficult year for the biotechnology industry, as reflected in a 22% decrease in the NASDAQ Biotechnology Index during 2016.

 

   

On January 4, 2016, our closing stock price was $23.15.

 

   

Following completion of the HBV-23 study for HEPLISAV-B in late 2015, we announced top-line results from that study in January 2016, and prepared our Biologics License Application (“BLA”).

 

   

After-market close on March 30, 2016, we announced that the FDA had accepted for review our BLA for HEPLISAV-B and established September 15, 2016 as the Prescription Drug User Fee Act (“PDUFA”) action date, that is, the deadline by which the FDA would review our application. Our closing stock price on March 31, 2016 was $19.24.

 

   

After-market close on April 18, 2016, we announced encouraging data from Part 1 of our Phase 1/2 lymphoma study (LYM-01). Our LYM-01 study is evaluating our lead immunotherapy product candidate, SD-101, in combination with low-dose radiation in lymphoma patients. The data was presented at the American Association for Cancer Research Annual Meeting. Our closing stock price on April 19, 2016 was $22.74.

 

37


   

On April 27, 2016, we announced that, upon request of the FDA, we had submitted individual trial data sets that had been provided as integrated data in our March 2016 BLA resubmission and that the FDA would need more time to complete its review of our BLA for HEPLISAV-B and had extended the PDUFA action date by three months to December 15, 2016. Our closing stock price on April 27, 2016 was $18.53.

 

   

After-market close on August 5, 2016, we announced that the Vaccines and Related Biological Products Advisory Committee (“VBRPAC”) will review our BLA for HEPLISAV-B at its November 16, 2017 meeting. On August 8, 2016, our closing stock price fell to $15.59.

 

   

After-market close on September 4, 2016, we received notification from the FDA that it had cancelled the scheduled November 16, 2017 VBRPAC meeting to review the BLA for HEPLISAV-B. In discussions that followed between the FDA and Dynavax, the agency communicated decisions to enable compliance with the PDUFA date of December 15, 2016, and remaining questions would be addressed between Dynavax and the review team via the normal process. On September 6, 2016, our closing stock price fell to $14.00.

 

   

On October 9, 2016, we announced the first findings from an ongoing Phase 1/2 study evaluating SD-101, Dynavax’s intratumoral TLR9 agonist, in combination with Keytruda (pembrolizumab), Merck’s anti-PD-1 treatment. Early results evaluating five patients with metastatic melanoma for efficacy and sixteen patients for safety were reported. On October 11, 2016, our closing stock price was $10.48.

 

   

On November 14, 2016, we announced that we received a Complete Response Letter (“CRL”) from the FDA regarding our BLA for HEPLISAV-B. The FDA issues CRLs to communicate that it has competed a review cycle of an application and to request additional information for review and approval. The CRL we received in November 2016 asked for information regarding several topics, acknowledged that the FDA had not yet completed its review of responses received from us in early October 2016 and did not request additional clinical trials. On November 14, 2016, our closing stock price was $4.10.

 

   

On December 5, 2016, we announced clinical data from an ongoing Phase 1/2, two-part clinical trial evaluating intratumoral administration of SD-101 in the treatment of low-grade lymphoma. The combination of intratumoral SD-101 and low-dose irradiation resulted in tumor regression in untreated tumor sites as well as in the treated tumors. Treatment was well tolerated and changes in T cell populations consistent with stimulation of anti-tumor immunity were observed in the treated lesions. These data were presented in a poster session at the 58 th American Society of Hematology (“ASH”) Annual meeting. On December 5, 2016, our closing stock price was $5.15.

 

   

On January 5, 2017, we announced that we were reshaping our strategy and operations to prioritize our emerging clinical and preclinical immuno-oncology portfolio. We implemented significant organizational restructuring and cost reductions to align around our immuno-oncology business, while allowing us to advance HEPLISAV-B through the FDA review process and an approval decision. To achieve these savings, we suspended manufacturing for HEPLISAV-B and reduced our global workforce by 38%, which we estimate will result in approximately a 40% reduction in cash burn. On January 5, 2017, our closing stock price was $4.20.

 

   

After-market close on February 28, 2017, we announced that the FDA had accepted for review our responses to the CRL issued in November 2016 for the BLA for HEPLISAV-B and that the FDA had established August 10, 2017 as the PDUFA action date. On March 1, 2017, our closing stock price was $6.90.

While 2016 was a year of many positives, including the Company having achieved certain commercialization-related activities for approval and launch of HEPLISAV-B (HEPLISAV-B objectives comprised 35% of the corporate goals under our annual cash incentive program), successfully delivered the corporate goals related to advancing our oncology programs (35% of the corporate goals under our annual cash incentive program), and achieved the quality (15% of the corporate goals under our annual cash incentive program) and other business plan goals that supported advancing our business and portfolio strategies (15% of the corporate goals under our annual cash incentive program), our Compensation Committee decided, with support from the NEOs, that it would be

 

38


inappropriate to pay any annual cash incentive compensation bonuses to the NEOs in light of the fact that HEPLISAV-B was not approved and the dramatic decline in our stock price. Therefore, no annual incentive cash awards were paid for 2016 performance. Further, the 2016 performance-based RSUs that were granted to the NEOs terminated without vesting because the vesting was contingent on FDA approval of HEPLISAV-B upon completion of the FDA’s review of the 2016 BLA submission. In addition, none of our NEOs received base salary increases for 2017.

Given the decisions not to pay any 2016 annual cash incentive bonuses and not to increase base salaries together with the Company’s restructuring in early 2017, it was imperative to stabilize the business and retain key talent, including our NEOs, in the organization. Our Compensation Committee determined it was necessary to grant retention equity awards to maintain employee and management continuity while refocusing our strategic activities to prioritize our emerging clinical and preclinical immuno-oncology portfolio while still allowing us to advance HEPLISAV-B through the FDA review process and an approval decision. The provision of retention grants was consistent with feedback we received from shareholders during our outreach efforts regarding the importance of retaining key talent to support the long term success of the Company. To that end, in February 2017, the Compensation Committee determined that it was appropriate to approve special retention grants for certain employees, including our NEOs. The retention grants vest over two years, to link vesting with individuals’ leadership through a critical period for the Company. We view the retention grants to NEOs as a unique, one-time event to meet the needs of our transition and path forward as a business. We continue to carefully evaluate our compensation arrangements to move our company forward and ensure that our pay program aligns our executives’ compensation with our stockholders’ interests and our company performance over the long-term.

Compensation Governance Highlights

 

    

What we do

         

What we do not do

   Design executive compensation program to align pay with performance       No excessive change in control or severance payments (no cash severance multiplier greater than 2x base + target bonus)

   Majority of pay is variable and not guaranteed (over 79% for our Chief Executive Officer in 2016)       No repricing of underwater stock options without stockholder approval

   Prohibit hedging and discourage pledging by executive officers and directors (no pledging in 2016)       No tax gross-ups

   Grant equity awards with performance-based vesting (starting in 2016)       No perquisites

   Conduct an annual say-on-pay vote (starting in 2016)       No guaranteed bonuses

   Seek input from, listen to and respond to stockholders      

Consideration of Our Prior Say-on-Pay Votes 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

 

39


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. In February 2016, as part of a number of corporate governance improvements 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 and therefore we held a say-on-pay vote at our 2016 stockholder annual meeting and at that meeting, over 70% of the shares that were voted on this proposal were cast in favor of our say-on-pay proposal.

As a result of our prior say-on-pay votes and the level of support for the reelection of our Compensation Committee members in 2015, we have continued to solicit feedback from our stockholders regarding our executive compensation program. We consider the stockholder feedback process as being a year round activity. Thus, we obtained feedback from our stockholders throughout the course of the year in 2016, and will do so again in 2017, having already received feedback from several stockholders in 2017. As part of our annual feedback program, we contacted 16 of our largest stockholders in the fall, and we spoke with 100% of the shareholders that wanted to provide us with feedback at that time. The bulk of the shareholders, while appreciating the outreach, did not feel a need to talk in the fall. We also spoke with the two proxy advisory firms and analyzed the reports they issued for our 2016 stockholder annual meeting. Our stockholders commented positively on our use of performance-based equity awards (in some cases acknowledging the difficulty of setting performance goals for companies in the biotechnology industry) and the transparency we provided last year with respect to the corporate and individual goals underlying our annual incentive program. The stockholders also spoke about the importance of retaining management and other key personnel. As a result of the feedback we received, the Compensation Committee decided to again grant 20% of each NEO’s equity compensation in 2017 in the form of a performance-based RSU and to provide retention grants to NEOs and other key employees.

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 .

 

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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 taking into consideration feedback obtained during the course of the year from the independent members of our Board and the CEO’s direct reports. 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 April 2016 and again in February 2017, 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 2016, 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 2016, Arnosti provided advice to the Compensation Committee on several different aspects of its responsibilities related to our compensation programs and practices. Specifically, during 2016, 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;

 

41


   

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.

2016 Peer Group

Our Compensation Committee uses a peer group for a general understanding of market compensation practices and our positioning within the peer group. Our Compensation Committee believes that over-reliance on benchmarking could 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.

Our Compensation Committee does not have a specific target compensation level for the NEOs or otherwise use a formulaic approach to setting pay at a particular positioning within the market data; rather, the Compensation Committee reviews a range of market data reference points of the Company’s peer group (generally at the 25 th , 50 th , 60 th , and 75 th percentiles of the market data) with respect to total target cash compensation (including both base salary and the annual target performance bonus) and equity compensation (valued based on an approximation of grant date fair value and also considered as shares as a percentage of total common shares outstanding) to support its compensation decisions.

In October 2015, 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 included commercialization of HEPLISAV-B and expansion of our pipeline with early clinical development in cancer immunotherapy, our peer group included companies that were:

 

   

both oncology and non-oncology focused,

 

   

companies that had their own manufacturing operations, and

 

   

approximately half of the companies in our 2016 peer group were commercial companies.

The change in our peer group from 2015 to 2016 included removing 17 companies for various reasons including market caps that were out of range, commercial stage, or that the company had been acquired. As of September 2015, which was shortly before the 2016 peer group was approved, the companies in the 2016 peer group had market capitalizations between ranging from $807 million to $7.2 billion and the median market capitalization of our peer group was $1.3 billion. At that time, our market capitalization was $1.1 billion. The following table lists our 2016 peer group.

 

Aduro Biotech, Inc.

   Clovis Oncology, Inc.    ImmunoGen, Inc.    NewLink Genetics Corporation

Anacor Pharmaceuticals, Inc.

   DepoMed Inc.    Juno Therapeutics, Inc.    Novavax, Inc.

Ariad Pharmaceuticals Inc.

   Emergent BioSolutions, Inc.    Kite Pharma, Inc.    Puma Biotechnology, Inc.

Array BioPharma, Inc.

   Epizyme, Inc.    MacroGenics, Inc.    Repligen Corporation

BioCryst Pharmaceuticals, Inc.

   Exelixis, Inc.    Medivation, Inc.    Seattle Genetics Inc.

Celldex Therapeutics, Inc.

   Heron Therapeutics, Inc.    Nektar Therapeutics    Ziopharm Oncology, Inc.

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 primary elements that are designed to reward performance in a simple and straightforward manner—base salaries,

 

42


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 three 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.

 

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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 approval of HEPLISAV-B based on the 2016 BLA submission.
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.”

2016 Executive Compensation Decisions

Total Target Cash Compensation – Base Salaries and Target Bonus Percentages

When determining 2016 base salary and target bonus percentage adjustments, the Compensation Committee considered each individual’s performance and Company performance, each individual’s industry experience and tenure, internal pay equity, and retention concerns. The Compensation Committee also reviewed a range of market data reference points (the 10 th , 25 th , 50 th , 60 th , 75 th and 90 th percentiles of peer group data) with respect to total target cash compensation (including both base salary and the annual target performance bonus).

The Compensation Committee decided that for 2016 each NEO’s target bonus percentage would remain the same as in 2015 (and 2014) and base salaries would be increased as shown in the table below. In determining NEO compensation, the Compensation Committee takes into account peer group data; each NEO’s industry experience, expertise, and tenure with the Company; internal pay equity and the Company’s annual salary budget.

 

Name

   2016 Base
Salary (1)
     % Increase
from Prior
Year
    2016
Target
Bonus
 

Eddie Gray (2)

   $ 600,000        6     60

Michael S. Ostrach

   $ 425,000        9     50

Robert L. Coffman, Ph.D.

   $ 466,796        3     50

Robert Janssen, M.D.

   $ 400,000        8     50

David F. Novack

   $ 386,250        3     50

 

(1)  

The NEOs did not receive base salary increases for 2017. Mr. Gray’s base salary was increased in 2016 to place his total cash compensation at just below the 50 th percentile of the peer group based on 2015 data. Mr. Ostrach was promoted to Senior Vice President in February 2016

 

44


  and his salary increase placed his total cash compensation above the 60 th percentile. Dr. Janssen received a base salary increase to elevate his total cash compensation to the 25 th percentile. Dr. Coffman’s total cash compensation for 2016 was at the 75 th percentile of the peer group. Mr. Novack’s total cash compensation was above the 60 th percentile.

 

(2)  

Mr. Gray’s base salary was approved by the full Board of Directors upon the recommendation of the Compensation Committee.

Long-Term Equity Incentive Awards

In making annual long-term equity incentive awards to NEOs in February 2016, the Compensation Committee considered each NEO’s total options outstanding as of December 31, 2015, his performance during 2015, the potential amount that could be realized at different hypothetical stock prices upon exercise of those awards and each NEO’s percentage of ownership of the Company. The Compensation Committee also reviewed peer group data reference points (the 10 th , 25 th , 50 th , 60 th , 75 th and 90 th percentiles of the market data) with respect to an approximation of grant date fair value and shares as a percentage of total common shares outstanding. The Compensation Committee made final determinations based on its judgment in accordance with our pay-for-performance philosophy and the need to retain and motivate these highly experienced and essential members of our management team.

The Compensation Committee determined to grant approximately 80% of the shares subject to each NEO’s total long-term incentive compensation in the form of a stock option and approximately 20% of the shares subject to each NEO’s total long-term incentive compensation in the form of an RSU with performance-based vesting.

The Compensation Committee believes stock options are appropriate 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. The stock options shown in the table below were granted with an exercise price of $21.99 per share, which was the closing price of our common stock on the grant date in February 2016. Our stock price on the record date was $5.35, meaning that the 2016 stock option grants are significantly underwater. Our NEOs cannot exercise any of the shares subject to these grants and realize any value.

The performance-based RSUs were granted in response to feedback from our stockholders and would vest solely upon the Compensation Committee’s certification of obtaining FDA approval of HEPLISAV-B upon completion of the FDA’s review of the 2016 BLA submission. Because we received a CRL in November 2016 rather than the anticipated approval upon completion of the FDA’s review of our 2016 BLA submission, all shares subject to these awards terminated without vesting.

 

Name

   Shares Subject
to February
2016 Stock
Option Awards
     Shares Subject
to February
2016 Performance-
Based RSU
Awards
 

Eddie Gray

     280,000        70,000  

Michael S. Ostrach

     84,000        21,000  

Robert L. Coffman, Ph.D.

     84,000        21,000  

Robert Janssen, M.D.

     80,000        20,000  

David F. Novack

     64,000        16,000  

As described above, in early 2017, our Compensation Committee approved two equity grants to certain key employees, including our NEOs, in an effort to maintain employee and management continuity while refocusing our strategic activities to prioritize our emerging clinical and preclinical immuno-oncology portfolio while still allowing us to advance HEPLISAV-B through the FDA review process and an approval decision. As noted above, stockholder feedback following receipt of the FDA CRL recognized the importance of retaining the management

 

45


team and other key talent needed to continue advancing our oncology program and thereby drive long-term shareholder value. Specifically, our Compensation Committee considered the following contributions of our NEOs:

 

   

Mr. Gray is vital to the success of our shifted strategic focus given his proven leadership with the Company and his role in redeveloping our corporate strategy to prioritize our emerging clinical and preclinical immuno-oncology portfolio.

 

   

Mr. Ostrach’s experience managing our finance, accounting, business development, intellectual property and investor relations functions is crucial to our business going forward. Our ability to execute on our business plan is contingent on the Company raising the money we need to pursue our strategic plan. Mr. Ostrach has a proven track record in accomplishing this.

 

   

Dr. Coffman’s role in advancing SD-101, DV281 and the other elements of our preclinical immuno-oncology portfolio is critical to our ability to execute our new corporate strategy.

 

   

Dr. Janssen’s experience with HEPLISAV-B, running our clinical trial program, overseeing the design and conduct of new studies for oncology and managing our regulatory team is critical to the success of our business.

 

   

Mr. Novack’s role overseeing an international manufacturing, quality and supply chain organization for HEPLISAV-B and our immuno-oncology portfolio is critical to our ability to execute our corporate strategy.

We view the grants listed below as a unique, one-time event to meet the needs of our transition and path forward as a business.

 

Name

   Shares Subject
to 2017 RSU
Retention Grant (1)
     Shares Subject
to 2017 RSU
Annual Grant (2)
 

Eddie Gray

     300,000        138,750  

Michael S. Ostrach

     199,218        31,875  

Robert L. Coffman, Ph.D.

     218,810        31,875  

Robert Janssen, M.D.

     187,500        31,875  

David F. Novack

     181,054        31,875  

 

(1)  

Half of the retention grants were granted on February 22, 2017. Subject to each individual’s continuous service, 50% of the RSUs subject to this grant will vest on February 22, 2018 and the remainder will vest on February 22, 2019. The other half of the retention grants were approved subject to stockholder approval of an amendment of the 2011 Plan to increase the authorized shares available thereunder. If the stockholders approve the amendment, the grants will be made on June 1, 2017 for half of the shares set forth in the table above or, at the election of the individual, stock options in the amount of 1.35 times the number of RSUs set forth in the table. If an individual does not make an election, the grant will be delivered as a RSU. Subject to each individual’s continuous service, 50% of the shares subject to each Contingent Retention Grant will vest on June 1, 2018 and the remainder will vest on June 1, 2019.

 

(2)  

80% of each of our NEO’s 2017 annual grants were time-based restricted stock unit awards granted on February 22, 2017, subject to each individual’s continuous service, one-third of the RSUs subject to each annual grant will vest on February 22, 2018, one third will vest on February 22, 2019 and the remainder will vest on February 22, 2020. 20% of each of our NEO’s 2017 annual grants were performance-based restricted stock unit awards granted on March 31 2017, vesting upon achievement of certain clinical development objectives.

2016 Annual Incentive Program – Structure, Goals and Payout Decision

Structure .    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 is typically 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 individual goals for the NEOs are in addition to the general responsibilities each officer has for managing his respective functional or operational area.

 

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2016 Corporate Goals .    In early 2016, the Compensation Committee established the corporate and individual goals described below. We are a clinical-stage biopharmaceutical company and so our corporate goals are directly aligned with the specific strategic objectives, including advancing our development programs, that we believe will create long-term value for stockholders.

 

Vaccine Advancement:
Approval of HEPLISAV-B
(35%)
  Advancing Oncology
(35%)
  Quality
(15%)
  Sustaining the
Business Plan
(15%)

• BLA submission

 

• ACIP WG

 

• FDA inspection of manufacturing site and 5 investigator sites

 

• Possible VRBPAC

 

• FDA approval

 

• Launch

 

• SD101 - AACR/ASCO

 

• LYM2 - MEL1 - ESMP - ASH

 

• Lung cancer with inhaled DV281

 

• Liver cancer with DV230- Ficoli

 

• Intratumoral vaccination with linked CpG and antigens

 

• Development of TLR 7/8 agonists for cancer

 

• Oncology R&D day

 

• Incrase awareness through reporting of industry trends in quality/compliance and conduct seminars on topics of interest

 

• Implement GxP policy on risk-managemetn consistent guidance with current FDA/ICH guidance

 

• Implement GxP policy describing requirements for each state of product development

 

• Maintain approximately one year of cash at year end 2016

 

• Increase market cap at least 10 percent points against an appropriate biotech index

 

• Implement reporting and infrastruture compliance systems and to support commercial operations, including ERP, sunshine and financial reporting

 

• Hire/retain key positions/employees to maintain critical patyh programs per timesline

 

• Manage to budget

The terms used, but not defined above, have the following definitions:

 

   

“ACIP WG is the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices Working Group.

 

   

“AACR is the American Association for Cancer Research.

 

   

“ASCO is the American Society of Clinical Oncology.

 

   

“ERP is Enterprise Resource Planning.

Payout Decision – Use of Negative Discretion .    In February 2017, the Compensation Committee decided that it would be inappropriate to pay any annual cash incentive compensation bonuses to our NEOs in light of the dramatic decline in our stock price during 2016 following the CRL for HEPLISAV-B. Although certain corporate goals described above were achieved as well as each NEOs achievement of their individual goals (other than our CEO who had no individual goals), the Compensation Committee did not formally assess the level of achievement of either because it determined that there would be no annual incentive cash awards paid for 2016 performance.

Although the 2016 annual incentive cash bonuses were not paid out, each NEO was successful in hiring the key talent in his respective area to support a commercial organization and/or advance our immuno-oncology portfolio and achieved other individual goals as follows:

Michael Ostrach achieved key goals to enable commercialization of HEPLISAV-B and advance the business:

 

   

Achieved targeted financial goals, including cash balance, expenditure control within budget and availability of financing for HEPLISAV-B potential commercial launch;

 

   

Supervised implementation of Enterprise Resource Planning, information technology infrastructure and financial reporting systems and controls to support potential commercial launch;

 

   

Achieved specific patent licensing objectives to facilitate commercial launch and obtained key US patent on use of a CpG –based Hepatitis B vaccine; and

 

47


   

Provided strategic input to help advance our oncology program.

Robert Coffman’s achievements enabled the Company to achieve oncology related objectives that:

 

   

Will enable advancing a new compound into the clinical in 2017;

 

   

Continued to advance other early programs in preclinical and early clinical development and

 

   

Was a key contributor in enabling presentations of oncology data at key meetings and R&D Day in December 2016.

Robert Janssen’s contributions included advancing both HEPLISAV-B and oncology in the clinic:

 

   

Completion and submission of the HEPLISAV-B BLA in mid-March 2016, which was two weeks earlier than projected, as well as completed preparation for VBRPAC;

 

   

Successfully lead implementation of GCP quality systems in preparation for commercialization;

 

   

Completed dosing in an oncology study and initiated two other oncology clinical studies; and

 

   

Was a key contributor in enabling presentations of data in both HEPLISAV-B and oncology in key meetings as well as R&D Day in December 2016.

David Novack’s achieved key objectives to position the company for commercialization of HEPLISAV-B:

 

   

Completion of CMC sections that enabled submission of the HEPLISAV-B BLA;

 

   

Manufactured and released drug product for HEPLISAV-B launch;

 

   

Completed a number of process improvements and quality systems, which were key activities that enabled a successful FDA inspection at our manufacturing facility; and

 

   

Manufacture of clinical trial supply drugs to complete one and initiate two oncology studies.

Other Executive Compensation Matters

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. NEO 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.

 

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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 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 2017, 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, 2016.

 

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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.

S UMMARY C OMPENSATION T ABLE

The following table shows for the fiscal years ended December 31, 2016, 2015 and 2014, compensation awarded to or paid to, or earned by, NEOs.

 

Name and Principal Position

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

Eddie Gray

     2016      $ 600,000      $ —        $ 2,345,840      $ —        $ 2,000      $ 2,947,840  

CEO and Director

     2015      $ 566,500      $ —        $ 3,004,616      $ 370,491      $ 2,000      $ 3,943,607  
     2014      $ 515,000      $ 855,000      $ 3,564,909      $ 432,600      $ —        $ 5,367,509  

Michael S. Ostrach

     2016      $ 425,000      $ —        $ 703,752      $ —        $ 2,000      $ 1,130,752  

Senior Vice President, Chief
Financial Officer, Chief
Business Officer

     2015      $ 390,000      $ —        $ 1,420,353      $ 228,150      $ 2,000      $ 2,040,503  
     2014      $ 354,152      $ 181,000      $ 425,331      $ 221,345      $ —        $ 1,181,828  
                    

Robert L. Coffman, Ph.D.

     2016      $ 466,796      $ —        $ 703,752      $ —        $ 2,000      $ 1,172,548  

Senior Vice President and
Chief Scientific Officer

     2015      $ 453,200      $ —        $ 1,300,631      $ 253,792      $ 2,000      $ 2,009,623  
     2014      $ 440,000      $ 42,250      $ —        $ 286,000      $ —        $ 768,250  

Robert Janssen, M.D.

     2016      $ 400,000      $ —        $ 670,240      $ —        $ 2,000      $ 1,072,240  

Vice President and
Chief Medical Officer

     2015      $ 369,513      $ —        $ 747,816      $ 206,928      $ 2,000      $ 1,326,257  
     2014      $ 358,750      $ 181,000      $ 283,554      $ 246,641      $ —        $ 1,069,945  

David F. Novack

     2016      $ 386,250      $ —        $ 536,192      $ —        $ 2,000      $ 924,442  

Senior Vice President,
Operations and Quality

     2015      $ 375,000      $ —        $ 1,001,539      $ 210,000      $ 2,000      $ 1,588,539  
     2014      $ 309,000      $ 362,000      $ 346,566      $ 208,575      $ —        $ 1,226,141  

 

(1)  

Represents the aggregate grant date fair value of RSUs 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 13, 2017 for a discussion of assumptions we made in determining the compensation costs included in this column. With regard to RSUs with performance-based vesting, the grant date fair value assumes probable outcome of achievement of related performance conditions. The grant date fair value for RSUs with performance-based vesting, assuming the highest level of achievement had been met, is as follows:

 

     RSUs with
Performance-

Based Vesting
 

Name

   2016  

Eddie Gray

   $ 1,539,300  

Michael S. Ostrach

   $ 461,790  

Robert L. Coffman, Ph.D.

   $ 461,790  

Robert Janssen, M.D.

   $ 439,800  

David F. Novack

   $ 351,840  

 

     As performance milestones were not achieved, performance-based RSUs granted to our NEO’s in 2016 terminated without vesting. For further discussion of these performance-based RSUs, see the section entitled “Compensation Discussion and Analysis – 2016 Executive Compensation Decisions – Long-Term Equity Incentive Awards.”

 

(2)  

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 13, 2017 for a discussion of assumptions we made in determining the compensation costs included in this column.

 

(3)  

No bonuses were earned pursuant to our annual incentive bonus plan by the NEOs in 2016. For further discussion see the section entitled “Compensation Discussion and Analysis – 2016 Executive Compensation Decisions – Annual Incentive Plan.”

 

(4)  

Includes $2,000 401(k) matching contribution for each NEO made by the Company in 2016.

 

50


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, 2016.

 

Name

   Grant Date      Estimated
Future

Payouts
Under

Non-Equity
Incentive
Plan

Awards
Target (1)
($)
     All Other
Stock
Awards:
Number of
Shares of
Stock
or Units (2)
(#)
     All Other
Option
Awards:
Number of
Securities
Underlying
Options (3)

(#)
     Exercise
or Base

Price of
Option
Awards
($/Share)
     Grant Date
Fair Value
of RSU and
Option
Awards (4) ($)
 

Eddie Gray

     —        $ 360,000        —          —          —          —    
     2/4/2016           —          280,000      $ 21.99      $ 2,345,840  
     2/4/2016           70,000        —        $ —        $ —    

Michael S. Ostrach

     —        $ 212,500        —          —          —          —    
     2/4/2016           —          84,000      $ 21.99      $ 703,752  
     2/4/2016           21,000        —        $ —        $ —    

Robert L. Coffman, Ph.D.

     —        $ 233,398        —          —          —          —    
     2/4/2016           —          84,000      $ 21.99      $ 703,752  
     2/4/2016           21,000        —        $ —        $ —    

Robert Janssen, M.D.

     —        $ 200,000        —          —          —          —    
     2/4/2016           —          80,000      $ 21.99      $ 670,240  
     2/4/2016           20,000        —        $ —        $ —    

David F. Novack

     —        $ 193,125        —          —          —          —    
     2/4/2016           —          64,000      $ 21.99      $ 536,192  
     2/4/2016           16,000        —        $ —        $ —    

 

(1)  

Represents the target cash incentive award in fiscal year 2016 as further described under “Compensation Discussion and Analysis – Elements of Executive Compensation”; our Annual Incentive Program does not specify minimum or maximum levels. No cash incentive awards were paid to our NEOs on account of fiscal year 2016 performance as reported in the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table.”

 

(2)  

Represents the number of performance-based RSUs granted in the fiscal year. After performance milestones were not achieved, performance-based RSUs granted to our NEO’s in 2016 terminated without vesting.

 

(3)  

All options were granted under the Amended 2011 Plan and vest over three (3) years with one third (1/3) of the shares subject to the option vesting twelve months after the grant date, and one thirty-sixth (1/36) of the shares subject to the option vesting on the last day of each month thereafter. The exercise price of all options was the closing price of our common stock on the date of grant.

 

(4)  

Represents the aggregate grant date fair value of RSU and option awards granted in fiscal year 2016 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 13, 2017 for a discussion of the assumptions we made in determining the compensation costs included in this column. With regard to RSUs with performance-based vesting, the grant date fair value assumes probable outcome of achievement of related performance conditions. The grant date fair value for RSUs with performance-based vesting, assuming the highest level of achievement had been met, is reported in footnote 1 of the “Summary Compensation Table.” As performance milestones were not achieved, performance-based RSUs granted to our NEO’s in 2016 terminated without vesting. For further discussion of these performance-based RSUs, see the section entitled “Compensation Discussion and Analysis – 2016 Executive Compensation Decisions – Long-Term Equity Incentive Awards.”

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.

 

51


As discussed in the “Compensation Discussion and Analysis,” the fiscal year 2016 no cash incentive awards were paid pursuant to the annual cash incentive compensation program, based on the failure to achieve certain corporate and individual performance goals. Equity-based awards were granted in 2016 under our 2011 Plan and generally vest over three 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.

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, 2016.

 

          Option Awards     Stock Awards  

Name

        Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Vesting
Commencement
Date
    Option
Expiration
Date
    Number of
Shares or
Units that
Have Not

Vested (#)
    Market Value
of Stock that
Have Not
Vested ($) (5)
    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 )       134,376       15,624     $ 22.10       5/1/2013       4/30/2023          
    (2 )       54,688       20,313     $ 17.40       1/31/2014       1/30/2024          
    (2 )       106,250       43,750     $ 17.10       2/4/2014       2/3/2024          
    (2 )       103,124       121,876     $ 16.00       2/9/2015       2/8/2025          
    (3 )       —         280,000     $ 21.99       2/4/2016       2/3/2023          
    (4 )       —         —         —         —         —         50,000     $ 197,500      

Michael S. Ostrach

      4,000       —       $ 53.10       2/3/2008       2/2/2018          
      3,750       —       $ 5.40       3/10/2009       3/9/2019          
      2,673       —       $ 15.80       2/19/2010       2/18/2020          
      25,000       —       $ 31.40       1/6/2011       1/5/2021          
      18,000       —       $ 34.80       1/31/2012       1/30/2022          
    (2 )       19,167       833     $ 30.80       2/5/2013       2/4/2023          
    (2 )       19,125       7,875     $ 17.10       2/4/2014       2/3/2024          
    (2 )       30,708       36,292     $ 16.00       2/9/2015       2/8/2025          
    (2 )       9,666       19,334     $ 28.45       8/27/2015       8/26/2025          
    (3 )       —         84,000     $ 21.99       2/4/2016       2/3/2023          
    (4 )       —         —         —         —         —         10,000     $ 39,500      

Robert L. Coffman, Ph.D.

      4,000       —       $ 61.90       2/2/2007       2/1/2017          
      7,501       —       $ 53.10       2/3/2008       2/2/2018          
      7,500       —       $ 5.40       3/10/2009       3/9/2019          
      10,000       —       $ 15.80       2/19/2010       2/18/2020          
      30,000       —       $ 31.40       1/6/2011       1/5/2021          
      18,000       —       $ 34.80       1/31/2012       1/30/2022          
    (2 )       17,250       750     $ 30.80       2/5/2013       2/4/2023          
    (2 )       34,374       40,626     $ 16.00       2/9/2015       2/8/2025          
    (2 )       5,501       11,000     $ 28.45       8/27/2015       8/26/2025          
    (3 )       —         84,000     $ 21.99       2/4/2016       2/3/2023          

Robert Janssen, M.D.

      6,000       —       $ 13.60       4/7/2010       4/6/2020          
      2,250       —       $ 31.40       1/6/2011       1/5/2021          
      2,500       —       $ 36.80       2/1/2012       1/31/2022          
      15,000       —       $ 41.40       10/31/2012       10/30/2022          
    (2 )       12,750       5,250     $ 17.10       2/4/2014       2/3/2024          
    (2 )       25,666       30,334     $ 16.00       2/9/2015       2/8/2025          
    (1 )       —         —         —         —         —             10,000     $ 39,500  
    (3 )       —         80,000     $ 21.99       2/4/2016       2/3/2023          
    (4 )       —         —         —         —         —         10,000     $ 39,500      

David F. Novack

    (2 )       28,126       1,874     $ 21.40       3/25/2013       3/24/2023          
    (2 )       15,584       6,416     $ 17.10       2/4/2014       2/3/2024          
    (2 )       34,374       40,626     $ 16.00       2/9/2015       2/8/2025          
    (3 )       —         64,000     $ 21.99       2/4/2016       2/3/2023          
    (4 )       —         —         —         —         —         20,000     $ 79,000      

 

52


 

(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)  

Options vests at the rate of 1/3rd of the shares on the first anniversary of the vesting commencement date, with 1/36th of the total number of shares vesting each month thereafter.

 

(4)  

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.

 

(5)  

Represents the aggregate fair value of RSUs in accordance with ASC 718, based on the last closing price per share as of December 30, 2016 of $3.95.

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, 2016. There were no options exercised by the NEOs during the fiscal year ended December 31, 2016.

 

     Stock Awards  

Name

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

Eddie Gray

     —          —    

Michael S. Ostrach

     —          —    

Robert L. Coffman, Ph.D.

     —          —    

Robert Janssen, M.D.

     5,000        82,150 (1)  

David F. Novack

     —          —    

 

(1)  

The value realized on vesting is determined by multiplying the number of shares of stock, or 5,000, by the market value of the underlying shares as reported by the NASDAQ Capital Market on the vesting date, or $16.43.

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, 2016 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.

 

53


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 (stock options and RSUs for Mr. Gray and only stock options for our other officers) 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, 2016. In April 2016, in response to shareholder feedback, the Management Agreements with Mr. Ostrach, Dr. Coffman, Dr. Janssen and Mr. Novack were updated to eliminate this benefit (i.e., a “single-trigger”) and provide for full accelerated vesting in connection with a Change in Control only in the event of a related termination of employment (i.e., a “double-trigger”).

 

Name

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

Eddie Gray

     531,563      $ 197,500  

Michael S. Ostrach

     —        $ —    

Robert L. Coffman, Ph.D.

     —        $ —    

Robert Janssen, M.D.

     —        $ —    

David F. Novack

     —        $ —    

 

(1)  

Represents the value of stock and accelerated stock option and award vesting if the event took place on December 31, 2016. The value for RSUs is calculated in accordance with ASC 718, based on the closing price per share on December 30, 2016. The value for stock option awards is calculated based on the “spread” between the closing price per share on December 30, 2016 of $3.95 and the exercise price of the vested awards, to the extent such vested awards were “in the money.” No vested stock option awards were “in the money” as of December 31, 2016.

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”);

 

   

acceleration of vesting of all outstanding equity awards; 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.

 

54


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.

Our other NEOs will receive 12 months of base salary, 100% of the target annual variable cash compensation, the COBRA Payment, full acceleration of vesting of outstanding time-vesting options, 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 such executive’s termination in connection with a Change in Control of the Company, assuming such event had occurred on December 31, 2016.

 

Name

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

Eddie Gray

   $ 1,920,000      $ 50,664      $ 197,500      $ 2,168,164  

Michael S. Ostrach

   $ 637,500      $ 36,266      $ 39,500      $ 713,266  

Robert L. Coffman, Ph.D.

   $ 700,194      $ 25,519      $ —        $ 725,713  

Robert Janssen, M.D.

   $ 600,000      $ 25,519      $ 79,000      $ 704,519  

David F. Novack

   $ 579,375      $ 28,973      $ 79,000      $ 687,348  

 

(1)  

Represents the value of accelerated stock option and award vesting if the event took place on December 31, 2016. The value for RSUs is calculated in accordance with ASC 718, based on the closing price per share on December 30, 2016. The value for stock option awards is calculated based on the “spread” between the closing price per share on December 30, 2016 of $3.95 and the exercise price of the vested awards, to the extent such vested awards were “in the money.” No vested stock option awards were “in the money” as of December 31, 2016.

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 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.

 

55


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, 2016.

 

Name

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

Eddie Gray

   $ 1,920,000      $ 50,664      $ 197,500      $ 2,168,164  

Michael S. Ostrach

   $ 212,500      $ 18,133      $ —        $ 230,633  

Robert L. Coffman, Ph.D.

   $ 233,398      $ 12,759      $ —        $ 246,157  

Robert Janssen, M.D.

   $ 200,000      $ 12,759      $ —        $ 212,759  

David F. Novack

   $ 193,125      $ 14,487      $ —        $ 207,612  

 

(1)  

Represents the value of accelerated stock option and award vesting if the event took place on December 31, 2016. The value for RSUs is calculated in accordance with ASC 718, based on the closing price per share on December 30, 2016. The value for stock option awards is calculated based on the “spread” between the closing price per share on December 30, 2016 of $3.95 and the exercise price of the vested awards, to the extent such vested awards were “in the money.” No vested stock option awards were “in the money” as of December 31, 2016.

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 2016, 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

Our compensation program for non-employee directors, except with regard to vesting periods as described below, was unchanged in 2016 and provides 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.

Effective as of the 2016 Annual Meeting, each Initial Grant vests in equal annual installments over three 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, 2016, 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)
     Total  

Arnold L. Oronsky, Ph.D.

   $ 72,500      $ 70,692      $ 143,192  

Laura Brege

   $ 60,000      $ 70,692      $ 130,692  

Francis R. Cano, Ph.D.

   $ 52,000      $ 70,692      $ 122,692  

Dennis A. Carson, M.D.

   $ 40,000      $ 70,692      $ 110,692  

Daniel L. Kisner, M.D.

   $ 57,000      $ 70,692      $ 127,692  

Peggy V. Phillips

   $ 62,500      $ 70,692      $ 133,192  

Stanley A. Plotkin, M.D.

   $ 40,000      $ 70,692      $ 110,692  

Natale Ricciardi

   $ 45,000      $ 70,692      $ 115,692  

 

(1)  

Consists of fees earned or paid in 2016 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 13, 2017, for a discussion of assumptions we made in determining the compensation costs included in this column.

 

(3)  

As of December 31, 2016, each non-employee director held stock options to purchase the following numbers of shares of our common stock: Dr. Oronsky held options to purchase 38,450 shares of our common stock; Ms. Brege held options to purchase 20,175 shares of our common stock; Dr. Cano held options to purchase 32,550 shares of our common stock; Dr. Carson held options to purchase 28,250 shares of our common stock; Dr. Kisner held options to purchase 35,950 shares of our common stock; Ms. Phillips held options to purchase 38,200 shares of our common stock; Dr. Plotkin held options to purchase 27,250 shares of our common stock; and Mr. Ricciardi held options to purchase 20,250 share of our common stock.

 

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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, 2016.

 

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

     173,832      $ 31.56        —    

2011 Equity Incentive Plan

     3,787,754      $ 20.92        3,157,399  

2014 Employee Stock Purchase Plan

     —        $ —          182,474 (1)  

Equity compensation plans not approved by security holders:

           —    

2010 Employment Inducement Award Plan (2)

     12,450      $ 16.81        —    
  

 

 

       

 

 

 

Total

     3,974,036      $ 21.37        3,339,873  
  

 

 

       

 

 

 

 

(1)  

As of December 31, 2016, an aggregate of 182,474 shares remained available for future issuance under the 2014 Employee Stock Purchase Plan, and as of April 6, 2017, up to a maximum of 137,865 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 Amended 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 Amended 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, 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.

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 14 times during fiscal year 2016, substantially more frequently than the five or six times per year that the Board normally meets. Despite the substantial increase in the number of Board meetings in 2016, all Board members, with the exception of Drs. Carson and Plotkin, 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 service as a director or committee member. In addition to their contributions to the Company at Board meetings, Drs. Carson and Plotkin made substantial contributions to the Company in meetings with management throughout the year, including pertaining to HEPLISAV-B and our immuno-oncology program.

 

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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 2016 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

     X    

Daniel L. Kisner, M.D.

       X       X

Peggy V. Phillips

     X       X  

Natale Ricciardi

         X  

Total Members

     3       3       3  

Total Meetings

     4       6       2  

 

* Committee Chairperson

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 2016 was comprised of three directors: Ms. Brege (Chairperson), Dr. Oronsky and Ms. Phillips. 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 Ms. Brege qualified as an “audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Ms. Brege’s level of knowledge and experience based on a number of factors, including 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;

 

   

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

 

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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 2016, 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. 1301, Communications with Audit Committees (“AS 1301”) , 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, 2016, 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;

 

   

annually review Director compensation and make recommendation to the Board;

 

   

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

 

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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.

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 2016, our Compensation Committee met five 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); and

 

   

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, 2016, 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, 2016. 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.

 

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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. While the Nominating and Governance Committee does not have such a formal policy, it will consider such a recommendation, as reflected by its decision to recommend Mr. Ricciardi to the Board following a stockholder recommendation. Our Nominating and Corporate Governance Committee reviews all candidates in the same manner 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 two formal meetings. 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 “ Director Compensation,” other than with respect to the indemnification agreements described below.

Related Persons Transactions and Indemnification

Policies and Procedures for Related Person Transactions

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 the Company’s website at http://investors.dynavax.com/corporate-governance.cfm .

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 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.

Transactions With Related Persons

We have no related person transactions to report.

Indemnity Agreements

We have entered into indemnity agreements with some of our officers and directors so that they will be free from undue concern about personal liability in connection with their service to the Company. The indemnity agreements 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.

 

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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, 2016, all Section 16(a) filing requirements applicable to its officers, directors and greater-than-ten-percent beneficial owners were complied with, except that one report on Form 4 reporting a restricted stock grant was inadvertently filed late by Mr. Johnson.

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 on our website at http://investors.dynavax.com/corporate-governance.cfm and 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, 2017.

 

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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 31, 2017 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)

     2,603,923        6.47

40 East 52nd Street

     

New York, New York 10022

     

Federated Investors, Inc. (5)

     3,619,173        8.99

Federated Investors Tower

     

Pittsburgh, Pennsylvania 15222-3779

     

NEOs and Directors (1)

             

Eddie Gray (6)

     595,421        1.48

Michael S. Ostrach (7)

     189,711        *  

Robert L. Coffman, Ph.D. (8)

     173,234        *  

Robert Janssen, M.D. (9)

     122,506        *  

David F. Novack (10)

     129,473        *  

Arnold L. Oronsky, Ph.D. (11)

     68,456        *  

Laura Brege (12)

     11,675        *  

Francis R. Cano, Ph.D. (13)

     31,250        *  

Dennis A. Carson, M.D. (14)

     27,562        *  

Daniel L. Kisner, M.D. (15)

     29,950        *  

Peggy V. Phillips (16)

     44,502        *  

Stanley A. Plotkin, M.D. (17)

     20,750        *  

Natale Ricciardi (18)

     12,250        *  

All executive officers and directors as a group (13 persons) (19)

     1,456,740        3.62

 

* 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 31, 2017, 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 40,238,859 shares of our common stock outstanding as of January 31, 2017, 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 23, 2017, with the SEC. BlackRock beneficially owns and has sole dispositive power over 2,603,923 shares of common stock, of which 2,521,865 are held with sole voting power. The 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, 2016, and, consequently, the beneficial ownership of the above-mentioned reporting person may have changed between December 31, 2016 and January 31, 2017.

 

(5)  

This information is based solely on a Schedule 13G/A filed by Federated Investors, Inc., on February 14, 2017, with the SEC. Federated Investors, Inc. (the “Parent”) is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated

 

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  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 3,619,173 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, 2016, and, consequently, the beneficial ownership of the above-mentioned reporting person may have changed between December 31, 2016 and January 31, 2017.

 

(6)  

Consists of 5,250 shares of common stock owned directly by Mr. Gray, restricted stock awards to be converted into 50,000 shares of common stock within 60 days of January 31, 2017 and options to purchase 540,171 shares of common stock exercisable within 60 days of January 31, 2017.

 

(7)  

Consists of 8,772 shares of common stock owned directly by Mr. Ostrach, restricted stock awards to be converted into 10,000 shares of common stock within 60 days of January 31, 2017 and options to purchase 170,939 shares of common stock exercisable within 60 days of January 31, 2017.

 

(8)  

Consists of 6,308 shares of common stock owned directly by Dr. Coffman and options to purchase 166,926 shares of common stock exercisable within 60 days of January 31, 2017.

 

(9)  

Consists of 17,048 shares of common stock owned directly by Dr. Janssen, 948 of which were purchased through the employee stock purchase plan; restricted stock awards to be converted into 10,000 shares of common stock within 60 days of January 31, 2017 and options to purchase 95,458 shares of common stock exercisable within 60 days of January 31, 2017.

 

(10)  

Consists of 2,121 shares of common stock owned directly by Mr. Novack, 1,671 of which were purchased through the employee stock purchase plan; restricted stock awards to be converted into 20,000 shares of common stock within 60 days of January 31, 2017 and options to purchase 107,352 shares of common stock exercisable within 60 days of January 31, 2017.

 

(11)  

Consists of 37,506 shares of common stock owned directly by Dr. Oronsky and options to purchase 30,950 shares of common stock exercisable within 60 days of January 31, 2017.

 

(12)  

Consists of options to purchase 11,675 shares of common stock exercisable within 60 days of January 31, 2017.

 

(13)  

Consists of 6,200 shares of common stock owned directly by Dr. Cano and options to purchase 25,050 shares of common stock exercisable within 60 days of January 31, 2017.

 

(14)  

Consists of 6,812 shares of common stock owned directly by Dr. Carson and options to purchase 20,750 shares of common stock exercisable within 60 days of January 31, 2017.

(15)  

Consists of 1,500 shares of common stock owned directly by Dr. Kisner and options to purchase 28,450 shares of common stock exercisable within 60 days of January 31, 2017.

 

(16)  

Consists of 13,802 shares of common stock owned directly by Ms. Phillips and options to purchase 30,700 shares of common stock exercisable within 60 days of January 31, 2017.

 

(17)  

Consists of 1,000 shares of common stock owned directly by Dr. Plotkin and options to purchase 19,750 shares of common stock exercisable within 60 days of January 31, 2017.

 

(18)  

Consists of options to purchase 12,250 shares of common stock exercisable within 60 days of January 31, 2017.

 

(19)  

Total number of shares includes 106,319 shares of common stock in aggregate held as of January 31, 2017, by our executive officers and directors and entities affiliated with such executive officers and directors. Also includes restricted stock awards to be converted into 90,000 shares of common stock within 60 days of January 31, 2017 and options to purchase 1,260,421 shares of common stock exercisable within 60 days of January 31, 2017.

 

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P ERFORMANCE G RAPH

The chart below compares total stockholder return on an investment of $100 in cash on December 30, 2011, 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
   

Steven N. Gersten

Secretary

April    , 2017

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 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 : M AY  31, 2016

A MENDED AND R ESTATED BY THE B OARD OF D IRECTORS : A PRIL [    ], 2017

A PPROVED BY THE S TOCKHOLDERS : M AY [    ], 2017

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 pursuant to Stock Awards granted hereunder. From and after the Effective Date, all outstanding stock awards granted under the Prior Plans shall remain subject to the terms of the applicable Prior Plan; provided, however , any shares subject to outstanding stock awards granted under the Prior Plans that expire or terminate for any reason prior to exercise or settlement or are forfeited because of the failure to meet a contingency or condition required to vest such shares, 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, (such shares, the “ Returning Shares ”) shall become available for issuance pursuant to Awards granted hereunder as provided in Section 3(a) below. All Awards granted on or after the Effective Date of this Plan shall be subject to the terms of this Plan.

(b) Eligible Award Recipients. The persons eligible to receive Awards are Employees and Directors.

(c) Available Awards. The Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards.

(d) Purpose. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Awards as set forth in Section 1(b), to provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and to provide a means by which such eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Awards.

 

2. A DMINISTRATION .

(a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee or Committees, as provided in Section 2(c).

 

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(b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i) To determine from time to time (A) which of the persons eligible under the Plan shall be granted Awards; (B) when and how each Award shall be granted; (C) what type or combination of types of Award shall be granted; (D) the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive cash or Common Stock pursuant to a Stock Award; (E) the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person; and (F) the Fair Market Value applicable to a Stock Award.

(ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan or Award fully effective.

(iii) To settle all controversies regarding the Plan and Awards granted under it.

(iv) To accelerate the time at which an Award may first be exercised or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.

(v) To suspend or terminate the Plan at any time. Suspension or termination of the Plan shall not impair rights and obligations under any Award granted while the Plan is in effect except with the written consent of the affected Participant.

(vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to bring the Plan or Awards granted under the Plan into compliance therewith, subject to the limitations, if any, of applicable law. However, except as provided in Section 9(a) relating to Capitalization Adjustments, to the extent required by applicable law or listing requirements, stockholder approval shall be required for any amendment of the Plan that either (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan or materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (D) materially extends the term of the Plan, or (E) expands the types of Awards available for issuance under the Plan. Except as provided above, rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.

(vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding “incentive stock options” or (C) Rule 16b-3.

(viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however , that except with respect to amendments that disqualify or impair the status of an Incentive Stock Option, a Participant’s rights under any Award shall not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, subject to the limitations of applicable law, if any, the Board may amend the terms

 

A-2


of any one or more Awards without the affected Participant’s consent if necessary to maintain the qualified status of the Award as an Incentive Stock Option or to bring the Award into compliance with Section 409A of the Code.

(ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards.

(x) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees or Directors who are foreign nationals or employed outside the United States.

(c) Delegation to Committee.

(i) General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

(ii) Section 162(m) and Rule 16b-3 Compliance. The Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.

(d) Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate Employees who are providing Continuous Service to the Company or any of its Subsidiaries who are not Officers to be recipients of Options and Stock Appreciation Rights (and, to the extent permitted by applicable law, other Stock Awards) and the terms thereof, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however , that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Notwithstanding the foregoing, the Board may not delegate authority to an Officer to determine the Fair Market Value pursuant to Section 13(w)(iii) below.

(e) Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

(f) Cancellation and Re-Grant of Stock Awards. Neither the Board nor any Committee shall have the authority to: (i) reduce the exercise price of any outstanding Options or Stock Appreciation Rights under the Plan, or (ii) cancel any outstanding Options or Stock Appreciation Rights that have an exercise price or strike price greater than the current Fair Market Value of the Common Stock in exchange for cash or other Stock Awards under the Plan, unless the stockholders of the Company have approved such an action within twelve (12) months prior to such an event.

(g) Minimum Vesting Requirements. No Award granted on or after May 31, 2017 may vest (or, if applicable, be exercisable) until at least twelve (12) months following the date of grant of the Award; provided, however , that up to 5% of the Share Reserve (as defined in Section 3(a)(i)) may be subject to Awards granted on or after May 31, 2017 that do not meet such vesting (and, if applicable, exercisability) requirements.

(h) Dividends and Dividend Equivalents. Dividends or dividend equivalents may be paid or credited, as applicable, with respect to any shares of Common Stock subject to an Award, as determined by the Board and

 

A-3


contained in the applicable Award Agreement; provided, however , that (i) no dividends or dividend equivalents may be paid with respect to any such shares before the date such shares have vested under the terms of such Award Agreement, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of such Award Agreement (including, but not limited to, any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to the Company on the date, if any, such shares are forfeited to or repurchased by the Company due to a failure to meet any vesting conditions under the terms of such Award Agreement.

 

3. S HARES S UBJECT TO THE P LAN .

(a) Share Reserve.

(i) Subject to Section 9(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards from and after the Effective Date shall not exceed 10,343,442 shares (the “ Share Reserve ”), which number is the sum of (i) 60,889 shares (which is the number of shares subject to the Prior Plans’ Available Reserve), 1 (ii) an additional 1,500,000 shares that were approved at the Company’s 2011 Special Meeting of Stockholders, 2 (iii) an additional 1,000,000 shares that were approved at the Company’s 2013 Annual Meeting of Stockholders, 3 (iv) an additional 2,250,000 shares that were approved at the Company’s 2015 Annual Meeting of Stockholders, (v) an additional 3,200,000 shares that were approved at the Company’s 2016 Annual Meeting of Stockholders, (vi) an additional 1,600,000 shares that were approved at the Company’s 2017 Annual Meeting of Stockholders, and (vii) an additional number of shares in an amount not to exceed 732,553 shares (which number consists of the Returning Shares, if any, as such shares become available from time to time). 4

(ii) Subject to Section 3(b), the number of shares of Common Stock available for issuance under the Plan will be reduced by: (A) one share for each share of Common Stock issued pursuant to an Appreciation Award granted under the Plan; (B) one share for each share of Common Stock issued pursuant to a Full Value Award granted under the Plan prior to May 27, 2015; (C) 1.33 shares for each share of Common Stock issued pursuant to a Full Value Award granted under the Plan on or after May 27, 2015 but prior to May 31, 2016; (D) 1.60 shares for each share of Common Stock issued pursuant to a Full Value Award granted under the Plan on or after May 31, 2016 but prior to May 31, 2017; and (E) 1.35 shares for each share of Common Stock issued pursuant to a Full Value Award granted under the Plan on or after May 31, 2017.

(iii) Subject to Section 3(b), the number of shares of Common Stock available for issuance under the Plan will be increased by: (A) one share for each Returning Share or 2011 Plan Returning Share (as defined in Section 3(b)(i)) subject to an Appreciation Award; (B) one share for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Plan prior to May 27, 2015; (C) 1.33 shares for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Plan on or after May 27, 2015 but prior to May 31, 2016; (D) 1.60 shares for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Plan on or after May 31, 2016 but prior to May 31, 2017; and (E) 1.35 shares for each Returning Share or 2011 Plan Returning Share subject to a Full Value Award that returns to the Plan on or after May 31, 2017.

 

1   The 608,892 shares that were originally subject to the Prior Plans’ Available Reserve were adjusted to 60,889 shares pursuant to a 1-for-10 reverse stock split effective November 7, 2014.
2   The 15,000,000 shares approved at the Company’s 2011 Special Meeting of Stockholders were adjusted to 1,500,000 shares pursuant to a 1-for-10 reverse stock split effective November 7, 2014.
3   The 10,000,000 shares approved at the Company’s 2013 Annual Meeting of Stockholders were adjusted to 1,000,000 shares pursuant to a 1-for-10 reverse stock split effective November 7, 2014.
4   The 7,325,537 shares that were originally Returning Shares were adjusted to 732,553 shares pursuant to a 1-for-10 reverse stock split effective November 7, 2014.

 

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(iv) For clarity, the limitation in this Section 3(a) is a limitation on the number of shares of Common Stock that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Stock Awards except as provided in Section 7(a). Shares may be issued in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance shall not reduce the number of shares available for issuance under the Plan.

(b) Reversion of Shares to the Share Reserve.

(i) Shares Available For Subsequent Issuance. The following shares of Common Stock (collectively, the “ 2011 Plan Returning Shares ”) will become available again for issuance under the Plan: (A) any shares subject to a Stock Award that are not issued because such Stock Award or any portion thereof expires or otherwise terminates without all of the shares covered by such Stock Award having been issued; (B) any shares subject to a Stock Award that are not issued because such Stock Award or any portion thereof is settled in cash; and (C) any shares issued pursuant to a Stock Award that are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares.

(ii) Shares Not Available For Subsequent Issuance. The following shares of Common Stock will not become available again for issuance under the Plan: (A) any shares that are reacquired or withheld (or not issued) by the Company to satisfy the exercise or purchase price of a Stock Award granted under the Plan or a stock award granted under any of the Prior Plans (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”)); (B) any shares that are reacquired or withheld (or not issued) by the Company to satisfy a tax withholding obligation in connection with a Stock Award granted under the Plan or a stock award granted under any of the Prior Plans; and (C) any shares repurchased by the Company on the open market with the proceeds of the exercise or purchase price of a Stock Award granted under the Plan or a stock award granted under any of the Prior Plans.

(c) Incentive Stock Option Limit. Subject to the Share Reserve and the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options shall be eleven million (11,000,000) shares of Common Stock.

(d) Section 162(m) Limitations. Subject to the Share Reserve and the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, the following limitations will apply.

(i) A maximum of one million (1,000,000) shares of Common Stock subject to 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 one hundred percent (100%) of the Fair Market Value on the date the Stock Award is granted may be granted to any Participant during any calendar year. Notwithstanding the foregoing, if any additional Options, Stock Appreciation Rights or Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value on the date the Stock Award is granted are granted to any Participant during any calendar year, compensation attributable to the exercise of such additional Stock Awards shall not satisfy the requirements to be considered “qualified performance-based compensation” under Section 162(m) of the Code unless such additional Stock Awards are approved by the Company’s stockholders.

(ii) A maximum of one million (1,000,000) shares of Common Stock subject to Performance Stock Awards may be granted to any Participant during any calendar year (whether the grant, vesting or exercise is contingent upon the attainment during the Performance Period of the Performance Goals).

(iii) A maximum of five million dollars ($5,000,000) subject to Performance Cash Awards may be granted to any Participant during any calendar year.

 

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(e) Non-Employee Director Compensation Limit. The aggregate value of all cash and equity-based compensation granted or paid, as applicable, by the Company to any individual for service as a Non-Employee Director with respect to any fiscal year of the Company will not exceed (i) a total of two hundred thousand dollars ($200,000) with respect to any such cash compensation and (ii) eight hundred thousand dollars ($800,000) in total value with respect to any such equity-based compensation (including Awards 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.

(f) Source of Shares. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise.

 

4. E LIGIBILITY .

(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to employees of the Company or a “parent corporation” or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and (f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees and Directors; provided, however , that Nonstatutory Stock Options and SARs may not be granted to Employees and Directors who are providing Continuous Service only to any “parent” of the Company, as such term is defined in Rule 405, unless the stock underlying such Stock Awards is treated as “service recipient stock” under Section 409A of the Code because the Stock Awards are granted pursuant to a corporate transaction (such as a spin off transaction) or unless such Stock Awards comply with the distribution requirements of Section 409A of the Code.

(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

 

5. P ROVISIONS RELATING TO O PTIONS AND S TOCK A PPRECIATION R IGHTS .

Each Option or SAR shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however , that each Option Agreement or Stock Appreciation Right Agreement shall conform to (through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions:

(a) Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR shall be exercisable after the expiration of seven (7) years from the date of its grant or such shorter period specified in the Award Agreement.

(b) Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise price (or strike price) of each Option or SAR shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Option or SAR is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise price (or strike price) lower than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option or SAR if such Option or SAR is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of Sections 409A and, if applicable, 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.

(c) Purchase Price for Options. The purchase price of Common Stock acquired pursuant to the exercise of an Option shall be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion,

 

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by any combination of the methods of payment set forth below. The Board shall have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to utilize a particular method of payment. The permitted methods of payment are as follows:

(i) by cash, check, bank draft or money order payable to the Company;

(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;

(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;

(iv) if the option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however , that the Company shall accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are reduced to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or

(v) in any other form of legal consideration that may be acceptable to the Board and specified in the applicable award agreement.

(d) Exercise and Payment of a SAR. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) the strike price that will be determined by the Board at the time of grant of the Stock Appreciation Right. The appreciation distribution in respect to a Stock Appreciation Right may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(e) Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board shall determine. In the absence of such a determination by the Board to the contrary, the restrictions set forth in this Section 5(e) on the transferability of Options and SARs shall apply. Notwithstanding the foregoing or anything in the Plan or an Award Agreement to the contrary, no Option or SAR may be transferred to any financial institution without prior stockholder approval.

(i) Restrictions on Transfer. An Option or SAR shall not be transferable except by will or by the laws of descent and distribution (and pursuant to Sections 5(e)(ii) and 5(e)(iii) below) and shall be exercisable during the lifetime of the Participant only by the Participant; provided, however , that subject to the foregoing paragraph, the Board may, in its sole discretion, permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws upon the Participant’s request. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.

 

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(ii) Domestic Relations Orders. An Option or SAR may be transferred pursuant to a domestic relations order; provided, however , that if an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.

(iii) Beneficiary Designation. The Participant may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company and any broker designated by the Company to effect Option exercises, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, the executor or administrator of the Participant’s estate shall be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise.

(f) Vesting. The total number of shares of Common Stock subject to an Option or SAR may vest and therefore become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to Section 2(g) and any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised.

(g) Termination of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates (other than for Cause or upon the Participant’s death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the applicable Award Agreement), or (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the time specified herein or in the Award Agreement (as applicable), the Option or SAR shall terminate.

(h) Extension of Termination Date. If the exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause or upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or SAR shall terminate on the earlier of (i) the expiration of a total period of three (3) months (that need not be consecutive) after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In addition, unless otherwise provided in a Participant’s Award Agreement, if the sale of any Common Stock received upon exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading policy, then the Option or SAR shall terminate on the earlier of (i) the expiration of a period equal to the applicable post-termination exercise period after the termination of the Participant’s Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Company’s insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement.

(i) Disability of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in the Award Agreement), or (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the time specified herein or in the Award Agreement (as applicable), the Option or SAR (as applicable) shall terminate.

 

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(j) Death of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within the period (if any) specified in the Award Agreement after the termination of the Participant’s Continuous Service for a reason other than death, then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participant’s death, but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Award Agreement), or (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the Participant’s death, the Option or SAR is not exercised within the time specified herein or in the Award Agreement (as applicable), the Option or SAR shall terminate.

(k) Termination for Cause. Except as explicitly provided otherwise in a Participant’s Award Agreement, if a Participant’s Continuous Service is terminated for Cause, the Option or SAR shall terminate upon the date on which the event giving rise to the termination occurred, and the Participant shall be prohibited from exercising his or her Option or SAR from and after the time of such termination of Continuous Service.

(l) Non-Exempt Employees. Subject to Section 5(f)(ii), no Option or SAR granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option or SAR. Notwithstanding the foregoing, consistent with the provisions of the Worker Economic Opportunity Act, (i) in the event of the Participant’s death or Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participant’s retirement (as such term may be defined in the Participant’s Award Agreement or in another applicable agreement or in accordance with the Company’s then current employment policies and guidelines), any such vested Options and SARs may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay.

 

6. P ROVISIONS OF S TOCK A WARDS OTHER THAN O PTIONS AND SAR S .

(a) Restricted Stock Awards. Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. To the extent consistent with the Company’s Bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical; provided, however , that each Restricted Stock Award Agreement shall conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.

(ii) Vesting. Subject to Section 2(g), shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.

(iii) Termination of Participant’s Continuous Service. If a Participant’s Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right any or all of the shares of Common

 

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Stock held by the Participant that have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.

(iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board shall determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement. Notwithstanding the foregoing or anything in the Plan or a Restricted Stock Award Agreement to the contrary, no Restricted Stock Award may be transferred to any financial institution without prior stockholder approval.

(b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical; provided, however , that each Restricted Stock Unit Award Agreement shall conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:

(i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.

(ii) Vesting. Subject to Section 2(g), at the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.

(iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.

(iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.

(v) Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.

(c) Performance Awards.

(i) Performance Stock Awards. A Performance Stock Award is a Stock Award that may vest or may be exercised contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of Continuous Service. Subject to Section 2(g), 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 shall be conclusively determined by the Committee, in its sole discretion. The Board may provide for or, subject to such terms and conditions as the Board may specify, may permit a Participant to elect for, the payment of any Performance Stock Award to be deferred to a specified date or event. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.

 

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(ii) Performance Cash Awards. A Performance Cash Award is a cash award that may be paid contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. Subject to Section 2(g), 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 shall be conclusively determined by the Committee, in its sole discretion. The Board may provide for or, subject to such terms and conditions as the Board may specify, may permit a Participant to elect for, the payment of any Performance Cash Award to be deferred to a specified date or event. The Board may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.

(iii) Section 162(m) Compliance. Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to an Award intended to qualify as “performance-based compensation” thereunder, the Committee shall establish the Performance Goals applicable to, and the formula for calculating the amount payable under, the Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period, or (b) the date on which twenty-five percent (25%) of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee shall certify the extent to which any Performance Goals and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Common Stock). Notwithstanding satisfaction of any completion of any Performance Goals, to the extent specified at the time of grant of an Award to “covered employees” within the meaning of Section 162(m) of the Code, the number of shares of Common Stock, Options, cash or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, shall determine.

(d) Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan (including, but not limited to, Sections 2(g) and 2(h)), the Board shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.

 

7. C OVENANTS OF THE C OMPANY .

(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock reasonably required to satisfy such Stock Awards.

(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however , that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant shall not be eligible for the grant of a Stock Award or the subsequent issuance of Common Stock pursuant to the Stock Award if such grant or issuance would be in violation of any applicable securities law.

(c) No Obligation to Notify or Minimize Taxes. The Company shall have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the

 

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Company shall have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of a Stock Award to the holder of such Stock Award.

 

8. M ISCELLANEOUS .

(a) Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

(b) Corporate Action Constituting Grant of Stock Awards. Corporate action constituting a grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant.

(c) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until (i) such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms, if applicable, and (ii) the issuance of the Common Stock subject to such