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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
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Report of the Audit Committee of the Board of Directors
This report is furnished by the current
The Audit Committee of the Board, which consists entirely of Directors with respect todirectors who meet the independence and experience requirements of the Nasdaq Capital Market, has furnished the following report:
The Audit Committee assists the Board in overseeing and monitoring the integrity of our financial
statements forreporting process, compliance with legal and regulatory requirements and the
year ended December 31, 2018. Priorquality of internal and external audit processes. This committee’s role and responsibilities are set forth in our charter adopted by the Board, which is available on our website at www.pdsbiotech.com. The Audit Committee reviews and reassesses our charter annually and recommends any changes to the
Merger, the audit committee of Edge consisted of Kurt Conti, James Healy and James Loughlin, each of whom, exceptBoard for
Mr. Loughlin, no longer serve as directors of PDS (the “Predecessor Committee”). Mr. Loughlin served as the chair and “audit committee financial expert” within the meaning of SEC regulations of the Predecessor Committee, and he continues to serve as the chair and audit committee financial expert of the current Audit Committee.One of the purposes of theapproval. The Audit Committee is to overseeresponsible for overseeing our accounting andoverall financial reporting processesprocess, and the audit of our annual financial statements. Our management is responsible for the preparationappointment, compensation, retention, and presentationoversight of complete and accurate financial statements. Ourthe work of independent registered public accounting firm is responsible for performing an independent audit of our financial statements in accordance withaccountants.
The Audit Committee reviewed and discussed the
standards of the Public Company Accounting Oversight Board (United States) and for issuing a report on their audit.Edge’s Audited Financial Statements
KPMG LLP was the independent registered public accounting firm for the Edge audited financial statements for the year ended December 31, 2018.2020 with the Company’s management.. The PredecessorAudit Committee discussed with KPMG LLP the matters required to be discussed under the Public Company Accounting Oversight Board standards. The Predecessor Committeealso received the written disclosures and the letter from KPMG LLP, the Company’s independent registered public accounting firm, required by the applicable requirements of the by Auditing Standard N0. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board, or PCAOB regarding the independent accountants’ communications with the audit committeescommittee concerning independence. The Predecessor Committeeindependence and has discussed with KPMG LLP the accounting firm’s independence and concluded that KPMG LLP is independent from the company and management.
In performing its oversight role, the Predecessor Committee reviewed and discussed Edge’s audited financial statements for the year ended December 31, 2018 with management and KPMG LLP.independence. Based on the foregoing, the PredecessorAudit Committee recommended to the BoardCompany’s board of directors that the Edge audited financial statements for the fiscal year ended December 31, 2018, be included in Edge’sthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Private PDS Audited Financial Statements
Haynie & Company was the independent registered public accounting firm for the Private PDS audited financial statements for the years ended December 31, 2018 and 2017. The current Audit Committee discussed the matters required to be discussed under the Public Company Accounting Oversight Board standards for such financial statements. The current Audit Committee received the written disclosures and the letter from Haynie & Company required by the applicable requirements2020.
Members of the
Public Company Accounting Oversight Board regarding communications with audit committees concerning independence. The currentPDS Biotechnology Corporation Audit
Committee discussed the independence of Haynie & Company and concluded that Haynie & Company is independent from the company and management.In performing its oversight role, the current Audit Committee reviewed and discussed Private PDS’s audited financial statements for the years ended December 31, 2018 and 2017 with management and Haynie & Company. Based on the foregoing, the current Audit Committee recommended to the Board that the Private PDS audited financial statements for the years ended December 31, 2018 and 2017 be included on PDS’s Current Report on Form 8-K/A filed with the SEC on April 30, 2019.
The foregoing report has been furnished by the current Audit Committee.
Mr. Gregory Freitag
Mr. Stephen Glover
Mr. James J. Loughlin
Ms. Kamil Ali-Jackson, Esq.
The foregoing report of the Audit Committee does not constitute soliciting material and shall not be deemed
filed, incorporated by reference into or a part of any other filing by PDSthe Company (including any future filings) under the Securities Act or the Exchange Act of 1934, as amended, or the Exchange Act, except to the extent PDSthe Company specifically incorporates such report by reference therein.TABLE OF CONTENTS
APPROVAL OF THE SECOND AMENDED AND RESTATED PDS BIOTECHNOLOGY CORPORATION 2014 EQUITY INCENTIVE PLAN
General
On December 8, 2020, the Board adopted, subject to stockholder approval, the Second Amended and Restated PDS Biotechnology Corporation 2014 Equity Inventive Plan (the “Restated Plan”), which would amend and restate the Amended and Restated PDS Biotechnology Corporation 2014 Equity Incentive Plan (the “Current Plan”). The Restated Plan is identical to the Current Plan in all material respects, except as follows: (a) if the Restated Plan is approved, the number of shares of Common Stock authorized for issuance under the Restated Plan will increase from 826,292 shares to 3,339,243 shares, plus the total number of shares that remained available for issuance, that are not covered by outstanding awards issued under the Current Plan, immediately prior to December 8, 2020; and (b) if the Restated Plan is approved, the Restated Plan will terminate on December 7, 2030, unless earlier terminated. The Current Plan is scheduled to terminate on January 17, 2029.
In order to be able to attract and retain employees, directors and consultants, it is essential that PDS is able to continue to offer a competitive equity compensation program. Contingent on stockholder approval, the Board has approved the Restated Plan, which authorizes the issuance of a number of shares in an amount equal to 3,339,243 shares, plus the total number of shares of common stock that remain available for issuance under, and are not covered by outstanding awards issued under, the Current Plan. As described above, on December 8, 2020, Dr. Bedu-Addo, Dr. Conn, and Dr. Wood were granted an aggregate of 1,040,700 stock options by the Board under the Restated Plan, contingent upon stockholder approval (the “Contingent Grants”). If the Restated Plan is approved, the shares underlying the Contingent Grants will be deducted from the shares available for new equity award grants under the Restated Plan.
In order to be able to attract and retain employees, directors and consultants, it is essential that PDS is able to continue to offer a competitive equity compensation program. As described above, on December 8, 2020, Dr. Bedu-Addo, Dr. Conn, and Dr. Wood were granted an aggregate of 1,040,700 stock options by the Board under the Restated Plan, contingent upon stockholder approval (the “Contingent Grants”). If the Restated Plan is approved, the shares underlying the Contingent Grants will be deducted from the shares available for new equity award grants under the Restated Plan.
Stockholder approval of the share increase to our Restated Plan is required (i) for purposes of complying with the stockholder approval requirements for listing our shares on the Nasdaq, and (ii) to comply with the incentive stock options rules under Section 422 of the Code. A copy of the Restated Plan, is provided in Appendix A. In the event of any inconsistency between the summary of the Restated Plan contained herein and the Restated Plan, the Restated Plan will control.
Basis for Board of Directors’ Adoption of the Restated Plan
Prior to adopting the Restated Plan, the Board and the Compensation Committee of the Board (the “Compensation Committee”), considered the various aspects of the Restated Plan, including the number of shares to be authorized under the Restated Plan, the cost of issuing additional shares, the impact of share dilution on PDS’s existing stockholders and the central role of equity-based incentive compensation in our executive compensation program. The Board’s purposes in adopting the Restated Plan are to ensure the longevity, effectiveness and administrative flexibility of the long-term equity incentive component of our executive compensation program. The Board and the Compensation Committee believe that it is essential to increase the number of shares that we may issue under our equity compensation program in order retain and reward our executive officers and key employees. If the Restated Plan is not approved by stockholders, we will not have the flexibility to grant equity-based incentive compensation at levels that the Board and the Compensation Committee believe to be critical to attracting, retaining and motivating our service providers and to reward them for their contributions to our success and the growth in value of our stock. In addition, the Contingent Grants will be cancelled.
Based on the foregoing considerations, the Board and the Compensation Committee concluded that it is in the best interests of PDS and its stockholders for its stockholders to approve the Restated Plan. The PDS Board and the Compensation Committee determined that the costs to PDS’s stockholders of approving the Restated Plan would be outweighed by the benefits to be achieved by appropriately compensated and motivated employees, directors and
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consultants. If the Restated Plan is approved, the Board and the Compensation Committee will continue to monitor and evaluate the benefits and risks to the company and its stockholders in granting the shares available for issuance under the Restated Plan.
Information Regarding Overhang and Dilution
We considered both our total equity “overhang” and our historical and projected annual “burn rate” in developing our share increase to the Restated Plan and analyzing the impact of using equity as a means of compensation on our stockholders. Overhang is a measure of potential dilution which we define as the sum of (i) the total number of shares underlying all equity awards outstanding and (ii) the total number of shares available for future award grants, divided by the sum of (a) the total number of shares underlying all equity awards outstanding, (b) the total number of shares available for future awards and (c) the number of shares outstanding. As of the Record Date, disregarding the Contingent Grants, there were 1,466,925 shares of common stock underlying all equity awards outstanding, 367,494 shares of common stock available for future awards, and the number of shares of common stock outstanding as of the Record Date was 22,278,261 shares, or 24,112,680 shares when equity awards outstanding and shares available for grant are included. Accordingly, our overhang under the Current Plan as of the Record Date was 10%. If the additional shares of common stock proposed to be authorized for grant under the Restated Plan are included in the calculation, our overhang on the date of approval of the Restated Plan, June 17, 2021, would be 20%.
The following table sets forth information regarding awards granted under all equity incentive plans during 2018, 2019 and 2020 (through December 31, 2020 but excluding the Contingent Grants), the burn rate for each such year and the average burn rate over such period, in each case, for stock-settled awards. A company’s “burn rate” is a measure of the speed at which the company uses shares available for grant under the company’s equity compensation plans, and shows the potential dilutive effect of equity grants on the company’s outstanding equity over the course of a year. Burn rate provides a measure of the potential dilutive impact of our Current Plan which we calculate by dividing the number of shares subject to equity awards granted during the year by the basic weighted average number of shares outstanding.
2020 | | | 331,407 | | | 16,745,044 | | | 2% |
2019 | | | 826,637 | | | 4,868,079 | | | 17% |
2018 | | | 194,328 | | | 3,337,351 | | | 6% |
Three Year Average Burn Rate | | | 450,791 | | | 8,316,825 | | | 5% |
Summary of the Restated Plan
The Restated Plan includes a number of features that will reinforce the alignment between the interests of participants in the Restated Plan and those of the company’s stockholders. These provisions include, but are not limited to, the following:
No Discounted Options or SARs. Stock options and SARs may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date.
No Repricing, Replacement or Buy Back without Stockholder Approval. PDS may not reprice, replace or buy back any Award, including an underwater stock option or SAR, without stockholder approval.
No Evergreen Provision. The Restated Plan does not contain an “evergreen” feature that automatically increases the number of shares available for issuance pursuant to awards. Therefore, PDS must obtain stockholder approval each time it desires to authorize additional shares for awards.
No Liberal Share Recycling. Any shares tendered in payment of an exercise price or the tax liability with respect to an award, including shares withheld from any such award, will not be available for future awards under the Restated Plan.
Non-Employee Director Limit. Under the Restated Plan, the sum of any cash compensation and the grant date fair value of Awards (as determined in accordance with Financial Accounting Standards Board Accounting Standards
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Codification Topic 718, or any successor thereto) granted under the Plan to a non-employee director as compensation for services as a non-employee director during any calendar year may not exceed $500,000 for an annual grant, provided however, in a non-employee director’s first year of service, compensation for services may not exceed $1,000,000. The Compensation Committee may make exceptions to these limits for individual non-employee directors only in extraordinary circumstances.
Recoupment. Awards granted under the Restated Plan (and all shares acquired thereunder) are subject to mandatory repayment and clawback pursuant to the terms of PDS’s corporate governance guidelines, and as may otherwise be required under any federal or state laws or the listing requirements of any applicable securities exchange.
No Transferability. No Award may be transferred, assigned, pledged or encumbered by a participant to any third party except pursuant to the laws of descent and distribution or as approved by the Compensation Committee for estate planning or charitable purposes.
No Automatic Grants. The Restated Plan does not provide for “reload” or other automatic grants to participants.
No Tax Gross-Ups. The Restated Plan does not provide for any tax gross-ups to participants.
General
Under the Restated Plan, PDS may grant awards, or Awards, with respect to its common stock to employees and consultants of the company and its subsidiaries, as well as non-employee members of any board of directors or board of managers of the company or of its subsidiaries. Awards may consist of restricted stock, restricted stock units, or PDS RSUs, stock options, stock appreciation rights, or SARs, and other stock-based awards. Each Award will be governed by the provisions of the Restated Plan and the applicable Award agreement. The Restated Plan is not qualified under Section 401(a) of the Code and is not subject to the Employee Retirement Income Security Act of 1974, as amended. The Restated Plan will become effective subject to its approval by PDS’s stockholders.
Purpose
The general purpose of the Restated Plan is to provide an effective method of compensating employees and consultants, non-employee directors of the company and its subsidiaries and non-employee directors of the board of directors of the company, and to align the interests of these individuals with those of the company’s stockholders. The Restated Plan will accomplish these goals by allowing eligible employees, consultants and non-employee directors of the company and its subsidiaries to receive Awards.
Administration
The Restated Plan is administered by PDS’s Compensation Committee, which has the power to: (i) select the employees, consultants and non-employee directors who will receive Awards pursuant to the Restated Plan; (ii) determine the type or types of Awards to be granted to each participant; (iii) determine the number of shares of common stock to which an Award will relate, the terms and conditions of any Award granted under the Restated Plan, and all other matters to be determined in connection with an Award; (iv) determine the exercise price or purchase price (if any) of an Award; (v) determine whether, to what extent, and under what circumstances an Award may be cancelled, forfeited, or surrendered; (vi) determine whether performance goals to which an Award is subject are satisfied; (vii) correct any defect or supply any omission or reconcile any inconsistency in the Restated Plan, and adopt, amend and rescind such rules, regulations, guidelines, forms of agreements and instruments relating to the Restated Plan as it may deem necessary or advisable; and (viii) construe and interpret the Restated Plan and make all other determinations as it may deem necessary or advisable for the administration of the Restated Plan. The Compensation Committee may delegate some or all of its powers to any of PDS’s executive officers or any other person, other than its authority to grant Awards to certain individuals (such as board members and executive officers).
Eligibility
All of PDS’s employees and consultants, all employees and consultants of PDS’s subsidiaries, and all non-employee members of PDS’s board of directors and those of PDS’s subsidiaries are eligible to receive Awards under the Restated Plan. As of the Record Date, 7 non-employee directors, 17 employees, and 10 consultants are eligible to participate in the Restated Plan.
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Shares Available Under the Restated Plan
If the Restated Plan is approved, the number of shares that will be available for grant pursuant to Awards under the Restated Plan will be an amount equal to shares, plus the total number of shares that remained available for issuance, and are not covered by outstanding awards issued under the Current Plan. This is referred to as the “Plan Limit.” The Plan Limit shall be, without duplication, (x) reduced on the date of grant of any Award by one share for each share of common stock made subject to an Award granted under the Restated Plan, (y) increased by the number of shares underlying an Award or portion thereof granted under the Restated Plan or the Current Plan, the Edge Therapeutics, Inc. 2010 Equity Incentive Plan or the Edge Therapeutics, Inc. 2012 Equity Incentive Plan (the “Prior Plans”), that is forfeited, cancelled or otherwise terminates, expires or is settled for any reason whatsoever without an actual distribution of shares, and (z) increased, on the applicable forfeiture date, by the number of shares of common stock that are forfeited back to PDS after issuance due to a failure to meet a contingency or condition with respect to any Award or portion thereof granted under the Prior Plans, Restated Plan, or the Current Plan. The Plan Limit shall also be reduced by the number of shares underlying the Contingent Grants.
Any shares tendered by a participant in payment of an exercise price for an Award (or an award granted under the Current Plan) or the tax liability with respect to an Award (or an award granted under the Current Plan) including shares withheld from any such Award or award, will not be available for future Awards hereunder. Common stock awarded under the Restated Plan may be reserved or made available from PDS’s authorized and unissued common stock or from common stock reacquired and held in PDS’s treasury. Any shares of common stock issued by PDS through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares of common stock available for Awards under the Restated Plan.
The maximum number of shares that may be granted through the exercise of incentive stock options is 11,000,000 shares. In addition, under the Restated Plan, the sum of any cash compensation and the grant date fair value of Awards (as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) granted to a non-employee director as compensation for services as a non-employee director during any calendar year may not exceed $500,000 for an annual grant, provided, however, in a non-employee director’s first year of service, compensation for services may not exceed $1,000,000. The Compensation Committee may make exceptions to these limits for individual non-employee directors only in extraordinary circumstances.
Awards — Generally
Awards may be granted on the terms and conditions described below. In addition, the Compensation Committee may impose on any Award or the settlement or exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Restated Plan, as the Compensation Committee may determine, including without limitation terms requiring forfeiture of Awards in the event of the termination of service of the participant. The right of a participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance goals as may be determined by the Compensation Committee. Each Award will be evidenced by an Award agreement that will include additional terms and conditions that may be applicable to such Award.
Awards — Performance Goals
In the discretion of the Compensation Committee, any Award may be granted subject to performance goals that must be met by the end of a certain specified performance period. Performance goals may be described in terms of company-wide objectives or objectives that are related to the performance of the individual participant or the subsidiary, division, department or function within PDS or any subsidiary in which the participant is employed. Performance goals may be measured on an absolute or relative basis. Relative performance may be measured by a group of peer companies or by a financial market index. Performance goals may, without limitation, be based on the following: specified levels of or increases in return on capital, equity or assets; earnings measures/ratios (on a gross, net, pre-tax or post-tax basis), including diluted earnings per share, total earnings, operating earnings, earnings growth, earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA); net economic profit (which is operating earnings minus a charge to capital); net income; operating income; sales; sales growth; gross margin; direct margin; share price (including but not limited to growth measures and total shareholder return); operating profit; per period or cumulative cash flow (including but not limited to operating cash flow and free cash flow) or cash flow return on investment (which equals net cash flow divided by
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total capital); inventory turns; financial return ratios; market share; balance sheet measurements such as receivable turnover; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; debt reduction; strategic innovation, including but not limited to entering into, substantially completing, or receiving payments under, relating to, or deriving from a joint development agreement, licensing agreement, or similar agreement; customer or employee satisfaction; individual objectives; operating efficiency; regulatory body approvals for commercialization of products; implementation or completion of critical projects or related milestones (including, without limitation, milestones such as clinical trial enrollment targets, commencement of phases of clinical trials and completion of phases of clinical trials); partnering or similar transactions; any combination of any of the foregoing criteria; or any other metric as determined by the Compensation Committee.
Awards — Types of Awards
Restricted Stock. In a restricted stock award, a participant receives a grant of shares of common stock that are subject to certain restrictions, including forfeiture of such stock upon the happening of certain events. Unless otherwise provided in an award agreement, during the restriction period, holders of restricted stock will have all the rights of a stockholder with respect to the restricted stock, including, without limitation, the right to receive dividends (whether in cash or additional shares of common stock) and to vote shares of restricted stock, provided that any dividends declared on restricted stock shall be subject to the same restrictions as the underlying restricted stock and any cash dividends shall be held by PDS and released to the participant upon the vesting of the underlying restricted stock.
Restricted Stock Units. A PDS RSU is a grant of the right to receive a payment in PDS’s common stock or cash, or in a combination thereof, equal to the fair market value of a share of PDS’s common stock on the expiration of the applicable restriction period or periods. During such period or periods, the participant will generally have no rights as a stockholder with respect to any such shares. However, the Compensation Committee may provide in an Award that amounts equal to any dividends declared during the restriction period will be credited to the participant’s account and deemed to be reinvested in additional PDS RSUs that will be subject to the same forfeiture restriction as the PDS RSUs to which the dividend equivalent payment relates.
Stock Options. Stock options granted under the Restated Plan may be either ISOs or non-qualified options. The exercise price of an option shall be determined by the Compensation Committee, but must be at least 100% of the fair market value of PDS’s common stock on the date of the grant. As of the Record Date, fair market value of a share of PDS common stock, determined by the last reported sale price per share of common stock on that date was $5.84. If the participant owns, directly or indirectly, shares constituting more than 10% of the total voting power of all classes of PDS’s stock or the stock of any subsidiary, the exercise price of an incentive stock option must be at least 110% of the fair market value of a share of common stock on the date the incentive stock option is granted. Each Award of an option shall specify the time or times at which the option may be exercised and any terms and conditions applicable to the option, including (i) a vesting schedule which may be based upon the passage of time, attainment of performance goals, or a combination thereof, (ii) whether the exercise price for an option shall be paid in cash, with shares of common stock, with a combination of cash and shares of common stock, or with other legal consideration, (iii) the methods of payment, which may include payment through cashless and net exercise arrangements, to the extent permitted by applicable law and (iv) the methods by which, and/or the time at which, common stock will be delivered or deemed to be delivered to a participant upon exercise of an option. The term of an option may not exceed ten years from the date of grant (or five years from the date of grant in the case of an incentive stock option granted to a participant who owns, directly or indirectly, shares constituting more than 10% of the total voting power of all classes of PDS’s stock or the stock of any subsidiary).
Stock Appreciation Rights. A grant of a SAR entitles the holder to receive, upon exercise of the SAR, the excess of the fair market value of one share of PDS’s common stock on the date of exercise over the grant price of the SAR as determined by the Compensation Committee. SARs will be settled either in cash, shares of common stock, or a combination of the foregoing. The grant price of a SAR may never be less than 100% of the fair market value of a share of common stock on the date of grant. The term of an SAR shall be no greater than ten years from the date of grant.
Other Stock-Based Awards. The Compensation Committee is authorized, subject to limitations under applicable law, to grant participants any type of Award that is payable in, or valued in whole or in part by reference to shares of PDS’s common stock, and that is deemed by the Compensation Committee to be consistent with the purposes of the Restated Plan, including, without limitation, dividend equivalents, performance shares and performance units.
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Change in Control and other Corporate Transactions
With respect to SARs and options outstanding on a change of control, the Compensation Committee in its discretion generally may (a) cancel any outstanding options or SARs in exchange for a cash payment in an amount equal to the excess, if any, of the fair market value of the common stock underlying the unexercised portion of the option or SAR as of the date of the change in control over the exercise price or grant price; (b) terminate any option or SAR, effective immediately prior to the change in control, provided that the participant has an opportunity to exercise his or her Award within a specified period following a written notice of the change in control; (c) terminate any options or SARs if the applicable performance goals were not satisfied as of the change in control; (d) require the successor or acquiring company (or its parents or subsidiaries) to assume any outstanding option or SAR or to substitute options or SARs with Awards involving the common equity securities of an acquirer or successor on terms and conditions necessary to preserve the rights of participants, or (e) take such other actions as the Compensation Committee believes may be appropriate. With respect to Restricted Stock, PDS RSUs or other Awards, the Compensation Committee generally may (a) provide in an Award agreement that, upon the occurrence of a change in control, any vested Restricted Stock, PDS RSUs and other Awards shall become immediately vested and/or payable, provided that if such Awards constitute “non-qualified deferred compensation” (within the meaning of Code Section 409A) such change in control satisfies the requirements of Treasury Regulation Section 1.409A-3(i)(5)(v), (vi) or (vii); (b) with respect to any Restricted Stock, PDS RSUs or other Awards that do not constitute “non-qualified deferred compensation,” elect to settle such PDS RSUs and other Awards upon a change in control, (c) terminate any Restricted Stock, PDS RSUs or other Awards if the applicable performance goals were not satisfied as of the change in control, (d) require the successor or acquiring company (or its parents or subsidiaries), following a change in control, to assume such Restricted Stock, PDS RSUs and other Awards or to substitute such Awards with Awards involving the equity securities of the acquiring or successor company on terms and conditions so as to preserve the rights of participants, or (e) take such other actions as the Compensation Committee believes may be appropriate (including terminating such Awards for a cash payment equal to the fair market value of the underlying shares).
Certain Corporate Transactions
In order to prevent dilution or enlargement of the rights of participants under the Restated Plan as a result of any stock dividend, recapitalization, forward stock split or reverse stock split, reorganization, division, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution or other similar corporate transaction or event that affects PDS’s common stock, the Compensation Committee shall adjust (i) the number and kind of shares of common stock which may be issued in connection with Awards to participants, (ii) the number and kind of shares of common stock issuable in respect of outstanding Awards, (iii) the aggregate number and kind of shares of common stock available under the Restated Plan, and (iv) the exercise or grant price relating to any Award. In addition, the Compensation Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards, including any performance goals, in recognition of unusual or nonrecurring events (including, without limitation, events described above) affecting PDS or any subsidiary, or in response to changes in applicable laws, regulations, or accounting principles.
Termination of Employment or Other Service
Unless otherwise provided in an Award agreement, upon a participant’s termination of employment or other service with PDS, the unvested portion of such participant’s Awards shall cease to vest and shall be forfeited and the vested portion of such participant’s options and SARs shall remain exercisable by the participant or the participant’s beneficiary or legal representative, as the case may be, for a period of (i) 30 days in the event of a termination by PDS or a subsidiary without cause, (ii) 180 days in the event of a termination due to death or disability and (iii) 30 days in the event of the participant’s voluntary termination, but in all cases, not beyond the normal expiration date of the option or SAR. All of a participant’s options and SARs, whether or not vested, shall be forfeited immediately upon such participant’s termination by PDS or a subsidiary for cause.
Amendment and Termination
The Restated Plan will automatically terminate on December 7, 2030. In addition, prior to the automatic termination of the Restated Plan, the Board may amend, alter, suspend, discontinue, or terminate the Restated Plan without the consent of stockholders, except that any such action shall be subject to the approval of PDS’s stockholders if such action would increase the number of shares subject to the Restated Plan or decrease the price at which Awards may be granted, or if stockholder approval with respect to such action is required by any applicable
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law or regulation or the rules of any stock exchange on which PDS’s common stock may then be listed or quoted. The Board must also obtain stockholder approval in order to take any action that would result in the repricing, replacement or repurchase of any option Award. The Board may otherwise determine to submit such other changes to the Restated Plan for approval by PDS’s stockholders in its discretion. Generally, without the consent of an affected participant, no amendment, alteration, suspension, discontinuation, or termination of the Restated Plan may materially and adversely affect the rights of such participant under any outstanding Award.
Recoupment
Any Award granted under the Restated Plan will be subject to mandatory repayment by the participant to PDS pursuant to the terms of any company “clawback” or recoupment policy that is directly applicable to the Restated Plan and set forth in an Award agreement or as required by law.
Transfer Restrictions
The Restated Plan prohibits participants from pledging, encumbering, assigning or transferring any Award, right or interest under the Restated Plan to any third party, except for assignments or transfers that occur by way of the laws of descent and distribution. Awards and rights under the Restated Plan will be exercisable during the life of a participant only by the participant or his legal guardian. However, the Compensation Committee, may in its discretion, permit transfers of options, SARs and/or restricted stock to certain immediate family members of the participant, to trusts for the benefits of such family members and to partnerships in which such family members are the only partners.
Foreign Nationals
Without amending the Restated Plan, Awards may be granted to participants who are foreign nationals or are employed or providing services outside the United States or both, on such terms and conditions different from those specified in the Restated Plan as may, in the judgment of the Compensation Committee, be necessary or desirable to further the purpose of the Restated Plan. Moreover, the Compensation Committee may approve such supplements to, or amendments, restatements or alternative versions of, the Restated Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Restated Plan as in effect for any other purpose.
New Plan Benefits
The following Contingent Grants were made effective on December 8, 2020, and are subject to stockholder approval of the Restated Plan at the Annual Meeting:
Dr. Bedu-Addo was granted an option to purchase 707,800 shares
Dr. Conn was granted an option to purchase 122,400 shares
Dr. Wood was granted an option to purchase 210,500 shares
If stockholders do not approve the Restated Plan, the Contingent Grants will be cancelled. No other grants were made subject to stockholder approval of the Restated Plan. Given that De Lyle Bloomquist will retire as a member of our Board and not stand for re-election as a director at the 2021 Annual Meeting, PDS expects to grant our six (6) non-employee directors annual Awards on the date of the Annual Meeting, as further described above under Director Compensation beginning on page [25] (the “2021 Director Grants”). Other future grants under the Restated Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. TABLE OF CONTENTS
The following table includes additional information regarding the equity awards currently contemplated to be made under the Restated Plan:
FRANK BEDU-ADDO, PH.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
| | | $1,719,954(1) | | | 707,800 |
GREGORY L. CONN, PH.D.
CHIEF SCIENTIFIC OFFICER
| | | $297,432(1) | | | 122,400 |
LAUREN V. WOOD, M.D.
CHIEF MEDICAL OFFICER
| | | $511,515 | | | 210,500 |
SETH L. VAN VOORHEES, PH.D.
CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER
| | | $0(1) | | | 0 |
ALL CURRENT EXECUTIVE OFFICERS AS A GROUP(4) | | | $2,528,901(1) | | | 1,040,700 |
ALL CURRENT DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS AS A GROUP(5) | | | —(3) | | | 54,000 |
ALL EMPLOYEES, INCLUDING ALL CURRENT OFFICERS WHO ARE NOT EXECUTIVE OFFICERS, AS A GROUP | | | $315,730 | | | 129,930 |
(1)
| The dollar value was calculated by multiplying the Number of Shares from the adjacent column by $2.43, which was the closing price per share of PDS common stock on December 8, 2020. |
(2)
| This column corresponds to the number of stock options subject to the Continent Grants and the number of stock options subject to the 2021 Director Grants. |
(3)
| The dollar value for the 2021 Director Grants will not be determinable until the date of grant. |
(4)
| The amounts in this row are the aggregate of the Contingent Grants. |
(5)
| The amounts in this row are the aggregate of the 2021 Director Grants, which consist of an annual grants equal to 9,000 stock options, which are intended to be granted to each non-employee director, subject to the director’s election or re-election at the Annual Meeting. |
Summary of U.S. Federal Income Tax Consequences
The following discussion is a summary of certain U.S. federal income tax considerations that may be relevant to participants in the Restated Plan. This discussion is for general informational purposes only and does not purport to address specific federal income tax considerations that might apply to a participant based on his or her particular circumstances, nor does it address state, local or foreign income tax or other tax considerations that may be relevant to a participant.
PARTICIPANTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THEM AS A RESULT OF PARTICIPATING IN THE RESTATED PLAN, AS WELL AS WITH RESPECT TO ANY APPLICABLE STATE, LOCAL OR FOREIGN INCOME TAX OR OTHER TAX CONSIDERATIONS.
Incentive Stock Options. Upon the grant of an ISO, the option holder will not recognize any income. In addition, no income for federal income tax purposes will be recognized by an option holder upon the exercise of an ISO if the requirements of the Restated Plan and the Code are satisfied, including, without limitation, the requirement that the option holder remain employed by the company or a subsidiary during the period beginning on the date of grant and ending on the day three months (or, in the case of the option holder’s disability, one year) before the date the option is exercised. If an option holder has not remained an employee of the company or a subsidiary during the period beginning on the date of grant of an ISO and ending on the day three months (or one year in the case of the option holder’s disability) before the date the option is exercised, the exercise of such option will be treated as the exercise of a non-qualified option and will have the tax consequences described below in the section entitled “Non-Qualified Options.”
The federal income tax consequences upon a disposition of the shares acquired pursuant to the exercise of an ISO depends upon when the disposition of the shares occurs and the type of such disposition.
If the disposition of such shares occurs more than two years after the date of grant of the ISO and more than one year after the date of exercise, any gain or loss recognized upon such disposition will be long-term capital gain or loss and the company or a subsidiary, as applicable, will not be entitled to any income tax deduction with respect to such ISO.
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If the disposition of such shares occurs within two years after the date of grant of the incentive stock option or within one year after the date of exercise, or a disqualifying disposition, the excess, if any, of the amount recognized over the option price will be treated as taxable income to the participant and, subject to Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a deduction equal to the amount of ordinary income recognized by the option holder. The amount of ordinary income recognized by the option holder in a disqualifying disposition (and the corresponding deduction to the company or a subsidiary, as applicable) is limited to the lesser of the gain on such sale and the difference between the fair market value of the shares on the date of exercise and the option price. Any gain recognized in excess of this amount will be treated as short-term or long-term capital gain (depending upon whether the shares have been held for more than one year).
If the option price exceeds the amount recognized upon such a disposition, the difference will be short-term or long-term capital loss (depending upon whether the shares have been held for more than one year).
If a participant is subject to the Alternative Minimum Tax, or the AMT, the tax consequences to the participant may differ from those described above. Under the AMT, a taxpayer will be required to pay an alternative minimum tax if the taxpayer’s “tentative minimum tax” (as defined in Section 55 of the Code) exceeds his or her regular tax for the year in question. For purposes of calculating the AMT, upon the exercise of an ISO, a taxpayer is required to include in his “alternative minimum taxable income” (as defined in Section 55 of the Code) for the taxable year in which such exercise occurs an amount equal to the amount of income the taxpayer would have recognized if the option had not been an ISO (i.e., the difference between the fair market value of the shares on the date of exercise and the option’s exercise price). As a result, unless the shares acquired upon the exercise of the ISO are disposed of in a taxable transaction in the same year in which such option is exercised, the option holder may incur AMT as a result of the exercise of an ISO.
Except as provided in the paragraph immediately below, if an option holder elects to tender shares in partial or full payment of the option price for shares to be acquired upon the exercise of an ISO, the option holder will not recognize any gain or loss on such tendered shares. No income will be recognized by the option holder with respect to the shares received by the option holder upon the exercise of the ISO if the requirements of the Restated Plan and the Code described above are met. The number of shares received equal to the number of shares surrendered will have a tax basis equal to the tax basis of the surrendered shares. Shares received in excess of the number of shares surrendered will have a tax basis of zero. The holding period of the shares received equal to the number of shares tendered will be the same as such tendered shares’ holding period, and the holding period for the excess shares received will begin on the date of exercise. Solely for purposes of determining whether a disqualifying disposition has occurred with respect to shares received upon exercise of the ISO, all shares are deemed to have a holding period beginning on the date of exercise.
If an option holder tenders shares that were previously acquired upon the exercise of an ISO in partial or full payment of the option price for shares to be acquired upon the exercise of another ISO, and each such exercise occurs within two years after the date of grant of such ISO or within one year after such shares were transferred to the option holder, the tender of such shares will be a disqualifying disposition with the tax consequences described above regarding disqualifying dispositions. The shares acquired upon such exercise will be treated as shares acquired upon the exercise of an ISO.
If the holding rules described above are not satisfied, gain recognized on the disposition of the shares acquired upon the exercise of an ISO will be characterized as ordinary income, and, subject to Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a corresponding deduction. The amount of such gain will be equal to the difference between the exercise price and the fair market value of the shares at the time of exercise. Special rules may apply to disqualifying dispositions where the amount recognized is less than the value at exercise. Any excess of the amount recognized upon such disposition over the fair market value at exercise will generally be long-term or short-term capital gain depending on the holding period involved. Notwithstanding the foregoing, in the event that the exercise of the option is permitted other than by cash payment of the exercise price, various special tax rules may apply.
Non-Qualified Options. An option holder will not recognize taxable income, and the company or a subsidiary, as applicable, is not entitled to a deduction, when a non-qualified option is granted. Upon the exercise of a non-qualified option, an option holder will recognize compensation taxable as ordinary income equal to the excess of the fair market value of the shares received over the option price of the non-qualified option and, subject to
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Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a corresponding deduction. An option holder’s tax basis in the shares received upon the exercise of a non-qualified option will be equal to the fair market value of such shares on the exercise date, and the option holder’s holding period for such shares will begin at that time. Upon the subsequent sale of the shares received in exercise of a non-qualified option, the option holder will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount recognized in connection with the sale of the shares and the option holder’s tax basis in such shares.
If a non-qualified option is exercised in whole or in part with shares held by the option holder, the option holder will not recognize any gain or loss on such tendered shares. The number of shares received by the option holder upon such an exchange that are equal in number to the number of tendered shares will retain the tax basis and the holding period of the tendered shares for capital gain purposes. The shares received by the option holder in excess of the number of shares used to pay the exercise price of the option will have a basis equal to the fair market value on the date of exercise and their holding period will begin on such date.
Restricted Stock. Upon the grant of an award of restricted stock, the shares are considered to be subject to a substantial risk of forfeiture for federal income tax purposes. If a participant who receives restricted stock does not make the election described below, the participant does not recognize any taxable income upon the receipt of restricted stock and the company or a subsidiary, as applicable, is not entitled to a deduction at such time. When the forfeiture restrictions with respect to the restricted stock lapse, the participant will recognize compensation taxable as ordinary income equal to the fair market value of the shares at that time, less any amount paid for the shares and, subject to Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a corresponding deduction. A participant’s tax basis in restricted stock will be equal to the fair market value of such restricted stock when the forfeiture restrictions lapse, and the participant’s holding period for the shares will begin on such date. Upon a subsequent sale of the shares, the participant will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount recognized upon the sale of the shares and the tax basis of the shares in the participant’s hands.
Participants receiving restricted stock may make an election under Section 83(b) of the Code to recognize compensation taxable as ordinary income with respect to the shares when such shares are received rather than at the time the forfeiture restrictions lapse. If the participant makes such an election, subject to Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a corresponding deduction in the year of grant. The amount of such compensation income (and the corresponding deduction) will be equal to the fair market value of the shares when the participant receives them (valued without taking into account restrictions other than restrictions that by their terms will never lapse), less any amount paid for the shares.
By making a Section 83(b) election, the participant will recognize no additional ordinary compensation income with respect to the shares when the forfeiture restrictions lapse, and will instead recognize short-term or long-term capital gain or loss with respect to the shares when they are sold, depending upon whether the shares have been held for more than one year at the time of sale. The participant’s tax basis in the shares with respect to which a Section 83(b) election is made will be equal to their fair market value when received by the participant, and the participant’s holding period for such shares will begin at that time. If the shares are subsequently forfeited, the participant will not be entitled to a deduction as a result of such forfeiture, but will be entitled to claim a short-term or long-term capital loss (depending upon whether the shares have been held for more than one year at the time of forfeiture) with respect to the shares to the extent of the consideration paid by the participant for such shares.
Generally, during the restriction period, dividends and distributions paid with respect to restricted stock will be treated as compensation taxable as ordinary income (not dividend income) received by the participant, and, subject to Section 162(m) of the Code, the company or one of its subsidiaries, as applicable, will receive a corresponding deduction. Dividend payments received with respect to shares of restricted stock for which a Section 83(b) election has been made or which are paid after the restriction period lapses generally will be treated and taxed as dividend income.
SARs. A participant will not recognize taxable income, and the company or a subsidiary, as applicable, is not entitled to a deduction, upon the grant of a SAR. Upon exercise or settlement of a SAR, a participant will recognize compensation taxable as ordinary income in an amount equal to the cash or the fair market value of the shares received and, subject to Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a
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corresponding deduction. A participant’s tax basis in shares received upon the exercise of a SAR will be equal to the fair market value of such shares on the exercise date, and the participant’s holding period for such shares will begin at that time. Upon the sale of shares received from the exercise of a SAR, the participant will recognize short-term or long-term capital gain or loss, depending on whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount recognized in connection with the sale of the shares and the participant’s tax basis in the shares.
PDS RSUs. A participant will not recognize taxable income upon the grant of PDS RSUs, and the company or a subsidiary, as applicable, is not entitled to a deduction upon such grant. When the award is settled and the participant receives cash or shares, the participant will recognize compensation taxable as ordinary income equal to the amount of cash received or the fair market value of the shares at that time (as applicable) and, subject to Section 162(m) of the Code, the company or one of its subsidiaries will be entitled to a corresponding deduction. A participant’s tax basis in shares received at the end of a restriction period will be equal to the fair market value of the shares when the participant receives them, and the participant’s holding period will begin on such date. Upon the sale of the shares received upon the settlement of restricted stock, the participant will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale.
Such gain or loss will be equal to the difference between the amount recognized upon the sale of the shares and the tax basis of the shares in the participant’s hands. Dividend equivalents will be taxable to participants upon distribution as compensation, and accordingly, the participant will recognize ordinary income (not dividend income) in such amount and, subject to Section 162(m) of the Code, the company or a subsidiary, as applicable, will receive a corresponding deduction. In addition, as discussed below, PDS RSUs may be considered deferred compensation that must comply with the requirements of Section 409A of the Code in order to avoid early income inclusion and tax penalties.
Withholding. Participants will be responsible for making appropriate provision for all taxes required to be withheld in connection with any awards, including taxes relating to the vesting, exercise and transfer of shares pursuant to the Restated Plan. The company or a subsidiary is authorized to withhold from any payment relating to an Award under the Restated Plan, including from a distribution of common stock or any payroll or other payment due to a participant, withholding and other taxes due in connection with any transaction involving an award.
Million Dollar Deduction Limit. In 2017 and prior years, under Section 162(m) of the Code, a publicly-held corporation may not deduct compensation paid in any one taxable year in excess of $1,000,000 to a “covered employee” unless the compensation properly qualifies as “performance-based compensation” subject to certain requirements. Prior to the amendment of Section 162(m) adopted by the Tax Cuts and Jobs Act, as described below, a covered employee for this purpose is the chief executive officer of the corporation and each of the three other most highly compensated officers of the corporation (other than the chief financial officer), as reported to stockholders under the Exchange Act.
The Tax Cuts and Jobs Act, passed by Congress in December 2017, eliminated the “performance-based” compensation exemption under Section 162(m) and revised the definition of “covered employee.” Therefore, for 2018 and going forward, compensation paid to PDS’s chief executive officer, PDS’s chief financial officer and to each of PDS’s other named executive officers (as required to be disclosed in PDS’s annual proxy statement pursuant to the Exchange Act) will not be deductible for federal income tax purposes to the extent such compensation exceeds $1,000,000, regardless of whether such compensation would have been considered “performance-based” under prior law. This limitation on deductibility applies to each individual who is a “covered employee” (as defined in Section 162(m)) in 2017 or becomes a covered employee in any subsequent year, and continues to apply to each such individual for all future years, regardless of whether such individual remains a named executive officer. There is, however, a transition rule that allows “performance-based” compensation in excess of $1,000,000 to continue to be deductible if the remuneration is provided pursuant to a binding contract which was in effect on November 2, 2017 and which was not subsequently materially modified.
Nonqualified Deferred Compensation. Section 409A of the Code contains certain restrictions on the ability to defer receipt of compensation to future tax years. Any award that provides for the deferral of compensation, such as PDS RSUs that are settled more than two and one-half months after the end of the year in which they vest, must comply with Section 409A of the Code or else be subject to further adverse tax consequences. If the requirements of Section 409A of the Code are not met with respect to an award, all amounts deferred under the Restated Plan
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during the taxable year and all prior taxable years (to the extent not already included in gross income) will be included in the participant’s taxable income in the later of the year in which such violation occurs or the year in which such amounts are no longer subject to a substantial risk of forfeiture, even if such amounts have not been actually received by the participant. In addition, the violation of Section 409A of the Code will result in an additional tax to the participant of 20% of the deferred amount plus applicable interest computed from the date the award was earned, or if later, the date on which it vested.
Excess Parachute Payments. If the vesting or payment of an award made to a “disqualified individual” (as defined in Section 280G of the Code) occurs in connection with a change in control of the Company, such vesting or payment, either alone or when with other compensation payments which such disqualified individual is entitled to receive, may result in an “excess parachute payment” (as defined in Section 280G of the Code). Section 4999 of the Code generally imposes a 20% excise tax on the amount of any such “excess parachute payment” received by such “disqualified individual” and Section 280G of the Code would prevent the Company or a subsidiary or affiliate, as applicable, from deducting such “excess parachute payment.”
Required Vote; Recommendation of Board of Directors
Presuming a quorum is present, the affirmative vote of the holders of a majority of the shares of PDS common stock properly cast at the Annual meeting is required for approval of the Restated Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
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ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act once we are no longer an emerging growth company, we are required to present a resolution to our stockholders to approve the compensation of our named executives officers, no later than the first anniversary of the date on which we cease to so qualify. Since we were no longer an emerging growth company as of December 31, 2020, we are asking our stockholders to approve, on a non-binding advisory basis, the compensation of our named executive officers, as disclosed in the “Executive Compensation” section of this proxy statement and the related compensation tables and disclosure.
We believe that our executive officer compensation programs provide incentives that are aligned with the interests of our stockholders and have facilitated our performance, business goals and promote short and long term profitable growth. We urge stockholders to read the “Executive Compensation” section above, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation philosophy and objectives, as well as the related compensation tables and narrative above which provide detailed information on the compensation of our named executive officers. Our compensation committee and board of directors believe that the policies and procedures articulated in the “Executive Compensation” section are effective in achieving our goals and that the compensation of our named executive officers reported in this proxy statement has supported and contributed to the Company’s success.
We are asking stockholders to approve the following advisory resolution at the Annual Meeting:
RESOLVED, that the stockholders of PDS Biotechnology Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission in the compensation tables and related narrative disclosure in our proxy statement for the Annual Meeting.
This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on our board of directors. Although non-binding, board of directors and compensation committee will carefully review and consider the voting results when evaluating our executive compensation program.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS.
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ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY “SAY ON PAY” VOTES
The Dodd-Frank Wall Street Reform and Consumer Protection Act enables our stockholders to indicate how frequently they believe we should seek an advisory vote on the compensation of our named executive officers. We are seeking a non-binding, advisory determination from our stockholders as to the frequency with which stockholders would have an opportunity to provide a non-binding, advisory approval of the compensation of our named executive officers. We are providing stockholders the option of selecting a frequency of every year (“1 YEAR” on the proxy card), every two years (“2 YEARS” on the proxy card) or every three years (“3 YEARS” on the proxy card), or to abstain on the matter. Stockholders are not voting to approve or disapprove of our board of director’s recommendation.
After careful consideration, our board of directors recommends that an advisory vote on executive compensation should be held every year. Annual votes will provide the board of directors and compensation committee with clearer feedback regarding the compensation of our named executive officers. The primary focus of the disclosure of the compensation of our named executive officers required to be included in our proxy statements is compensation granted in or for the prior fiscal year. Accordingly, an annual executive compensation advisory vote will complement the annual focus of our proxy statement disclosure and provide the board of directors and compensation committee with the clearest and most timely feedback of the three frequency options. Additionally, an annual executive compensation advisory vote is consistent with our policy of reviewing our compensation programs annually, as well as considering input from our stockholders on corporate governance and executive compensation matters. This feedback may then be considered by our board of directors and compensation committee in their annual decision-making process. For these reasons, we believe an annual vote would be the best governance practice for our company at this time.
This proposal will be presented at the Annual Meeting in substantially the following form:
RESOLVED, that the stockholders approve our presentation at each annual meeting of stockholders hereafter of a proposal to approve the compensation of our named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission in the compensation tables and related narrative disclosure in our proxy statement for such annual meeting.
This vote is advisory, and therefore not binding on our board of directors or compensation committee. However, our board of directors and compensation committee value the opinions of our stockholders and intend to take into account the outcome of the vote when considering the frequency of holding future advisory votes on the compensation of our named executive officers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” TO HAVE
FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY YEAR.
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HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for mailing of Proxy Materials or other Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single mailing of Proxy Materials or other 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.
This year, a number of brokers with account holders who are PDS stockholders will be “householding” our proxy materials. A single mailing
of Proxy Materials
or other 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 mailing of Proxy Materials, please notify us or your broker. Direct your written request to Investor Relations, PDS Biotechnology Corporation at
25B Vreeland Road, Suite 300,
Connell Drive, Suite 4000, Berkeley Heights,Florham Park, NJ
0792207932 or by phone at (800) 208-3343. Stockholders who currently receive multiple copies of Proxy Materials at their addresses and would like to request “householding” of their communications should contact their brokers.
The Board of Directors 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
Andrew Saik
Frank Bedu-Addo, Ph.D.
Chief
FinancialExecutive Officer
August 16, 2019
A copy of
April 29, 2021
This Proxy Statement and our Annual Report to the SEC on Form 10-K for the fiscal year ended December 31,
2018 is2020 are available
withoutfree of charge
upon written request to: Secretary, PDS Biotechnology Corporation at
300 Connell Drive, Suite 4000, Berkeley Heights, NJ 07922.www.proxyvote.com.
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APPENDIX A
SECOND AMENDED AND RESTATED PDS BIOTECHNOLOGY CORPORATION 2014 EQUITY
INCENTIVE PLAN
SECOND AMENDED AND RESTATED
PDS BIOTECHNOLOGY CORPORATION
2014 EQUITY INCENTIVE PLAN
Adopted by the Board of Directors December 8, 2020
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SECOND AMENDED AND RESTATED PDS BIOTECHNOLOGY CORPORATION
2014 EQUITY INCENTIVE PLAN
(Effective December 8, 2020)
Section 1. Purpose of the Plan. The purpose of the Second Amended and Restated PDS Biotechnology Corporation 2014 Equity Incentive Plan (formerly known as the Amended and Restated Edge Therapeutics, Inc. 2014 Equity Incentive Plan) (the “Plan”) is to assist the Company and its Subsidiaries in attracting and retaining valued Employees, Consultants and Non-Employee Directors by offering them a greater stake in the Company’s success and a closer identity with it, and to encourage ownership of the Company’s stock by such Employees, Consultants and Non-Employee Directors.
Section 2. Definitions. As used herein, the following definitions shall apply:
2.1. “Award” means the grant of Restricted Stock, Options, SARs, Restricted Stock Units or Other Awards under the Plan.
2.2. “Award Agreement” means the written agreement, instrument or document evidencing an Award.
2.3. “Board” means the Board of Directors of the Company.
2.4. “Cause” means,
(a) if the applicable Participant is party to an effective employment, consulting, severance or similar agreement with the Company or a Subsidiary, and such term is defined therein, “Cause” shall have the meaning provided in such agreement;
(b) if the applicable Participant is not a party to an effective employment, consulting, severance or similar agreement or if no definition of “Cause” is set forth in the applicable employment, consulting, severance or similar agreement, “Cause” shall have the meaning provided in the applicable Award Agreement;
(c) if neither (a) nor (b) applies, then “Cause” shall mean, as determined by the Committee in its sole discretion, (i) the Participant’s willful misconduct or gross negligence in connection with the performance of the Participant’s duties for the Company or its Subsidiaries; (ii) the Participant’s conviction of, or a plea of guilty or nolo contendere to, a felony or a crime involving fraud or moral turpitude; (iii) the Participant’s engaging in any business that directly or indirectly competes with the Company or its Subsidiaries; or (iv) disclosure of trade secrets, customer lists or any other confidential information of the Company or its Subsidiaries to a competitor or an unauthorized person.
2.5. “Change in Control” means, unless otherwise provided in an Award Agreement:
(a) the acquisition in one or more transactions (whether by purchase, merger or otherwise) by any “Person” (as such term is used for purposes of Section 13(d) or Section 14(d) of the Exchange Act, but excluding, for this purpose, (i) the Company or its Subsidiaries, (ii) any employee benefit plan of the Company or its Subsidiaries, (iii) an entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) of “Beneficial Ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities (the “Voting Securities”);
(b) a change in the composition of the Board such that the individuals who as of any date constitute the Board (the “Incumbent Board”) cease to constitute a majority of the Board at any time during the 24-month period immediately following such date; provided, however, that if the election, or nomination for election by the Company’s shareholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board, and provided further that any reductions in the size of the Board that are instituted voluntarily by the Incumbent Board shall not constitute a Change in Control, and after any such reduction the “Incumbent Board” shall mean the Board as so reduced;
(c) a complete liquidation or dissolution of the Company; or
(d) the sale of all or substantially all of the Company’s and its Subsidiaries’ assets (determined on a consolidated basis), other than to a Person described in clauses (i), (ii) or (iii) of Section 2.5(a) above.
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2.6. “Code” means the Internal Revenue Code of 1986, as amended.
2.7. “Common Stock” means the common stock of the Company, par value $0.00033 per share.
2.8. “Company” means PDS Biotechnology Corporation, a Delaware corporation, or any successor corporation.
2.9. “Committee” means the Compensation Committee of the Board, provided that the Committee shall at all times have at least two members, each of whom shall be a “non-employee director” as defined in Rule 16b-3 under the Exchange Act and an “independent director” under the rules of any applicable stock exchange.
2.10. “Consultant” means a natural person who provides bona fide services to the Company or its Subsidiaries other than in connection with the offer or sale of securities in a capital-raising transaction and is not engaged in activities that directly or indirectly promote or maintain a market for the Company’s securities.
2.11. “Disability” means, unless otherwise provided in an Award Agreement, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
2.12. “Effective Date” means December 8, 2020.
2.13. “Employee” means an officer or other employee of the Company or a Subsidiary, including a director who is such an employee.
2.14. “Exchange Act” means the Securities Exchange Act of 1934, as amended.
2.15. “Fair Market Value” means, on any given date (i) if the shares of Common Stock are then listed on a national securities exchange, including the Nasdaq Global Select Market (“NASDAQ”), the closing sales price per share of Common Stock on the exchange for such date, or if no sale was made on such date on the exchange, on the last preceding day on which a sale occurred; (ii) if shares of Common Stock are not then listed on a national securities exchange but are then quoted on another stock quotation system, the closing price for the shares of Common Stock as quoted on such quotation system on such date, or if no sale was made on such date on such quotation system, on the last preceding day on which a sale was made; or (iii) if (i) and (ii) do not apply, such value as the Committee in its discretion may in good faith determine in accordance with Section 409A of the Code and the regulations thereunder (and, with respect to Incentive Stock Options, in accordance with Section 422 of the Code and the regulations thereunder).
2.16. “Incentive Stock Option” means an Option or portion thereof intended to meet the requirements of an incentive stock option as defined in Section 422 of the Code and designated as an Incentive Stock Option.
2.17. “Non-Employee Director” means a member of the Board or the board of directors or board of managers of a Subsidiary, in either case, who is not an Employee.
2.18. “Non-Qualified Option” means an Option or portion thereof not intended to be, or that does not satisfy all requirements to be, an Incentive Stock Option.
2.19. “Option” means a right granted under Section 6.1 of the Plan to purchase a specified number of shares of Common Stock at a specified price. An Option may be an Incentive Stock Option or a Non-Qualified Option; provided, however, that unless otherwise explicitly stated in an Award Agreement, each Option shall be a Non-Qualified Option.
2.20. “Participant” means any Employee, Non-Employee Director or Consultant who receives an Award.
2.21. “Performance Goal” means any goal established by the Committee, in its sole discretion , the attainment of which is substantially uncertain at the time such goal is established. Performance Goals may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or the Subsidiary, division, department or function within the Company or Subsidiary in which the Participant is employed. Performance Goals may be measured on an absolute or relative basis. Relative performance may be measured by a group of peer companies or by a financial market index. Performance Goals may, without limitation, be based on the following: specified levels of or increases in return on capital, equity or assets; earnings measures/ratios (on a gross, net, pre-tax or post-tax basis), including diluted earnings per share, total earnings, operating earnings, earnings growth, earnings before interest and taxes (EBIT)
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and earnings before interest, taxes, depreciation and amortization (EBITDA); net economic profit (which is operating earnings minus a charge to capital); net income; operating income; sales; sales growth; gross margin; direct margin; share price (including but not limited to growth measures and total shareholder return); operating profit; per period or cumulative cash flow (including but not limited to operating cash flow and free cash flow) or cash flow return on investment (which equals net cash flow divided by total capital); inventory turns; financial return ratios; market share; balance sheet measurements such as receivable turnover; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; debt reduction; strategic innovation, including but not limited to entering into, substantially completing, or receiving payments under, relating to, or deriving from a joint development agreement, licensing agreement, or similar agreement; customer or employee satisfaction; individual objectives; operating efficiency; regulatory body approvals for commercialization of products; implementation or completion of critical projects or related milestones (including, without limitation, milestones such as clinical trial enrollment targets, commencement of phases of clinical trials and completion of phases of clinical trials); partnering or similar transactions; any combination of any of the foregoing criteria; or any other metric as determined by the Committee.
2.22. “Performance Period” means the period selected by the Committee during which the performance of the Company, any Subsidiary, any department of the Company or any Subsidiary, or any individual is measured for the purpose of determining the extent to which a Performance Goal has been achieved.
2.23. “Restricted Stock” means Common Stock awarded by the Committee under Section 6.3 of the Plan.
2.24. “Restricted Stock Unit” means the right granted under Section 6.4 of the Plan to receive, on the date of settlement, an amount equal to the Fair Market Value of one share of Common Stock. An Award of Restricted Stock Units may be settled in cash, shares of Common Stock or any combination of the foregoing.
2.25. “Restriction Period” means the period during which Restricted Stock and Restricted Stock Units are subject to forfeiture.
2.26. “SAR” means a stock appreciation right awarded by the Committee under Section 6.2 of the Plan.
2.27. “Securities Act” means the Securities Act of 1933, as amended.
2.28. “Subsidiary” means any corporation, partnership, joint venture or other business entity of which 50% or more of the outstanding voting power is beneficially owned, directly or indirectly, by the Company.
2.29. “Ten Percent Shareholder” means a person who on any given date owns, either directly or indirectly (taking into account the attribution rules contained in Section 424(d) of the Code), stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Subsidiary.
Section 3. Eligibility. Any Employee, Non-Employee Director or Consultant shall be eligible to be selected to receive an Award under the Plan; provided, however, that only persons who are Employees may be granted Options which are intended to qualify as Incentive Stock Options.
Section 4. Administration and Implementation of the Plan.
4.1. The Plan and all Award Agreements shall be administered by the Committee. Any action of the Committee in administering the Plan and an Award Agreement shall be final, conclusive and binding on all persons, including the Company, its Subsidiaries, Participants, persons claiming rights from or through Participants and shareholders of the Company. No member of the Committee (or any person to whom the Committee has delegated authority to act under the Plan) shall be personally liable for any action, determination, or interpretation taken or made in good faith by the Committee (or such person) with respect to the Plan or any Awards granted hereunder, and all members of the Committee (and such persons) shall be fully indemnified and protected by the Company in respect of any such action, determination or interpretation to the fullest extent permitted by law.
4.2. Subject to the provisions of the Plan, the Committee shall have full and final authority in its discretion to (i) select the Employees, Non-Employee Directors and Consultants who will receive Awards pursuant to the Plan; (ii) determine the type or types of Awards to be granted to each Participant; (iii) determine the number of shares of Common Stock to which an Award will relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to Performance
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Goals relating to an Award, based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection with an Award; (iv) determine the exercise price or purchase price (if any) of an Award; (v) determine whether, to what extent, and under what circumstances an Award may be cancelled, forfeited, or surrendered; (vi) determine whether, and to certify that, Performance Goals to which an Award is subject are satisfied; (vii) correct any defect or supply any omission or reconcile any inconsistency in the Plan, and adopt, amend and rescind such rules, regulations, guidelines, forms of agreements and instruments relating to the Plan as it may deem necessary or advisable; (viii) construe and interpret the Plan; and (ix) make all other determinations as it may deem necessary or advisable for the administration of the Plan; provided, however, that the Committee shall be prohibited from effecting a repricing of any outstanding Award without shareholder approval.
4.3. To the extent permitted by applicable law, the Committee may delegate some or all of its authority with respect to the Plan and Awards to any executive officer of the Company or any other person or persons designated by the Committee, in each case, acting individually or as a committee, provided that the Committee may not delegate its authority hereunder to any person to make Awards to (a) Employees who are (i) “officers” as defined in Rule 16a-1(f) under the Exchange Act or (ii) officers or other Employees who are delegated authority by the Committee pursuant to this Section or (b) members of the Board. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation or thereafter. The Committee may at any time rescind the authority delegated to any person pursuant to this Section. Any action undertaken by any such person or persons in accordance with the Committee’s delegation of authority pursuant to this Section shall have the same force and effect as if undertaken directly by the Committee.
Section 5. Shares of Common Stock Subject to the Plan.
5.1. Share Pool. Subject to adjustment as provided in this Section 5 and in Section 8 hereof, the total number of shares of Common Stock available for Awards under the Plan as of the Effective Date shall be the sum of (x) 3,339,243 plus (y) the total number of shares of Common Stock that remain available for issuance, and are not covered by outstanding awards issued, under the Plan immediately prior to the Effective Date (clauses (x) and (y), collectively, the “Plan Limit”).
5.2. Adjustments to Plan Limit. On and after the Effective Date, the Plan Limit shall be adjusted, in addition to any adjustments to be made pursuant to Section 8 of the Plan, as follows:
(i) The Plan Limit as of such date shall be reduced, on the date of grant, by one share for each share of Common Stock made subject to an Award granted under the Plan;
(ii) The Plan Limit shall be increased by the number of shares underlying an Award or portion thereof granted under this Plan or an award or portion thereof granted under the Plan, the Edge Therapeutics, Inc. 2010 Equity Incentive Plan (the “2010 Plan”) or the Edge Therapeutics, Inc. 2012 Equity Incentive Plan (the “2012 Plan”), in any case, that on or after the Effective Date is forfeited, cancelled or otherwise terminates, expires or is settled for any reason whatsoever without an actual distribution of shares; and
(iii) The Plan Limit shall be increased, on the forfeiture date, by the number of shares of Common Stock that are forfeited back to the Company after issuance due to a failure to meet a contingency or condition with respect to any Award or portion thereof granted under this Plan, any award or portion thereof granted under the 2010 Plan, any award or portion thereof granted under the 2012 Plan or any award or portion thereof granted under the Plan.
For the avoidance of doubt, any shares tendered by a Participant in payment of an exercise price for an Award (or an award granted under the Plan, the 2012 Plan or the 2010 Plan) or the tax liability with respect to an Award (or an award granted under the Plan, the 2012 Plan or the 2010 Plan), including shares withheld from any such Award or award, shall not be available for future Awards hereunder. Common Stock awarded under the Plan may be reserved or made available from the Company’s authorized and unissued Common Stock or from Common Stock reacquired and held in the Company’s treasury. Any shares of Common Stock issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares of Common Stock available for Awards under the Plan.
5.3. ISO Limit. Up to 11,000,000 shares (the “ISO Limit”) available for Awards under the Plan may be issued pursuant to Incentive Stock Options.
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5.4. Director Limit. In addition, the Committee may establish compensation for Non-Employee Directors from time to time, subject to the limitations in the Plan. The Committee will from time to time determine the terms, conditions and amounts of all such Non-Employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation and the grant date fair value of Awards (as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) granted under the Plan to a Non-Employee Director as compensation for services as a Non-Employee Director during any calendar year of the Company may not exceed $500,000 for an annual grant, provided however, in a Non-Employee Director’s first year of service, compensation for services may not exceed $1,000,000 (such limits, the “Director Limits”). The Committee may make exceptions to the Director Limit for individual Non-Employee Directors in extraordinary circumstances, as the Committee may determine in its discretion, provided that the Non-Employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other compensation decisions involving such Non-Employee Director.
Section 6. Awards. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the settlement or exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including without limitation terms requiring forfeiture of Awards in the event of the termination of employment or other relationship with the Company or any Subsidiary by the Participant; provided, however, that the Committee shall retain full power to accelerate or waive any such additional term or condition as it may have previously imposed (provided that, in any case, any such action is permitted under Code Section 409A). The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such Performance Goals as may be determined by the Committee. Each Award, and the terms and conditions applicable thereto, shall be evidenced by an Award Agreement.
6.1. Options. Options give a Participant the right to purchase a specified number of shares of Common Stock from the Company for a specified time period at a fixed exercise price, as provided in the applicable Award Agreement. Options may be either Incentive Stock Options or Non-Qualified Options; provided that Incentive Stock Options may not be granted to Non-Employee Directors or Consultants. The grant of Options shall be subject to the following terms and conditions:
(a) Exercise Price. The price per share at which Common Stock may be purchased upon exercise of an Option shall be determined by the Committee and specified in the Award Agreement, but shall be not less than the Fair Market Value of a share of Common Stock on the date of grant (or 110% of the Fair Market Value of a share of Common Stock on the date of grant in the case of an Incentive Stock Option granted to a Ten Percent Shareholder).
(b) Term of Options. The term of an Option shall be specified in the Award Agreement, but shall in no event be greater than ten years from the grant date (or five years from the grant date in the case of an Incentive Stock Option granted to a Ten Percent Shareholder).
(c) Exercise of Option. Each Award Agreement with respect to an Option shall specify the time or times at which an Option may be exercised in whole or in part and the terms and conditions applicable thereto, including (i) a vesting schedule which may be based upon the passage of time, attainment of Performance Goals or a combination thereof, (ii) whether the exercise price for an Option shall be paid in cash, with shares of Common Stock, with any combination of cash and shares of Common Stock, or with other legal consideration that the Committee may deem appropriate, (iii) the methods of payment, which may include payment through cashless and net exercise arrangements, to the extent permitted by applicable law and (iv) the methods by which, or the time or times at which, Common Stock will be delivered or deemed to be delivered to Participants upon the exercise of such Option. Payment of the exercise price shall in all events be made within three days after the date of exercise of an Option. With respect to any Participant who is subject to Section 16 of the Exchange Act, such Participant may direct the Company to reduce the number of Shares that would otherwise be deliverable upon the exercise of his or her Option having a Fair Market Value on the date of exercise equal to the exercise price of the portion of the Option then being exercised.
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(d) Termination of Employment or Other Service. Unless otherwise provided in an Award Agreement, upon a Participant’s termination of employment or other service with the Company and its Subsidiaries, the unvested portion of such Participant’s Options shall cease to vest and shall be forfeited and the vested portion of such Participant’s Options shall remain exercisable by the Participant or the Participant’s beneficiary or legal representative, as the case may be, for a period of (i) 30 days in the event of a termination by the Company or a Subsidiary without Cause, (ii) 180 days in the event of a termination due to death or Disability and (iii) 30 days in the event of the Participant’s voluntary termination; provided, however, that in no event shall any Option be exercisable after its stated term has expired. All of a Participant’s Options, whether or not vested, shall be forfeited immediately upon such Participant’s termination by the Company or a Subsidiary for Cause.
(e) Incentive Stock Options. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date he or she makes a “disqualifying disposition” (as defined in Section 421(b) of the Code) of any shares of Common Stock acquired pursuant to the exercise of such Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by it, retain possession of any shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of any period during which a disqualifying disposition could occur, subject to complying with any instructions from such Participant as to the sale of such shares. The aggregate Fair Market Value, determined as of the date of grant, for Awards granted under the Plan (or any other stock option plan required to be taken into account under Section 422(d) of the Code) that are intended to be Incentive Stock Options which are first exercisable by the Participant during any calendar year shall not exceed $100,000. To the extent an Award purporting to be an Incentive Stock Option exceeds the limitation in the previous sentence, the portion of the Award in excess of such limit shall be a Non-Qualified Option.
6.2. Stock Appreciation Rights. An SAR shall confer on the Participant a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one share of Common Stock on the date of exercise over (ii) the grant price of the SAR as determined by the Committee, but which may never be less than the Fair Market Value of one share of Common Stock on the date of grant. The grant of SARs shall be subject to the following terms and conditions:
(a) General. Each Award Agreement with respect to an SAR shall specify the number of SARs granted, the grant price of the SAR, the time or times at which an SAR may be exercised in whole or in part (including vesting upon the passage of time, the attainment of Performance Goals, or a combination thereof), the method of exercise, method of settlement (in cash, Common Stock or a combination thereof), method by which Common Stock will be delivered or deemed to be delivered to Participants (if applicable) and any other terms and conditions of any SAR.
(b) Termination of Employment or Other Service. Unless otherwise provided in an Award Agreement, upon a Participant’s termination of employment or other service with the Company and its Subsidiaries, the unvested portion of such Participant’s SARs shall cease to vest and shall be forfeited and the vested portion of such Participant’s SARs shall remain exercisable by the Participant or the Participant’s beneficiary or legal representative, as the case may be, for a period of (i) 30 days in the event of a termination by the Company or a Subsidiary without Cause, (ii) 180 days in the event of a termination due to death or Disability and (iii) 30 days in the event of the Participant’s voluntary termination; provided, however, that in no event shall any SAR be exercisable after its stated term has expired. All of a Participant’s SARs, whether or not vested, shall be forfeited immediately upon such Participant’s termination by the Company or a Subsidiary for Cause.
(c) Term. The term of an SAR shall be specified in the Award Agreement, but shall in no event be greater than ten years.
6.3. Restricted Stock. An Award of Restricted Stock is a grant by the Company of a specified number of shares of Common Stock to the Participant, which shares are subject to forfeiture upon the happening of specified events during the Restriction Period. Such an Award shall be subject to the following terms and conditions:
(a) General. Each Award Agreement with respect to Restricted Stock shall specify the duration of the Restriction Period and/or each installment thereof, the conditions under which the Restricted Stock may be forfeited to the Company, and the amount, if any, the Participant must pay to receive the Restricted Stock. Such restrictions may include a vesting schedule based upon the passage of time, the attainment of Performance Goals or a combination thereof.
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(b) Transferability. During the Restriction Period, the transferability of Restricted Stock shall be prohibited or restricted in the manner and to the extent prescribed in the applicable Award Agreement. Such restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee.
(c) Shareholder Rights. Unless otherwise provided in the applicable Award Agreement, during the Restriction Period the Participant shall have all the rights of a shareholder with respect to Restricted Stock, including, without limitation, the right to receive dividends thereon (whether in cash or shares of Common Stock) and to vote such shares of Restricted Stock; provided, however, that dividends shall be subject to the same restrictions as the underlying Restricted Stock (unless otherwise provided by the Committee in the Award Agreement) and cash dividends shall be held by the Company in its general assets and released to the Participant only upon the vesting of the underlying Restricted Stock (unless otherwise provided by the Committee in the Award Agreement).
(d) Termination of Employment or Other Service. Unless otherwise provided in the applicable Award Agreement, upon a Participant’s termination of employment or other service with the Company and its Subsidiaries for any reason, the unvested portion of each Award of Restricted Stock held by such Participant shall be forfeited with no compensation due the Participant.
(e) Additional Matters. Upon the Award of Restricted Stock, the Committee may direct the number of shares of Common Stock subject to such Award be issued to the Participant or placed in a restricted stock account (including an electronic account) with the transfer agent and in either case designating the Participant as the registered owner. The certificate(s), if any, representing such shares shall be physically or electronically legended, as applicable, as to sale, transfer, assignment, pledge or other encumbrances during the Restriction Period and, if issued to the Participant, returned to the Company to be held in escrow during the Restriction Period. In all cases, the Participant shall sign a stock power endorsed in blank to the Company to be held in escrow during the Restriction Period.
6.4. Restricted Stock Units. Restricted Stock Units are solely a device for the measurement and determination of the amounts to be paid to a Participant under the Plan. Restricted Stock Units do not constitute Common Stock and shall not be treated as (or as giving rise to) property or as a trust fund of any kind; provided, however, that the Company may establish a bookkeeping reserve to meet its obligations hereunder or a trust or other funding vehicle that would not cause the Plan to be deemed to be funded for tax purposes or for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. The right of any Participant in respect of an Award of Restricted Stock Units shall be no greater than the right of any unsecured general creditor of the Company. The grant of Restricted Stock Units shall be subject to the following terms and conditions:
(a) Restriction Period. Each Award Agreement with respect to Restricted Stock Units shall specify the duration of the Restriction Period, if any, and/or each installment thereof and the conditions under which such Award may be forfeited to the Company. Such restrictions may include a vesting schedule based upon the passage of time, the attainment of Performance Goals or a combination thereof.
(b) Termination of Employment or Other Service. Unless otherwise provided in the applicable Award Agreement, upon a Participant’s termination of employment or other service with the Company and its Subsidiaries for any reason, the unvested portion of each Award of Restricted Stock Units credited to such Participant shall be forfeited with no compensation due the Participant.
(c) Settlement. Unless otherwise provided in an Award Agreement (i) an Award of Restricted Stock Units shall be settled in shares of Common Stock, provided that any fractional Restricted Stock Units shall be settled in cash and (ii) subject to the Participant’s continued employment or other service with the Company or a Subsidiary from the date of grant through the expiration of the Restriction Period (or applicable portion thereof), the vested portion of an Award of Restricted Stock Units shall be settled within 30 days after the expiration of the Restriction Period (or applicable portion thereof).
(d) Shareholder Rights. Nothing contained in the Plan shall be construed to give any Participant rights as a shareholder with respect to an Award of Restricted Stock Units (including, without limitation, any voting, dividend or derivative or other similar rights). Notwithstanding the foregoing, the Committee may provide in an Award Agreement that amounts equal to any dividends declared during the Restriction Period on the shares of
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Common Stock represented by an Award of Restricted Stock Units will be credited to the Participant’s account and deemed to be reinvested in additional Restricted Stock Units, such additional Restricted Stock Units to be subject to the same forfeiture restrictions and settlement date as the Restricted Stock Units to which they relate.
6.5. Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants any type of Award (in addition to those Awards provided in Sections 6.1, 6.2, 6.3 or 6.4 hereof) that is payable in, or valued in whole or in part by reference to, shares of Common Stock, and that is deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, dividend equivalents, performance shares and performance units (“Other Awards”).
Section 7. Change in Control.
7.1. General. Notwithstanding any provision in the Plan to the contrary, upon the occurrence of a Change in Control, the Committee, in its discretion, may accelerate the vesting and, if applicable, exercisability of all outstanding Awards such that all outstanding Awards are fully vested and, if applicable, exercisable (effective immediately prior to such Change in Control) and may determine whether all applicable Performance Goals have been achieved and the applicable level of performance.
7.2. Options and SARs. Notwithstanding any provision in the Plan to the contrary, upon the occurrence of a Change in Control, the Committee, in its discretion, may take one or more of the following actions with respect to Options and SARs that are outstanding as of such Change in Control: (a) cancel any outstanding Options or SARs in exchange for a cash payment in an amount equal to the excess, if any, of the Fair Market Value of the Common Stock underlying the unexercised portion of the Option or SAR as of the date of the Change in Control over the exercise price or grant price, as the case may be, of such portion, provided that any Option or SAR with an exercise price or grant price, as the case may be, that equals or exceeds the Fair Market Value of the Common Stock on the date of such Change in Control shall be cancelled with no payment due the Participant; (b) terminate any Option or SAR, effectively immediately prior to the Change in Control, provided that the Company provides the Participant an opportunity to exercise such Award within a specified period following the Participant’s receipt of a written notice of such Change in Control and the Company’s intention to terminate such Awards, effective immediately prior to such Change in Control; (c) terminate any Options or SARs, the Performance Goals of which have not been satisfied as of the Change in Control, (d) require the successor or acquiring company (or its parents or subsidiaries), following a Change in Control, to assume any outstanding Option or SAR and to substitute such Option or SAR with awards involving the common equity securities of such company on terms and conditions necessary to preserve the rights of Participants with respect to such Options or SARs or (e) take such other actions as the Committee believes may be appropriate.
7.3. Restricted Stock, Restricted Stock Units and Other Awards. With respect to Restricted Stock, Restricted Stock Units or Other Awards, the Committee generally may (a) provide in an Award that, upon the occurrence of a Change in Control, any vested Restricted Stock, Restricted Stock Units and Other Awards shall become immediately vested and/or payable, provided that if such Awards constitute “non-qualified deferred compensation” (within the meaning of Code Section 409A) such Change in Control satisfies the requirements of Treasury Regulation Section 1.409A-3(i)(5)(v), (vi) or (vii); (b) with respect to any Restricted Stock, Restricted Stock Units or Other Awards that do not constitute “non-qualified deferred compensation,” elect to settle such Restricted Stock, Restricted Stock Units and Other Awards upon a Change in Control, (c) terminate any Restricted Stock, Restricted Stock Units or Other Awards if the applicable Performance Goals were not satisfied as of the Change in Control, (d) require the successor or acquiring company (or its parents or subsidiaries), following a Change in Control, to assume such Restricted Stock, Restricted Stock Units and Other Awards or to substitute such Awards with awards involving the equity securities of the acquiring or successor company on terms and conditions so as to preserve the rights of participants, or (e) to the extent permitted by Code Section 409A, take such other actions as the Committee believes may be appropriate (including terminating such Awards for a cash payment equal to the fair market value of the underlying shares).
The judgment of the Committee with respect to any matter referred to in this Section 7 shall be conclusive and binding upon each Participant without the need for any amendment to the Plan.
Section 8. Adjustments upon Changes in Capitalization.
8.1. In order to prevent dilution or enlargement of the rights of Participants under the Plan as a result of any stock dividend, recapitalization, forward stock split or reverse stock split, reorganization, division, merger,
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consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution or other similar corporate transaction or event that affects the Common Stock, the Committee shall adjust (i) the number and kind of shares of Common Stock which may thereafter be issued in connection with Awards, (ii) the number and kind of shares of Common Stock issuable in respect of outstanding Awards, (iii) the aggregate number and kind of shares of Common Stock available under the Plan (including any of the specific limitations under Section 5 hereof), and (iv) the exercise or grant price relating to any Award. Any such adjustment shall be made in an equitable manner which reflects the effect of such transaction or event. It is provided, however, that in the case of any such transaction or event, the Committee may, in lieu of making adjustments to the items in (i) through (iv) above, make a cash payment with respect to any outstanding Award; provided, further, that no adjustment shall be made under this Section 8.1 that would cause the Plan to violate Section 422 of the Code with respect to Incentive Stock Options, that would cause any Award or the Plan to fail to be exempt from and fail to comply with Section 409A of the Code, or that would adversely affect the status of any Award that is “performance-based compensation” under Section 162(m) of the Code, as applicable.
8.2. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards, including any Performance Goals, in recognition of unusual or nonrecurring events (including, without limitation, events described in Section 8.1) affecting the Company or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, all adjustments shall be made in accordance with Section 409A of the Code and the regulations thereunder to the extent applicable.
Section 9. Termination and Amendment.
9.1. Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of the Company’s shareholders or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company’s shareholders if (i) such action would increase the number of shares subject to the Plan, (ii) such action would decrease the price at which Awards may be granted, or (iii) such shareholder approval is required by any applicable federal, state or foreign law or regulation or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit such other changes to the Plan to the Company’s shareholders for approval; provided, however, that except as provided in Section 18, without the consent of an affected Participant, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant under any outstanding Award unless such modification is necessary to avoid the additional tax described in Section 409A of the Code.
9.2. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate, any Award theretofore granted and any Award Agreement relating thereto; provided, however, that except as provided in Section 18, without the consent of an affected Participant, no such amendment, alteration, suspension, discontinuation, or termination of any Award may materially and adversely affect the rights of such Participant under such Award unless such modification is necessary to avoid the additional tax described in Section 409A of the Code.
9.3. Notwithstanding anything in this Section 9 to the contrary, any Performance Goal applicable to an Award shall not be deemed a fixed contractual term, but shall remain subject to adjustment by the Committee, in its discretion at any time in view of the Committee’s assessment of the Company’s strategy, performance of comparable companies, and other circumstances.
9.4. Notwithstanding anything in the Plan or an Award Agreement to the contrary, no Award may be repriced, replaced or regranted through cancellation or bought out for cash or other consideration without the approval of the shareholders of the Company, provided that nothing herein shall prevent the Committee from taking any action provided for in Section 8.
Section 10. No Right to Award, Employment or Service. No Participant shall have any claim to be granted any Award under the Plan, and there is no obligation that the terms of Awards be uniform or consistent among Participants. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or any Subsidiary. For purposes of this Plan, a transfer of employment or service between the Company and its Subsidiaries shall not be deemed a termination of employment or service; provided, however, that individuals employed by, or otherwise providing services to, an entity that ceases
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to be a Subsidiary shall be deemed to have incurred a termination of employment or service, as the case may be, as of the date such entity ceases to be a Subsidiary unless such individual becomes an employee of, or service provider to, the Company or another Subsidiary as of the date of such cessation.
Section 11. Taxes. Each Participant must make appropriate arrangement for the payment of any taxes relating to an Award granted hereunder. The Company or any Subsidiary is authorized to withhold from any payment relating to an Award under the Plan, including from a distribution of Common Stock or any payroll or other payment to a Participant, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include the ability to withhold or receive Common Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations.
Section 12. Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan shall be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of such Participant to, any party, other than the Company or any Subsidiary, or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution, and such Awards and rights shall be exercisable during the lifetime of the Participant only by the Participant or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may, in its discretion, provide that Options, SARs and Restricted Stock be transferable, without consideration, to immediate family members (i.e., children, grandchildren or spouse), to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners (any vesting conditions shall be unaffected by such transfer). The Committee may attach to such transferability feature such terms and conditions as it deems advisable. In addition, a Participant may, in the manner established by the Committee, designate a beneficiary (which may be a person or a trust) to exercise the rights of the Participant, and to receive any distribution, with respect to any Award upon the death of the Participant. A beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award Agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional restrictions deemed necessary or appropriate by the Committee.
Section 13. Foreign Nationals. Without amending the Plan, Awards may be granted to Employees, Consultants and Non-Employee Directors who are foreign nationals or are employed or providing services outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purpose of the Plan. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose, provided that no such supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the terms of the Plan, as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.
Section 14. Securities Law Requirements.
14.1. No shares of Common Stock may be issued hereunder if the Company shall at any time determine that to do so would (i) violate the listing requirements of an applicable securities exchange, or adversely affect the registration or qualification of the Company’s Common Stock under any state or federal law, or (ii) require the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities. In any of the events referred to in clause (i) or clause (ii) above, the issuance of such shares shall be suspended and shall not be effective unless and until such withholding, listing, registration, qualifications or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion, notwithstanding any termination of any Award or any portion of any Award during the period when issuance has been suspended.
14.2. The Committee may require, as a condition to the issuance of shares hereunder, representations, warranties and agreements to the effect that such shares are being purchased or acquired by the Participant for investment only and without any present intention to sell or otherwise distribute such shares and that the Participant will not dispose of such shares in transactions which, in the opinion of counsel to the Company, would violate the registration provisions of the Securities Act, and the rules and regulations thereunder.
TABLE OF CONTENTS
Section 15. Termination. Unless earlier terminated, the Plan shall terminate with respect to the grant of Awards on December 7, 2030.
Section 16. Fractional Shares. The Company will not be required to issue any fractional shares of Common Stock pursuant to the Plan. The Committee may provide for the elimination of fractions and settlement of such fractional shares of Common Stock in cash.
Section 17. Discretion. In exercising, or declining to exercise, any grant of authority or discretion hereunder, the Committee may consider or ignore such factors or circumstances and may accord such weight to such factors and circumstances as the Committee alone and in its sole judgment deems appropriate and without regard to the effect such exercise, or declining to exercise such grant of authority or discretion, would have upon the affected Participant, any other Participant, any Employee, the Company, any Subsidiary, any affiliate, any shareholder or any other person.
Section 18. Code Section 409A. The Plan and all Awards are intended to comply with, or be exempt from, Code Section 409A and all regulations, guidance, compliance programs and other interpretative authority thereunder, and shall be interpreted in a manner consistent therewith. Notwithstanding anything contained herein to the contrary, in the event any Award is subject to Code Section 409A, the Committee may, in its sole discretion and without a Participant’s prior consent, amend the Plan and/or Award, adopt policies and procedures, or take any other actions as deemed appropriate by the Committee to (i) exempt the Plan and/or any Award from the application of Code Section 409A, (ii) preserve the intended tax treatment of any such Award or (iii) comply with the requirements of Code Section 409A. Notwithstanding anything contained in the Plan or in an Award Agreement to the contrary, neither the Company, any member of the Committee nor any Subsidiary shall have any liability or obligation to any Participant or any other person for taxes, interest, penalties or fines (including any of the foregoing resulting from the failure of any Award granted hereunder to comply with, or be exempt from, Code Section 409A). In the event that a Participant is a “specified employee” within the meaning of Code Section 409A, and a payment or benefit provided for under the Plan would be subject to additional tax under Code Section 409A if such payment or benefit is paid within six (6) months after such Participant’s separation from service (within the meaning of Code Section 409A), then such payment or benefit shall not be paid (or commence) during the six (6) month period immediately following such Participant’s separation from service except as provided in the immediately following sentence. In such an event, any payments or benefits that would otherwise have been made or provided during such six (6) month period and which would have incurred such additional tax under Code Section 409A shall instead be paid to the Participant in a lump-sum, without interest, on the earlier of (i) the first business day of the seventh month following the month in which such Participant’s separation from service occurs or (ii) the tenth business day following such Participant’s death (but not earlier than if such delay had not applied).
Section 19. Governing Law. The validity and construction of the Plan and any Award Agreement entered into hereunder shall be construed and enforced in accordance with the laws of the State of Delaware, but without giving effect to the conflict of laws principles thereof.
Section 20. Recoupment. Any Award granted pursuant to the Plan shall be subject to mandatory repayment by the Participant to the Company pursuant to the terms of any Company “clawback” or recoupment policy directly applicable to the Plan and (i) set forth in the Participant’s Award Agreement, (ii) set forth in the Company policy or (iii) required by law to be applicable to the Participant.
Section 21. Effective Date. The Plan shall become effective upon the Effective Date.
