apvo-def14a_20180601.htm

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.__)

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Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to § 240.14a-12

Aptevo Therapeutics Inc.

 

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

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APTEVO THERAPEUTICS INC.

2401 4th Ave. Suite 1050

Seattle, Washington 98121

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On June 1, 2018

Dear Aptevo Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of Aptevo Therapeutics Inc., a Delaware corporation (the “Company”).  The meeting will be held on Friday, June 1, 2018 at 9:00 a.m. PDT, at World Trade Center Seattle located at 2200 Alaskan Way, Seattle, WA 98121 for the following purposes:

1. To elect two nominees, Daniel J. Abdun-Nabi and Grady Grant III, to the Board of Directors to hold office until the 2021 Annual Meeting of Stockholders.

2. To approve the 2018 Stock Incentive Plan.

3. To ratify the selection by the Audit Committee of the Board of Directors of Ernst & Young LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2018.

4. To conduct any other business properly brought before the meeting.

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

The record date for the Annual Meeting is April 2, 2018.  Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

By Order of the Board of Directors

/s/ Shawnte Mitchell

Secretary, Vice President and General Counsel

Seattle, WA

April 20, 2018

You are cordially invited to attend the meeting in person.  Whether or not you expect to attend the meeting, please complete, date, sign and return the proxy mailed to you, or vote over the telephone or the internet as instructed in these materials, as promptly as possible in order to ensure your representation at the meeting.  Even if you have voted by proxy, you may still vote in person if you attend the meeting.  Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

 


 

 

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

 

1

 

 

 

PROPOSAL 1  ELECTION OF DIRECTORS

 

6

 

 

 

information regarding the board of directors and corporate governance

 

8

 

 

 

Independence of The Board of Directors

 

8

 

 

 

Board Leadership Structure

 

8

 

 

 

Role of the Board in Risk Oversight

 

9

 

 

 

Meetings of The Board of Directors

 

9

 

 

 

Information Regarding Committees of the Board of Directors

 

10

 

 

 

Audit Committee

 

10

 

 

 

Compensation Committee

 

11

 

 

 

Nominating and Corporate Governance Committee

 

12

 

 

 

Stockholder Communications With The Board Of Directors

 

13

 

 

 

Code of Ethics

 

13

 

 

 

PROPOSAL 2 APPROVAL OF THE 2018 STOCK INCENTIVE PLAN

 

14

 

 

 

PROPOSAL 3  RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

26

 

 

 

Security Ownership of  Certain Beneficial Owners and Management

 

28

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

29

 

 

 

Executive Officers

 

30

 

 

 

Executive Compensation

 

31

 

 

 

Summary Compensation Table

 

31

 

 

 

Outstanding Equity Awards at December 31, 2017

 

33

 

 

 

Director Compensation

 

34

 

 

 

Transactions With Related Persons

 

36

 

 

 

Householding of Proxy Materials

 

37

 

 

 

Other Matters

 

38

 

 

 

Exhibit A     2018 Stock incentive plan

 

39

 

 

 

 


 

APTEVO THERAPEUTICS INC.

2401 4th Ave. Suite 1050

Seattle, Washington 98121

 

PROXY STATEMENT

FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS

To be held on June 1, 2018

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

Why did I receive a notice regarding the availability of proxy materials on the internet?

Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials over the internet. Accordingly, we have sent you a Notice of Internet Availability of Proxy Materials (the “Notice”) because the Board of Directors (the “Board”) of Aptevo Therapeutics Inc. (sometimes referred to as the “Company,” “Aptevo,” “we,” “us” or “our”) is soliciting your proxy to vote at the 2018 Annual Meeting of Stockholders (the “Annual Meeting”), including at any adjournments or postponements of the meeting. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials.  Instructions on how to access the proxy materials over the internet or to request a printed copy may be found in the Notice.

We intend to mail the Notice on or about April 20, 2018 to all stockholders of record entitled to vote at the Annual Meeting.

Will I receive any other proxy materials by mail?

We may send you a proxy card, along with a second Notice, on or after April 30, 2018.

How do I attend the Annual Meeting?

The meeting will be held on Friday, June 1, 2018 at 9:00 a.m. PDT at World Trade Center Seattle located at 2200 Alaskan Way, Seattle, WA 98121. For directions to the Annual Meeting, please call us at 206-859-6628.    Information on how to vote in person at the Annual Meeting is discussed below.

Who can vote at the Annual Meeting?

Only stockholders of record at the close of business on April 2, 2018 will be entitled to vote at the Annual Meeting.  On this record date, there were 22,441,974 shares of common stock outstanding and entitled to vote.

Stockholder of Record:  Shares Registered in Your Name

If on April 2, 2018 your shares were registered directly in your name with the Company’s transfer agent, Broadridge Financial Solutions, Inc., then you are a stockholder of record.  As a stockholder of record, you may vote in person at the meeting or vote by proxy.  Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted.

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

If on April 2, 2018 your shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and the Notice is being forwarded to you by that organization.  The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting.  As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account.  You are also invited to attend the Annual Meeting.  However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

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What am I voting on?

There are three matters scheduled for a vote:

 

Election of two directors;

 

Approval of the 2018 Stock Incentive Plan; and

 

Ratification of selection by the Audit Committee of the Board of Directors of Ernst & Young LLP as independent registered public accounting firm of the Company for the year ending December 31, 2018.

What if another matter is properly brought before the meeting?

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 meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment.

How do I vote?

You may either vote “For” both of the nominees to the Board of Directors or you may “Withhold” your vote for any nominee you specify.  For each of the other matters to be voted on, you may vote “For” or “Against” or abstain from voting.

The procedures for voting are as follows:

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record, you may vote in person at the Annual Meeting, vote by proxy over the telephone, or vote by proxy through the internet or vote by proxy using a proxy card that you may request or that we may elect to deliver at a later time.  Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted.  You may still attend the meeting and vote in person even if you have already voted by proxy.

 

To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.

 

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

 

To vote over the telephone, dial toll-free 1-800-690-6903 using a touch-tone phone and follow the recorded instructions.  You will be asked to provide the company number and control number from the Notice.  Your telephone vote must be received by 11:59 p.m. EDT on May 31, 2018 to be counted.

 

To vote through the internet, go to http://www.proxyvote.com to complete an electronic proxy card.  You will be asked to provide the company number and control number from the Notice.  Your internet vote must be received by 11:59 p.m. EDT on May 31, 2018 to be counted.

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

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

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

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How many votes do I have?

On each matter to be voted upon, you have one vote for each share of common stock you own as of April 2, 2018.

What happens if I do not vote?

Stockholder of Record: Shares Registered in Your Name

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

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

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

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

If you return a signed and dated proxy card or otherwise vote without marking voting selections, your shares will be voted, as applicable, “For” the election of both nominees for director; “For” the approval of the 2018 Stock Incentive Plan; and “For” the ratification of selection by the Audit Committee of the Board of Directors of Ernst & Young LLP as independent registered public accounting firm of the Company for the year ending December 31, 2018.  If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies.  In addition to these proxy materials, our directors, employees and The Proxy Advisory Group, LLC may also solicit proxies in person, by telephone, or by other means of communication.  Directors and employees will not be paid any additional compensation for soliciting proxies, but The Proxy Advisory Group, LLC will assist in the solicitation of proxies and related advice and informational support, for a services fee, plus customary disbursements, which are not expected to exceed $13,500 in total. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

What does it mean if I receive more than one Notice?

If you receive more than one Notice, your shares may be registered in more than one name or in different accounts.  Please follow the voting instructions on the Notices to ensure that all of your shares are voted.

Can I change my vote after submitting my proxy?

Stockholder of Record: Shares Registered in Your Name

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

 

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

 

You may grant a subsequent proxy by telephone or through the internet.

 

You may send a timely written notice that you are revoking your proxy to Aptevo’s Corporate Secretary at 2401 4th Ave. Suite 1050, Seattle, Washington 98121.

 

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

Your most current proxy card or telephone or internet proxy is the one that is counted.  

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

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

When are stockholder proposals and director nominations due for next year’s annual meeting?

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by December 21, 2018, to Aptevo’s Corporate Secretary at 2401 4th Ave. Suite 1050, Seattle, Washington 98121.  A proposal must satisfy the rules and regulations of the SEC and the additional requirements of our bylaws to be eligible for inclusion in the proxy statement for that meeting. A stockholder may present a proposal that is a proper subject for consideration at an annual meeting, even if the proposal is not submitted by the deadline for inclusion in the proxy statement. To do so, the stockholder must comply with the procedures set forth in the company’s bylaws. The bylaws require that a stockholder who intends to present a proposal at an annual meeting of stockholders submit the proposal to the Corporate Secretary not fewer than 90 and not more than 120 days before the anniversary of the date of the previous year’s annual meeting. Therefore, to be eligible for consideration at the 2019 annual meeting, such a proposal and any nominations for director must be received by the Corporate Secretary between February 1, 2019 and March 3, 2019; provided however, that if our 2019 Annual Meeting of Stockholders is held before May 2, 2019 or after July 1, 2019, then the proposal must be received no earlier than the close of business of the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. This advance notice period is intended to allow stockholders an opportunity to consider all business and nominees expected to be considered at the meeting. Any such proposal received after this date may be considered untimely and may be excluded.

How are votes counted?

Votes will be counted by the inspector of election appointed for the meeting, who will separately count, for the proposal to elect directors, votes “For,” “Withhold” and broker non-votes and with respect to other proposals, votes  “For” and “Against,” abstentions and, if applicable, broker non-votes.  Abstentions will be counted towards the vote total for each of Proposals 2 and 3 and will have the same effect as “Against” votes.  Broker non-votes have no effect and will not be counted towards the vote total for any proposal.

What are “broker non-votes”?

As discussed above, when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed to be “non-routine,” the broker or nominee cannot vote the shares. These unvoted shares are counted as “broker non-votes.”

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How many votes are needed to approve each proposal?

For the election of directors, the two nominees receiving the most “For” votes from the holders of shares present in person or represented by proxy and entitled to vote on the election of directors will be elected. Only votes “For” or “Withheld” will affect the outcome.  Broker non-votes will have no effect.

To be approved, Proposal No. 2, approval of the 2018 Stock Incentive Plan, must receive “For” votes from the holders of a majority of shares present in person or represented by proxy and entitled to vote on the matter.  If you mark your proxy to “Abstain” from voting, it will have the same effect as an “Against” vote.  Broker non-votes will have no effect.

To be approved, Proposal No. 3, ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018, must receive “For” votes from the holders of a majority of shares present in person or represented by proxy and entitled to vote on the matter.  If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.  

What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid meeting.  A quorum will be present if stockholders holding at least a majority of the outstanding shares entitled to vote are present at the meeting in person or represented by proxy.  On the record date, there were 22,441,974 shares outstanding and entitled to vote. Thus, the holders of 11,220,988  shares must be present in person or represented by proxy at the meeting to have a quorum.

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

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

Preliminary voting results will be announced at the Annual Meeting.  In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the Annual Meeting.  If final voting results are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form 8‑K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

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Proposal 1

Election Of Directors

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

The Board presently has seven members.  There are two directors in the class whose term of office expires in 2018.  Each of the nominees listed below is currently a director of the Company and was previously elected by Emergent BioSolutions Inc. (“Emergent”) as the sole stockholder of Aptevo. If elected at the Annual Meeting, each of these nominees would serve until the 2021 annual meeting and until his successor has been duly elected and qualified, or, if sooner, until the director’s death, resignation or removal. It is the Company’s practice that directors and nominees for director attend our annual stockholder meetings. Five of our directors attended our 2017 Annual Meeting of Stockholders.

Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors. Accordingly, the two nominees receiving the highest number of affirmative votes will be elected.

The following is a brief biography of each nominee and each director whose term will continue after the Annual Meeting, as of June 1, 2018.

 

Name

 

Age

 

Principal Occupation/
Position Held With the Company

Fuad El-Hibri

 

60

 

Chairman

Marvin L. White

 

56

 

Director, Chief Executive Officer

Daniel J. Abdun-Nabi

 

63

 

Director

Grady Grant, III

 

62

 

Director

Zsolt Harsanyi, Ph.D.

 

74

 

Director

Barbara Lopez Kunz

 

60

 

Director

John E. Niederhuber, M.D.

 

79

 

Lead Independent Director

Nominees for Election for a Three-year Term Expiring at the 2021 Annual Meeting

Daniel J. Abdun-Nabi  Mr. Abdun-Nabi has served as a member of our Board since August 2016.  Mr. Abdun-Nabi is the Chief Executive Officer of Emergent, a position he has held since April 2012. He has also served as a director of Emergent since May 2009.  Mr. Abdun-Nabi previously served as Emergent’s president from March 2007 to March 2018, and chief operating officer from May 2007 through March 2012. Mr. Abdun-Nabi served as Emergent’s corporate secretary from December 2004 to January 2008, Emergent’s senior vice president, corporate affairs and general counsel from December 2004 to April 2007 and Emergent’s vice president and general counsel from May 2004 to December 2004. Mr. Abdun-Nabi served as general counsel for IGEN International, Inc., a biotechnology company, and its successor BioVeris Corporation, from September 1999 to May 2004. Prior to joining IGEN, Mr. Abdun-Nabi served as senior vice president, legal affairs, general counsel and secretary of North American Vaccine, Inc., a private vaccine company acquired by Baxter International Inc. in 2000. Mr. Abdun-Nabi earned a bachelor degree in political science from the University of Massachusetts Amherst, a J.D. from the University of San Diego School of Law and an LLM from Georgetown University Law Center. The Board believes that Mr. Abdun-Nabi is qualified to serve on Aptevo’s Board because of his extensive experience and knowledge of the biotechnology industry and Aptevo products.

Grady Grant, III  Mr. Grant has served as a member of our Board since August 2016. Mr. Grant is the Vice President of Medical Sales for Mead Johnson Nutrition, a public company focused on pediatric nutrition. He has held this position since December 2011, preceded by 30 years of service at Eli Lilly and Company which includes his service as Vice President of Sales Neuroscience from January 2006 to December 2011. Mr. Grant earned a bachelor degree in pharmaceutical science from Temple University. The Board believes that Mr. Grant is qualified to serve on Aptevo’s Board because of his knowledge of the pharmaceutical industry and marketed products.

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The Board Of Directors Recommends

A Vote In Favor Of Each Named Nominee.

Directors Continuing in Office Until the 2019 Annual Meeting

Fuad El-Hibri Mr. El-Hibri has served as the Chairman of our Board since August 2016. Mr. El-Hibri is the founder and Executive Chairman of the board of directors of Emergent. Mr. El-Hibri has served as the executive chairman of Emergent’s board of directors since April 2012. From June 2004 to March 2012, Mr. El-Hibri served as chief executive officer and chairman of Emergent’s board of directors. Mr. El-Hibri previously served as president of Emergent from March 2006 to April 2007. Mr. El-Hibri served as chief executive officer and chairman of the board of directors of BioPort Corporation, or BioPort, from May 1998 until June 2004, when, as a result of Emergent’s corporate reorganization, BioPort became a wholly-owned subsidiary of Emergent and was subsequently renamed Emergent BioDefense Operations Lansing Inc. Mr. El-Hibri is chairman of East West Resources Corporation, a venture capital and business consulting firm, a position he has held since June 1990. He served as president of East West Resources from September 1990 to January 2004. Mr. El-Hibri earned a bachelor degree with honors in economics from Stanford University and a masters degree in public and private management from Yale University. Mr. El-Hibri brings an important perspective to Aptevo and the Board believes Mr. El-Hibri is qualified to serve on Aptevo’s Board due to his experience in the biotechnology industry, his familiarity with the Aptevo technology and his overall business acumen.  

Marvin L. White  Mr. White has served as our President, Chief Executive Officer and as a member of our Board since August 2016.  Mr. White served as a director of Emergent from June 2010, until his resignation from the Emergent board of directors in May 2016. From 2008 to March 2014, Mr. White served as system vice president and chief financial officer of St. Vincent Health, and was responsible for finance, materials management, accounting, patient financial services and managed care for all 19 hospitals and 36 joint ventures. Prior to joining St. Vincent Health in 2008, Mr. White was executive director and chief financial officer of LillyUSA, a subsidiary of Eli Lilly and Company, where he also held leadership positions in Corporate Finance and Investment Banking in the Corporate Strategy Group. He serves on the boards of WP Glimcher Inc., a public retail real estate investment trust, and OneAmerica Financial Insurance Partners, Inc., a private insurance and financial services company. Mr. White previously served on the board of CoLucid Pharmaecuticals, Inc., a public pharmaceutical company. Mr. White earned a bachelor degree from Wilberforce University and his MBA degree from Indiana University. Mr. White’s  tenure as chief executive officer of Aptevo and director of Emergent provides valuable management and leadership experience.  In addition, Mr. White provides crucial insight to the Board on company strategic planning and operations. For these reasons, the Board believes Mr. White is qualified to serve on Aptevo’s Board.  

John E. Niederhuber, M.D.  Dr. Niederhuber has served on our Board and as our lead independent director since August 2016.  Dr. Niederhuber is the founder, Executive Vice President, and Chief Executive Officer of the Inova Translational Medicine Institute, a not-for-profit genomics research institute. Dr. Niederhuber served as a director of Emergent from August 2010, until his resignation from the Emergent board of directors in May 2016. He previously served as the director of the National Cancer Institute (NCI), the National Institutes of Health from 2006 to 2010. Dr. Niederhuber joined the Inova Health System in August 2010 as Executive Vice President and CEO of the Inova Translational Medicine Institute. Dr. Niederhuber is also an adjunct professor of surgery and oncology at the Johns Hopkins University School of Medicine. Prior to joining NCI, Dr. Niederhuber was Director of the University of Wisconsin Comprehensive Cancer Center and professor of surgery and oncology (member of the McArdle Laboratory) at the University of Wisconsin School of Medicine from 1997 to 2005. He chaired the Department of Surgery at Stanford University School of Medicine from 1991 to 1997 and held professorships at the Johns Hopkins University School of Medicine from 1987 to 1991 and at the University of Michigan from 1973 to 1987. Mr. Niederhuber earned a bachelor of science from Bethany College and his M.D. from The Ohio State University School of Medicine. The Board believes that Dr. Niederhuber is qualified to serve on Aptevo’s Board because he provides valuable insights to the Board through his experience in the field of oncology and in the business of healthcare.

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Directors Continuing in Office Until the 2020 Annual Meeting

Zsolt Harsanyi, Ph.D.  Mr. Harsanyi has served as a member of our Board since August 2016. Mr. Harsanyi has served on the board of directors of Emergent since August 2004 and as chairman of the board of N-Gene Research Laboratories, Inc., a privately-held biotechnology company, since March 2011. Prior to that, Mr. Harsanyi served as chief executive officer and chairman of the board of directors of Exponential Biotherapies Inc., a private biotechnology company, from December 2004 to February 2011. Mr. Harsanyi served as president of Porton International Inc., or Porton International, a pharmaceutical and vaccine company, from January 1983 to December 2004. Mr. Harsanyi was a founder of Dynport Vaccine Company LLC in September 1996. Prior to joining Porton International, Mr. Harsanyi was vice president of corporate finance at E.F. Hutton, Inc. Previously, Mr. Harsanyi directed the first assessment of biotechnology for the U.S. Congress’ Office of Technology Assessment, served as a consultant to the President’s Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research and was on the faculties of Microbiology and Genetics at Cornell Medical College. Mr. Harsanyi received his bachelor degree from Amherst College and his Ph.D. in genetics from Albert Einstein College of Medicine. The Board believes Mr. Harsanyi is qualified to serve on Aptevo’s Board because of his industry experience, including his senior executive and financial positions and his experience as audit committee chair of various public company board of directors.

Barbara Lopez Kunz  Ms. Kunz has served as a member of our Board since August 2016.  Ms. Kunz is currently the Global Chief Executive of the Drug Information Association, a private health care products company. Ms. Kunz serves as chair of the Children’s National Health System Research Institute.  From January 2007 to March 2013, she worked as President of Health and Life Sciences at Battelle Memorial Institute, a private nonprofit applied science and technology development company. From August 2003 to December 2007, she worked as Senior VP/GM for Thermo Fisher Scientific’s Fisher Biosciences and led the Latin America regional business from January 2000 to July 2003 at Uniqema, a private company acquired by Croda International plc in 2006. Ms. Kunz earned bachelor degrees in both biology and chemistry from Thiel College, MBA coursework at  Cleveland State University, an MS in polymer science from the University of Akron and is certified in INSEAD’s international executive program. The Board believes that Ms. Kunz is qualified to serve on Aptevo’s Board because of her leadership experience, her business acumen and knowledge of the healthcare industry.

information regarding the board of directors and corporate governance

Independence of The Board of Directors

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

Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent auditors, the Board has affirmatively determined that the following four directors, representing a majority of the members of the Board, are independent directors within the meaning of the applicable Nasdaq listing standards: Mr. Grant, Mr. Harsanyi, Ms. Kunz and Dr. Niederhuber.  In making this determination, the Board found that none of these directors had a material or other disqualifying relationship with the Company.

Board Leadership Structure

Our corporate governance guidelines provide the Board flexibility in determining its leadership structure. The Board has decided to keep separate the positions of chief executive officer and chairman of the Board. The Board believes this separate governance structure is optimal because it enables Mr. White to focus his entire energy on running the company while affording us the benefits of additional leadership and other contributions from Mr. El-Hibri.

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Our corporate governance guidelines provide that in the event the chairman of the Board is not an independent director, a majority of the Board’s independent directors may appoint an independent director, who has been nominated by a majority of our independent directors, to serve as lead director. Because Mr. El-Hibri is not an independent director, our independent directors appointed Dr. Niederhuber as lead director in August 2016. The lead director serves as the presiding director at all executive sessions of the non-management or independent directors, facilitates communications between Mr. El-Hibri and other members of the Board, determines the need for special meetings of the Board and consults with Mr. El-Hibri on matters relating to corporate governance and Board performance.

Role of the Board in Risk Oversight

Our Board is actively engaged in oversight of risks Aptevo faces and consideration of the appropriate responses to those risks. The Audit Committee periodically discusses with senior management the company’s cybersecurity risk profile, product risk and risk management, including guidelines and policies to govern the process by which Aptevo’s exposure to risk is handled. The Audit Committee also reviews and comments on a periodic risk assessment performed by management. After the Audit Committee performs its review and comment function, it reports any significant findings to the Board. The Board is responsible for oversight of Aptevo’s risk management programs and, in performing this function, will receive periodic risk assessment and mitigation initiatives for information and approval as necessary.

Meetings of The Board of Directors

Our corporate governance guidelines provide that the directors are responsible for attending Board meetings and meetings of committees on which they serve. The Board of Directors met ten times during 2017.  Each Board member attended 75% or more of the aggregate number of meetings of the Board and of the committees on which she or he served, held during the portion of 2017 for which she or he was a director or committee member.

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Information Regarding Committees of the Board of Directors

The Board has three committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.  The following table provides membership and meeting information for 2017 for each of the Board committees:

 

Name

 

Audit

 

Compensation

 

Nominating and

Corporate

Governance †

Fuad El-Hibri

 

 

 

 

 

 

Marvin L. White

 

 

 

 

 

 

Daniel J. Abdun-Nabi

 

 

 

 

 

 

Grady Grant, III

 

X

 

X

 

 

Zsolt Harsanyi, Ph.D.*

 

X

 

 

 

X

Barbara Lopez Kunz*

 

X

 

X

 

X

John E. Niederhuber, M.D.*

 

 

 

X

 

X

Total meetings in 2017

 

9

 

7

 

2

*

Committee Chairperson

Nominating and Corporate Governance Committee was constituted in May 2017.

Below is a description of each committee of the Board of Directors.  

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

Audit Committee

The Audit Committee of the Board of Directors was established by the Board in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to oversee the Company’s corporate accounting and financial reporting processes and audits of its financial statements.  For this purpose, the Audit Committee performs several functions, including (1) appointing, approving the compensation of and assessing the independence of our independent registered public accounting firm; (2) overseeing the work of our independent registered public accounting firm; (3) reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures; (4) monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; (5) overseeing our internal audit function; (6) assisting the board in overseeing our compliance with legal and regulatory requirements; (7) periodically discussing our risk management policies, and reviewing and commenting on a periodic risk assessment by management; (8) establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns; (9) meeting independently with our internal auditing staff, independent registered public accounting firm and management; (10) reviewing and approving or ratifying any related party transactions; and (11) preparing audit committee reports required by SEC rules.

The Audit Committee is composed of three directors: Mr. Grant, Ms. Kunz and Mr. Harsanyi. The Audit Committee met nine times during 2017.  The Board has adopted a written Audit Committee charter that is available to stockholders on the Company’s website at:http://ir.aptevotherapeutics.com/corporate-governance/overview.

 

The Board of Directors reviews the Nasdaq listing standards definition of independence for Audit Committee members on an annual basis and has determined that all members of the Company’s Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the Nasdaq listing standards).

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The Board of Directors has also determined that Mr. Harsanyi qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Mr. Harsanyi’s level of knowledge and experience based on a number of factors, including serving as vice president of corporate finance of E.F. Hutton, serving as chief executive officer and chairman of the board of directors of Exponential Biotherapies Inc. and serving as chair of the audit committee of other public company board of directors.  The Board of Directors has determined that this simultaneous service does not impair Mr. Harsanyi’s ability to effectively serve on the Company’s Audit Committee.

Compensation Committee

The Compensation Committee is composed of three directors: Mr. Grant, Ms. Kunz and Dr. Niederhuber.  All members of the Company’s Compensation Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). The Compensation Committee met seven times during 2017. The Board has adopted a written Compensation Committee charter that is available to stockholders on the Company’s website at http://ir.aptevotherapeutics.com/corporate-governance/overview.

The Compensation Committee of the Board of Directors acts on behalf of the Board to review, recommend for adoption and oversee the Company’s compensation strategy, policies, plans and programs, including (1) annually reviewing and approving corporate goals and objectives relevant to the compensation of our executive officers; (2) determining the compensation of our chief executive officer; (3) reviewing and approving the compensation of our other named executive officers; (4) overseeing the evaluation of our senior executives; (5) overseeing and administering our cash and equity incentive plans; and (6) preparing the compensation committee report, if required by SEC rules.

Compensation Committee Processes and Procedures

The Compensation Committee meets as often as it deems necessary in order to perform its responsibilities.  The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with the Chief Executive Officer, the General Counsel and head of Human Resources and Willis Towers Watson, our compensation consultant.  The Compensation Committee meets regularly in executive session.  From time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, to provide financial or other background information or advice or to otherwise participate in Compensation Committee meetings.  The Compensation Committee shall review and approve, or recommend for approval by the Board, the compensation of the Company’s Chief Executive Officer and the Company’s other executive officers, including salary, bonus and incentive compensation levels; deferred compensation; executive perquisites; equity compensation (including awards to induce employment); severance arrangements; change-in-control benefits and other forms of executive officer compensation. The Chief Executive Officer may not participate in, or be present during, any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives. Under the charter, the Compensation Committee has the authority to obtain, at the expense of the Company, advice and assistance from compensation consultants and internal and external legal, accounting or other advisors and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties and the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Compensation Committee. The Compensation Committee has direct responsibility for the oversight of the work of any consultants or advisers engaged for the purpose of advising the Committee.  In particular, the Compensation Committee has the sole authority to retain, in its sole discretion, compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms. Under the charter, the Compensation Committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the compensation committee, other than in-house legal counsel and certain other types of advisers, only after taking into consideration six factors, prescribed by the SEC and Nasdaq, that bear upon the adviser’s independence.

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During 2017, after taking into consideration the six factors prescribed by the SEC and Nasdaq, the Compensation Committee engaged Willis Towers Watson as a compensation consultant. Willis Towers Watson formerly provided executive compensation advisory support for Emergent and given their historical consulting relationship with Emergent as well as experience with spin-offs and IPOs, they were uniquely qualified to support us. The Compensation Committee requested that Willis Towers Watson:

 

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

 

assist in refining the Company’s compensation strategy and in developing and implementing an executive compensation program to execute that strategy.

As part of its engagement, Willis Towers Watson was requested by the Compensation Committee to develop a comparative group of companies and to perform analyses of competitive performance and compensation levels for that group. The scope of services provided included to provide recommendations for Aptevo’s 2018 peer group, review compensation philosophy and guiding principles in support of executive pay program design considerations, conduct competitive assessment for Aptevo’s top executives, review the Board compensation and provide recommendations for 2018 and review and confirm long-term incentive grant guideline recommendations for 2018.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee of the Board of Directors acts on behalf of the Board to (1) develop and recommend corporate governance guidelines for review, (2) identify individuals qualified to become board members, (3) recommend persons to be nominated for election as directors, (4) oversee the evaluation of the board and (5) provide board education recommendations.

The Nominating and Corporate Governance Committee is composed of three directors: Dr. Niederhuber, Ms. Kunz and Mr. Harsanyi.  All members of the Company’s Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). The Nominating and Corporate Governance Committee met twice during 2017. The Board adopted the Nominating and Corporate Governance Committee charter on May 31, 2017 and amended it on March 12, 2018. It is available to stockholders on the Company’s website at http://ir.aptevotherapeutics.com/corporate-governance/overview.

The Nominating and Corporate Governance Committee exercises general oversight with regard to the Board and identifies individuals qualified to become board members and recommends director nominees for the annual meeting of stockholders. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate director candidates includes identifying qualified individuals consistent with guidelines approved by the Board and recommending to the Board the candidate for election as director.

In considering whether to recommend any particular candidate for inclusion in the Board’s slate of director nominees, the Nominating and Corporate Governance Committee considers the candidate’s integrity, character, demonstrated track record, education and time dedication.  The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics.  The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for a prospective nominee.  However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time.  The Nominating and Corporate Governance committee does not have a formal policy with respect to diversity, but believes that the backgrounds and qualifications of its directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow it to fulfill its responsibilities. Additionally, our corporate governance guidelines state that it is a goal of the Board to strive for diversity in the composition of the membership of the Board.

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In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair the directors’ independence. The Nominating and Corporate Governance Committee also takes into account the results of the Board’s self-evaluation, conducted annually on a group and individual basis. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for Nasdaq purposes, which determination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary.  The Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm.  The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board.  The Nominating and Corporate Governance Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote.

In making such recommendations, the Nominating and Corporate Governance Committee shall consider candidates proposed by stockholders, consistent with requirements of our bylaws.  The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder. The Nominating and Corporate Governance Committee shall review and evaluate information available to it regarding candidates proposed by stockholders and shall apply the same guidelines, and shall follow substantially the same process in considering them, as it does in considering other candidates.  Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Board at an Annual Meeting of the Stockholders may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at our principal executive  not earlier than the 120th day prior to such Annual Meeting of the Stockholders and not later than the close of business on the later of (A) the 90th day prior to such Annual Meeting of the Stockholders and (B) the tenth day following the day on which notice of the date of such Annual Meeting of the Stockholders was mailed or made public.  Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record holder of our stock and has been a holder for at least one year.  Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.

Stockholder Communications With The Board Of Directors

Our Board will give appropriate attention to written communications that are submitted by stockholders and other interested parties and will respond if and as appropriate. The lead director, with the assistance of Aptevo’s Corporate Secretary, will be primarily responsible for monitoring communications from stockholders and other interested parties and for providing copies or summaries to the other directors as the lead director considers appropriate.

Communications will be forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the lead director considers to be important for the directors to know. In general, communications relating to corporate governance and corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which Aptevo receives repetitive or duplicative communications.

Stockholders and other interested parties who wish to send communications on any topic to the Board, lead director or independent directors as a group should address such communications to the Board, Lead Director or Independent Directors, as applicable, c/o Corporate Secretary, Aptevo Therapeutics Inc., 2401 4th Ave., Suite 1050, Seattle, Washington 98121. The Corporate Secretary will review all such correspondence and forward to the Board, lead director or independent directors a summary and/or copies of any such correspondence that deals with the functions of the Board or its committees or that he otherwise determines requires their attention.

Code of Ethics

The Company has adopted the Aptevo Therapeutics Inc. Code of Conduct and Business Ethics that applies to all officers, directors and employees.  The Code of Conduct and Business Ethics is available on the Company’s website at http://ir.aptevotherapeutics.com/corporate-governance/overview. If the Company makes any substantive amendments to the Code of Conduct and Business Ethics or grants any waiver from a provision of the Code to any executive officer or director, the Company will promptly disclose the nature of the amendment or waiver on its website.  

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PROPOSAL 2

APPROVAL OF THE 2018 STOCK INCENTIVE PLAN

The Board of Directors is requesting that the stockholders approve the Aptevo Therapeutics Inc. 2018 Stock Incentive Plan (the “2018 Plan”), to include the reserve of 2,925,000 new shares (subject to adjustment for certain changes in our capitalization).  

The Company currently maintains the 2016 Stock Incentive Plan, as amended (the “2016 Plan”). As of April 2, 2018, there were 996,081 shares remaining available for grant under the 2016 Plan. As of April 2, 2018, the closing price of our common stock as reported on the Nasdaq Global Market was $3.16 per share, and a total of 22,441,974 shares of our common stock were outstanding.

Stockholder Approval

If this Proposal 2 is approved by our stockholders, the 2018 Plan will become effective as of the date of the Annual Meeting.  In the event that our stockholders do not approve this Proposal 2, the 2018 Plan will not become effective and the 2016 Plan will remain in effect.

As of the effective date of the 2018 Plan, the 2018 Plan will replace the 2016 Plan.  From and after 12:01 a.m. Pacific time on the effective date, no additional awards will be granted under the 2016 Plan.  All awards granted on or after 12:01 a.m. Pacific Time on the effective date will be granted under the 2018 Plan.  All awards granted under the 2016 Plan will remain subject to the terms of the 2016 Plan.  Any shares that would otherwise remain available for future grants under the 2016 Plan as of 12:01 a.m. Pacific time on the effective date will cease to be available under the 2016 Plan at such time, and will not be available for grant under the 2018 Plan.  

In addition, from and after 12:01 a.m. Pacific time on the effective date, any shares subject, at such time, to outstanding stock awards granted under the 2016 Plan that (a) expire or terminate for any reason prior to exercise or settlement; (b) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (c) otherwise would have returned to the 2016 Plan for future grant pursuant to the terms of the 2016 Plan (such shares, the “Returning Shares”) will immediately be added to the share reserve under the 2018 Plan (as further described below) as and when such shares become Returning Shares, up to the maximum number set forth below.

Subject to adjustment for certain changes in our capitalization, the share reserve under the 2018 Plan will not exceed 6,636,620 shares of common stock, which is the sum of (i) the 2,925,000 shares of common stock being newly reserved under the 2018 Plan and (ii) the number of shares that are Returning Shares (as defined above), as such shares become available from time to time, up to a maximum of 3,711,620 shares of Common Stock.

Prior to the effectiveness of the 2018 Plan, as of April 2, 2018, an aggregate of 3,711,620 shares of common stock were subject to previously issued grants under all of our equity plans.  This figure was comprised of 3,507,729 stock options outstanding under all plans, with a weighted average exercise price of $2.57 and a weighted average remaining term of 7.46 years.  In addition, there were 203,891 restricted awards (covering all shares issued as awards other than stock options) outstanding under all equity plans as of this same date.  The Board estimates that by approving the 2018 Plan, we will have a sufficient number of shares of common stock to cover awards for approximately three years depending primarily on our growth and share price.

Why the Board of Directors Believes You Should Vote for the 2018 Plan

 

Attracting and retaining talent. A talented, motivated and effective management team and workforce are essential to the Company’s continued progress. Equity compensation is an important component of total compensation at the Company. If the 2018 Plan is approved, our ability to offer competitive compensation packages to attract new talent and to retain our best performers will continue. If the 2018 Plan is not approved and we are left with only the approximately 996,081 shares remaining available for grant under the 2016 Plan, it will likely create a barrier to hiring and retaining the best talent and it will be necessary to replace components of compensation previously awarded in equity with cash, or with other instruments that may not necessarily align employee interests with those of stockholders as well as equity awards would have. Additionally, replacing equity with cash will increase cash compensation expense and be a drain on cash flow that could be better utilized for other purposes.

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The Company recognizes that equity compensation awards dilute stockholder equity and must be used judiciously. Our equity compensation practices are designed to be in line with industry norms, and we believe our historical share usage has been responsible and mindful of stockholder interests while providing sufficient flexibility to attract and retain the best talent in a time when we most needed to attract and retain talent.  Since August 2016 and through December 2017, our average burn rate (total shares used for equity compensation awards each year divided by weighted average outstanding shares for the year) was 8.9%.  Accounting for the new 2,925,000 shares for which we are requesting shareholder approval, the Company’s dilution level or “overhang” (shares subject to equity compensation awards outstanding or available to be used for equity compensation, divided by fully diluted shares outstanding) as of April 2, 2018 would have been approximately 23.1%.  In connection with our spinoff from Emergent in August 2016, each Aptevo employee who was an employee as of June 30, 2016 was granted an “inspiration” restricted stock unit award with an aggregate value equal to 40% of his or her base salary. The number of shares subject to each such “inspiration” restricted stock unit award would be equal to such aggregate value, divided by the then current fair market value.  When these grants were promised to employees, it was expected that our initial trading price would have been significantly higher than the actual trading price of our stock on the day of the grant.  As a result of the lower trading price, the number of shares granted was significantly higher than had been expected.  The total number of shares issued as an “inspiration” restricted stock unit award was 2,115,772.  While the “inspiration” awards resulted in higher than expected share usage, moving forward we expect to work to achieve target dilution and annual burn rate levels more in line with industry norms.

Key Plan Features Representing Corporate Governance Best Practices

The 2018 Plan includes provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices including:

Repricing is not allowed. The 2018 Plan prohibits the repricing of outstanding stock options and stock appreciation rights and the cancellation of any outstanding stock options or stock appreciation rights that have an exercise or strike price greater than the then-current fair market value of our common stock in exchange for cash or other stock awards under the 2018 Plan without prior stockholder approval.

Restrictions on payment of dividends and dividend equivalents. The 2018 Plan provides that dividends and dividend equivalents shall not be paid in respect of shares of Common Stock covered by a stock award until such shares of common stock vest.

No liberal share recycling.  The 2018 Plan does not provide for “liberal” share recycling.  For example, shares withheld on net exercises of options, shares withheld to meet tax obligations and shares repurchased by the Company using stock option proceeds do not return to the plan to be granted pursuant to future awards.

Awards subject to forfeiture/clawback. In accepting an Award under the 2018 Plan, a participant agrees to be bound by any clawback policy the Company adopts in the future.

No liberal change in control definition. The change in control definition in the 2018 Plan is not a “liberal” definition (for example, it does not provide for a change in control upon merely the signing of a definitive change in control agreement). A change in control transaction must actually occur in order for the change in control provisions in the 2018 Plan to be triggered.

No requirement for single trigger vesting in plan. The 2018 Plan does not require that the vesting of all awards be accelerated on a change in control and provides for potential acceleration only in limited circumstances.

No discounted stock options or stock appreciation rights. All stock options and stock appreciation rights granted under the 2018 Plan must have an exercise or strike price equal to or greater than the fair market value of our common stock on the date the stock option or stock appreciation right is granted.

Administration by independent committee. The 2018 Plan is administered by the members of our Compensation Committee, all of whom are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and “independent” within the meaning of the Nasdaq listing standards.

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Material amendments require stockholder approval. Consistent with Nasdaq rules, the 2018 Plan requires stockholder approval of any material revisions to the 2018 Plan. In addition, certain other amendments to the 2018 Plan require stockholder approval.

Limit on non-employee director aggregate compensation. In any calendar year, the sum of the cash compensation paid to any non-employee director for service as a director and the value of awards under the 2018 Plan made to such non-employee director (calculated based on grant date fair value for financial reporting purposes) may not exceed $1,000,000.

Description of the 2018 Plan

The material features of the 2018 Plan are described below. The following description of the 2018 Plan is a summary only and is qualified in its entirety by reference to the complete text of the 2018 Plan. Stockholders are urged to read the actual text of the 2018 Plan, hereby attached to this proxy statement as Exhibit A, in its entirety.  

Purpose

The purpose of the 2018 Plan is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company’s stockholders.  

Types of Awards

The 2018 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights (“SARs”), awards of restricted stock, restricted stock units, other stock-based awards, and cash-based awards.

Share Counting

For purposes of counting the number of shares available for the grant of awards under the 2018 Plan:

 

all shares of common stock covered by SARs will be counted against the number of shares available for the grant of awards under the 2018 Plan, except that (i) SARs that may be settled only in cash will not be so counted and (ii) if the Company grants an SAR in tandem with an option for the same number of shares of Common Stock and provides that only one such award may be exercised (a “Tandem SAR”), only the shares covered by the option, and not the shares covered by the Tandem SAR, will be so counted, and the expiration of one in connection with the other’s exercise will not restore shares to the 2018 Plan;

 

if any award (i) expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of common stock subject to the award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or (ii) results in any common stock not being issued (including as a result of a SAR that was settleable either in cash or in stock actually being settled in cash), the unused common stock covered by the award will again be available for the grant of awards, except that (A) in the case of incentive stock options, the foregoing shall be subject to any limitations under the Internal Revenue Code, (B) in the case of the exercise of a SAR, the number of shares counted against the shares available under the 2018 Plan will be the full number of shares subject to the SAR multiplied by the percentage of the SAR actually exercised, regardless of the number of shares actually used to settle such SAR upon exercise and (C) the shares covered by a Tandem SAR will not again become available for grant upon the expiration or termination of such Tandem SAR;

 

shares of common stock delivered (either by actual delivery, attestation, or net exercise) to the Company by a participant to (i) purchase shares of common stock upon the exercise of an award or (ii) satisfy tax withholding obligations with respect to awards (including shares retained from the award creating the tax obligation) will not be added back to the number of shares available for the future grant of awards; and

 

shares of common stock repurchased by the Company on the open market using the proceeds from the exercise of an award shall not increase the number of shares available for future grant of awards.

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Eligibility

All of our approximately 121 employees, 6 non-employee directors and 10 consultants as of December 31, 2017 are eligible to participate in the 2018 Plan and may receive all types of awards other than incentive stock options. Incentive stock options may be granted under the 2018 Plan only to employees.  We have not historically generally granted awards to our consultants.

Non-Employee Director Compensation Limit

Under the 2018 Plan, in any calendar year, the sum of cash compensation paid to any non-employee director for service as a director and the value of awards under the 2018 Plan made to such non-employee director (calculated based on the grant date fair value for financial reporting purposes) may not exceed $1,000,000.

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Administration and Certain Restrictions

The 2018 Plan will be administered by the Board or a committee to which it delegates authority (either such entity, the “Plan Administrator”).  The Plan Administrator will have authority to grant awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the 2018 Plan as it deems advisable.  The Plan Administrator may construe and interpret the terms of the 2018 Plan and any award agreements entered into under the 2018 Plan, and may correct any defect, supply any omission or reconcile any inconsistency in the 2018 Plan or any award.  All actions and decisions by the Plan Administrator with respect to the 2018 Plan and any awards shall be made in the Plan Administrator’s discretion and shall be final and binding on all persons having or claiming any interest in the 2018 Plan or in any award.

Notwithstanding any other provision of the 2018 Plan, no award granted on or after the date of this annual meeting may vest (or, if applicable, be exercisable) until at least twelve (12) months following the date of grant of the award; provided, however, that up to 5% of the share reserve may be subject to awards granted on or after the date of this annual meeting that do not meet such vesting (and, if applicable, exercisability) requirements.

Notwithstanding any other provision of the 2018 Plan, dividends or dividend equivalents may be paid or credited, as applicable, with respect to any shares of common stock subject to an award, as determined by the Plan Administrator and contained in the applicable award agreement; provided, however, with respect to an award granted on or after the date of this annual meeting: (i) no dividends or dividend equivalents may be paid with respect to any such shares before the date such shares have vested under the terms of such award agreement, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of such award agreement (including, but not limited to, any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to the Company on the date, if any, such shares are forfeited to or repurchased by the Company due to a failure to meet any vesting conditions under the terms of such award agreement.

Subject to any requirements of applicable law, the Plan Administrator may delegate to one or more officers of the Company the power to grant awards (subject to any limitations under the 2018 Plan) to employees or officers of the Company and to exercise such other powers under the 2018 Plan as the Plan Administrator may determine, provided that the Plan Administrator will fix the terms of awards to be granted by such officers, the maximum number of shares subject to awards that the officers may grant, and the time period in which such awards may be granted; and provided further, that no officer will be authorized to grant awards to any officer or executive officer.

Repricing; Cancellation and Re-Grant of Stock Awards

Unless such action is approved by the Company’s stockholders, the Company may not, outside certain limited change in control related-contexts: (1) amend any outstanding option granted under the 2018 Plan to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding option, (2) cancel any outstanding option (whether or not granted under the 2018 Plan) and grant in substitution therefor new awards under the 2018 Plan, (3) cancel in exchange for a cash payment any outstanding option with an exercise price per share above the then-current fair market value of the common stock (valued in the manner determined by (or in a manner approved by) the Board), or (4) take any other action under the 2018 Plan that constitutes a “repricing” within the meaning of the rules of the Nasdaq Stock Market.

Stock Options

Stock options may be granted under the 2018 Plan pursuant to stock option agreements. The 2018 Plan permits the grant of stock options that are intended to qualify as incentive stock options, or ISOs, and nonstatutory stock options, or NSOs. All of the shares under the 2018 Plan may be granted as ISOs.

The exercise price of a stock option granted under the 2018 Plan may not be less than 100% of the fair market value of the common stock subject to the stock option on the date of grant and, in some cases (see “Limitations on Incentive Stock Options” below), may not be less than 110% of such fair market value.

The term of stock options granted under the 2018 Plan may not exceed ten (10) years and, in some cases (see “Limitations on Incentive Stock Options” below), may not exceed five (5) years.

18


 

Common stock purchased upon the exercise of an option may be paid for as follows:

 

in cash or by check, payable to the order of the Company;

 

except as may otherwise be provided in the applicable option agreement or approved by the Board, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;

 

to the extent provided for in the applicable option agreement or approved by the Board, by delivery (either by actual delivery or attestation) of shares of common stock owned by the participant valued at their fair market value (valued in the manner determined by (or in a manner approved by) the Board), provided (i) such method of payment is then permitted under applicable law, (ii) such common stock, if acquired directly from the Company, was owned by the participant for such minimum period of time, if any, as may be established by the Board and (iii) such common stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

 

to the extent provided for in the applicable nonstatutory stock option agreement or approved by the Board, by delivery of a notice of “net exercise” to the Company, as a result of which the participant would receive (i) the number of shares underlying the portion of the option being exercised, less (ii) such number of shares as is equal to (A) the aggregate exercise price for the portion of the option being exercised divided by (B) the fair market value of the common stock (valued in the manner determined by (or in a manner approved by) the Board) on the date of exercise;

 

to the extent permitted by applicable law and provided for in the applicable option agreement or approved by the Board, by payment of such other lawful consideration as the Board may determine; provided, however, that in no event may a promissory note of the participant be used to pay the option exercise price; or

 

by any combination of the above permitted forms of payment.

Stock options granted under the 2018 Plan may become exercisable in cumulative increments, or “vest,” as determined by the Plan Administrator at the rate specified in the stock option agreement. Shares covered by different stock options granted under the 2018 Plan may be subject to different vesting schedules as the Plan Administrator may determine.

No reload options may be granted under the 2018 Plan, and no option may provide for the payment or accrual of dividend equivalents.

Limitations on Incentive Stock Options

Pursuant to relevant statutory rules, the aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by a participant during any calendar year under all of our stock plans may not exceed $100,000. The stock options or portions of stock options that exceed this limit or otherwise fail to qualify as ISOs are treated as NSOs. No ISO may be granted to any person who, at the time of grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any affiliate unless the following conditions are satisfied:

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

the term of the ISO must not exceed five (5) years from the date of grant.

19


 

Stock Appreciation Rights

Stock appreciation rights may be granted under the 2018 Plan pursuant to stock appreciation right agreements. The strike price of each stock appreciation right will be determined by the Plan Administrator, but will in no event be less than 100% of the fair market value of the common stock subject to the stock appreciation right on the date of grant. The Plan Administrator may also impose restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate. The appreciation distribution payable upon exercise of a stock appreciation right may be paid in shares of our common stock, in cash, or in a combination of cash and stock.  No stock appreciation right may provide for the payment or accrual of dividend equivalents.

Restricted Stock Awards

Restricted stock awards may be granted under the 2018 Plan pursuant to restricted stock award agreements. Shares of our common stock acquired under a restricted stock award may be subject to forfeiture to or repurchase by us in accordance with a vesting schedule to be determined by the Plan Administrator. Dividends will be paid to the participant only if and when the shares become free from all restrictions on transferability and forfeitability.  Upon a participant’s termination of continuous service for any reason, any shares subject to restricted stock awards held by the participant that have not vested as of such termination date may be forfeited to or repurchased by us.

Restricted Stock Unit Awards

Restricted stock unit awards may be granted under the 2018 Plan pursuant to restricted stock unit award agreements. A restricted stock unit award may be settled by the delivery of shares of our common stock, in cash, or in a combination of cash and stock. Restricted stock unit awards may be subject to vesting in accordance with a vesting schedule to be determined by the Plan Administrator. Dividend equivalents may be credited in respect of shares of our common stock covered by a restricted stock unit award, provided that any additional shares credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying restricted stock unit award. Except as otherwise provided in a participant’s restricted stock unit award agreement or other written agreement with us or one of our affiliates, restricted stock units that have not vested will be forfeited upon the participant’s termination of continuous service for any reason.

Other Stock-Based and Cash-Based Awards

The Plan Administrator may grant other awards of shares of common stock, and other awards that are valued in whole or in part by reference to, or are otherwise based on, shares of common stock or other.  Such awards will also be available as a form of payment in the settlement of other awards granted under the 2018 Plan or as payment in lieu of compensation to which a participant is otherwise entitled.  Such awards may be paid in shares of common stock or cash, as the Board shall determine.  The Company may also grant Awards denominated in cash rather than shares of common stock.  Dividend equivalents may be credited in respect of shares of our common stock covered by another award, may be settled in cash and/or shares of common stock and will be subject to the same restrictions and forfeitability as the underlying award.

Performance Awards

Restricted stock, restricted stock units and other stock-based awards and cash-based awards under the 2018 Plan may be made subject to the achievement of performance goals (“Performance Awards”).  

For any Performance Award, the committee will specify that the degree of granting, vesting and/or payout will be subject to the achievement of one or more performance measures established by the committee, which shall be based on the relative or absolute attainment of specified levels of one or any combination of the following, which may be determined pursuant to generally accepted accounting principles (“GAAP”) or on a non-GAAP basis, as determined by the committee:    

 

Earnings or Profitability Measures, including but not limited to: (i) revenue (gross, operating or net); (ii) revenue growth; (iii) income (gross, operating, net or adjusted); (iv) earnings before interest and taxes (“EBIT”); (v) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (vi) earnings growth, (vii) profit margins or contributions; and (viii) expense levels or ratios;

20


 

 

Return Measures, including, but not limited to: return on (i) investment; (ii) assets; (iii) equity; or (iv) capital (total or invested);

 

Cash Flow Measures, including but not limited to: (i) operating cash flow; (ii) cash flow sufficient to achieve financial ratios or a specified cash balance; (iii) free cash flow; (iv) cash flow return on capital; (v) net cash provided by operating activities; (vi) cash flow per share; and (vii) working capital or adjusted working capital;

 

Stock Price and Equity Measures, including, but not limited to: (i) return on stockholders’ equity; (ii) total stockholder return; (iii) stock price; (iv) stock price appreciation; (v) market capitalization; (vi) earnings per share (basic or diluted) (before or after taxes); and (vii) price-to-earnings ratio; and

 

Strategic Metrics, including, but not limited to: (i) acquisitions or divestitures; (ii) collaborations, licensing or joint ventures; (iii) product research and development; (iv) clinical trials; (v) regulatory filings or approvals; (vi) patent application or issuance; (vii) manufacturing or process development; (viii) sales or net sales; (ix) sales growth, (x) market share; (xi) market penetration; (xii) inventory control; (xiii) growth in assets; (xiv) key hires; (xv) business expansion; (xvi) achievement of milestones under a third-party agreement; (xvii) financing; (xviii) resolution of significant litigation; (xix) legal compliance or risk reduction; (xx) improvement of financial ratings; or (xxi) achievement of balance sheet or income statement objectives.

In each case, such performance measures may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the impairment or writedown of any asset or assets, (v) charges for restructuring and rationalization programs or (vi) other extraordinary or non-recurring items, as specified by the committee when establishing the performance measures. Such performance measures: may vary by participant, may be different for different awards, may be particular to a participant or the department, branch, line of business, subsidiary or other unit in which the participant works and may cover such period as may be specified by the committee.

Clawbacks

In accepting an award under the 2018 Plan, a participant agrees to be bound by any clawback policy the Company may adopt in the future.

Changes to Capital Structure

In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of common stock other than an ordinary cash dividend, (i) the number and class of securities available under the 2018 Plan, (ii) the share counting rules set forth in the 2018 Plan, (iii) the number and class of securities and exercise price per share of each outstanding option, (iv) the share and per-share provisions and the measurement price of each outstanding SAR, (v) the number of shares subject to and the repurchase price per share subject to each outstanding award of restricted stock and (vi) the share and per-share-related provisions and the purchase price, if any, of each outstanding restricted stock unit and each other stock-based award, shall be equitably adjusted by the Company (or substituted awards may be made, if applicable) in the manner determined by the Board.  

Certain Transactions

Treatment of Awards: Upon a reorganization event  or a change in control event (each as defined in the 2018 Plan), the Plan Administrator may, on such terms as it determines (except to the extent specifically provided otherwise in an applicable award agreement or other agreement between the participant and the Company), take any one or more of the following actions pursuant to the 2018 Plan, as to all or any (or any portion of) outstanding awards:

 

Provide that all outstanding awards will be assumed or substantially equivalent awards will be substituted by the acquiring or successor corporation (or an affiliate thereof);

21


 

 

Upon written notice to a participant, provide that all of the participant’s unexercised and/or unvested awards will terminate immediately prior to the consummation of such event unless exercised by the participant (to the extent then exercisable) within a specified period following the date of such notice;

 

Only if an award is not assumed or substituted as described above, provide that outstanding awards will become exercisable, realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon such event;

 

In the event of event pursuant to which holders of shares of our common stock will receive a cash payment for each share surrendered in the event, make or provide for a cash payment to the participants with respect to each award held by a participant equal to (1) the number of shares of our common stock subject to the vested portion of the award (after giving effect to any acceleration of vesting that occurs upon or immediately prior to such event) multiplied by (2) the excess, if any, of the cash payment for each share surrendered in the event over the exercise, grant or purchase price of such award and any applicable tax withholdings, in exchange for the termination of such award; and

 

Any combination of the foregoing.

The Plan Administrator is not obligated to treat all awards, all awards held by a participant, or all awards of the same type, identically.

Notwithstanding the provisions described above and except to the extent specifically provided to the contrary in the applicable award agreement or any other agreement between the participant and the Company, each award  will become immediately vested, exercisable or free from forfeiture, as applicable, if on or prior to the first anniversary of the date of a change in control event, the participant’s service with the Company or the successor corporation is terminated without cause by the Company or the successor corporation or is terminated for good reason by the participant (as such terms are defined in the 2018 Plan).

Awards Subject to Performance Vesting: With respect to an award granted on or after the date of this annual meeting that vests based on the attainment of performance goals, any acceleration of vesting and/or exercisability pursuant to the 2018 Plan will be calculated (i) based on actual performance or, if actual performance cannot be determined, target performance and (ii) on a pro rata basis based on the fractional performance period.

Reorganization Event: A reorganization event generally means (i) a merger or consolidation of the Company into another entity as a result of which our common stock is converted into or exchanged for the right to receive cash, securities or property or is canceled; or (ii) an exchange of shares of common stock of the Company for cash securities or other property pursuant to a share exchange or other transaction.

Change in Control Event: A change in control event generally means (i) certain acquisitions of 50% or more of our stock or the voting power thereof; (ii) certain unapproved changes in the majority of the Board; (iii) the consummation of certain mergers in which more than 50% of the ownership of the common stock changes; or (iv) the complete liquidation or dissolution of the Company.

Plan Amendments and Termination

The Board may amend, suspend or terminate the 2018 Plan or any portion thereof at any time provided that (i) no amendment that would require stockholder approval under the rules of the national securities exchange on which the Company then maintains its primary listing may be made effective unless and until the Company’s stockholders approve such amendment and (ii) if the national securities exchange on which the Company then maintains its primary listing  does not have rules regarding when stockholder approval of amendments to equity compensation plans is required (or if the Company’s Common Stock is not then listed on any national securities exchange), then no amendment to the 2018 Plan (A) materially increasing the number of shares authorized under the 2018 Plan, (B) expanding the types of awards that may be granted under the 2018 Plan, or (C) materially expanding the class of participants eligible to participate in the 2018 Plan will be effective unless and until the Company’s stockholders approve such amendment.  In addition, if at any time the approval of the Company’s stockholders is required as to any other modification or amendment under Section 422 of the Code or any successor provision with respect to incentive stock options, the Board may not effect such modification or amendment without such approval.  Unless

22


 

otherwise specified in the amendment, any amendment to the 2018 Plan will apply to, and be binding on the holders of, all awards outstanding under the 2018 Plan at the time the amendment is adopted, provided the Board determines that such amendment, taking into account any related action, does not materially and adversely affect the rights of participants under the 2018 Plan.  No award will be made that is conditioned upon stockholder approval of any amendment to the 2018 Plan unless the Award provides that (i) it will terminate or be forfeited if stockholder approval of such amendment is not obtained within no more than 12 months from the date of grant and (2) it may not be exercised or settled (or otherwise result in the issuance of common stock) prior to such stockholder approval.

U.S. Federal Income Tax Consequences

The following is a summary of the principal United States federal income tax consequences to participants and us with respect to participation in the 2018 Plan. This summary is not intended to be exhaustive and does not discuss the income tax laws of any local, state or foreign jurisdiction in which a participant may reside. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any participant may depend on his or her particular situation, each participant should consult the participant’s tax adviser regarding the federal, state, local and other tax consequences of the grant or exercise of an award or the disposition of stock acquired the 2018 Plan. The 2018 Plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974.

Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income as well as the requirement of reasonableness, other tax law limitations and the satisfaction of our tax reporting obligations.

Nonstatutory Stock Options

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

We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

Incentive Stock Options

The 2018 Plan provides for the grant of stock options that are intended to qualify as “incentive stock options,” as defined in Section 422 of the Code. Under the Code, a participant generally is not subject to ordinary income tax upon the grant or exercise of an ISO. If the participant holds a share received upon exercise of an ISO for more than two years from the date the stock option was granted and more than one year from the date the stock option was exercised, which is referred to as the required holding period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the participant’s tax basis in that share will be long-term capital gain or loss.

If, however, a participant disposes of a share acquired upon exercise of an ISO before the end of the required holding period, which is referred to as a disqualifying disposition, the participant generally will recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date of exercise of the stock option over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the stock option, the amount of ordinary income recognized by the participant will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the stock option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired upon exercise of an ISO exceeds the exercise price of the stock option generally will be an adjustment included in

23


 

the participant’s alternative minimum taxable income for the year in which the stock option is exercised. If, however, there is a disqualifying disposition of the share in the year in which the stock option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. In computing alternative minimum taxable income, the tax basis of a share acquired upon exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the stock option is exercised.

We are not allowed a tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired upon exercise of an ISO after the required holding period. If there is a disqualifying disposition of a share, however, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

Restricted Stock Awards

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

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

We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the restricted stock award.

Restricted Stock Unit Awards

Generally, the recipient of a restricted stock unit award structured to comply with the requirements of Section 409A of the Code or an exception to Section 409A of the Code will recognize ordinary income at the time the stock is delivered equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. To comply with the requirements of Section 409A of the Code, the stock subject to a restricted stock unit award may generally only be delivered upon one of the following events: a fixed calendar date (or dates), separation from service, death, disability or a change in control. If delivery occurs on another date, unless the restricted stock unit award otherwise complies with or qualifies for an exception to the requirements of Section 409A of the Code (including delivery upon achievement of a performance goal), in addition to the tax treatment described above, the recipient will owe an additional 20% federal tax and interest on any taxes owed.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from a restricted stock unit award will be the amount paid for such shares plus any ordinary income recognized when the stock is delivered.

We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the restricted stock unit award.

Stock Appreciation Rights

Generally, if a stock appreciation right is granted with an exercise price equal to the fair market value of the underlying stock on the grant date, the recipient will recognize ordinary income equal to the fair market value of the stock or cash received upon such exercise. We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation right.

24


 

New Plan Benefits

Awards under the 2018 Plan are made at the discretion of the Plan Administrator and thus are not determinable at this time.

Equity Compensation Plan Information

The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of December 31, 2017.

Equity Compensation Plan Information

 

Plan Category

 

Number of

securities to be

issued upon

exercise of

outstanding

options,

warrants and

rights

(a)

 

 

Weighted-

average

exercise price

of outstanding

options,

warrants and

rights

(b)

 

 

Number of

securities

remaining

available for

issuance under

equity

compensation

plans

(excluding

securities

reflected in

column (a))

(c)

 

Equity compensation plans approved by security holders

 

 

4,030,831

 

 

$

1.69

 

 

996,081

 

Equity compensation plans not approved by security holders

 

 

 

 

 

 

 

 

 

Total

 

 

4,030,831

 

 

$

1.69

 

 

 

996,081

 

 

Required Vote and Board of Directors Recommendation

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

The Board of Directors Recommends

a Vote in Favor of Proposal 2.

 

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Proposal 3

Ratification of Selection of Independent Registered Public Accounting Firm

Ernst & Young LLP currently serves as the Company’s independent registered public accounting firm. After consideration of the firm’s qualifications and past performance, the Audit Committee of the Board of Directors has selected Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018 and has further directed that management submit the selection of its independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has audited the Company’s financial statements since 2015. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Neither the Company’s Bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm.  However, the Audit Committee of the Board is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice.  If the stockholders fail to ratify the selection, the Audit Committee of the Board will reconsider whether or not to retain that firm.  Even if the selection is ratified, the Audit Committee of the Board in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting will be required to ratify the selection of Ernst & Young LLP.

Principal Accountant Fees and Services

The following table summarizes the fees of Ernst & Young LLP, our Independent Registered Public Accounting Firm, billed to us for audit and other services for the years ended December 31, 2016 and 2017. The audit fees include an estimate of amounts not yet billed.

 

 

 

Year Ended December 31

 

 

 

2016

 

 

2017

 

 

 

(in thousands)

 

Audit Fees

 

$

472,000

 

 

$

639,150

 

Audit-related Fees

 

 

 

 

 

 

Tax Fees

 

 

 

 

 

 

All Other Fees

 

$

2,000

 

 

$

2,000

 

Total Fees

 

$

474,000

 

 

$

641,150

 

 

Audit Fees. Audit fees consist of fees for the audit of our consolidated financial statements and other professional services provided in connection with statutory and regulatory filings or engagements, and comfort letters.

 

Other Fees. Other fees consist of fees for the subscription to Ernst & Young’s online accounting research tool.

 

Pre-Approval Policies and Procedures.

The Audit Committee has policies and procedures that require the pre-approval by the Audit Committee (or one of its members) of all services performed by the Company’s independent registered public accounting firm and related fee arrangements. In the early part of each year, the Audit Committee approves the proposed services, including the nature, type and scope of services contemplated, and the related fees, to be rendered by these firms during the year. In accordance with this policy, the Audit Committee or one of its members pre-approved all services to be performed by the Company’s independent registered accounting firm.

 

The Board Of Directors Recommends

A Vote In Favor Of Proposal 3.

26


 

Report of the Audit Committee of the Board of Directors

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2017 with management of the Company.  The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”).  The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence.  Based on the foregoing, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Grady Grant, III

Zsolt Harsanyi, Ph.D.

Barbara Lopez Kunz

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

27


 

Security Ownership of

Certain Beneficial Owners and Management

The following table sets forth certain information regarding the ownership of the Company’s common stock as of April 2, 2018 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its common stock. Unless otherwise indicated, the address of the individuals and entities below is c/o Aptevo, 2401 4th Ave. Suite 1050, Seattle, Washington 98121.

 

 

 

Beneficial Ownership(1)

 

 

Number of Shares

 

 

Percent of Total

Fuad El-Hibri (Director) (2)

 

 

2,772,198

 

 

 

12.3

%

 

Intervac, L.L.C. (3)

 

 

2,172,125

 

 

 

9.7

%

 

Sessa Capital IM LP (4)

 

 

1,628,053

 

 

 

7.3

%

 

Scott C. Stromatt (Officer) (5)

 

 

397,547

 

 

 

1.8

%

 

Marvin White (Officer & Director) (6)

 

 

354,976

 

 

 

1.6

%

 

Jeffrey G. Lamothe (Officer) (7)

 

 

186,274

 

 

*

 

 

Daniel J. Abdun-Nabi (Director) (8)

 

 

103,100

 

 

*

 

 

John E. Niederhuber, M.D. (Director)

 

 

21,649

 

 

*

 

 

Zsolt Harsanyi (Director)

 

 

17,799

 

 

*

 

 

Grady Grant III (Director)

 

 

10,416

 

 

*

 

 

Barbara Lopez Kunz (Director)

 

 

10,416

 

 

*

 

 

All executive officers and directors as a group (11 persons) (9)

 

 

4,176,862

 

 

 

18.0

%

 

 

*Less than one percent.

(1)

This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G, filed with the SEC.  Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.  Applicable percentages are based on 22,411,974 shares outstanding on April 2, 2018, adjusted as required by rules promulgated by the SEC.

(2)

Mr. El-Hibri has a beneficial ownership interest in 2,772,198 shares of our common stock through his direct holdings in certain entities and shares held by trusts indirectly controlled by Mr. El-Hibri, which represent approximately 12% of our outstanding common stock. In accordance with the rules and regulations of the SEC, Mr. El-Hibri’s beneficial ownership is deemed to consist of the following shares of our common stock:

 

 

1,175,169 shares held by Intervac, L.L.C.;

 

762,077 shares held by BioVac, L.L.C.; and

 

824,536 shares held directly by Mr. El-Hibri.

 

(3)

Mr. El-Hibri, together with his wife, holds a 37.7% equity interest in Intervac, L.L.C., a Maryland limited liability company, which in turn beneficially owns an aggregate of 2,172,125 shares of common stock. Mr. El-Hibri expressly disclaims beneficial ownership of any shares of common stock owned by Intervac, LLC. The address for Intervac L.L.C. is c/o East-West Resources Corporation, 12001 Glen Road, Rockville, MD 20854.

(4)

Based on information provided in a Schedule 13G/A that was filed with the SEC on February 13, 2018 by Sessa Capital (Master), L.P. Sessa Capital (Master), L.P. is the beneficial owner of 1,628,053 shares and has sole voting power with respect to 1,628,053 shares and sole dispositive power with respect to 1,628,053 shares of Aptevo’s common stock as of December 31, 2017. The address for Sessa Capital (Master), L.P. is 1350 Avenue of the Americas, Suite 3110, New York, NY 10019.

(5)

Includes options to purchase 11,233 shares of common stock issuable under stock options exercisable on or within 60 days of April 2, 2018.

(6)

Includes options to purchase 25,266 shares of common stock issuable under stock options exercisable on or within 60 days of April 2, 2018, and 35,644 shares of common stock to be issued pursuant to a restricted stock award which vests within 60 days from April 2, 2018.

(7)

Includes options to purchase 11,233 shares of common stock issuable under stock options exercisable on or within 60 days from April 2, 2018.

(8)

Includes 2,000 shares held by Mr. Abdun-Nabi’s children, as to which Mr. Abdun-Nabi disclaims beneficial ownership.  

(9)

Includes options to purchase 22,466 shares of common stock issuable under stock options exercisable within 60 days from April 2, 2018. This is only inclusive of the Company’s two other executive officers, and not those executive officers included above.

 

 

 

 

28


 

Section 16(a) Beneficial Ownership Reporting Compliance

 

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

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during 2017, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with; except that one report, covering one transaction was filed late by Randy J. Maddux, two reports, covering two transactions were filed late by Jane Gross, Ph.D., two reports covering two transactions were filed late by Jeffrey G. Lamothe, and two reports covering two transactions were filed late by Scott Stromatt, M.D.

 

 

29


 

Executive Officers

Set forth below is information regarding the positions, ages and business experience of each of our executive officers as of April 2, 2018:  Biographical information with regard to Mr. White is presented under “Proposal 1—Election of Directors” in this Proxy Statement.

 

Name

 

Age

 

Position(s)

Marvin L. White

 

56

 

Chief Executive Officer and President

Jeffrey G. Lamothe

 

52

 

Senior Vice President and Chief Financial Officer

Scott C. Stromatt, M.D.

 

60

 

Senior Vice President and Chief Medical Officer

Randy J. Maddux

 

57

 

Senior Vice President of Operations and Chief Manufacturing Officer

Jane Gross, Ph.D.

 

61

 

Senior Vice President and Chief Scientific Officer

 

Jeffrey G. Lamothe Mr. Lamothe has served as our Senior Vice President and Chief Financial Officer since July 2016. He previously served as Emergent’s Vice President Finance, Biosciences Division. Mr. Lamothe assumed this role in February 2014 when Emergent concluded the acquisition of Cangene Corporation, where he was Chief Financial Officer. Mr. Lamothe assumed the role of Chief Financial Officer of Cangene in August 2012. Prior to that, Mr. Lamothe was the Chief Financial Officer for Smith Carter Architects and Engineers Incorporated, a position which he held from January 2010 until July 2012. He also previously served as President and Chief Executive Officer of Kitchen Craft Cabinetry after occupying the position of VP Finance and Chief Financial Officer with that organization. Mr. Lamothe’s other past experience includes serving as Chief Financial Officer for Motor Coach Industries and he has held various roles at James Richardson & Sons, Limited and Ernst & Young LLP. Mr. Lamothe earned his bachelor of commerce (honours) degree from the University of Manitoba and is a Chartered Accountant/CPA.

Scott C. Stromatt, M.D. Dr. Stromatt has served as our Chief Medical Officer and Senior Vice President, Clinical Development & Medical Affairs since July 2016. From 2008 to August 2016, he served as Chief Medical Officer, Senior Vice President at Emergent and Chief Medical Officer, Senior Vice President at Trubion Pharmaceuticals Inc., where he was responsible for the clinical development programs for the ADAPTIR molecules. From 2003 to 2008, Dr. Stromatt worked at Cell Therapeutics, Inc., where he held the positions of Executive Vice President, Clinical Development and Regulatory Affairs from 2005 to 2008, Senior Vice President, Clinical Development and Regulatory Affairs from 2004 to 2005 and Vice President, Clinical Development from 2003 to 2004. In 2002, Dr. Stromatt worked at Northwest Biotherapeutics, Inc. as Vice President Clinical Research, Chief Medical Officer. From 2000-2002, Dr. Stromatt worked as a biotechnology analyst for Wall Street investment firm C.E. Unterberg. Dr. Stromatt earned a bachelor degree and MBA from the University of Colorado and medical degree from the University of Chicago. Dr. Stromatt is board certified in Internal Medicine.

Randy J. Maddux  Mr. Maddux has served as our Senior Vice President, Operations since July 2016 and Chief Manufacturing Officer since March 2018.  In this capacity, Mr. Maddux leads the Quality, Process and Analytical Development, Bioprocess Technologies, Supply Chain, and Site Services functions for the company. Prior to joining Aptevo, he spent 4 years as VP and Site Director at GSK, where he led the largest biopharmaceutical site within the GSK global manufacturing network. Prior to GSK, Mr. Maddux spent 9 years at Human Genomes Sciences as VP Quality and Operations and 8 years with Biogen in positions of increasing responsibility within the Quality organization. Mr. Maddux is a past member of the Life Sciences Foundation Board at Montgomery College. Mr. Maddux earned a bachelors in Chemistry from East Carolina University and pursued post-graduate work in analytical chemistry before earning an MBA from the Fuqua School of Business at Duke University.

Jane Gross, Ph.D. Dr. Gross has served as our Senior Vice President and Chief Scientific Officer since September 2016.  Dr. Gross served as VP of Research and Non-Clinical Development at Aptevo from July 2016 to September 2016. Dr. Gross leads research and non-clinical development focusing on the development of novel protein therapeutics based on the ADAPTIR™ platform, a position she has held for the last five years at Emergent. She leads research efforts in molecular biology and protein engineering, immunology, protein and cell sciences, pharmacology and translational research for clinical development. Dr. Gross has a Ph.D. in Immunology and over twenty-five years of experience in the discovery and development of novel protein therapeutics in autoimmune, infectious disease and oncology indications.. Prior to joining Emergent, Dr. Gross served as VP of Immunology Research at ZymoGenetics Inc., where she led efforts in discovery and development of therapeutics from novel genes for treatment of AIID and cancer. Dr. Gross holds Ph.D. in Immunology from University of California at Berkeley.

30.


 

Executive Compensation

Summary Compensation Table

The following table shows for 2016 and 2017 compensation awarded to or paid to, or earned by, the Company’s Chief Executive Officer and its two other most highly compensated executive officers as of December 31, 2017 (the “named executive officers”).  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position

 

Year

 

Salary (1)

 

 

Bonus(2)

 

 

Option

Awards(3)

 

 

Stock

Awards(4)

 

 

All Other

Compensation(5)

 

 

Total

 

Marvin L. White

 

2017

 

$

543,387

 

 

$

290,712

 

 

$

206,204

 

 

 

 

 

$

8,100

 

 

$

1,048,403

 

  Chief Executive Officer and President

 

2016

 

$

222,322

 

 

$

238,881

 

 

$

385,761

 

 

 

 

 

$

123,125

 

 

$

970,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jeffrey G. Lamothe

 

2017

 

$

387,406

 

 

$

183,631

 

 

$

91,676

 

 

 

 

 

$

8,100

 

 

$

670,814

 

  Senior Vice President and Chief Financial Officer

 

2016

 

$

157,738

 

 

$

153,473

 

 

 

 

 

$

148,999

 

 

$

101,815

 

 

$

562,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott C. Stromatt, M.D.

 

2017

 

$

412,564

 

 

$

170,801

 

 

$

91,676

 

 

 

 

 

$

8,100

 

 

$

683,142

 

  Senior Vice President and Chief Medical Officer

 

2016

 

$

185,999

 

 

$

144,900

 

 

 

 

 

$

390,682

 

 

$

2,236

 

 

$

723,817

 

 

(1)

Represents full year amounts from January 1, 2017 to December 31, 2017, and from the spin-off date of August 3, 2016 to December 31, 2016.

(2)

Represents cash bonuses paid in March 2018 for performance in 2017, and in February 2017 for performance in 2016.

(3)

The amounts in the “Option Awards” column reflect grant date fair value of stock option awards in the fiscal years indicated, calculated in accordance with SEC rules. For a discussion of the valuation assumptions, see Note 11 to the combined financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

(4)

2016 amounts represent relocation expenses of $120,000 for Mr. White and $100,000 for Mr. Lamothe, as well as 401(k) matching contributions. 2017 amounts represent 401(k) matching contributions.

 

Employment, Severance and Change in Control Agreements

 

The Company does not have any employment contracts with its named executive officers; however, the Company does have a Senior Management Severance Plan (“Severance Plan”) effective as of July 29, 2016 through December 31, 2021, renewing thereafter for one year increments unless terminated ninety (90) days prior to the expiration of the then current term.  A participant in this Severance Plan is an employee of the Company with the title Chief Executive Officer, Executive Vice President, Senior Vice President or Vice President, who has been employed by the Company for at least six (6) months, has been designated to participate and executed the plan acknowledgement form. In the event a participant in the Severance Plan is terminated by the Company without cause, the participant shall become entitled to the following:

unpaid base salary

unused paid time off through date of termination

reimbursement for any unreimbursed expense incurred by participant prior to date of termination

employee and fringe benefits and perquisites to which such participant may be entitled to as of the date of termination

31.


 

 

an amount equal to the percentage of such participant’s compensation set forth in the table below opposite such participant’s title, to be paid, in equal installments over the period set forth in the table below opposite such participant’s title:

 

Title

 

Percentage of

Compensation

 

 

Period

(months)

 

Chief Executive Officer

 

150%

 

 

 

18

 

Executive Vice President

 

125%

 

 

 

15

 

Senior Vice President

 

75%

 

 

 

9

 

Vice President

 

50%

 

 

 

6

 

 

any bonus earned but unpaid as of the date of termination for any previously completed year, to be paid in a lump sum

pro rata target annual bonus in respect of the year of termination, to be paid in a single lump-sum

continued eligibility for such participant and his/her eligible dependents to receive employee benefits.

If during the term of the Severance Plan, the participant’s employment is terminated with cause, then participant shall not be entitled to receive any compensation, benefits or rights and any stock options or other equity participation benefits vested on or prior to the date of such termination, shall immediately terminate.

A participant may also be provided a cash lump sum payment within thirty (30) days of termination of employment to the sum of: any unpaid base salary, accrued time off through date of termination and reimbursement of unreimbursed expenses, an bonus earned but unpaid, pro rata target annual bonus, employee benefits as of the date of termination, any unvested company stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-unit awards held by such participant that are outstanding on the date of the termination of employment shall become fully vested as of such date and the period during which any Equity Award held by such participant that is outstanding on such date may be exercised shall be extended to a date that is the later of the fifteenth day of the third month following the date, or December 31 of the calendar year in which such Equity Award would otherwise have expired if the exercise period had not been extended but not beyond the final date such Equity Award could be exercised if the participant employment had not terminated, in each case based on the terms of such Equity Award at the original grant date, and  an amount equal to the percentage of such participant’s compensation set forth in the table below opposite such participant’s title:

The participant and his/her eligible dependents shall continue to be eligible for benefits in accordance with the following chart:

 

Title

 

Percentage of Compensation

 

 

Period

(months)

 

Chief Executive Officer

 

250%

 

 

 

30

 

Executive Vice President

 

200%

 

 

 

24

 

Senior Vice President

 

125%

 

 

 

12

 

Vice President

 

65%

 

 

 

6

 

 

32.


 

Base Salaries and Target Bonuses

The Compensation Committee (“Committee”) approved annual base salaries and target bonus percentages for 2017. The 2017 bonuses were determined by a review of the achievement of Company and individual performance goals and other factors deemed relevant by the Committee.  The following table sets forth the base salary and target performance bonus percentages for 2017:

 

Name and Title

 

2017 Base

Salary

 

 

2017 Target

Performance

Percentage

 

Marvin L. White

   Chief Executive Officer and President

 

$

543,387

 

 

 

50

%

Jeffrey G. Lamothe

   Senior Vice President and Chief Financial Officer

 

$

387,407

 

 

 

40

%

Scott C. Stromatt, M.D. Senior Vice President and

   Chief Medical Officer

 

$

412,563

 

 

 

40

%

 

Outstanding Equity Awards at December 31, 2017

The following table sets forth information regarding unexercised Aptevo stock options and unvested restricted stock unit awards outstanding as of December 31, 2017 for each of our named executive officers.  

 

 

 

2017 Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

 

 

 

 

 

 

 

 

Options Awards

 

 

Stock Awards

 

 

 

 

Number of Securities Underlying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option

 

 

Option Award

 

 

Unvested

 

 

Market Value

 

 

Name

 

Exercisable

 

 

Unexercisable

 

 

Award

 

 

Expiration Date

 

 

Stock Awards

 

 

Unvested Stock

 

 

Marvin White

 

 

35,643

 

(1)

 

 

 

$

1.80

 

 

5/22/2021

 

 

 

 

 

$

 

 

 

 

 

66,825

 

(2)

 

133,650

 

(2)

$

2.94

 

 

8/3/2026

 

 

 

 

 

$

 

 

 

 

 

 

 

 

75,800

 

(3)

$

1.96

 

 

2/23/2027

 

 

 

 

 

$

 

 

 

 

 

 

 

 

75,800

 

(4)

$

2.15

 

 

5/31/2027

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

35,644

 

(5)

$

151,131

 

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jeffrey G. Lamothe

 

 

37,736

 

(6)

 

 

 

$

2.47

 

 

3/10/2021

 

 

 

 

 

$

 

 

 

 

 

13,504

 

(7)

 

13,492

 

(7)

$

2.55

 

 

3/9/2022

 

 

 

 

 

$

 

 

 

 

 

14,600

 

(8)

 

29,200

 

(8)

$

2.97

 

 

2/28/2026

 

 

 

 

 

$

 

 

 

 

 

 

 

 

33,700

 

(3)

$

1.96

 

 

2/23/2027

 

 

 

 

 

$

 

 

 

 

 

 

 

 

33,700

 

(4)

$

2.15

 

 

5/31/2027

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

6,747

 

(9)

$

28,607

 

(13)

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

14,638

 

(10)

$

62,065

 

(13)

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

25,340

 

(11)

$

107,442

 

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott C. Stromatt, M.D.

 

 

49,682

 

(12)

 

 

 

$

2.47

 

 

3/10/2021

 

 

 

 

 

$

 

 

 

 

 

27,793

 

(7)

 

27,793

 

(7)

$

2.55

 

 

3/9/2022

 

 

 

 

 

$

 

 

 

 

 

32,538

 

(8)

 

65,074

 

(8)

$

2.97

 

 

2/28/2026

 

 

 

 

 

$

 

 

 

 

 

 

 

 

33,700

 

(3)

$

1.96

 

 

2/23/2027

 

 

 

 

 

$

 

 

 

 

 

 

 

 

33,700

 

(4)

$

2.15

 

 

5/31/2027

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

13,892

 

(9)

$

58,902

 

(13)

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

32,538

 

(10)

$

137,961

 

(13)

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

27,381

 

(11)

$

116,095

 

(13)

 

(1)

The stock option award fully vested on May 22, 2017. This award was originally part of a grant from Emergent dated May 22, 2014 of which two-thirds were vested at the time of conversion to Aptevo's equity pool.

(2)

The award was granted on August 3, 2016 at the time of spin-off from Emergent. This award vests over three years; one-third of which vested on August 3, 2017, one-third will vest on August 3, 2018, and the final one-third on August 3, 2019.

(3)

This stock option award was granted on February 24, 2017. This award vests over three years, one-third of which vested on February 24, 2018, one-third will vest on February 24, 2019, and the final third on February 24, 2020.

(4)

This stock option award was granted on June 1. 2017. This awards vests over three years, one-third on June 1, 2018, one-third on June 1. 2019, and the final third on June 1, 2010.

(5)

The unvested portion of this restricted stock unit award will vest on May 21, 2018.

33.


 

(6)

This stock option award vested on march 10, 2017. This award was originally part of a grant from Emergent dated March 11, 2014, of which two-thirds were vested at the time of conversion to Aptevo’s equity pool.

(7)

One-half on this stock option award vested on March 10, 2017, and the second half vested on March 10, 2018. The award was originally part of a grant from Emergent dated March 11, 2015, of which one-third was vested at the time of conversion to Aptevo’s equity pool.

(8)

The award vest over three years, one-third of which vested on March 1, 2017, one-third on March 1, 2018, and the final one-third will vest on March 1, 2019.

(9)

Approximately on half of this restricted stock unit award vested on March 9, 2017 and the remaining portion vested on March 9, 2018.

(10)

Approximately one-third of this restricted stock unit award vested on March 1, 2017, and additional one-third vested on March 1, 2018, and the remaining one-third will vest on March 1, 2019.

(11)

Approximately one-half of this restricted stock unit award vested on February 3, 2017 and the remaining one-half portion vested on February 3, 2018.

(12)

This stock option award vested on March 9, 2017. This award was originally part of a grant from emergent dated March 9, 2014, of which two-thirds were vested at the time of conversion to Aptevo’s equity pool.

(13)

Represents the closing price of Aptevo’s common stock on December 31, 2017 of $4.24 multiplied by the number of shares underlying the unvested portion of the restricted stock unit awards as of December 31, 2017.

Director Compensation

 

The following table shows for 2017 certain information with respect to the compensation of all non-employee directors of the Company:

 

Name

 

Fees Earned

or Paid in

Cash

($)

 

 

Option

Awards

($) (1)(2)

 

 

Total

($)

 

Fuad El-Hibri

 

$

54,374

 

 

$

17,779

 

 

$

72,153

 

Daniel J. Abdun-Nabi

 

$

51,310

 

 

$

17,779

 

 

$

69,089

 

Grady Grant, III

 

$

73,970

 

 

$

17,779

 

 

$

91,749

 

Zsolt Harsanyi, PhD.

 

$

77,917

 

 

$

17,779

 

 

$

95,696

 

Barbara Lopez Kunz

 

$

79,267

 

 

$

17,779

 

 

$

97,046

 

John E. Niederhuber, M.D.

 

$

82,087

 

 

$

17,779

 

 

$

99,866

 

 

(1)

Represents the aggregate grant date fair value of stock awards made during 2017 computed in accordance with the Stock Compensation Topic of the FASB ASC, based on the market price of our common stock on the date of grant, as required by SEC rules and regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a description of the assumptions used to determine these amounts, see Note 11 to the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

(2)

Each director was awarded options, 18,750 on August 3, 2016 and 12,500 on June 1, 2017. The table below lists the aggregate number of shares subject to outstanding option awards held by each of our non-employee directors.

 

Name

 

Number of

Shares

Vested

as of

December 31,

2017

 

 

Number of

Shares

Subject to

Outstanding

Options

as of

December 31,

2017

 

Fuad El-Hibri

 

 

6,250

 

 

 

25,000

 

Daniel J. Abdun-Nabi

 

 

6,250

 

 

 

25,000

 

Grady Grant, III

 

 

6,250

 

 

 

25,000

 

Zsolt Harsanyi, PhD.

 

 

6,250

 

 

 

25,000

 

Barbara Lopez Kunz

 

 

6,250

 

 

 

25,000

 

John E. Niederhuber, M.D.

 

 

6,250

 

 

 

25,000

 

 

34.


 

Under the Aptevo Directors Compensation Program, Aptevo’s non-employee directors receive the compensation set forth in the table below. We also reimburse Aptevo’s non-employee directors for out-of-pocket expenses incurred in connection with attending our board and committee meetings.

 

Element

 

Program

Annual Cash Retainer

 

$40,000

Committee Chair Retainer

 

$20,000 – Audit

 

 

$15,000 – Compensation

$10,000  – Nominating/Governance

Committee Member Retainer

 

$10,000 – Audit

 

 

$7,500 – Compensation

$5,000 – Nominating/Governance

Annual Equity Grant

 

12,500 options

Initial Equity Grant (including annual)

 

18,750 options

 

35.


 

Transactions With Related Persons

Related Transaction Policy

In 2016, we adopted a written Related Person Transaction Policy (“Policy”) that sets forth our policies and procedures for the review and approval or ratification of related person transactions.  For purposes of our policy only, a “Related Person Transaction” is a transaction, arrangement or relationship in which we and any “related persons” are participants involving an amount that exceeds $120,000. A related person is an executive officer, director, or more than 5% stockholder of any class of our voting securities, including any of their immediate family member.

Any Related Person Transaction proposed to be entered into by the Company must be reported to the Company’s General Counsel and shall be reviewed and approved by the Audit Committee of the Board (the “Committee”) in accordance with the terms of this Policy.  If the General Counsel determines that advance approval of a Related Person Transaction is not practicable under the circumstances, the Committee shall review and, in its discretion, may ratify the Related Person Transaction at the next meeting of the Committee, or at the next meeting following the date that the Related Person Transaction comes to the attention of the General Counsel. Any Related Person Transaction previously approved by the Committee or otherwise already existing that is ongoing in nature shall be reviewed by the Committee annually.

A Related Person Transaction reviewed under this Policy will be considered approved or ratified if it is authorized by the Committee in accordance with the standards set forth in this Policy after full disclosure of the Related Person’s interests in the transaction.  As appropriate for the circumstances, the Committee shall review and consider: (a) the Related Person’s interest in the Related Person Transaction; (b) the approximate dollar value of the amount involved in the Related Person Transaction; (c) the approximate dollar value of the amount of the Related Person’s interest in the transaction without regard to the amount of any profit or loss; (d) whether the transaction was undertaken in the ordinary course of business of the Company; (e) whether the transaction with the Related Person is proposed to be, or was, entered into on terms no less favorable to the Company than terms that could have been reached with an unrelated third party; (f) the purpose of, and the potential benefits to the Company of, the transaction; and (g) any other information regarding the Related Person Transaction or the Related Person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.  

The Committee will review all relevant information available to it about the Related Person Transaction.  The Committee may approve or ratify the Related Person Transaction only if the Committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, the best interests of the Company.  The Committee may, in its sole discretion, impose such conditions as it deems appropriate on the Company or the Related Person in connection with approval of the Related Person Transaction.  

Indemnity Agreements

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

36.


 

Householding of Proxy Materials

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single Notice of Internet Availability 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 Aptevo stockholders will be “householding” the Company’s proxy materials.  A single Notice of Internet Availability of Proxy 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 Notice of Internet Availability of Proxy Materials, please notify your broker or Aptevo.  Direct your written request to Aptevo Therapeutics Inc. Shawnte Mitchell, Secretary, Vice President and General Counsel, 2401 4th Ave. Suite 1050, Seattle, Washington 98121 or contact Shawnte Mitchell at (206) 838-0500.  Stockholders who currently receive multiple copies of the Notices of Internet Availability of Proxy Materials at their addresses and would like to request “householding” of their communications should contact their brokers.

 

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Other Matters

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 meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors

/s/ Shawnte Mitchell

Secretary, Vice President and General Counsel

April 20, 2018

A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2017 is available without charge upon written request to: Corporate Secretary, Aptevo Therapeutics Inc., 2401 4th Ave. Suite 1050, Seattle, Washington 98121.

 

 

38.


 

Exhibit A

APTEVO THERAPEUTICS INC.

2018 STOCK INCENTIVE PLAN

1.Purpose

The purpose of this 2018 Stock Incentive Plan (the “Plan”) of Aptevo Therapeutics Inc., a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company’s stockholders.  Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the “Board”).

As of the Effective Date (as defined in Section 12(c) below), the Plan shall replace the Company’s 2016 Stock Incentive Plan, as amended (the “Prior Plan”).  From and after 12:01 a.m. Pacific time on the Effective Date, no additional awards will be granted under the Prior Plan.  All awards granted on or after 12:01 a.m. Pacific Time on the Effective Date will be granted under the Plan.  All awards granted under the Prior Plan will remain subject to the terms of the Prior Plan.  Any shares that would otherwise remain available for future grants under the Prior Plan as of 12:01 a.m. Pacific time on the Effective Date will cease to be available under the Prior Plan at such time, and will not be available for grant under this Plan.  

In addition, from and after 12:01 am Pacific time on the Effective Date, any shares subject, at such time, to outstanding stock awards granted under the Prior Plan that (a) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (c) otherwise would have returned to the Prior Plan for future grant pursuant to the terms of the Prior Plan (such shares, the “Returning Shares”) will immediately be added to the share reserve under this Plan (as further described Section 4 below) as and when such shares become Returning Shares, up to the maximum number set forth in Section 4 below.

2.Eligibility

All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company (as the terms consultants and advisors are defined and interpreted for purposes of Form S-8 under the Securities Act of 1933, as amended (the “Securities Act”), or any successor form) are eligible to be granted Awards (as defined below) under the Plan.  Each person who is granted an Award under the Plan is deemed a “Participant.”  The Plan provides for the following types of awards, each of which is referred to as an “Award”:  Options (as defined in Section 5), SARs (as defined in Section 6), Restricted Stock (as defined in Section 7), RSUs (as defined in Section 7), Other Stock-Based Awards (as defined in Section 8) and Cash-

 


 

Based Awards (as defined in Section 8).  Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award.  The terms of each Award need not be identical, and the Board need not treat Participants uniformly.  

3.Administration and Delegation

(a)Administration by Board of Directors.  The Plan will be administered by the Board.  The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable.  The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan.  The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award.  All actions and decisions by the Board with respect to the Plan and any Awards shall be made in the Board’s discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award.

(b)Appointment of Committees.  To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”).  All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.  

(c)Delegation to Officers.  Subject to any requirements of applicable law (including as applicable Sections 152 and 157(c) of the General Corporation Law of the State of Delaware), the Board may delegate to one or more officers of the Company the power to grant Awards (subject to any limitations under the Plan) to employees or officers of the Company and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of Awards to be granted by such officers, the maximum number of shares subject to Awards that the officers may grant, and the time period in which such Awards may be granted; and provided further, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1(f) under the Exchange Act).

(d)Awards to Non-Employee Directors.  Awards to non-employee directors will be granted and administered by a Committee, all of the members of which are independent directors as defined by Section 5605(a)(2) of the NASDAQ Marketplace Rules.

(e)Minimum Vesting Requirements.  Notwithstanding any other provision of the Plan, no Award may vest (or, if applicable, be exercisable) until at least twelve (12) months following the date of grant of the Award; provided, however, that up to 5% of the share reserve set forth in Section 4(a)(1) below may be subject to Awards that do not meet such vesting (and, if applicable, exercisability) requirements.

(f)Dividends and Dividend Equivalents.  Notwithstanding any other provision of the Plan, dividends or dividend equivalents may be paid or credited, as applicable, with respect to any shares of Common Stock subject to an Award, as determined by the Board and contained in the applicable Award agreement; provided, however, that (i) no dividends or dividend

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equivalents may be paid with respect to any such shares before the date such shares have vested under the terms of such Award agreement, (ii) any dividends or dividend equivalents that are credited with respect to any such shares will be subject to all of the terms and conditions applicable to such shares under the terms of such Award agreement (including, but not limited to, any vesting conditions), and (iii) any dividends or dividend equivalents that are credited with respect to any such shares will be forfeited to the Company on the date, if any, such shares are forfeited to or repurchased by the Company due to a failure to meet any vesting conditions under the terms of such Award agreement.

4.Stock Available for Awards

(a)Authorized Number of Shares.  Subject to adjustment under Section 10, Awards may be made under the Plan for up to 6,636,620 shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), which is the sum of (i) the 2,925,000 shares of Common Stock being newly reserved under the Plan as of the Effective Date and (ii) the number of shares that are Returning Shares, as such shares become available from time to time, up to a maximum of 3,711,620 shares of Common Stock.  Any or all of these shares of Common Stock may be granted as Awards that are Incentive Stock Options (as defined in Section 5(b)).

(b)Share Counting.  For purposes of counting the number of shares available for the grant of Awards under the Plan under this Section 4(a):

(1)all shares of Common Stock covered by SARs shall be counted against the number of shares available for the grant of Awards under the Plan; provided, however, that (i) SARs that may be settled only in cash shall not be so counted and (ii) if the Company grants an SAR in tandem with an Option for the same number of shares of Common Stock and provides that only one such Award may be exercised (a “Tandem SAR”), only the shares covered by the Option, and not the shares covered by the Tandem SAR, shall be so counted, and the expiration of one in connection with the other’s exercise will not restore shares to the Plan;

(2)if any Award (i) expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Compan