PART
III
Item
10. Directors, Executive Officers, and Corporate Governance
Directors
The
names and ages of our directors are:
Ronald
Andrews
, 59, joined our Board of Directors in April 2018. Mr. Andrews is the founder and principal of the Bethesda Group,
a consulting firm that advises companies in the molecular diagnostics and genomics fields. Prior to founding the Bethesda Group
in 2015, Mr. Andrews served as President, Genetic Sciences Division of Thermo Fisher Scientific from September 2013 to December
2014, and as President, Medical Sciences Venture for Life Technologies from February 2012 to September 2013 when Life Technologies
was acquired by Thermo Fisher. From 2004 to December 2010, Mr. Andrews was the Chief Executive Officer and Vice Chairman of the
Board of Clarient, Inc., a cancer diagnostics company, and from December 2010 to February 2012 he served as CEO of GE Molecular
Diagnostics after Clarient was acquired by GE Healthcare. Mr. Andrews also held management positions with companies in diagnostics
and related medical fields, including Roche Molecular Diagnostics, Immucor, Inc. and Abbott Labs. Mr. Andrews also serves as a
director of Orion Health Group Ltd., Oxford ImmunoTec. Mr. Andrews is also a member of the Board of Governors of CancerLinQ LLC,
a wholly-owned non-profit subsidiary of the American Society of Clinical Oncology.
Mr.
Andrews has over 30 years of experience in the molecular diagnostics and genomics industries, including experience integrating
companies acquired in mergers. He also oversaw the transition of Clarient, Inc. into GE Healthcare and established a strategic
plan to integrate In Vivo and In Vitro and expand GE’s presence in oncology.
William
Annett
, 65, joined OncoCyte as Chief Executive Officer in June 2015. Prior to becoming our Chief Executive Officer, Mr. Annett
was a Managing Director at Accenture from 2011 to 2014, where he founded, built, and headed Accenture’s West Coast Life
Sciences practice with sales, marketing, and delivery responsibilities for the entire territory. His clients included most of
the major biotech and pharmaceutical companies in the western United States. At Genentech, from 2003 until 2011, Mr. Annett led
the Commercial Strategy group and managed large operational projects with several hundred team members. He also directed the Project
Finance function for research and development, which supported all development pipeline products with more than 200 clinical trials.
In 2001 Mr. Annett founded and until 2003 served as CEO of Corra Life Sciences, a prenatal diagnostics company, which worked with
a consortium of universities to develop blood tests for the major diseases of pregnancy. Mr. Annett also previously served as
Chief Executive Officer of BioFX Laboratories, Inc. from 1999 to 2000. Early in his career, Mr. Annett also founded a consumer
products company, which he led for six years as Chief Executive Officer. During his tenure, the company became publicly traded
on NASDAQ and was then acquired. Mr. Annett holds an MBA from the Harvard Business School.
Mr.
Annett brings to our Board his years of senior management experience overseeing the development and commercialization of products
and services in the life sciences, pharmaceutical and diagnostics industries.
Andrew
Arno
, 59, joined our Board of Directors in June 2015 and has 30 years of experience working with emerging growth companies.
He is currently Vice Chairman of “The Special Equities Group” at Chardan Capital Markets, LLC, a privately held investment
banking firm, and from June 2013 until July 2015 served as Managing Director of Emerging Growth Equities, an investment bank,
and Vice President of Sabr, Inc., a family investment group. He was previously President of LOMUSA Limited, an investment banking
firm. From 2009 to 2012, Mr. Arno served as Vice Chairman and Chief Marketing Officer of Unterberg Capital, LLC, an investment
advisory firm that he co-founded. He was also Vice Chairman and Head of Equity Capital Markets of Merriman Capital LLC, an investment
banking firm, and served on the board of the parent company, Merriman Holdings, Inc. Mr. Arno currently serves on the boards of
directors of Smith Micro Software, Inc. and served as a director of Asterias Biotherapeutics, Inc. from August 2014 until it was
acquired by BioTime, Inc. in March 2019.
Mr.
Arno brings over 30 years’ experience handling a wide range of corporate and financial matters and his background as an
investment banker and strategic advisor to emerging growth companies qualifies him to serve on our Board of Directors.
Alfred
D. Kingsley
, 76, joined the Board of Directors during September 2009 and served as Chairman of the Board from December 2010
until April 2018. Mr. Kingsley is also the Chairman of the Board of Directors of BioTime, Inc. Mr. Kingsley has been general partner
of Greenway Partners, L.P., a private investment firm, and President of Greenbelt Corp., a business consulting firm, since 1993.
Greenbelt Corp. served as BioTime’s financial advisor from 1998 until June 30, 2009. Mr. Kingsley was Senior Vice-President
of Icahn and Company and its affiliated entities for more than 25 years. Mr. Kingsley served as a director of Asterias Biotherapeutics,
Inc. from September 2012 until it was acquired by BioTime March 2019. Mr. Kingsley holds a BS degree in economics from the Wharton
School of the University of Pennsylvania, and a J.D. degree and LLM in taxation from New York University Law School.
Mr.
Kingsley’s long career in corporate finance and mergers and acquisitions includes substantial experience in helping companies
to improve their management and corporate governance, and to restructure their operations in order to add value for shareholders.
As Chairman of the Board of our former parent company BioTime, Mr. Kingsley has been instrumental in structuring BioTime’s
equity and debt financings and the business acquisitions that have helped BioTime expand the scope of its business. Mr. Kingsley,
along with entities that he controls, is currently one of the largest shareholders of BioTime.
Andrew
J. Last
, 59, joined the Board of Directors during December 2015. In April 2019, Dr. Last was appointed as Executive Vice
President and Chief Operating Officer of Bio-Rad Laboratories, Inc. Dr. Last previously served as Chief Commercial
Officer at Berkeley Lights Inc. and as Chief Operating Officer of Intrexon Corporation. From 2010 to 2016, Dr. Last was
Executive Vice President and Chief Operating Officer of Affymetrix. Before joining Affymetrix, Dr. Last served as Vice President,
Global and Strategic Marketing of BD Biosciences and as General Manager of Pharmingen from 2004 to 2010. From 2002 to 2004, Dr.
Last held management positions at Applied Biosystems, Inc., including as Vice President and General Manager from 2003-2004 and
Vice President of Marketing 2002-2003. Earlier in his career, he served in a variety of management positions at other companies,
including Incyte Genomics and Monsanto. Dr. Last holds Ph.D. and MS degrees with specialization in Agrochemical Chemicals and
Bio-Aeronautics, respectively, from Cranfield University, and a BS degree in Biological Sciences from the University of Leicester
in the United Kingdom.
Dr.
Last shares with our Board his many years of senior management experience commercializing products internationally in the genomics
and life-sciences industries.
Aditya
P. Mohanty
, 52, joined the Board of Directors during April 2015. Mr. Mohanty served as Co-Chief Executive Officer of
BioTime, Inc. from October 2015 to September 2018, after serving as BioTime’s Chief Operating Officer from December 2014
to October 2015. Mr. Mohanty previously served in a number of executive positions at Shire plc, including as President/Head Regenerative
Medicine from 2013 to 2014, as Senior Vice President, Business and Technical Operations from 2012 to 2013, as Global Franchise
Head MPS from 2010 to 2012, and as Vice President of Operations/Product General Manager from 2005 to 2012. Shire plc is a biotechnology
company focused on research, development and commercialization of novel biological products for rare diseases. Mr. Mohanty was
VP of Manufacturing and Operations at Transkaryotic Therapies, Inc. from 2002 to 2005 when it was acquired by Shire. Before joining
Transkaryotic Therapies, Mr. Mohanty held a number of management positions at Baxter Healthcare Corporation, Bioscience Division
from 1990 to 2002. Mr. Mohanty served as a director of BioTime from March 2016 until September 2018 and as a director of Asterias
Biotherapeutics, Inc. from 2016 until it was acquired by BioTime in March 2019. Mr. Mohanty received an MBA degree from Saint
Mary’s College, an MS in Chemical Engineering from Clarkson University, and a B. Tech in Chemical Engineering from REC Trichy,
in India.
Mr.
Mohanty brings to our Board his years of experience as an executive in the pharmaceutical industry, with particular emphasis on
product development and manufacturing. Mr. Mohanty has helped launch several public and private companies and he has experience
with successfully raising financing for early stage companies, creating focused business strategies and attracting investors.
During his tenure at Shire plc he was responsible for several successful product launches and growing business and revenues to
several billion dollars annually.
Cavan
Redmond
, 58, joined our Board of Directors in August of 2015 and was appointed Chairman of the Board during April 2018. Since
2014, Mr. Redmond has served as Partner for Zarsy, LLC. Mr. Redmond served as Chief Executive Officer of WebMD from May 2012 until
May 2013. From August 2011 until May 2012, Mr. Redmond served as Group President, Animal Health, Consumer Healthcare and Corporate
Strategy of Pfizer Inc., a pharmaceutical company. He served as Pfizer’s Group President, Animal Health, Consumer Healthcare,
Capsugel and Corporate Strategy from December 2010 until August 2011 and as its Senior Vice President and Group President, Pfizer
Diversified Businesses from October 2009 until December 2010. Prior to Pfizer’s acquisition of Wyeth, a pharmaceutical company,
Mr. Redmond served as President, Wyeth Consumer Healthcare and Animal Health Business from May 2009 until October 2009. Before
that, he held the positions of President, Wyeth Consumer Healthcare from December 2007 until May 2009 and Executive Vice President
and General Manager, BioPharma, Wyeth Pharmaceuticals from 2003 until December 2007. Mr. Redmond also serves as a director of
BioTime, Inc.
Mr.
Redmond brings to our Board his years of experience as a senior executive in the pharmaceutical and veterinary products industries.
Code
of Ethics
We
have adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to our principal executive officers,
our principal financial officer and accounting officer, our other executive officers, and our directors. The purpose of the Code
of Ethics is to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships; (ii) full, fair, accurate, timely, and understandable disclosure in reports and
documents that we file with or submit to the SEC and in our other public communications; (iii) compliance with applicable governmental
rules and regulations; (iv) prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons
identified in the Code of Ethics; and (v) accountability for adherence to the Code of Ethics. A copy of our Code of Ethics has
been posted on our internet website and can be found at
www.oncocyte.com
. We intend to disclose any future amendments
to certain provisions of our Code of Ethics, and any waivers of those provisions granted to our principal executive officers,
principal financial officer, principal accounting officer or controller or persons performing similar functions, by posting the
information on our website within four business days following the date of the amendment or waiver.
Audit
Committee
The
Board of Directors has an Audit Committee, the members of which are independent in accordance with Section 803(A) of the NYSE
American Company Guides and Section 10A-3 under the Exchange Act. The members of the Audit Committee must also meet the independence
tests applicable to members of audit committees under the NYSE American Company Guide.
The
members of the Audit Committee are Andrew Arno (Chairman), Ronald Andrews, Andrew J. Last, and Cavan Redmond. Mr. Andrews joined
the Audit Committee during April 2018. The purpose of the Audit Committee is to recommend the engagement of our independent registered
public accountants, to review their performance and the plan, scope, and results of the audit, and to review and approve the fees
we pay to our independent registered public accountants. The Audit Committee also will review our accounting and financial reporting
procedures and controls.
Our
Board of Directors has determined that Andrew Arno meets the criteria of an “audit committee financial expert” within
the meaning of the SEC’s regulations based on his many years of experience in the investment banking industry, and his audit
committee service at another company, including the evaluation of financial statements.
Executive
Officers
William
Annett, Chief Executive Officer, Mitchell Levine, Chief Financial Officer, Albert Parker, Chief Operating Officer, and Lyndal
K. Hesterberg, Chief Scientific Officer, are our executive officers.
Mitchell
Levine
joined OncoCyte as Chief Financial Officer in November 2017. Prior to joining
OncoCyte, Mr. Levine was the Managing Partner of Kirby Cove Capital Advisors, which provides consulting services to international
life sciences investment funds regarding collaboration and investment in US-based life sciences companies. Mr. Levine was the
founder and from 2002 to 2017 the managing member of Enable Capital Management, LLC, the general partner of, Enable Growth Partners,
L.P. provided growth capital to technology, life sciences, consumer products, and energy companies. Prior to founding Enable,
Mr. Levine was a founding member of The Shemano Group, a leading San Francisco-based investment bank that focused on the capital
needs of growth companies. He has also worked at Bear Stearns and Lehman Brothers. Mr. Levine received his BA from the University
of California, Davis.
Albert
P. Parker
joined OncoCyte as Chief Operating Officer during August 2018. Prior to joining OncoCyte, Mr. Parker was the managing
shareholder of GC Legal Advisors, a law firm established to provide or supplement in-house legal support on an interim, part-time,
or project basis for companies operating across various industries. Mr. Parker also served as Executive Vice President, General
Counsel and Corporate Secretary of Sunovion Pharmaceuticals from 2013 to 2014. From 2000-2010, Mr. Parker served in a number of
management and legal positions at the Vice President or Senior Vice President and Chief Counsel level at Wyeth Pharmaceuticals
(now a part of Pfizer). Before joining Wyeth Pharmaceuticals, Mr. Parker served as an Assistant General Counsel at Warner-Lambert
Company, and was a partner in a Philadelphia law firm. Mr. Parker holds a J.D. from the University of Pennsylvania Law School
and a B.A. from Pennsylvania State University
Lyndal
K. Hesterberg, Ph.D.
was appointed Chief Scientific Officer during March 2019 after serving as our Senior Vice President-Research
and Development since November 2016. Dr. Hesterberg began providing consulting services to OncoCyte in 2015 and was named Vice
President of Development in February of 2016. Dr. Hesterberg continues to provide counsel on clinical trial design, product development
and corporate strategy as a consultant to medical and biotech companies. Until 2012, Dr. Hesterberg was the Chief Technology Officer
of Crescendo Biosciences where he was responsible for clinical trial, laboratory operations, manufacturing and quality systems
and helped bring to market Vectra DA. Previously, he was the president and Chief Executive Officer of Barofold, Inc., where he
led the company from product conception through its clinical stage, and recruited a senior leadership team that developed a pipeline
of proprietary drug candidates. Dr. Hesterberg received his Ph.D. in biochemistry from the University of St. Louis and a Bachelor
of Sciences from the University of Illinois.
Compliance
with Section 16(A) of the Securities Exchange Act of 1934
Section
16(a) of Exchange Act, requires our directors and executive officers and persons who own more than ten percent (10%) of a registered
class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common
stock and other OncoCyte equity securities. Officers, directors and greater than ten percent beneficial owners are required by
SEC regulations to furnish us with copies of all reports they file under Section 16(a).
To
our knowledge, based solely on our review of the copies of such reports furnished to us, all Section 16(a) filing requirements
applicable to our officers, directors, and greater than ten percent beneficial owners were complied with during the fiscal year
ended December 31, 2018, except that one Form 4 was filed late by Kristine Mechem, Andrew Arno, Andrew Last, Cavan Redmond, and
Ronald Andrews, and two Forms 4 were filed late by William Annett, Mitchell Levine, and Lyndal Hesterberg.
Item
11. Executive Compensation
Director
Compensation
Directors
and members of committees of the Board of Directors who are salaried employees of OncoCyte or BioTime are entitled to receive
compensation as employees but are not compensated for serving as directors or attending meetings of the Board or committees of
the Board. All directors are entitled to reimbursements for their out-of-pocket expenses incurred in attending meetings of the
Board or committees of the Board.
Non-employee
directors, other than the Chairman of the Board of Directors, received an annual fee of $35,000 in cash during 2018. In addition
to cash fees, non-employee directors received options to purchase 45,000 shares of common stock under our 2018 Equity Incentive
Plan (the “Incentive Plan”) during 2018. In 2018, our Chairman received an annual cash fee of $70,000 and an annual
award of options to purchase 50,000 shares of OncoCyte common stock.
The
annual fee of cash was paid, and the stock options granted vested and became exercisable one year from the date of grant, subject
to the non-employee director’s continued service as a director of OncoCyte or a subsidiary from the date of grant until
the vesting date or, if earlier, until the next annual meeting of shareholders. The options will expire if not exercised ten years
from the date of grant.
Directors
who served on the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee, Science and Technology
Committee or the Finance Committee during 2018 received, in addition to other fees payable to them as directors, the following
annual fees:
|
●
|
Audit
Committee Chairman: $15,000
|
|
●
|
Audit
Committee Member other than Chairman: $7,500
|
|
●
|
Compensation
Committee Chairman: $10,000
|
|
●
|
Compensation
Committee Member other than Chairman: $5,000
|
|
●
|
Nominating/Corporate
Governance Committee Chairman: $10,000
|
|
●
|
Nominating/Corporate
Governance Committee Member other than Chairman: $5,000
|
|
●
|
Science
and Technology Committee Chairman: $10,000
|
|
●
|
Science
and Technology Committee Member other than Chairman: $5,000
|
|
●
|
Finance
and Strategy Committee Chairman: $10,000
|
|
●
|
Finance
and Strategy Committee Member other than Chairman: $5,000
|
The
following table summarizes certain information concerning the compensation paid during the past fiscal year to each of the persons
who served as directors during the year ended December 31, 2018 and who were not our employees on the date the compensation was
earned.
Name
|
|
Fees Earned
Or Paid in
Cash
|
|
|
Option
Awards
(1)
|
|
|
Total
|
|
Ronald Andrews
|
|
$
|
51,875
|
|
|
$
|
99,309
|
(2)
(3)
|
|
$
|
151,184
|
|
Andrew Arno
|
|
$
|
67,500
|
|
|
$
|
70,058
|
(3)
|
|
$
|
137,558
|
|
Alfred D. Kingsley
|
|
$
|
48,750
|
|
|
$
|
70,058
|
(3)
|
|
$
|
118,808
|
|
Andrew J. Last
|
|
$
|
72,500
|
|
|
$
|
70,058
|
(3)
|
|
$
|
142,558
|
|
Cavan Redmond
|
|
$
|
77,500
|
|
|
$
|
77,842
|
(4)
|
|
$
|
155,342
|
|
Aditya Mohanty
|
|
$
|
8,750
|
|
|
$
|
—
|
|
|
$
|
8,750
|
|
(1)
|
Options
granted will vest and become exercisable in equal quarterly installments over a one-year period or 100% exercisable one year
from the date of grant, subject to the non-employee director’s continued service as a director of OncoCyte or a subsidiary
from the date of grant until the vesting date or, if earlier, until the next annual meeting of shareholders or other vesting
periods, but must be reported here at the aggregate grant date fair value, as if all options were fully vested and exercisable
at the date of grant. Values are computed in accordance with FASB Accounting Standards Codification (ASC) Topic 718,
Compensation
- Stock Compensation
. We used the Black-Scholes Pricing Model to compute option fair values based on applicable
exercise and stock prices, an expected option term, volatility assumptions, and risk-free interest rates.
|
|
|
(2)
|
Mr.
Andrews received 20,000 stock options at the time of his appointment to the Board of Directors in April 2018. The options
are exercisable at an exercise price of $2.40 per share.
|
|
|
(3)
|
Messrs.
Andrews, Arno, Kingsley, and Last each received 45,000 stock options on August 30, 2018. The options are exercisable at an
exercise price of $2.40 per.
|
|
|
(4)
|
Mr.
Redmond received 50,000 stock options on August 30, 2018. The options are exercisable at an exercise price of $2.40 per share.
|
Executive
Compensation
Emerging
Growth Company and Smaller Reporting Company
We
are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and a “smaller
reporting company” as defined in the rules and regulations of the SEC. As an emerging growth company and as a smaller reporting
company we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general,
to public companies that are not emerging growth companies or smaller reporting companies. Accordingly, this Report includes reduced
disclosure about our executive compensation arrangements.
Executive
Employment Agreements and Change of Control Provisions
We
have entered into Employment Agreements with our Chief Executive Officer William Annett, our Chief Financial Officer Mitchell
Levine, and our Chief Scientific Officer Lyndal Hesterberg.
During
2018, the Compensation Committee reviewed the base salaries of Mr. Annett, Mr. Levine and Dr. Hesterberg. Based on the recommendations
of the Compensation Committee the Board of Directors determined that the base salary for Mr. Annett would remain $400,000 and
Dr. Hesterberg’s salary was increased from $210,750 to $217,073. Mr. Levine agreed to a temporarily decrease in his base
salary from $330,000 to $297,000 from June 10 through December 31, 2018 and in connection with his acceptance of a salary reduction,
he was granted options to purchase 45,000 shares of OncoCyte common stock.
Pursuant
to Mr. Annett’s Employment Agreement, he is eligible to receive annual cash incentive bonus awards determined by the Board
of Directors, with a target bonus of not less than 35% of his base salary, based on his achievement of specific, objectively determinable,
performance goals at target levels for the year. If the specified performance goals are achieved at maximum levels, the amount
of the annual bonus will be up to 150% of Mr. Annett’s base salary as determined by the Board of Directors in its sole discretion.
Mr.
Annett’s employment agreement contains provisions entitling him to severance benefits under certain circumstances. If we
terminate Mr. Annett’s employment without “cause” or if he resigns for “good reason” as those terms
are defined in his employment agreement, he will be entitled to receive as a severance benefit six months base salary, a pro rated
portion of the target bonus for the year, payable on the date that annual bonuses would otherwise be payable to executives, and
any unvested stock options that would have vested during the six months following termination of his employment (the “Severance
Period”) will vest, and the period during which his vested options may be exercised will be extended to earlier of the date
twelve months after termination of his employment or the expiration date of the option. If Mr. Annett’s employment is terminated
without “cause” or if he resigns for “good reason” within twelve months following a “Change of Control,”
he will be entitled to twelve months base salary and the Severance Period will be twelve months rather than six months. In addition,
if Mr. Annett elects continued health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”)
we will reimburse him for or we will directly pay the premiums for that coverage until the earlier of the end of the Severance
Period or the date on which he receives equivalent health care insurance in connection with new employment. In order to receive
the severance benefits, Mr. Annett must execute a general release of all claims against us and must return all our property in
his possession.
“Change
of Control” means (A) the acquisition of our voting securities by a person or an Affiliated Group entitling the holder to
elect a majority of our directors; provided, that an increase in the amount of voting securities held by a person or Affiliated
Group who on the date of the Employment Agreement beneficially owned (as defined in Section 13(d) of the Exchange Act, and the
regulations thereunder) more than 10% of our voting securities shall not constitute a Change of Control; and provided, further,
that an acquisition of voting securities by one or more persons acting as an underwriter in connection with a sale or distribution
of voting securities shall not constitute a Change of Control, (B) the sale of all or substantially all of our assets; or (C)
a merger or consolidation in which we merge or consolidate into another corporation or entity in which our shareholders immediately
before the merger or consolidation do not own, in the aggregate, voting securities of the surviving corporation or entity (or
the ultimate parent of the surviving corporation or entity) entitling them, in the aggregate (and without regard to whether they
constitute an Affiliated Group) to elect a majority of the directors or persons holding similar powers of the surviving corporation
or entity (or the ultimate parent of the surviving corporation or entity). A Change of Control shall not be deemed to have occurred
if all of the persons acquiring our voting securities or assets, or merging or consolidating with us, are one or more of our direct
or indirect subsidiaries or parent corporations. “Affiliated Group” means (A) a person and one or more other persons
in control of, controlled by, or under common control with, such person; and (B) two or more persons who, by written agreement
among them, act in concert to acquire voting securities entitling them to elect a majority of our directors. “Person”
includes both people and entities.
Mr.
Annett’s Employment Agreement also provides that if any of the payments to him would constitute “parachute payments”
under applicable provisions of the Internal Revenue Code and would be subject to excise tax, we will use our best efforts to obtain
shareholder approval of the payment, or Mr. Annett may elect to accept a reduced amount that would not be subject to the excise
tax on parachute payments.
Pursuant
to Mr. Levine’s Employment Agreement entered into on November 15, 2017, he is eligible to receive annual cash incentive
bonus awards determined by the Board of Directors, with a target bonus of not less than 40% of his base salary, based on his achievement
of specific, objectively determinable, performance goals at target levels for the year.
Mr.
Levine’s employment agreement contains provisions entitling him to severance benefits under certain circumstances. If we
terminate Mr. Levine’s employment without “cause,” as defined in his Employment Agreement, he will be entitled
to six months base salary. The severance compensation may be paid in a lump sum or, at our election, in installments consistent
with the payment of his salary while employed by us. If we or a successor company terminate Mr. Levine’s employment without
“cause” or if he resigns for “good reason,” as defined in his Employment Agreement, within 12 months following
a “Change of Control,” he will be entitled to twelve months base salary. In order to receive the severance benefits,
Mr. Levine must execute a general release of all claims against us and must return all our property in his possession.
Pursuant
to his Employment Agreement, Dr. Hesterberg is eligible to receive annual cash incentive bonus awards determined by the Board
of Directors, with a target bonus of 35% of his base salary, based on his performance and achievement of goals or milestones set
by the Board of Directors.
If
we terminate the employment of Dr. Hesterberg without “cause” as defined in his Employment Agreement, he will be entitled
to receive, as a severance benefit, payment of six months base salary. The severance compensation may be paid in a lump sum or,
at our election, in installments consistent with the payment of his salary while employed by us. In order to receive the severance
benefits, Dr. Hesterberg must execute a general release of all claims against us and must return all our property in his possession.
If Dr. Hesterberg’s employment is terminated by us or a successor company without “cause” or if he resigns for
“good reason,” as defined in his Employment Agreement, within twelve months following a “Change of Control,”
he will be entitled to twelve months base salary and accelerated vesting of 100% of any then unvested stock options as may have
been granted to him by us.
The
following tables show certain information relating to the compensation of our Chief Executive Officer and the two highest
paid individuals who were serving as executive officers at year end and in each case whose total compensation exceeded $100,000
during 2018. We refer to such executive officers referred to as our “Named Executive Officers
SUMMARY
COMPENSATION TABLE
Name and principal position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards
(1)
|
|
|
All
Other
Compensation
(2)
|
|
|
Total
|
|
William Annett
|
|
|
2018
|
|
|
$
|
400,000
|
|
|
$
|
220,000
|
|
|
$
|
292,058
|
(3)
|
|
$
|
13,750
|
|
|
$
|
925,808
|
|
President and Chief Executive Officer
|
|
|
2017
|
|
|
$
|
397,308
|
|
|
$
|
40,000
|
|
|
$
|
740,276
|
(4)
|
|
$
|
13,500
|
|
|
$
|
1,191,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell Levine
|
|
|
2018
|
|
|
$
|
314,008
|
|
|
$
|
200,000
|
|
|
$
|
359,287
|
(5)
|
|
$
|
—
|
|
|
$
|
873,295
|
|
Chief Financial Officer
|
|
|
2017
|
|
|
$
|
41,885
|
|
|
$
|
8,684
|
|
|
$
|
578,991
|
(6)
|
|
$
|
—
|
|
|
$
|
629,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyndal K. Hesterberg
|
|
|
2018
|
|
|
$
|
216,691
|
|
|
$
|
311,820
|
|
|
$
|
314,940
|
(8)
|
|
$
|
7,132
|
|
|
$
|
850,583
|
|
Chief Scientific Officer
(7)
|
|
|
2017
|
|
|
$
|
210,750
|
|
|
$
|
33,720
|
|
|
$
|
47,378
|
(9)
|
|
$
|
7,521
|
|
|
$
|
299,369
|
|
(1)
|
Option
awards were granted under our 2010 Employee Stock Option Plan (the “Option Plan”) or under our Incentive Plan
are valued at the aggregate grant date fair value, as if all options were fully vested and exercisable at the date of grant.
Except as otherwise indicated below, one quarter of the options will vest upon completion of 12 full months of continuous
employment measured from the grant date, and the balance of the options shall vest in 36 equal monthly installments commencing
on the first anniversary of the date of grant, based upon the completion of each month of continuous employment. Amounts
shown in this column do not reflect dollar amounts actually received by our Named Executive Officers. Instead, these amounts
reflect the aggregate grant date fair value of each stock option granted, computed in accordance with the provisions of FASB
ASC Topic 718. We used the Black-Scholes Pricing Model to compute option fair values based on applicable exercise and stock
prices, an expected option term, volatility assumptions, and risk-free interest rates. Our Named Executive Officers will only
realize compensation upon exercise of the stock options and to the extent the trading price of our common stock is greater
than the exercise price of such stock options at the time of exercise.
|
|
|
(2)
|
Except
as otherwise indicated below, other compensation consists entirely of employer contributions to employee accounts under our
401(k) plan.
|
|
|
(3)
|
Mr.
Annett was granted 180,000 stock options exercisable at an exercise price of $2.35 per share. One quarter of the options shall
vest when a clinical validation study of DetermaVu™ is complete and OncoCyte receives a publication date for an article
describing the results of the study, and the balance of the options shall vest when OncoCyte receives a Medicare local coverage
determination (“LCD Approval”) for
DetermaVu™
.
|
|
|
(4)
|
Mr.
Annett was granted 225,000 stock options exercisable at an exercise price of $4.85 per share.
|
|
|
(5)
|
Mr.
Levine was granted 50,000 stock options exercisable at an exercise price of $2.35 per share that will vest as follows: one
quarter of the options will vest upon completion of 12 full months of continuous employment measured from the grant date,
and the balance of the options shall vest in 36 equal monthly installments thereafter based upon the completion of each month
of continuous services as an employee. Mr. Levine also was granted 125,000 stock options exercisable at an exercise price
of $2.35 per share that will vest as follows: one third of the options shall vest when a clinical validation study of DetermaVu™
is complete, one third shall vest on the filing of a Medicare dossier for LCD Approval for
DetermaVu™
and one third shall vest on the earlier of the third anniversary of the date of grant or the date of LCD Approval of
DetermaVu™.
|
|
|
|
In
June 2018, Mr. Levine was granted 45,000 stock options exercisable at an exercise price of $2.55 per share. One half of
the options shall vest upon acceptance for publication of a clinical validation study manuscript for DetermaVu™,
and one-half of the options shall vest upon the commencement of a clinical utility study of DetermaVu™.
|
|
|
(6)
|
Mr.
Levine was granted 200,000 stock options exercisable at an exercise price of $5.90 per share.
|
|
|
(7)
|
Dr.
Hesterberg served as our Sr. Vice President of Research & Development during 2018 and was appointed Chief Scientific Officer
during March 2019.
|
|
|
(8)
|
In
May 2018, Dr. Hesterberg was granted 150,000 stock options exercisable at an exercise price of $2.35 per share. One third
of the options shall vest when a clinical validation study of DetermaVu™ is complete, one third shall vest on the filing
of a Medicare dossier for a LCD Approval for
DetermaVu™
and one third shall
vest on the earlier of the third anniversary of the date of grant or the date of LCD Approval for DetermaVu
™.
|
|
|
|
In
October 2018, Dr. Hesterberg was granted 54,000 stock options exercisable at an exercise price of $1.95 per share. The options
shall vest in three equal annual installments from the date of grant.
|
|
|
(9)
|
Dr.
Hesterberg was granted 14,400 stock options exercisable at an exercise price of $4.70 per share
|
Stock
Options Outstanding at Year End
The
following table summarizes certain information concerning stock options granted by us under the Option Plan and the Incentive
Plan, and held as of December 31, 2018 by our Named Executive Officers:
OUTSTANDING
EQUITY AWARDS AT YEAR-END
|
|
|
Option
Awards
|
Name
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
|
|
|
|
Option
Exercise
Price
|
|
Option Expiration
Date
|
William Annett
|
|
|
5,000
|
|
|
|
—
|
|
|
$
|
2.20
|
|
January 8, 2025
|
|
|
|
5,000
|
|
|
|
—
|
|
|
$
|
2.20
|
|
June 15, 2025
|
|
|
|
525,000
|
|
|
|
75,000
(2)
|
|
|
$
|
2.20
|
|
June 15, 2025
|
|
|
|
177,084
|
|
|
|
72,916
(3)
|
|
|
$
|
3.06
|
|
February 15, 2026
|
|
|
|
103,125
|
|
|
|
121,875
(4)
|
|
|
$
|
4.70
|
|
February 16, 2027
|
|
|
|
—
|
|
|
|
180,000
(5)
|
|
|
$
|
2.35
|
|
May 22, 2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell Levine
|
|
|
54,167
|
|
|
|
145,833
(6)
|
|
|
$
|
5.90
|
|
November 15, 2027
|
|
|
|
—
|
|
|
|
50,000
(7)
|
|
|
$
|
2.35
|
|
May 22, 2028
|
|
|
|
—
|
|
|
|
125,000
(8)
|
|
|
$
|
2.35
|
|
May 22, 2028
|
|
|
|
—
|
|
|
|
45,000
(9)
|
|
|
$
|
2.55
|
|
June 12, 2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyndal K. Hesterberg
|
|
|
12,500
|
|
|
|
12,500
(10)
|
|
|
$
|
3.06
|
|
February 15, 2026
|
|
|
|
65,105
|
|
|
|
59,895
(11)
|
|
|
$
|
4.05
|
|
October 31, 2026
|
|
|
|
6,600
|
|
|
|
7,800
(4)
|
|
|
$
|
4.70
|
|
February 16, 2027
|
|
|
|
—
|
|
|
|
150,000
(8)
|
|
|
$
|
2.35
|
|
May 22, 2028
|
|
|
|
—
|
|
|
|
54,000
(12)
|
|
|
$
|
1.95
|
|
October 16, 2028
|
(1)
|
Except
as otherwise indicated below, one quarter of the options shall vest upon completion of 12 full months of continuous employment
measured from the date of grant, and the balance of the options will vest in 36 equal monthly installments commencing on the
first anniversary of the date of grant, based upon the completion of each month of continuous employment.
|
|
|
(2)
|
The
date of grant was June 16, 2015.
|
|
|
(3)
|
The
date of grant was February 16, 2016.
|
|
|
(4)
|
The
date of grant was February 17, 2017.
|
|
|
(5)
|
The
date of grant was May 23, 2018. One quarter of the options shall vest when a clinical validation study of DetermaVu™
is complete and OncoCyte receives a publication date for an article describing the results of the study, and the remaining
options shall vest when we receive LCD Approval for
DetermaVu™.
|
(6)
|
These
options were granted to Mr. Levine upon his appointment as Chief Financial Officer on November 16, 2017.
|
|
|
(7)
|
The
date of grant was May 23, 2018.
|
|
|
(8)
|
The
date of grant was May 23, 2018. One third of the options shall vest when a clinical validation study of DetermaVu™ is
complete, one third shall vest on the filing of a Medicare dossier for a LCD Approval for
DetermaVu™
and one third shall vest on the earlier of the third anniversary of the date of grant or the date of LCD Approval for
DetermaVu
™.
|
|
|
(9)
|
The
date of grant was June 13, 2018. One half shall vest upon completion of a clinical validation study manuscript for DetermaVu™,
and one-half of the options shall vest upon the commencement of a clinical utility study of DetermaVu™.
|
|
|
(10)
|
These
options were granted to Dr. Hesterberg in the capacity of a consultant on February 16, 2016. One quarter of the options shall
vest upon completion of 12 full months of continuous service provided to the company measured from the date of grant, the
second quarterly installment shall vest upon the completion of the validation of a second product (bladder cancer, lung cancer
small nodule, or lung cancer screening), the third quarterly installment shall vest upon achievement of successful launch
of a lung cancer test, and the last one quarter shall vest on the second anniversary of the option grant date.
|
|
|
(11)
|
The
date of grant was November 1, 2016 at which time Dr. Hesterberg became an employee of OncoCyte.
|
|
|
(12)
|
The
date of grant was October 17, 2018. The options shall vest in three equal annual installments from the date of grant.
|
The
Incentive Plan
The
following summary of the Incentive Plan is qualified in all respects by reference to the full text of the Incentive Plan, a copy
of which is filed as an exhibit to his Report and is incorporated by reference.
We
have adopted the Incentive Plan that permits us to grant awards, or Awards, consisting of stock options, the grant or sale of
restricted stock (“Restricted Stock”), the grant of stock appreciation rights (“SARs”), and the grant
of hypothetical units issued with reference to our common stock (“Restricted Stock Units”), for up to 5,000,000 shares
of our common stock. The Incentive Plan also permits OncoCyte to issue such other securities as our Board of Directors (the “Board”)
or the Compensation Committee (the “Committee”) administering the Incentive Plan may determine. Awards of stock options,
Restricted Stock, SARs, and Restricted Stock Units (“Awards”) may be granted under the Incentive Plan to OncoCyte
employees, directors, and consultants.
Awards
may vest and thereby become exercisable or have restrictions on forfeiture lapse on the date of grant or in periodic installments
or upon the attainment of performance goals, or upon the occurrence of specified events. Awards may not vest, in whole or in part,
earlier than one year from the date of grant. Vesting of an Award after the date of grant may be accelerated only in the limited
circumstances specified in the Incentive Plan. In the case of the acceleration of vesting of any performance-based Award, acceleration
of vesting shall be limited to actual performance achieved, pro rata achievement of the performance goal(s) on the basis for the
elapsed portion of the performance period, or a combination of actual and pro rata achievement of performance goals.
No
person shall be granted, during any one year period, options to purchase, or SARs with respect to, more than 1,000,000 shares
in the aggregate, or any Awards of Restricted Stock or Restricted Stock Units with respect to more than 500,000 shares in the
aggregate. If an Award is to be settled in cash, the number of shares on which the Award is based shall not count toward the individual
share limit.
No
Awards may be granted under the Incentive Plan more than ten years after the date upon which the Incentive Plan was adopted by
the Board, and no options or SARS granted under the Incentive Plan may be exercised after the expiration of ten years from the
date of grant.
Stock
Options
Options
granted under the Incentive Plan may be either “incentive stock options” within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended (the “Code”), or “non-qualified” stock options that do not qualify
incentive stock options. Incentive stock options may be granted only to OncoCyte employees and employees of subsidiaries. The
exercise price of stock options granted under the Incentive Plan must be equal to the fair market of our common stock on the date
the option is granted. In the case of an optionee who, at the time of grant, owns more than 10% of the combined voting power of
all classes of OncoCyte stock, the exercise price of any incentive stock option must be at least 110% of the fair market value
of the common stock on the grant date, and the term of the option may be no longer than five years. The aggregate fair market
value of common stock (determined as of the grant date of the option) with respect to which incentive stock options become exercisable
for the first time by an optionee in any calendar year may not exceed $100,000.
The
exercise price of an option may be payable in cash or in common stock having a fair market value equal to the exercise price,
or in a combination of cash and common stock, or other legal consideration for the issuance of stock as the Board or Committee
may approve.
Generally,
options will be exercisable only while the optionee remains an employee, director or consultant, or during a specific period thereafter,
but in the case of the termination of an employee, director, or consultant’s services due to death or disability, the period
for exercising a vested option shall be extended to the earlier of 12 months after termination or the expiration date of the option.
Restricted
Stock and Restricted Stock Units
In
lieu of granting options, we may enter into purchase agreements with employees under which they may purchase or otherwise acquire
Restricted Stock or Restricted Stock Units subject to such vesting, transfer, and repurchase terms, and other restrictions. The
price at which Restricted Stock may be issued or sold will be not less than 100% of fair market value. Employees or consultants,
but not executive officers or directors, who purchase Restricted Stock may be permitted to pay for their shares by delivering
a promissory note or an installment payment agreement that may be secured by a pledge of their Restricted Stock. Restricted Stock
may also be issued for services actually performed by the recipient prior to the issuance of the Restricted Stock. Unvested Restricted
Stock for which we have not received payment may be forfeited, or we may have the right to repurchase unvested shares upon the
occurrence of specified events, such as termination of employment.
Subject
to the restrictions set with respect to the particular Award, a recipient of Restricted Stock generally shall have the rights
and privileges of a shareholder, including the right to vote the Restricted Stock and the right to receive dividends; provided
that, any cash dividends and stock dividends with respect to the Restricted Stock shall be withheld for the recipient’s
account, and interest may be credited on the amount of the cash dividends withheld. The cash dividends or stock dividends so withheld
and attributable to any particular share of Restricted Stock (and earnings thereon, if applicable) shall be distributed to the
recipient in cash or, at the discretion of the Board or Committee, in shares of common stock having a fair market value equal
to the amount of such dividends, if applicable, upon the release of restrictions on the Restricted Stock and, if the Restricted
Stock is forfeited, the recipient shall have no right to the dividends.
The
terms and conditions of a grant of Restricted Stock Units shall be determined by the Board or Committee. No shares of common stock
shall be issued at the time a Restricted Stock Unit is granted. A recipient of Restricted Stock Units shall have no voting rights
with respect to the Restricted Stock Units. Upon the expiration of the restrictions applicable to a Restricted Stock Unit, we
will either issue to the recipient, without charge, one share of common stock per Restricted Stock Unit or cash in an amount equal
to the fair market value of one share of common stock.
At
the discretion of the Board or Committee, each Restricted Stock Unit (representing one share of common stock) may be credited
with cash and stock dividends paid in respect of one share (“Dividend Equivalents”). Dividend Equivalents shall be
withheld for the recipient’s account, and interest may be credited on the amount of cash Dividend Equivalents withheld.
Dividend Equivalents credited to a recipient’s account and attributable to any particular Restricted Stock Unit (and earnings
thereon, if applicable) shall be distributed in cash or in shares of common stock having a fair market value equal to the amount
of the Dividend Equivalents and earnings, if applicable, upon settlement of the Restricted Stock Unit. If a Restricted Stock Unit
is forfeited, the recipient shall have no right to the related Dividend Equivalents.
SARs
An
SAR is the right to receive, upon exercise, an amount payable in cash or shares, or a combination of shares and cash, equal to
the number of shares subject to the SAR that is being exercised, multiplied by the excess of (a) the fair market value of a common
share on the date the SAR is exercised, over (b) the exercise price specified in the SAR Award agreement. SARs may be granted
either as free standing SARs or in tandem with options. No SAR may be exercised later than 10 years after the date of grant.
The
exercise price of an SAR shall not be less than 100% of the fair market value of one share of common stock on the date of grant.
An SAR granted in conjunction with an option shall have the same exercise price as the related option, shall be transferable only
upon the same terms and conditions as the related option, and shall be exercisable only to the same extent as the related option;
provided, however, that the SAR by its terms shall be exercisable only when the fair market value per share exceeds the exercise
price per share of the SAR or related option. Upon any exercise of an SAR granted in tandem with an option, the number of shares
for which the related option shall be exercisable shall be reduced by the number of shares for which the SAR has been exercised.
The number of shares for which an SAR issued in tandem with an option shall be exercisable shall be reduced by the number of shares
for which the related option has been exercised.
Repricing
Prohibition
The
Incentive Plan prohibits any modification of the purchase price or exercise price of an outstanding option or other Award if the
change would effect a “repricing’ without shareholder approval. As defined in the Incentive Plan, “repricing”
means a reduction in the exercise price of an outstanding option or SAR or cancellation of an “underwater” or “out-of-the-money”
Award in exchange for other Awards or cash. An “underwater” or “out-of-the-money” Award is defined to
mean an Award for which the exercise price is less than the “fair market value” of OncoCyte common stock. The fair
market value is generally determined by the closing price of OncoCyte common stock on the NYSE American or any other national
securities exchange or inter-dealer quotation system on which OncoCyte common stock is traded.
Limitation
on Share Recycling
Shares
subject to an Award shall not again be made available for issuance or delivery under the Incentive Plan if those shares are (a)
shares tendered in payment of an option, (b) shares delivered or withheld by us to satisfy any tax withholding obligation, (c)
shares covered by a stock-settled SAR or other Award that were not issued upon the settlement of the Award, or (d) shares repurchased
by us using the proceeds from option exercises. Only shares subject to an Award that is cancelled or forfeited or expires prior
to exercise or realization may be regranted under the Incentive Plan.
Other
Compensation Plans
We
do not have any pension plans, defined benefit plans, or non-qualified deferred compensation plans. We do make contributions to
401(k) plans for participating executive officers and other employees.
Risk
Considerations and Recoupment Policies
The
Compensation Committee considers, in establishing and reviewing the executive compensation program, whether the program encourages
unnecessary or excessive risk taking. Our executive compensation arrangements include a fixed salary that provides a steady income
so that executives do not feel pressured to focus exclusively on stock price performance or short term financial targets to the
detriment of our long-term operational and strategic objectives. We supplement fixed salaries with discretionary bonus awards
based on the executive’s performance as well as the performance of OncoCyte. Most of the stock options that we have granted
to our executive officers under our Option Plan vest over four years, assuring that the executives take a long-term perspective
in viewing their equity ownership.
Because
we have not adopted compensation plans, or made incentive awards, based on quantified financial performance measures, we have
not adopted specific policies regarding the adjustment or recovery of awards or payments if the relevant performance measures
are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. We may adopt such policies,
however, if we adopt incentive compensation plans or grant incentive bonuses based on financial performance measures or if we
are required to do by the rules of any national securities exchange or interdealer quotation system on which our common stock
or other equity securities are listed.
Item
12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters
Security
Ownership of Certain Beneficial Owners
The
following table sets forth information as of April 22, 2019 concerning beneficial ownership of our common stock by each shareholder
known by us to be the beneficial owner of 5% or more of our outstanding shares of common stock. Information concerning certain
beneficial owners of more than 5% of the outstanding common stock is based upon information disclosed by such owners
in their reports on Schedule 13D or Schedule 13G.
Shareholder
|
|
Number
of Shares
|
|
|
Percent
of
Total
|
|
BioTime, Inc.
1010 Atlantic Avenue, Suite 102
Alameda, California 94501
|
|
|
14,674,244
|
|
|
|
28.23
|
%
|
|
|
|
|
|
|
|
|
|
Broadwood
Partners, L.P.
(1)
Broadwood
Capital, Inc.
Neal
Bradsher
724
Fifth Avenue, 9
th
Floor
New
York, New York 10019
|
|
|
9,157,373
|
|
|
|
17.27
|
%
|
|
|
|
|
|
|
|
|
|
George Karfunkel
126 East 56
th
Street/15
th
Floor
New York, New York 10022
|
|
|
5,361,447
|
|
|
|
10.32
|
%
|
|
|
|
|
|
|
|
|
|
GKarfunkel Family LLC
(2)
126 East 56
th
Street/15
th
Floor
New York,
New York 10022
|
|
|
3,000,000
|
|
|
|
5.66
|
%
|
(1)
|
Includes
9,154,228 shares owned by Broadwood Partners, L.P. and 3,145 shares owned by Neal Bradsher. Broadwood Capital, Inc. is the
general partner of Broadwood Partners, L.P. Neal Bradsher is the President of Broadwood Capital, Inc. Mr. Bradsher and Broadwood
Capital, Inc. share voting power over and may be deemed to beneficially own the shares owned by Broadwood Partners, L.P. The
shares owned by Broadwood Partners, L.P. include 1,055,961 shares that may be acquired upon the exercise of certain warrants.
|
|
|
(2)
|
Includes
1,000,000 shares that may be acquired upon the exercise of certain warrants.
|
Security
Ownership of Management
The
following table sets forth information as of April 22, 2019 concerning beneficial ownership of our common stock by each member
of the Board of Directors, all Named Executive Officers, and all executive officers and directors as a group.
|
|
Number of
Shares
|
|
|
Percent of
Total
|
|
William
Annett
(1)
|
|
|
956,583
|
|
|
|
1.81%
|
|
|
|
|
|
|
|
|
|
|
Mitchell Levine
(2)
|
|
|
88,240
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
Lyndal K. Hesterberg
(3)
|
|
|
103,377
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
Alfred D. Kingsley
(4)
|
|
|
707,314
|
|
|
|
1.35%
|
|
|
|
|
|
|
|
|
|
|
Ronald Andrews
(5)
|
|
|
54,964
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
Andrew Arno
(6)
|
|
|
161,414
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
Andrew J. Last
(7)
|
|
|
70,506
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
Cavan Redmond
(8)
|
|
|
161,414
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
Aditya Mohanty
(9)
|
|
|
-
|
|
|
|
*
%
|
|
|
|
|
|
|
|
|
|
|
All executive officers
and directors as a group (10 persons)
(10)
|
|
|
2,388,812
|
|
|
|
4.44%
|
|
*Less
than 1%
(1)
|
Includes
949,583 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 3,500 shares that may be acquired upon the exercise of certain warrants. Excludes 705,417 shares
that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become
exercisable within 60 days.
|
|
|
(2)
|
Includes
81,250 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 3,495 shares that may be acquired upon the exercise of certain warrants. Excludes 583,750 shares
that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become
exercisable within 60 days, and 20,000 Restricted Stock Units (“RSUs”) that are not presently vested and will
not vest within 60 days.
|
|
|
(3)
|
Includes
101,629 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 874 shares that may be acquired upon the exercise of certain warrants. Excludes 616,771 shares
that may be acquired upon the exercise exercisable and that will not become exercisable within 60 days.
|
|
|
(4)
|
Includes 296,902 shares held solely by Mr. Kingsley,
and 75,345 shares held by Greenbelt Corp. and 18,767 shares held by Greenway Partners, LP, which are affiliates of Mr. Kingsley.
Mr. Kingsley disclaims beneficial ownership of 15,059 shares held by Greenbelt Corp.
Includes
316,300 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days. Excludes 45,000 shares that may be acquired upon the exercise of certain stock options that are
not presently exercisable and that will not become exercisable within 60 days.
|
|
|
(5)
|
Includes
20,000 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 17,482 shares that may be acquired upon the exercise of certain warrants. Excludes 45,000 shares
that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become
exercisable within 60 days.
|
(6)
|
Includes
56,520 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 52,447 shares that may be acquired upon the exercise of certain warrants. Excludes 45,000 shares
that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become
exercisable within 60 days.
|
|
|
(7)
|
Includes
56,520 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 6,993 shares that may be acquired upon the exercise of certain warrants. Excludes 45,000 shares
that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become
exercisable within 60 days.
|
|
|
(8)
|
Includes
56,520 shares that may be acquired through the exercise of stock options that are presently exercisable or that may become
exercisable within 60 days and 52,447 shares that may be acquired upon the exercise of certain warrants. Excludes 50,000 shares
that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become
exercisable within 60 days
|
|
|
(9)
|
Excludes
33,750 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that
will not become exercisable within 60 days.
|
|
|
(10)
|
Includes
1,723,322 shares that may be acquired upon the exercise of certain stock options that are presently exercisable or that may
become exercisable within 60 days and 137,238 shares that may be acquired upon the exercise of certain warrants. Excludes
2,534,688 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable
and that will not become exercisable within 60 days, and 20,000 Restricted Stock Units (“RSUs”) that are not presently
vested and will not vest within 60 days .
|
Item
13. Certain Relationships and Related Transactions, and Director Independence
Shared
Facilities Agreement and Relationship with BioTime
Since
inception, BioTime has provided us with the use of office and laboratory facilities, laboratory and office equipment and supplies,
utilities, insurance, and the services of its employees and contractors, for which we have reimbursed BioTime, either through
cash payments, shares of our common stock, or delivering convertible promissory notes.
We
have entered into a Shared Facilities Agreement with BioTime through which BioTime will continue to provide us with the use of
its facilities, equipment and supplies, utilities, and personnel at its cost plus 5%. However, BioTime did not charge us the 5%
markup until the 2016 fiscal year. BioTime is not required to hire any additional personnel or to acquire any additional equipment
or supplies for our use. We expect to hire our own personnel and to acquire our own equipment and supplies for our own exclusive
use as the need arises.
The
Shared Facilities Agreement will remain in effect from year to year, unless either party gives the other party written notice
stating that this agreement shall terminate on December 31 of that year, or unless the agreement is otherwise terminated under
another provision of the agreement. Either party may terminate the Shared Facilities Agreement immediately upon the occurrence
of a default by the other party. A default will be deemed to have occurred if a party (i) fails to pay any sum due under the Shared
Facilities Agreement, or fails to perform any other obligation under the agreement, and the failure continues for a period of
5 days after written notice from the party seeking to terminate the agreement; (ii) becomes the subject of any order for relief
in a proceeding under any Debtor Relief Law; (iii) becomes unable to pay, or admits in writing the party’s inability to
pay, its debts as they mature; (iv) makes an assignment for the benefit of creditors; (v) applies for or consents to the appointment
of any receiver, trustee, custodian, conservator, liquidator, rehabilitation, or similar officer for the party or for all or any
part of the party’s property or assets, or any such officer is appointed for such party or any part of its assets without
the party’s consent and such appointment is not dismissed or discharged within 60 calendar days; (vi) institutes or consents
to any proceeding under any Debtor Relief Law with respect to the party or all or any part of the party’s property or assets,
(vii) becomes subject to any proceeding under any Debtor Relief Law without the consent of the party if such case or proceeding
continues undismissed or unstayed for 60 calendar days; or (viii) dissolves or liquidates or takes any action to dissolve or liquidate.
As used in the Shared Facilities Agreement, the term Debtor Relief Law means the Bankruptcy Code of the United States of America,
as amended, or any other similar debtor relief law affecting the rights of creditors generally.
Under
the Shared Facilities Agreement, we have agreed to defend, indemnify, and hold harmless BioTime, BioTime’s shareholders,
directors, officers, employees, and agents against and from any and all claims arising from our use of BioTime’s office
and laboratory facilities, and from any of our work or other activities there, including all activities, work, and services performed
by BioTime employees, contractors, and agents for us. The scope of our indemnification obligations also includes any and all claims
arising from any breach or default on our part in the performance of any of our obligations under the terms of the Shared Facilities
Agreement, or arising from any act or omission (including, but not limited to negligent acts or omissions) of us or any of our
officers, agents, employees, contractors, guests, or invitees acting in that capacity. We are also assuming all risk of damage
to property or injury to persons in, upon, or about the BioTime’s office and laboratory facilities, from any cause other
than BioTime’s willful malfeasance or sole gross negligence. BioTime will not be liable to us for any loss or damages of
any kind caused by, arising from, or in connection with (i) the performance of services by BioTime personnel for us, or the failure
of any BioTime employee, contractor, or agent to perform any services for us, or (ii) any delay, error, or omission by any BioTime
employee, contractor, or agent in the performance of services for us, except to the extent the loss or damage is the result of
fraud, gross negligence or willful misconduct by a BioTime employee, contractor, or agent.
As
of December 31, 2018, OncoCyte had $2.1 million outstanding and payable to BioTime and affiliates in connection with the costs
incurred under the Shared Facilities Agreement.
Cavan
Redmond and Alfred D. Kingsley, who are members of our Board of Directors, are directors of BioTime. Broadwood Partners, L.P.
and Mr. Kingsley each beneficially own more than 5% of the outstanding common shares of BioTime. All of our directors and
executive officers, and beneficial owners of more than 5% of our outstanding common stock (“5% Shareholders”) as reported
in this Report, in the aggregate beneficially own more than 20% of the outstanding common shares of BioTime. The fact that certain
of our executive officers and directors and 5% Shareholders own BioTime common shares should not be considered to mean that they
constitute or are acting in concert as a “group” with respect to those shares or that they otherwise share power or
authority to vote or dispose of the shares that each of them own.
Certain
Sales of Equity Securities
During
August 2016, we sold an aggregate of 3,246,153 immediately separable “units,” with each unit consisting of one share
of our common stock and one warrant to purchase one share of our common stock, at a price of $3.25 per unit (the “Units”).
George Karfunkel and Broadwood Partners, L.P. (“Broadwood”) who each beneficially own more than 5% of our outstanding
common stock, purchased 1,000,000 Units, and 1,538,461 Units, respectively. During February 2017, certain investors who
purchased Units, including Broadwood, entered into Warrant Exercise Agreements pursuant to which they exercised some of the warrants
that were included in the Units, and purchased shares of our common stock earlier than the expiration date of the warrants. Under
the Warrant Exercise Agreements, we issued new warrants to those investors. Broadwood exercised 425,000 warrants and was issued
212,500 new warrants with exercise of $3.25 per warrant share in addition to the 425,000 shares of common stock purchased through
the exercise of the warrants. The new warrants are exercisable at any time for five years from the date of issue.
On
July 21, 2017, OncoCyte entered into three forms of Warrant Exercise Agreements (each, an “Exercise Agreement”) with
certain holders of the 2016 Warrants, including Broadwood and George Karfunkel, providing for the cash exercise of their 2016
Warrants and the issuance of new warrants (the “July 2017 Warrants”) to them. Pursuant to one form of Exercise Agreement,
two investors exercised 2016 Warrants to purchase 226,923 shares of OncoCyte’s common stock at the exercise price of $3.25
per share, and OncoCyte issued to them July 2017 Warrants expiring five years from the date of issue, to purchase 226,923 shares
of common stock at an exercise price of $5.50 per share. Pursuant to a second form of Exercise Agreement, Broadwood exercised
2016 Warrants to purchase 540,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to Broadwood
a July 2017 Warrant, expiring five years from the date of issue, to purchase 270,000 shares of common stock at an exercise price
of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts
to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the
July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise
Agreement.
Pursuant
to a third form of Exercise Agreement, George Karfunkel exercised 2016 Warrants to purchase 1,000,000 shares of common stock at
the exercise price of $3.25 per share, and OncoCyte issued to him (i) a July 2017 Warrant, expiring two years from the
date of issue, to purchase 500,000 shares of common stock at an exercise price of $5.50 per share, and (ii) a July 2017 Warrant,
expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $3.25 per share.
In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC
a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and
to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.
During
March 2018, OncoCyte entered into securities purchase agreements with Broadwood and George Karfunkel pursuant to which Broadwood
purchased 3,968,254 shares of common stock, and Mr. Karfunkel purchased 3,968,254 shares of common stock for $1.26 per
share. Under the securities purchase agreements, we agreed to register the shares for resale under the Securities Act of 1933,
as amended (the “Securities Act”), not later than 60 days after the closing of the sale of the shares. We also agreed
to pay liquidated damages calculated in the manner provided in the securities purchase agreement if we did not file the registration
statement in a timely manner. Because the registration statement was not filed as required by the securities purchase agreement,
during 2019 we paid $300,000 to Broadwood on account of liquidated damages owed.
On
July 26, 2018, Cavan Redmond and Andrew Arno, who are members of our Board of Directors, each agreed to purchase from OncoCyte
52,447 shares of common stock and warrants to purchase 52,447 shares of common stock for $150,000 pursuant to a Securities Purchase
Agreement. The shares of common stock and warrants were
sold in a registered direct offering in “units,” with each unit consisting of one share of common stock and one warrant,
at a price of $2.86 per unit. Each warrant entitles the warrant holder to purchase one share of common stock at an exercise price
of $3.00 per share. The warrants became exercisable six months after the date of issue
and
will become exercisable six months after the date of issue, and will expire five years after the date they become exercisable.
During
February 2019, Broadwood purchased 533,333 shares of our common stock for $3.75 per share, the same price paid by other investors,
in an underwritten public offering of our common stock.
Approval
by the Board of Directors
All
of the transactions described above were reviewed directly by the Board of Directors, and the Board of Directors or a designated
committee of the Board, determined whether to approve or withhold approval of each transaction. The Board of Directors
or committee considered such factors as they deemed relevant to the particular transaction and applied such criteria as it determined
to be appropriate in connection with its evaluation of each proposed transaction on a transaction by transaction basis. The Board
of Directors does not have any written guidelines governing the exercise of its discretion other than the Related Person Transaction
Policy with respect to transactions with officers, directors, beneficial owners of more than 5% of our outstanding shares of common
stock, or any member of their immediate family.
Related
Person Transaction Policy
We
have adopted a Related Person Transaction Policy that applies to transactions exceeding $120,000 in which any of our officers,
directors, beneficial owners of more than 5% of our outstanding shares of common stock, or any member of their immediate family,
has a direct or indirect material interest, determined in accordance with the policy (a “Related Person Transaction”).
A Related Person Transaction must be reported to our outside legal counsel, our Chief Operating Officer, and our Chief Financial
Officer, and will be subject to review and approval by our Nominating/Corporate Governance Committee prior to effectiveness or
consummation, to the extent practical. In addition, any Related Person Transaction that is ongoing in nature will be reviewed
by the Nominating/Corporate Governance Committee annually to ensure that the transaction has been conducted in accordance with
any previous approval and that all required disclosures regarding the transaction are made.
As
appropriate for the circumstances, the Nominating/Corporate Governance Committee will review and consider:
|
●
|
the
interest of the officer, director, beneficial owner of more than 5% of our common stock, or any member of their immediate
family (“Related Person”) in the Related Person Transaction;
|
|
|
|
|
●
|
the
approximate dollar value of the amount involved in the Related Person Transaction;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
whether
the transaction was undertaken in the ordinary course of our business;
|
|
|
|
|
●
|
whether
the transaction with the Related Person is proposed to be, or was, entered into on terms no less favorable to us than terms
that could have been reached with an unrelated third party;
|
|
|
|
|
●
|
the
purpose of, and the potential benefits to the transaction to us; and
|
|
|
|
|
●
|
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
Nominating/Corporate Governance Committee will review all relevant information available to it about a Related Person Transaction.
The Nominating/Corporate Governance Committee may approve or ratify the Related Person Transaction only if it determines that,
under all of the circumstances, the transaction is in, or is not in conflict with, our best interests. The Nominating/Corporate
Governance Committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the Related Person in
connection with approval of the Related Person Transaction.
A
copy of our Related Person Transaction Policy can be found on our website at
www.oncocyte.com
.
Director
Independence
Our
Board of Directors has determined that Ronald Andrews, Andrew Arno, Andrew Last, and Cavan Redmond qualify as “independent”
in accordance with Section 803(A) of the NYSE American Company Guide. The members of our Audit Committee meet the additional independence
standards under Section 803(B)(2) of the NYSE American Company Guide and Section 10A-3 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and the members of our Compensation Committee meet the additional independence standards
under Section 805(c)(1) of the NYSE American Company Guide. Our independent directors received no compensation or remuneration
for serving as directors except as disclosed under “Director Compensation”. None of these directors, nor any
of the members of their families, have participated in any transaction with us that would disqualify them as “independent”
directors under the standards described above.
William
Annett does not qualify as independent because he is our full-time employee, Aditya Mohanty does not qualify as “independent”
because within the past three years he received compensation from our former parent BioTime as an executive officer, and Alfred
D. Kingsley does not qualify as “independent” because within the past three years he received compensation for serving
as our Executive Chairman.
Item
14. Principal Accounting Fees and Services
OUM
& Co., LLP (“OUM”) has served as our independent registered public accountants since the fourth quarter of 2015,
and audited our annual financial statements for the fiscal years ended December 31, 2018 and 2017.
Audit
Fees, Audit Related Fees, Tax Fees and Other Fees
The
following table sets forth the aggregate fees billed to us during the fiscal years ended December 31, 2018 and 2017 by OUM:
|
|
2018
|
|
|
2017
|
|
Audit Fees
(1)
|
|
$
|
168,170
|
|
|
$
|
163,228
|
|
Audit Related Fees
(2)
|
|
|
8,000
|
|
|
|
38,000
|
|
Total Fees
|
|
$
|
176,170
|
|
|
$
|
201,228
|
|
(1)
|
Audit
Fees consist of fees billed for professional services rendered for the audit of OncoCyte’s annual financial statements
included in our Registration Statement on Form 10 and in our Annual Report on Form 10-K, and review of the interim financial
statements included in our Registration Statement on Form 10 and our Quarterly Reports on Form 10-Q, as applicable, and services
that are normally provided by our independent registered public accountants in connection with statutory and regulatory filings
or engagements.
|
|
|
(2)
|
Audit-Related
Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit
or review of our consolidated financial statements and are not reported under “Audit Fees.” This category includes
fees related to non-routine SEC filings.
|
Pre-Approval
of Audit and Permissible Non-Audit Services
Our
Audit Committee requires pre-approval of all audit and non-audit services. Other than
de minimis
services incidental to
audit services, non-audit services shall generally be limited to tax services such as advice and planning and financial due diligence
services. All fees for such non-audit services must be approved by the Audit Committee, except to the extent otherwise permitted
by applicable SEC regulations. The Committee may delegate to one or more designated members of the Committee the authority to
grant pre-approvals, provided such approvals are presented to the Committee at a subsequent meeting. During 2018, 100% of the
fees paid to OUM were approved by the Audit Committee.