bioc-pre14a_20180628.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Filed by the Registrant 

 

 

Filed by a Party other than the Registrant 

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to § 240.14a-12

Biocept, Inc.

(Exact name of registrant as specified in its charter)

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

Payment of Filing Fee (Check the appropriate box)

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

1.

Title of each class of securities to which transaction applies:

 

 

2.

Aggregate number of securities to which transaction applies:

 

 

3.

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

4.

Proposed maximum aggregate value of transaction:

 

 

5.

Total fee paid:

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

6.

Amount Previously Paid:

 

 

7.

Form, Schedule or Registration Statement No.:

 

 

8.

Filing Party:

 

 

9.

Date Filed:

 

 

 

 

 


 

PRELIMINARY COPY – SUBJECT TO COMPLETION

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 28, 2018

Dear Stockholders:

You are cordially invited to attend our 2018 Annual Meeting of Stockholders, or the Annual Meeting, which will be held at the offices of Biocept, Inc., located at 5810 Nancy Ridge Drive, San Diego, California 92121, on June 28, 2018, at 8:00 A.M., local time.

We are holding the Annual Meeting for the following purposes, as more fully described in the accompanying Proxy Statement:

 

1.

To elect three Class II directors for a three-year term to expire at the 2021 annual meeting of stockholders.

 

2.

To ratify the appointment of Mayer Hoffman McCann P.C. as our independent registered public accounting firm for the fiscal year ending December 31, 2018.

 

3.

To approve our 2013 Amended and Restated Equity Incentive Plan, as amended.

 

4.

To approve an amendment to our Certificate of Amendment of Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors.

 

5.

To approve the authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4.

 

6.

To transact any other business that may be properly brought before the Annual Meeting or any continuation, adjournment or postponement thereof.

All of our stockholders of record as of May 14, 2018, are entitled to attend and vote at the Annual Meeting and at any adjournment or postponement of the Annual Meeting.

Our board of directors recommends that you vote FOR the election of each of the director nominees named in Proposal 1, FOR the ratification of the appointment of our independent registered public accounting firm as provided in Proposal 2, FOR the approval of the amendments to our 2013 Amended and Restated Equity Incentive Plan, as amended, as provided in Proposal 3, FOR the amendment to our Certificate of Amendment of Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors, as provided in Proposal 4, and FOR the authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4, as provided in Proposal 5.

Your vote is very important.  Whether or not you plan to attend the Annual Meeting, we encourage you to read this Proxy Statement and cast your vote by completing, signing and dating the enclosed proxy card and returning it to us promptly.  If you plan to attend the meeting and wish to vote your shares personally, you may do so at any time before the proxy is voted.

By Order of the Board of Directors

Sincerely,

 

 

Michael W. Nall

President and Chief Executive Officer

San Diego, California

May    , 2018

Your vote is important.  Please vote your shares whether or not you plan to attend the meeting.

 

 


 

TABLE OF CONTENTS

 

 

Page

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

1

PROPOSAL 1: ELECTION OF DIRECTORS

6

Board Structure

6

Election of Directors

6

Nominees for Director

7

Members of Our Board of Directors

9

Corporate Governance

13

Director Independence

13

Agreements with Directors

13

Legal Proceedings with Directors

13

Board Leadership Structure

13

Board Role in Risk Oversight

13

Board and Committee Meetings

13

Director Attendance at Annual Meetings

13

Executive Sessions

14

Board Committees

14

Director Nomination Process

16

Codes of Conduct and Ethics

16

Stockholder Communications with our Board of Directors

16

Director Compensation

17

PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

20

Audit and All Other Fees

21

Audit Committee Pre-Approval Policies and Procedures

21

Audit Committee Report

22

PROPOSAL 3: APPROVAL OF AMENDMENTS TO OUR 2013 AMENDED AND RESTATED EQUITY INCENTIVE PLAN

23

PROPOSAL 4: APPROVAL OF REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK

33

PROPOSAL 5: AUTHORIZATION TO ADJOURN THE ANNUAL MEETING

37

Executive Officers

38

Security Ownership of Certain Beneficial Owners and Management

39

Executive Compensation

42

Narrative Disclosure to Summary Compensation Table

42

Outstanding Equity Awards

46

Potential Payments Upon Termination or Change-In-Control

48

Equity Compensation Plan Information

48

Certain Relationships and Related Transactions

52

Policies and Procedures for Related Party Transactions

52

Section 16(A) Beneficial Ownership Reporting Compliance

54

Stockholder Proposals

55

Annual Report

56

STOCKHOLDERS SHARING THE SAME ADDRESS

57

Other Matters

58

 

 

 

 

i

 


 

PRELIMINARY COPY – SUBJECT TO COMPLETION

PROXY STATEMENT FOR THE
2018 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 28, 2018

Our board of directors is soliciting proxies for use at our 2018 annual meeting of stockholders, or the Annual Meeting, to be held on June 28, 2018, at 8:00 a.m., local time, at the offices of Biocept, Inc., located at 5810 Nancy Ridge Drive, San Diego, California 92121. Biocept, Inc. is sometimes referred to herein as “we”, “us”, “our” or the “Company.”

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

The following questions and answers are intended to briefly address potential questions that our stockholders may have regarding this Proxy Statement and the Annual Meeting. They are also intended to provide our stockholders with certain information that is required to be provided under the rules and regulations of the Securities and Exchange Commission, or the SEC. These questions and answers may not address all of the questions that are important to you as a stockholder. If you have additional questions about the Proxy Statement or the Annual Meeting, please see the response to the question entitled “Whom shall I contact with other questions?” below.

Q:

What is the purpose of the Annual Meeting?

A:

At the Annual Meeting, our stockholders will be asked to consider and vote upon the matters described in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders, and any other matters that properly come before the Annual Meeting.

Q:

When and where will the Annual Meeting be held?

A:

You are invited to attend the Annual Meeting on June 28, 2018, at 8:00 a.m., local time. The Annual Meeting will be held at our corporate offices located at 5810 Nancy Ridge Drive, San Diego, California 92121.

Q:

Why did I receive these proxy materials?

A:

We are making these proxy materials available in connection with the solicitation by our board of directors of proxies to be voted at the Annual Meeting, and at any adjournment or postponement thereof. Your proxy is being solicited in connection with the Annual Meeting because you owned our common stock at the close of business on May 14, 2018, which is the record date for the Annual Meeting.  This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting.

 

You are invited to attend the Annual Meeting in person to vote on the proposals described in this Proxy Statement.  However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may vote your shares as described in the response to the question entitled “How can I vote my shares” below and as described elsewhere in this Proxy Statement.

 

Along with this proxy statement, we are also sending our 2017 fiscal year annual report, which includes our financial statements. We intend to begin mailing this Proxy Statement, the attached notice of annual meeting and the enclosed proxy card on or about May     , 2018, to all stockholders of record entitled to vote at the Annual Meeting.

 

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Your vote is very important.  Whether or not you plan to attend the Annual Meeting, we encourage you to read this Proxy Statement and submit your proxy or voting instructions as soon as possible.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on June 28, 2018

Electronic copies of this proxy statement and our annual report are available under the Investor Relations, Financial Information section of our website at www.biocept.com.

Q:

What proposals will be voted on at the Annual Meeting?

A:

The proposals to be voted on at the Annual Meeting, and our board of directors’ voting recommendations with respect to each, are as follows:

 

Proposal

Board’s Voting

Recommendation

1.

Election of Directors (Proposal 1): The election of three Class II directors to serve a three-year term.  Based upon the recommendation of our nominating and corporate governance committee, our board of directors has nominated and recommends for re-election as Class II directors the following persons:

For

 

Marsha A. Chandler, Ph.D.

 

 

Bruce A. Huebner

 

 

Ivor Royston, M.D.

 

 

 

 

2.

Ratification of the Appointment of Independent Registered Public Accounting Firm (Proposal 2):  The ratification of the appointment of Mayer Hoffman McCann P.C. as our independent registered public accounting firm for the year ending December 31, 2018.

For

 

 

 

3.

Approve our 2013 Amended and Restated Equity Incentive Plan, as amended (Proposal 3):  The approval of amendments to our 2013 Amended and Restated Equity Incentive Plan, as amended, as further described in Proposal 3.

For

 

 

 

4.

Effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors (Proposal 4):  The approval of an amendment to our Certificate of Amendment of Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors.

For

 

 

 

5.

Authorize an adjournment of the Annual Meeting (Proposal 5):  The authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4.

For

 

 

We will also consider any other business that properly comes before the Annual Meeting. As of the record date, we are not aware of any other matters to be submitted for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons named in the enclosed proxy card or voter instruction card will vote the shares they represent using their best judgment. Michael W. Nall and Timothy C. Kennedy, the designated proxyholders, are members of our management.

Q:

Who may vote at the Annual Meeting?

A:

If you owned our common stock on May 14, 2018, the record date for the Annual Meeting, you may attend and vote at the Annual Meeting.  Each stockholder is entitled to one vote for each share of common stock held on all matters to be voted on. On the record date, there were 68,213,349 shares of our common stock outstanding and entitled to vote at the Annual Meeting.

Q:

What is the quorum requirement for the Annual Meeting?

A:

We need a quorum of stockholders in order to hold our Annual Meeting.  A quorum exists when at least a majority of the outstanding shares of our common stock entitled to vote as of the record date, or 34,106,675 shares, are represented at the

 

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Annual Meeting, either in person or by proxy. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained.

Q:

What vote is required to approve each proposal?

A:

Election of Directors (Proposal 1): Directors will be elected by a plurality of the votes cast, so the three director nominees who receive the most votes will be elected.

 

Ratification of the Appointment of Independent Registered Public Accounting Firm (Proposal 2): The ratification of the appointment of Mayer Hoffman McCann P.C.as our independent registered public accounting firm requires the affirmative vote of a majority of the shares of our common stock present or represented by proxy at the Annual Meeting and entitled to vote on such matter.

 

Approve our 2013 Amended and Restated Equity Incentive Plan, as amended (Proposal 3): The approval of our 2013 Amended and Restated Equity Incentive Plan, as amended, or the 2013 Plan, requires the affirmative vote of a majority of the shares of our common stock present or represented by proxy at the Annual Meeting and entitled to vote on such matter.

Effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors (Proposal 4): The approval of an amendment to our Certificate of Amendment of Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors, requires the affirmative vote of a majority of the outstanding shares of our common stock.

Authorize an adjournment of the Annual Meeting (Proposal 5): The authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4 requires the affirmative vote of a majority of the shares of our common stock present or represented by proxy at the Annual Meeting and entitled to vote on such matter.

Q:

What is the difference between a “stockholder of record” and a “beneficial owner”?

A:

You are considered to be a stockholder of record if your shares were registered directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, on the record date.

 

If, however, your shares are held in a brokerage account or by a bank or other agent, and not in your name, you are considered to be the beneficial owner of shares held in street name.

Q:

May I vote my shares in person at the Annual Meeting?

A:

If you are the stockholder of record, you have the right to vote in person at the Annual Meeting.  When you arrive at the Annual Meeting, you may request a ballot.

 

If you are the beneficial owner of shares held in street name, you are welcome to attend the Annual Meeting, but you may not vote your shares in person at the Annual Meeting unless you bring with you a proxy from the broker, bank or other agent that holds your shares, giving you the right to vote at the Annual Meeting.

 

Admission to the Annual Meeting will be on a first-come, first-served basis.  You should be prepared to present government-issued photo identification for admittance, such as a passport or driver’s license.  Please note that for security reasons, you and your bags may be subject to search prior to your admittance to the Annual Meeting.  If you do not comply with each of the foregoing requirements, you will not be admitted to the Annual Meeting.

Q:

What happens if I do not give specific voting instructions?

A:

If you are a stockholder of record and you indicate when voting that you wish to vote as recommended by our board of directors, or if you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares as recommended by our board of directors on all matters presented in this Proxy Statement, and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.

 

If you are a beneficial owner of shares held in street name and do not provide the entity that holds your shares with specific voting instructions, the entity that holds your shares may generally vote at its discretion on “routine” matters.  However, if the entity that holds your shares does not receive instructions from you on how to vote your shares on a “non-routine” matter, it will be unable to vote your shares on that matter.  This is generally referred to as a “broker non-vote.”

 

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Q:

Which proposals in this Proxy Statement are considered “routine” or “non-routine” matters?

A:

The election of directors (Proposal 1) is considered a non-routine matter under applicable rules.  As a result, a broker or other nominee may not vote without instructions on this matter, so there may be broker non-votes on Proposal 1.

 

The ratification of the appointment of Mayer Hoffman McCann P.C.as our independent registered public accounting firm (Proposal 2) is considered a routine matter under applicable rules.  A broker or other nominee may generally vote without instructions on this matter, so there will not be any broker non-votes in connection with Proposal 2.

 

The approval our 2013 Plan (Proposal 3) is considered a non-routine matter under the applicable rules. As a result, a broker or other nominee may not vote without instructions on this matter, so there may be broker non-votes on Proposal 3.

 

The approval to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors (Proposal 4) is considered a routine matter under applicable rules.  A broker or other nominee may generally vote without instructions on this matter, so there will not be any broker non-votes in connection with Proposal 4.

The authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4 (Proposal 5) is considered a routine matter under applicable rules.  A broker or other nominee may generally vote without instructions on this matter, so there will not be any broker non-votes in connection with Proposal 5.

Q:

What is the effect of abstentions and broker non-votes?

A:

Shares held by persons attending the Annual Meeting but not voting, and shares represented by proxies that reflect abstentions as to a particular proposal, will be counted as present for purposes of determining the presence of a quorum.  Abstentions are treated as shares present in person or by proxy and entitled to vote. The election of directors (Proposal 1) will be determined by a plurality of votes cast, so abstentions on this proposal will not have an effect on the outcome of this vote. On all other matters presented in this Proxy Statement, abstentions will have the same effect as an “against” vote.

 

A broker non-vote occurs when a broker, bank or other agent holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares for certain non-routine matters.  Shares represented by proxies that reflect a broker non-vote will be counted for purposes of determining the presence of a quorum. The election of directors (Proposal 1) and the approval of the 2013 Plan (Proposal 3) are each considered non-routine matters and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the votes. The ratification of the appointment of Mayer Hoffman McCann P.C. as our independent registered public accounting firm (Proposal 2), the approval to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors (Proposal 4), and the authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4 (Proposal 5) are each considered routine matters on which a broker, bank or other agent has discretionary authority to vote, so there will not be any broker non-votes in connection with these proposals.

Q:

How can I vote my shares?

A:

With respect to the election of directors (Proposal 1), you may either vote “For” all director nominees or you may “Withhold” your vote for any nominee you specify. With respect to the ratification of the appointment of Mayer Hoffman McCann P.C. as our independent registered public accounting firm (Proposal 2), the approval of the 2013 Plan (Proposal 3), the approval to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors (Proposal 4), and the authorization to adjourn the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal 3 or Proposal 4 (Proposal 5), you may vote “For” or “Against” or you may abstain from voting.

 

The procedures for voting are as follows:

Stockholder of Record

 

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

 

To vote in person, come to the Annual Meeting and you may request a ballot when you arrive.

 

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

 

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Beneficial Owner

 

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

Q:

How may I revoke or change my vote after submitting my proxy?

A:

You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting.

Stockholder of Record

If you are a stockholder of record, you may revoke your proxy in one of the three following ways:

 

you may submit another properly completed proxy card with a later date;

 

you may send a written notice that you are revoking your proxy to Biocept, Inc., 5810 Nancy Ridge Drive, San Diego, California 92121, Attention: Timothy C. Kennedy; or

 

you may attend the Annual Meeting and vote in person (however, simply attending the Annual Meeting will not, by itself, revoke your proxy or change your vote).

Your most current proxy card will be the one that is counted at the Annual Meeting.

Beneficial Owner

 

If you are a beneficial owner of shares, you may revoke your proxy by following instructions provided by your broker, bank or other agent.

Q:

What are the costs of soliciting these proxies?

A:

We will pay all of the costs of soliciting these proxies. Our directors, officers and other employees may solicit proxies in person or by telephone, fax or email, but will be paid no additional compensation for these services. We have retained Alliance Advisors LLC to act as a proxy solicitor in conjunction with the Annual Meeting, and we have agreed to pay them a base fee of $7,000 plus certain additional variable fees dependent on the level of effort required to provide these proxy solicitation services, as well as reasonable out of pocket expenses. We may reimburse banks, brokers and other institutions, nominees and fiduciaries for their expenses in forwarding these proxy materials to their principals and to obtain authority to execute proxies.

Q:

Where can I find voting results of the Annual Meeting?

A:

In accordance with SEC rules, final voting results will be published in a Current Report on Form 8-K within four business days following the Annual Meeting, unless final results are not known at that time in which case preliminary voting results will be published within four business days of the Annual Meeting and final voting results will be published once they are known by us.

Q:

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

A:

To be considered at next year’s annual meeting, your proposal or nomination must be delivered to or mailed and received by our corporate secretary at our principal executive offices located at 5810 Nancy Ridge Drive, San Diego, California 92121 not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, before the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first.

 

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Q:

Whom should I contact with other questions?

A:

If you have additional questions about this Proxy Statement or the Annual Meeting, or if you would like additional copies of this Proxy Statement, please contact: Biocept, Inc., 5810 Nancy Ridge Drive, San Diego, California 92121, Attention: Timothy C. Kennedy, Telephone: (858) 320-8200.

 

 

 

 

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PROPOSAL 1: ELECTION OF DIRECTORS

Board Structure

We currently have seven members of our board of directors. Under our charter and bylaws, our board is divided into three classes, as follows:

 

Class I, which consists of Bruce E. Gerhardt, whose term will expire at our 2020 annual meeting of stockholders; and

 

Class II, which consists of Marsha A. Chandler, Ph.D., Bruce A. Huebner and Ivor Royston, M.D., whose terms will expire at the Annual Meeting; and

 

Class III, which consists of David F. Hale, Michael W. Nall and M. Faye Wilson, MBA, whose terms will expire at our 2019 annual meeting of stockholders.

Upon the expiration of the initial term of office for each class of directors, each director in such class shall be elected for a term of three years and serve until a successor is duly elected and qualified or until his or her earlier death, resignation or removal.

Directors may only be removed with cause by the affirmative vote of a majority of the shares then entitled to vote upon an election of directors.  Because only one-third of our directors will be elected at each annual meeting of stockholders, two consecutive annual meetings of stockholders could be required for the stockholders to change a majority of our board of directors.  Any additional directorships resulting from an increase in the number of directors or a vacancy may be filled by the directors then in office.

Election of Directors

At the Annual Meeting, our stockholders are being asked to vote for the Class II director nominees listed below to serve on our board of directors until our annual meeting in 2021 and until each of their successors has been elected and qualified, or until such director’s death, resignation or removal.  Each of these nominees is a current member of our board of directors, whose term expires at the Annual Meeting.  Each of these nominees has consented to serve, if elected.

Provided that a quorum of stockholders is present at the Annual Meeting, directors will be elected by a plurality of the votes cast by the stockholders entitled to vote on this proposal at the Annual Meeting.  Abstentions, broker non-votes and votes withheld will not be treated as votes cast for this purpose and, therefore, will not affect the outcome of the election.

If no contrary indication is made, proxies will be voted for the nominees, or in the event that any nominee is not a candidate or is unable to serve as a director at the time of the election, for any nominee who is designated by our board of directors to fill the vacancy.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” ALL DIRECTOR

NOMINEES

 

 

 

 

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Nominees for Director

The following table lists the persons recommended by the nominating and corporate governance committee of our board of directors and nominated by our board of directors to be elected as directors, including relevant information as of May 1, 2018 regarding their age, business experience, qualifications, attributes, skills and other directorships:

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

For a Three-Year Term Expiring at the
2021 Annual Meeting of Stockholders
(Class II Directors)

 

Name and Age

Current Position

with Biocept

 

Business Experience and Other Directorships

Marsha A. Chandler, Ph.D.

Age: 73

Director since: 2013

Director

Chair, Nominating

and Corporate

Governance

Committee, and Member, Science, Technology and Clinical Affairs Committee

Dr. Chandler is Senior Vice Chancellor and Professor Emerita at the School of Global Policy and Strategy at the University of California, San Diego (UCSD). She is also currently Advisor to the Jacobs School of Engineering at UCSD as well as Advisor to the Lyndon B. Johnson School of Public Affairs at The University of Texas at Austin. She served as the Executive Vice-President/Chief Operating Officer of the Salk Institute for Biological Studies from 2007 to 2015, where she managed approximately 1,000 scientific and administrative personnel and oversaw all institutional fiscal, administrative and fund-raising activities. From 1997 to 2007 she was the Senior Vice Chancellor for Academic Affairs at UCSD, where she was the chief academic officer responsible for the policies and decisions relating to all academic programs and faculty appointments and performance. She was the Acting Chancellor from 2003-04 and holds an appointment as Professor of Political Science in the Graduate School of International Relations and Pacific Studies at UCSD.

Dr. Chandler is a Fellow of the Royal Society of Canada, the highest academic honor bestowed in that country. She received her Ph.D. from The University of North Carolina at Chapel Hill. In 2004, she completed the Advanced Management Program at Harvard Business School.

We selected Dr. Chandler to serve on our board of directors due to her experience in organizational management and her stature in the life sciences community. Dr. Chandler also serves as chair of our nominating and corporate governance committee and as a member of our science, technology and clinical affairs committee.

 

 

 

 

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Name and Age

Current Position

with Biocept

 

Business Experience and Other Directorships

Bruce A. Huebner

Age: 67

Director since: 2013

Director

Chair,

Compensation

Committee, Member, Audit Committee, and Member, Science, Technology and Clinical Affairs Committee

Mr. Huebner was a managing director of LynxCom Partners LLC, a healthcare consulting firm, from 2004 through 2016 where his focus was primarily on cancer diagnostics and personalized medicine. In June of 2011, he joined the board of Vermillion, Inc., an ovarian cancer diagnostics company. He assumed the role of Interim Chief Executive Officer and President of Vermillion from November 2012 to March 2013 and then served as Chairman of the Board from March through December 2013. From October 2009 to June 2010, Mr. Huebner served as President and Chief Executive Officer of TrovaGene, Inc., a developer of molecular diagnostics products. From June of 2005 through June of 2008, Mr. Huebner served as President of Osmetech, Inc., a molecular diagnostic microarray products company. From

2002 to 2004, Mr. Huebner was President and Chief Operating Officer of Nanogen, Inc., a publicly held nanotechnology/microarray company. From 1996 to 2002, Mr. Huebner was Executive Vice-President and Chief Operating Officer of Gen-Probe Incorporated, a leader in the development of nucleic acid tests for infectious diseases. Mr. Huebner received his Bachelor of Science degree in Chemistry from the University of Wisconsin-La Crosse and completed a Senior Executive Graduate School program at Columbia University.

We selected Mr. Huebner to serve on our board of directors due to his strong background in cancer diagnostics sales, marketing, operations and reimbursement. Mr. Huebner also serves as chair of our compensation committee, as a member of our audit committee and as a member of our science, technology and clinical affairs committee.

 

 

 

Ivor Royston, M.D.

Age: 73

Director since: 2010

Director

Chair,

Science, Technology and Clinical Affairs Committee, and

Member,

Nominating and

Corporate

Governance

Committee

Dr. Royston currently serves as CEO of Viracta Therapeutics, Inc. From 1990 to 2000, he served as founding President and CEO of The Sidney Kimmel Cancer Center and from 1978 to 1990, he was a member of the oncology faculty of the University of California, San Diego. In addition to being a co-founder of Hybritech, Inc., in 1986 he co-founded IDEC Corporation, which later merged with Biogen to form Biogen Idec. From 1990 to 2017, Dr. Royston was the Founding Managing Partner of Forward Ventures and has been instrumental in the formation, financing and development of numerous biotechnology companies, including Applied Molecular Evolution (acquired by Eli Lilly), Corixa (acquired by GlaxoSmithKline), Dynavax, LigoCyte (acquired by Takeda), Morphotek (acquired by Eisai), Sequana Therapeutics (acquired by Celera), Syndax, TargeGen (acquired by Sanofi-Aventis), and Triangle Pharmaceuticals (acquired by Gilead). He is currently a director of Viracta. Dr. Royston received his B.A. and M.D. degrees from Johns Hopkins University and completed post-doctoral training in internal medicine and medical oncology at Stanford University. In 1997, President Clinton appointed Dr. Royston to a six-year term on the National Cancer Advisory Board.

We selected Dr. Royston to serve on our board of directors due to his extensive experience with emerging life sciences companies. Dr. Royston also serves as chair of our science, technology and clinical affairs committee and as a member of our nominating and governance committee.

 

 

8


 

Members of Our Board of Directors

The following table lists the members of our board of directors that are continuing in office, including relevant information as of May 1, 2018 regarding their age, business experience, qualifications, attributes, skills and other directorships:

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE

Term Expiring at the 2019 Annual Meeting of Stockholders
(Class III Directors)

 

Name and Age

Current Position

with Biocept

 

Business Experience and Other Directorships

David F. Hale

Age: 69

Director since: 2011

Non-executive

Chairman, Board of

Directors

Mr. Hale was appointed as our Executive Chairman in March 2011. As of and in connection with the closing of our initial public offering on February 10, 2014, Mr. Hale now serves as non-executive Chairman. He is the Chairman and CEO of Hale BioPharma Ventures LLC, a private company focused on the formation and development of biotechnology, specialty pharma, diagnostic and medical device companies. Mr. Hale is a serial entrepreneur who has been involved in the founding and/or development of a number of life sciences companies. He served as the Chairman of Santarus, Inc., a specialty biopharmaceutical company, since 2004 and a member of Santarus’ board since 2000, prior to its acquisition by Salix Pharmaceuticals, Ltd. in 2014. He also serves as Chairman of Conatus Pharmaceuticals, Inc, a public company. He was previously President and CEO of CancerVax Corporation from October 1999 through its merger in May 2006 with Micromet, Inc., when he became Chairman of the combined companies. He is a co-founder and served as Chairman of Somaxon Pharmaceuticals, Inc. before its acquisition by Pernix Therapeutics Holdings, Inc., and as Chairman of SkinMedica, Inc., before its acquisition by Allergan, Inc. He also serves as Chairman of Adigica Health, Inc., Clarify Medical, Inc., MDRejuvena, Inc., Neurana Pharmaceuticals, Inc., Neurelis, Inc. and Recros Medica, Inc. In 1982, after joining Hybritech, Inc., the first monoclonal antibody company, he served as COO, President and then Chief Executive Officer, when Hybritech was acquired by Eli Lilly and Co. in 1986. From 1987 until 1997 he was Chairman, President and CEO of Gensia, Inc., which merged with SICOR to become Gensia Sicor, Inc., which was later acquired by Teva Pharmaceuticals. He was a co-founder and Chairman of Viagene, Inc. from 1987 to 1995, when Viagene was acquired by Chiron, Inc. He was President and CEO of Women First HealthCare, Inc. from late 1997 to June 2000, before joining CancerVax in October 1999. Prior to joining Hybritech, Mr. Hale was Vice President and General Manager of BBL Microbiology Systems, a diagnostics division of Becton, Dickinson & Co. and from 1971 to 1980, held various marketing and sales management positions with Ortho Pharmaceutical Corporation, a division of Johnson & Johnson, Inc.

We selected Mr. Hale to serve on and lead our board of directors due to his public and private company board experience as well as his extensive experience with and knowledge of health care issues and the operational activities of life sciences companies.

 

 

 

 

 

9


 

Name and Age

Current Position

with Biocept

 

Business Experience and Other Directorships

Michael W. Nall

Age: 55

Director since: 2013

Director, Chief

Executive Officer

and President

Mr. Nall has over 30 years of healthcare sales and marketing experience, serving as our CEO and President since 2013. Before joining Biocept, Mr. Nall served at Clarient Diagnostic Services, Inc. in positions of increasing responsibility from 2002 through August 2013, with his last position being General Manager, North American Sales and Marketing. While at Clarient, Mr. Nall was also responsible for leading the team assimilating Clarient into GE Healthcare after Clarient was acquired in 2010.

From 1988 until joining Clarient, Mr. Nall served in the diagnostic and medical device industries in various commercial leadership roles for companies including Impath, American Cyanamid, Maquet Surgical, Strato Medical, Horizon Medical Products and Columbia Vital Systems.

Mr. Nall received a Bachelor of Science degree in Business Administration from Central Missouri State University (now known as the University of Central Missouri).

We selected Mr. Nall to serve on our board of directors due to his experience in the cancer diagnostics business, his expertise in the commercialization of products and services such as ours, his background in reimbursement and operations and his status as our chief executive officer and president.

 

 

 

 

10


 

Name and Age

Current Position

with Biocept

 

Business Experience and Other Directorships

M. Faye Wilson, MBA

Age: 80

Director since: 2009

Lead Independent Director

Chair, Audit

Committee, Member,

Compensation

Committee, and Member, Nominating and

Corporate

Governance

Committee

Ms. Wilson is CEO of Wilson Boyles and Company, a business consulting firm specializing in the development and implementation of successful business strategies. Prior to co-founding Wilson Boyles in 2003, she served as Senior Vice-President, Value Initiatives and Risk Management for The Home Depot, having joined the company in 1998 following a 21-year career at Bank of America. Ms. Wilson was Executive-Vice President of Bank of America and Chairman and President of Security Pacific Financial Services, a wholly owned subsidiary of BancAmerica Corporation.  

Ms. Wilson began her banking career as a management trainee in the Corporate Banking Group of Security Pacific National Bank, which merged with and became Bank of America in 1992. Prior to assuming the chairmanship of Security Pacific Financial Services, she was the Executive Vice-President responsible for overseeing credit quality and policy for over 80% of Bank of America’s loan portfolio.

During her Security Pacific career, Ms. Wilson spent time in London as the Managing Director of Corporate Finance for Security Pacific Hoare Govett, where she created new corporate advisory services, debt structuring products and formed a cross-border mergers and acquisitions division for European and U.S. companies. Prior to the London assignment, she was Managing Director of the Leveraged Buyout Group for the Security Pacific Merchant Bank, establishing the bank as lead in high profile transactions. Earlier, as Senior Vice-President and Regional Manager in the Corporate Banking Division with responsibility for multinational corporations, retail industry companies and California based corporations, Ms. Wilson established lead banking relationships with major players in those markets.

Ms. Wilson has served as a director on the corporate boards

BioMed Realty Trust, Inc. (a real estate investment trust, until its acquisition by Blackstone Real Estate Partners VIII in 2016), Farmers Insurance Group, The Home Depot, SKM (a Russian public company), and Community National Bank. Currently she serves as Chair of the Board of non-profit San Diego Theatres Inc., is a trustee of The Salk Institute, and Chair of the Audit Committee of Sharp Health Group. She remains engaged with the activities of Duke University, her alma mater.

Ms. Wilson received master’s degrees in international relations and in business administration from the University of Southern California.

We selected Ms. Wilson to serve as lead independent director on our board of directors due to her extensive experience as a director of public companies, her financial acumen and experience, and her expertise in business strategy. Ms. Wilson also serves as chair of our audit committee, as a member of our compensation committee and as a member of our nominating and governance committee.


 

11


 

Term Expiring at the 2020 Annual Meeting of Stockholders
(Class I Directors)

 

Name and Age

Current Position

with Biocept

 

Business Experience and Other Directorships

Bruce E. Gerhardt, CPA

Age: 67

Director since: 2010

Director

Member, Audit

Committee, and Member, Compensation Committee

Mr. Gerhardt has been self-employed, practicing as a Certified Public Accountant, since 1986. He is also a tax and business advisor providing tax compliance for small businesses and upper income individuals. Prior to 1986, he was a financial vice-president with several companies and a senior accountant with Peat Marwick Mitchell, now KPMG, one of the “Big Four” accounting firms. He earned his Bachelor of Arts Degree from the University of Southern California in 1973 and is a member of the American Institute of Certified Public Accountants.

We selected Mr. Gerhardt to serve on our board of directors due to his experience and expertise in financial accounting and auditing. Mr. Gerhardt also serves as a member of our audit committee and as a member of our compensation committee.

 

 

12


 

CORPORATE GOVERNANCE

Director Independence

Our board of directors has affirmatively determined that Dr. Chandler, Mr. Gerhardt, Mr. Hale, Mr. Huebner, Dr. Royston and Ms. Wilson, or six of our seven directors, meet the definition of “independent director” under the applicable NASDAQ Listing Rules.

Agreements with Directors

None of the directors or nominees for director was selected pursuant to any arrangement or understanding, other than with our directors acting within their capacity as such.

Legal Proceedings with Directors

There are no legal proceedings related to any of the directors or director nominees, officers or holders of 5% or more of our common stock which require disclosure pursuant to Items 103 or 401(f) of Regulation S-K.

Board Leadership Structure

The positions of chairman of the board and chief executive officer are separated.  We believe that separating these positions allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the board to lead our board of directors in its fundamental role of providing advice to and independent oversight of management.  Our board of directors recognizes the time, effort and energy that the chief executive officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our chairman, particularly as our board of directors’ oversight responsibilities continue to grow.  While our amended and restated bylaws and corporate governance principles do not require that our chairman and chief executive officer positions be separate, our board of directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.

Board Role in Risk Oversight

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success.  We face a number of risks, including risks relating to our operations, strategic direction and intellectual property.  Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management.  In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The role of our board of directors in overseeing the management of our risks is conducted primarily through committees of our board of directors, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees.  The full board of directors (or the appropriate board committee in the case of risks that are under the purview of a particular committee) discusses with management our major risk exposures, their potential impact on us, and the steps we take to manage them.  When a board committee is responsible for evaluating and overseeing the management of a particular risk or risks, the chairman of the relevant committee reports on the discussion to the full board of directors during the committee reports portion of the next board meeting.

Board and Committee Meetings

During 2017, our board of directors met 11 times and took action by written consent once.  Each director attended at least 75% of the meetings held while he or she was a director, either in person or by teleconference, except for Mr. Huebner, who attended 7 of the 11 meetings of our board of directors held in 2017.  Additionally, during 2017, each director attended at least 75% of the meetings for each committee on which he or she served.

Director Attendance at Annual Meetings

Although we do not have a formal policy regarding attendance by members of our board of directors at our annual meetings of stockholders, we encourage all of our directors to attend. All of our directors attended the annual meeting of stockholders on May 2, 2017.

 

13


 

Executive Sessions

In accordance with the applicable NASDAQ Listing Rules, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present.

Board Committees

Our board of directors has four standing committees: the audit committee, the compensation committee, the nominating and corporate governance committee, and the science, technology and clinical affairs committee. The science, technology and clinical affairs committee was established on March 21, 2017 by our board of directors. In addition, from time to time, special committees may be established under the direction of our board of directors when necessary to address specific issues.

Each of the four standing committees has a written charter that has been approved by our board of directors.  A copy of each charter is available on our website at www.biocept.com by selecting the “Investor Relations” icon at the top of the page, followed by the “Corporate Governance” hyperlink.

The current members of each committee are identified in the following table:

 

Name

 

 

Audit

Committee

 

Compensation

Committee

 

Nominating and

Corporate Governance

Committee

 

Science, Technology and Clinical Affairs Committee

David F. Hale (non-executive Chairman)

 

 

 

 

Marsha A. Chandler, Ph.D.

 

 

 

Chair

 

Member

Bruce E. Gerhardt, CPA

 

Member

 

Member

 

 

Bruce A. Huebner

 

Member

 

Chair

 

 

Member

Michael W. Nall

 

 

 

 

Ivor Royston, M.D.

 

 

 

Member

 

Chair

M. Faye Wilson, MBA

 

Chair

 

Member

 

Member

 

 

Audit Committee

During 2017, our audit committee met four times.  On May 30, 2017, Mr. Huebner was appointed as a member of our audit committee. Each of the members of the audit committee has been determined to be an independent director under applicable SEC rules and the applicable NASDAQ Listing Rules.  Our board of directors has affirmatively determined that Ms. Wilson is designated as an “audit committee financial expert.”

Our audit committee’s responsibilities include:

 

Oversee the integrity of our financial statements and other financial information provided by us to our stockholders and others;

 

Monitor the periodic reviews that are conducted by our financial and senior management and by our independent auditors of the adequacy of our auditing, accounting and financial reporting processes and systems of internal control;

 

Oversee the qualifications, independence and performance of our independent auditors;

 

Oversee compliance with legal, regulatory and public disclosure requirements; and

 

Facilitate communication among our independent auditors, our financial and senior management, and the board.

Compensation Committee

During 2017, our compensation committee met nine times (including telephonic meetings) and took action by written consent four times. Dr. Royston served as chair of our compensation committee until March 21, 2017, when our board of directors appointed Mr. Huebner, a member of our compensation committee at the time, as chair of our compensation committee, after which Dr. Royston no longer served on our compensation committee. On March 21, 2017, Mr. Gerhardt was appointed as a member of our compensation committee. Each of the members of the compensation committee has been determined to be an independent director under the applicable NASDAQ Listing Rules.

 

14


 

Our compensation committee’s responsibilities include:

 

Oversee our overall compensation programs applicable to executive officers and directors;

 

Oversee our cash and equity-based compensation plans applicable to all of our directors, officers and employees;

 

Produce an annual report on executive compensation for inclusion in our annual proxy statement; and

 

Review and discuss with our management the tables and narrative discussion regarding executive officer and director compensation to be included in our annual proxy statement.

Nominating and Corporate Governance Committee

During 2017, our nominating and corporate governance committee met five times. Each of the members of the nominating and corporate governance committee has been determined to be an independent director under the applicable NASDAQ Listing Rules.

Our nominating and corporate governance committee’s responsibilities include:

 

Identify individuals qualified to become board members, consistent with criteria approved by the board, and recommend that the board select the director nominees for election at each annual meeting of stockholders or to fill vacancies on board in accordance with our bylaws;

 

Recommend to the board any appropriate changes in our Code of Ethics, applicable to the Chief Executive Officer and other senior financial officers, and in the Code of Business Conduct, applicable to all of our directors, officers and employees, and in such other corporate governance policies and documents as the committee determines from time to time, including such policies and documents as the committee may develop and/or recommend to the board for approval;

 

Recommend to the board director nominees for each committee of the board; and

 

Lead the board in its annual review of the performance of the board and any committee thereof, as applicable.

Science, Technology and Clinical Affairs Committee

Our board of directors established the science, technology and clinical affairs committee on March 21, 2017.  During 2017, our science, technology and clinical affairs committee met three times. Mr. Huebner served as a member of our science, technology and clinical affairs committee from March 21, 2017 through May 30, 2017, and then again since September 27, 2017. Each of the members of the science, technology and clinical affairs committee has been determined to be an independent director under the applicable NASDAQ Listing Rules.

Our science, technology and clinical affairs committee’s responsibilities include:

 

Review and advise the board on the overall strategy, direction and effectiveness of our research and development and our clinical programs;

 

Evaluate and advise the board on our progress in achieving our long-term strategic research, development and clinical goals and objectives;

 

Identify and monitor emerging science, technology and regulatory developments, issues and trends which are relevant to our research and development strategy and clinical activities;

 

Assess and advise the board, as requested, on the committee’s view of the quality and competitiveness, from a scientific perspective of our research and development programs and clinical initiatives;

 

Review and evaluate the infrastructure and resources made available by us for our research and development projects and clinical programs at the request of the board.  Upon review, the committee will make recommendations regarding such infrastructure and resources necessary to achieve our objectives;

 

Review and advise the board regarding the scientific, research and development, and intellectual property aspects of proposed transactions such as investments, acquisitions and intellectual property at the request of the board;

 

Meet with and liaise with, as well as review the recommendations from, our Scientific Advisory Board and Clinical Advisory Board; and

 

Conduct quarterly meetings with our Chief Scientific Officer, Medical Staff and Chief Executive Officer to assess and advise on clinical and scientific progress and initiatives.

 

15


 

Director Nomination Process

The goal of our nominating and corporate governance committee, which we refer to as the committee for purposes of this section, is to assemble a well-rounded board of directors that consists of directors with backgrounds that are complementary to one another, reflecting a variety of experiences, skills and expertise.  The committee’s current selection criteria for prospective nominees, as set forth in the committee’s charter, are as follows:

 

Each director should be committed to enhancing long-term stockholder value and must possess a high level of personal and professional ethics, sound business judgment and integrity;

 

Each director should be free of any conflicts of interest which would violate applicable laws, rules, regulations or listing standards, or interfere with the proper performance of his or her responsibilities;

 

Each director should possess experience, skills and attributes which enhance his or her ability to perform duties on our behalf.  In assessing these qualities, the committee will consider such factors as (i) personal skills and attributes, (ii) expertise in the areas of accounting, marketing, strategy, financial reporting or corporate governance, or (iii) professional experience in diabetes care or the healthcare industry, as well as other factors that would be expected to contribute to an effective board of directors;

 

Each director should have the willingness and ability to devote the necessary time and effort to perform the duties and responsibilities of board membership; and

 

Each director should demonstrate his or her understanding that his or her primary responsibility is to our stockholders, and that his or her primary goal is to serve the best interests of those stockholders, and not his or her personal interest or the interest of a particular group.

In considering whether to recommend any candidate for inclusion in the slate of recommended nominees for our board of directors, including candidates recommended by stockholders, the committee applies the criteria set forth above.

While we do not have a policy regarding board diversity, it is one of a number of factors that the committee takes into account in identifying nominees.

The committee believes it is appropriate for our President and Chief Executive Officer to serve as a member of our board of directors.

The committee currently has a policy of evaluating nominees recommended by stockholders in the same manner as it evaluates other nominees.  We do not intend to treat stockholder recommendations in any manner different from other recommendations.  Under our amended and restated bylaws, stockholders wishing to propose a director nominee should send the required information to our corporate secretary. We have not received director candidate recommendations from our stockholders.

Codes of Conduct and Ethics

We have adopted a code of ethics that applies to our Chief Executive Officer and other senior financial officers (our Chief Financial Officer and other senior financial officers performing similar functions), which is designed to meet the requirements of Item 406 of Regulation S-K. We have also adopted a code of business conduct that applies to all of our employees, officers and directors, which is designed to meet the requirements of the applicable NASDAQ Listing Rules.  Each of these documents is available on our website at www.biocept.com by selecting the “Investor Relations” icon at the top of the page, followed by the “Corporate Governance” hyperlink.

Stockholder Communications with our Board of Directors

Stockholders seeking to communicate with our board of directors, as a whole, may send such communication to: Biocept, Inc., 5810 Nancy Ridge Drive, San Diego, California 92121, Attention: Chief Financial Officer.  Stockholders seeking to communicate with an individual director, in his or her capacity as a member of our board of directors, may send such communication to the same address to the attention of such individual director.  We will promptly forward any such stockholder communication to each director to whom such stockholder communication is addressed to the address specified by each such director.

 

 

 

 

16


 

DIRECTOR COMPENSATION

On August 10, 2015, our board of directors approved the following cash and equity compensation policies for non-employee members of our board of directors, as recommended by the compensation committee of our board of directors:

Annual Retainer

For service as a director: an annual cash retainer of $25,000 (in addition to any annual cash retainers otherwise paid).

Board Chair

For service as Board Chair: an annual cash retainer of $75,000 (in addition to any annual cash retainers otherwise paid).

Lead Independent Director

For service as Lead Independent Director: an annual cash retainer of $5,000 (in addition to any annual cash retainers otherwise paid).

Audit Committee.

For service as Chair of the audit committee: an annual cash retainer of $15,000 (in addition to any annual cash retainers otherwise paid).

For service as member of the audit committee other than as its Chair: an annual cash retainer of $6,250 (in addition to any annual cash retainers otherwise paid).

Compensation Committee.

For service as Chair of the compensation committee: an annual cash retainer of $10,000 (in addition to any annual cash retainers otherwise paid).

For service as member of the compensation committee other than as its Chair: an annual cash retainer of $5,000 (in addition to any annual cash retainers otherwise paid).

Nominating and Corporate Governance Committee.

For service as Chair of the nominating and corporate governance committee: an annual cash retainer of $7,500 (in addition to any annual cash retainers otherwise paid).

For service as member of the nominating and corporate governance committee other than as its Chair: an annual cash retainer of $3,750 (in addition to any annual cash retainers otherwise paid).

Initial Awards. 

For each non-employee director who is initially elected or appointed to the board: an option to purchase 8,333 shares of common stock. On March 27, 2017, our board of directors approved an increase in the Initial Award option amount to 30,000 shares.

Annual Awards.

For each non-employee director who (i) has been serving on the board for at least 6 months as of the date of any annual meeting of our stockholders and (ii) will continue to serve as a non-employee director immediately following such meeting: an option to purchase 4,166 shares of common stock. On March 27, 2017, our board of directors approved an increase in the annual award option amount to 15,000 shares.

The annual cash retainers shall be earned and paid on a calendar quarterly basis, subject to proration in the case of service during only a portion of a calendar quarter.

On March 27, 2017, our board of directors approved the following cash and equity compensation for non-employee members of our science, technology and clinical affairs committee, as recommended by the compensation committee of our board of directors:

Science, Technology and Clinical Affairs Committee.

For service as Chair of the science, technology and clinical affairs committee: an annual cash retainer of $10,000 retroactive to March 21, 2017 (in addition to any annual cash retainers otherwise paid).

For service as member of the science, technology and clinical affairs committee other than as its Chair: an annual cash retainer of $5,000 retroactive to March 21, 2017 (in addition to any annual cash retainers otherwise paid).

The per share exercise price of each option granted to our non-employee directors shall equal the fair market value of a share of common stock on the date the option is granted. Each such initial award shall vest and become exercisable in substantially equal

 

17


 

installments on each of the first three anniversaries of the vesting commencement date, subject to continuing in service on the board through each such vesting date; provided, that all stock options under the program shall vest in full upon the occurrence of a change in control. Each such annual award shall fully vest and become exercisable on the first anniversary of the vesting commencement date, subject to continuing in service on the board through each such vesting date; provided, that all stock options under the program shall vest in full upon the occurrence of a change in control. The term of each such stock option shall be 10 years from the date the option is granted. Upon a non-employee director’s cessation of service on the board for any reason, his or her stock options granted under this program would, to the extent vested on the date of cessation of service, remain exercisable for 12 months following the cessation of his or her service on the board (or such longer period as the board may determine in its discretion on or after the date of such stock options).

On March 31, 2017, option awards exercisable for an aggregate 24,996 shares of common stock with a vesting commencement date of June 28, 2016 were granted under the 2013 Plan to the six non-employee members of our board of directors related to the grant of annual awards for the June 2016 annual meeting of our shareholders, in accordance with the annual award amounts noted above in this “Director Compensation” section. These awards have a term of 10 years from the date of grant and an exercise price of $2.13 per share, which is equal to the closing price of our common stock on the date of grant. The grant date fair value of these awards of $1.39 per share was estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model for these awards include a volatility rate of 80.0%, a risk-free interest rate of 1.95%, a dividend yield of 0.00%, and an expected term of 5.12 years.

On May 31, 2017, option awards exercisable for an aggregate 90,000 shares of common stock with a vesting commencement date of May 2, 2017 were granted under the 2013 Plan to the six non-employee members of our board of directors related to the grant of annual awards for the May 2017 annual meeting of our shareholders, in accordance with the annual awards amounts noted above in this “Director Compensation” section. These awards have a term of 10 years from the date of grant and an exercise price of $1.50 per share, which is equal to the closing price of our common stock on the date of grant. The grant date fair value of these awards of $1.00 per share was estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model for these awards include a volatility rate of 80.0%, a risk-free interest rate of 1.81%, a dividend yield of 0.00%, and an expected term of 5.46 years.

The following table reflects all compensation awarded to, earned by or paid to the non-employee directors during 2017:

 

Name

 

Fees
Earned or
Paid in
Cash ($)

 

 

Option
Awards
($)(1)(2)

 

 

Restricted
Stock
Awards
($)(1)

 

 

Total
($)

 

Marsha A. Chandler, Ph.D.

 

 

36,401

 

 

 

26,642

 

 

 

—  

 

 

 

63,043

 

Bruce E. Gerhardt, CPA

 

 

35,151

 

 

 

26,642

 

 

 

—  

 

 

 

61,793

 

David F. Hale

 

 

100,000

 

 

 

26,642

 

 

 

—  

 

 

 

126,642

 

Bruce A. Huebner

 

 

39,845

 

 

 

26,642

 

 

 

—  

 

 

 

66,487

 

Edward Neff(3)

 

 

21,224

 

 

 

26,642

 

 

 

—  

 

 

 

47,866

 

Ivor Royston, M.D.

 

 

38,750

 

 

 

26,642

 

 

 

—  

 

 

 

65,392

 

M. Faye Wilson, MBA

 

 

53,750

 

 

 

26,642

 

 

 

—  

 

 

 

80,392

 

 

 

(1)

The amounts in the “Option Awards ($)” and “Restricted Stock Awards ($)” columns reflect the grant date fair values of stock option and RSU awards, respectively, granted during the year. These amounts are determined in accordance with the provisions of FASB ASC Topic 718, rather than an amount paid to or realized by the director.

 

(2)

The amounts in the “Option Awards ($)” column reflect the non-employee director annual awards for both the June 2016 and May 2017 annual meeting of our shareholders.

 

(3)

Mr. Neff served as a member of our board of directors until September 8, 2017.

The following table sets forth the number of option awards and restricted stock awards outstanding for each non-employee director as of December 31, 2017:

 

Name

 

Option
Awards (#)

 

 

Restricted
Stock
Awards (#)

 

Marsha A. Chandler, Ph.D.

 

 

36,950

 

 

 

—  

 

Bruce E. Gerhardt, CPA

 

 

31,871

 

 

 

3,640

 

David F. Hale

 

 

72,700

 

 

 

—  

 

 

18


 

Bruce A. Huebner

 

 

36,617

 

 

 

—  

 

Ivor Royston, M.D.

 

 

33,038

 

 

 

3,640

 

M. Faye Wilson, MBA

 

 

41,205

 

 

 

3,640

 


 

 

19


 

PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Our audit committee has appointed Mayer Hoffman McCann P.C. as our independent registered public accounting firm for the year ending December 31, 2018.  Although not required by applicable law, or our charter or bylaws, as a matter of good corporate governance, we are asking our stockholders to ratify the appointment of Mayer Hoffman McCann P.C. as our independent registered public accountants. Mayer Hoffman McCann P.C. has audited our financial statements since 2005.

We expect that representatives of Mayer Hoffman McCann P.C. will be present at the Annual Meeting, and will be available to respond to appropriate questions from stockholders.  Additionally, the representatives of Mayer Hoffman McCann P.C. will have an opportunity to make a statement if they so desire.

The affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote on the matter at the Annual Meeting will be required to ratify the appointment of Mayer Hoffman McCann P.C. Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as a vote against the proposal.  Broker non-votes will be counted toward a quorum but not counted for any purpose in determining whether this proposal has been approved.

If our stockholders fail to ratify the appointment of Mayer Hoffman McCann P.C., our audit committee will reconsider whether to retain the firm.  Even if the selection is ratified, our audit committee in its discretion may direct the appointment of different independent registered public accountants at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A “FOR” VOTE FOR THIS

PROPOSAL

 

 

 

 

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AUDIT AND ALL OTHER FEES

The following table presents the fees billed to us for professional services related to the years ended December 31, 2017 and 2016 by Mayer Hoffman McCann P.C. and its affiliate, CBIZ MHM, LLC:

 

 

2017

 

2016

Audit Fees(1)

$272,068

 

$209,236

Audit-Related Fees

 

Tax Fees(2)

13,455

 

9,700

All Other Fees(3)

 

Total

$285,523

 

$218,936

 

 

(1)

Audit Fees consist of fees billed for professional services performed by Mayer Hoffman McCann P.C., including out-of-pocket expenses.  The amounts presented relate to the audit of our annual financial statements, the review of financial statements included in our quarterly reports on Form 10-Q, review of our registration statements on Forms S-1, S-3 and S-8, and related services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)

Tax Fees consist of fees billed for professional services relating to tax compliance, tax advice, and tax planning billed by Mayer Hoffman McCann P.C.’s affiliate, CBIZ MHM, LLC, including out-of-pocket expenses.  Mayer Hoffman McCann P.C. leases substantially all of its personnel, who work under the control of Mayer Hoffman McCann P.C. shareholders, from wholly-owned subsidiaries of CBIZ, Inc., including CBIZ MHM, LLC, in an alternative practice structure. Our audit committee approved 67% and 93% of 2017 and 2016 Tax Fees, respectively.

(3)

All Other Fees consist of fees for other permissible work not included within the above category descriptions.

Our audit committee has considered whether the provision of non-audit services is compatible with maintaining the independence of Mayer Hoffman McCann P.C., and has concluded that the provision of such services is compatible with maintaining the independence of our auditors.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

Our audit committee has established a policy that all audit and permissible non-audit services provided by our independent registered public accounting firm will be pre-approved by the audit committee.  These services may include audit services, audit- related services, tax services and other services.  Our audit committee considers whether the provision of each non-audit service is compatible with maintaining the independence of our auditors.  Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.  Our independent registered public accounting firm and management are required to periodically report to our audit committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.

 

 

21


 

AUDIT COMMITTEE REPORT

The audit committee oversees our financial reporting process on behalf of Biocept, Inc.’s (the “Company” or “Company’s”) board of directors, but management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls.  In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 with management, including a discussion of any significant changes in the selection or application of accounting principles, the reasonableness of significant judgments, the clarity of disclosures in the financial statements and the effect of any new accounting initiatives.

The audit committee reviewed and discussed with Mayer Hoffman McCann P.C., which is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the audit committee under generally accepted auditing standards, including Auditing Standard No. 1301, “Communication with Audit Committees” of the Public Company Accounting Oversight Board.  In addition, the audit committee has discussed with Mayer Hoffman McCann P.C., its independence from management and the Company, has received from Mayer Hoffman McCann P.C. the written disclosures and the letter required by Public Company Accounting Oversight Board Rule 3526 (Independence Discussions with Audit Committees), and has considered the compatibility of non-audit services with the auditors’ independence.

We have met with Mayer Hoffman McCann P.C. to discuss the overall scope of its services, the results of its audit and reviews, its understanding of the Company’s internal controls and the overall quality of the Company’s financial reporting.  Mayer Hoffman McCann P.C., as the Company’s independent registered public accounting firm, also periodically updates the audit committee about new accounting developments and their potential impact on the Company’s reporting.  Our meetings with Mayer Hoffman McCann P.C. were held with and without management present.  Members of the audit committee are not employed by the Company, nor does the audit committee provide any expert assurance or professional certification regarding the Company’s financial statements.  We rely, without independent verification, on the accuracy and integrity of the information provided, and representations made, by management and the Company’s independent registered public accounting firm.

In reliance on the reviews and discussions referred to above, we 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 year ended December 31, 2017.  We and the Company’s board of directors also recommended, subject to stockholder approval, the ratification of the appointment of Mayer Hoffman McCann P.C. as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.

This report of the audit committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.

The foregoing report has been furnished by the audit committee.

Respectfully submitted,

AUDIT COMMITTEE

M. Faye Wilson, Chair

Bruce E. Gerhardt

Bruce A. Huebner

 

 


 

22


 

PROPOSAL 3: APPROVAL OF AMENDMENTS TO OUR 2013 AMENDED AND

RESTATED EQUITY INCENTIVE PLAN

 

Our 2013 Equity Incentive Plan was originally adopted by the board of directors on July 31, 2013, and was approved by the stockholders on August 6, 2013. The 2013 Equity Incentive Plan was amended and restated by the board of directors on April 28, 2015, and the amendment and restatement was approved by the stockholders on June 16, 2015. The 2013 Equity Incentive Plan, as amended and restated, was further amended by the board of directors on July 25, 2016.  The 2013 Equity Incentive Plan, as amended and restated, was further amended by the board of directors on March 27, 2017 and approved by the stockholders on May 2, 2017. Throughout this proxy statement, we refer to the 2013 Equity Incentive Plan, as amended and restated by the board of directors in April 2015, as approved by the stockholders in June 2015, as further amended by the board of directors in July 2016 and March 2017, and also as approved by the stockholders in May 2017, as the “2013 Plan.”

On May 7, 2018, the board of directors approved further amending the 2013 Plan to (i) increase the aggregate number of shares authorized for issuance under the 2013 Plan by 4,400,000 shares, and (ii) increase the aggregate number of authorized shares under the 2013 Plan that may be issued pursuant to the exercise of incentive stock options by 4,400,000 shares to an aggregate of 7,922,955 shares. Throughout this proxy statement, we refer to the 2013 Plan, as amended by the Board on May 7, 2018, as the “Amended 2013 Plan.”  Awards granted pursuant to the terms of the 2013 Plan prior to this amendment shall continue to be governed by the terms of the 2013 Plan and not pursuant to this Amended 2013 Plan.

A description of the material terms of the Amended 2013 Plan are summarized below. The key differences between the terms of the 2013 Plan and the Amended 2013 Plan are as follows:

 

The Amended 2013 Plan provides that an additional 4,400,000 shares may be issued pursuant to stock awards granted under the Amended 2013 Plan.

 

The Amended 2013 Plan provides that incentive stock options may be granted up until the tenth anniversary of May 7, 2018, the date on which the Amended 2013 Plan was approved by our board of directors.

 

The Amended 2013 Plan eliminates references to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Amended 2013 Plan eliminates individual grant limits that applied under the 2013 Plan to awards that were intended to comply with the exemption for “performance-based compensation” under Code Section 162(m).  

On May 7, 2018, our board of directors approved a reverse stock split (the “Reverse Split”) of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors and contingent on stockholder approval of Proposal 4.  If both this Proposal 3 and Proposal 4 are approved by stockholders, the Reverse Split will have the effect of decreasing the aggregate number of authorized shares under the Amended 2013 Plan, including awards subject to the exercise of incentive stock options, and decreasing the number of shares reserved for issuance pursuant to inducement awards to reflect the Reverse Split.

If this Proposal 3 is approved by the stockholders, the Amended 2013 Plan will become effective upon the date of the Annual Meeting. In the event the stockholders do not approve this Proposal 3, the Amended 2013 Plan will not become effective and the 2013 Plan will continue in its current form.

Why Are We Requesting Additional Shares Now?

We compete with many life sciences companies to attract and retain talented employees at all levels, and equity awards are a critical component of our compensation philosophy and our annual compensation structure. Having the ability to grant equity awards is essential for us to be able to attract, motivate and retain a talented workforce. If we exhaust our remaining share reserve, we will be unable to issue new equity awards to our new and existing employees, consultants, officers and directors, and this would seriously hamper our ability to provide a competitive pay package to current and prospective employees. Approval of the Amended 2013 Plan will allow us to continue to grant equity awards at levels the board of directors or compensation committee determines to be appropriate in order to attract new employees, consultants and directors, retain our existing employees, consultants and directors and to provide incentives for such persons to exert maximum efforts for our success and ultimately increase stockholder value. Therefore, we believe that approval of the Amended 2013 Plan is in the best interest of the stockholders and us.

While we recognize that equity awards may have a dilutive impact on existing stockholders, we believe that we have managed our existing equity reserves carefully, and that our current level of dilution and “burn rate” is reasonable, as demonstrated in the tables below. We believe that this share increase request is necessary to provide us with a sufficient number of shares to enable us to grant equity awards to our employees, directors and consultants for approximately two years, however we note that various circumstances could alter this estimate.

 

23


 

Why You Should Vote to Approve the Amended 2013 Plan

We Manage Our Equity Award Use Carefully and Dilution Is Reasonable

The following table provides certain additional information regarding our 2007 Equity Incentive Plan, or the “2007 Plan,” and the 2013 Plan:

 

 

 

As of May 14, 2018
(Record Date)

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

 

 

1,783,664

Weighted-average exercise price of outstanding stock options

 

$

4.59

Weighted-average remaining term of outstanding stock options (years)

 

 

8.2

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

 

 

10,920

Total aggregate number of shares of common stock available for non-inducement grants under the 2013 Plan

 

 

1,514,109

Total number of shares of common stock available for inducement grants under the 2013 Plan

 

 

175,284

Total number of shares of common stock outstanding

 

68,213,349

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

$

0.2247

 

 

 

The following table provides detailed information regarding the activity related to our equity incentive plans for fiscal year 2017:

 

 

 

 

 

 

 

 

Fiscal Year 2017

 

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

 

1,755,031

 

 

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

 

350,000

 

 

Weighted-average number of shares of common stock outstanding

 

27,246,292

 

 

Burn Rate

 

7.7

 

The Amended 2013 Plan Combines Compensation and Corporate Governance Best Practices

The Amended 2013 Plan includes provisions that are designed to protect the stockholders’ interests and to reflect corporate governance best practices including:

 

Repricing and cashout of underwater awards is not allowed without stockholder approval. The Amended 2013 Plan prohibits the repricing of outstanding stock options and stock appreciation rights (“SARs”) and the cancellation of any outstanding stock options or SARs 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 awards without prior stockholder approval.

 

Stockholder approval is required for additional shares for current employees. The Amended 2013 Plan does not contain an annual “evergreen” provision. The Amended 2013 Plan authorizes a fixed number of shares, so that stockholder approval is required to issue any additional shares to current employees, allowing the stockholders to have direct input on our equity compensation programs.

No liberal share counting or recycling. The Amended 2013 Plan prohibits the following shares to become available again for issuance under the Amended 2013 Plan: (i) shares that are reacquired or withheld (or not issued) by us to satisfy the exercise or purchase price of an award; (ii) shares that are reacquired or withheld (or not issued) by us to satisfy a tax withholding obligation in connection with an award; and (iii) any shares repurchased by us on the open market with the proceeds of the exercise or purchase price of an award.

 

No liberal change in control provisions. The definition of change in control in the Amended 2013 Plan requires the consummation of an actual transaction so that no vesting acceleration benefits may occur without an actual change in control transaction occurring.

 

 

24


 

Minimum vesting requirement. The Amended 2013 Plan provides that, except with respect to inducement awards, options and SARs generally may not vest at a rate faster than one year following the grant date (subject to certain

exceptions).

 

Awards subject to forfeiture/clawback. Awards granted under the Amended 2013 Plan will be subject to recoupment in accordance with the requirements of any law, government regulation or listing requirement as well as any clawback policy that we adopt pursuant to such laws, regulations or requirements.

 

Double-Trigger vesting acceleration; limited discretion to accelerate. The Amended 2013 Plan provides for automatic vesting acceleration of awards on a "double-trigger" basis, requiring the holder to be terminated without cause or resign for good reason in connection with a change in control transaction in order to receive acceleration. The board of directors or compensation committee's discretion to accelerate awards in connection with a change in control transaction is limited to a transaction where an award is not assumed, continued or substituted for in the transaction.

Description of the Amended 2013 Plan

The material features of the Amended 2013 Plan are summarized below, but the summary is qualified in its entirety by reference to the Amended 2013 Plan itself which is attached as Annex A to this proxy proposal.

Purpose

The purposes of the Amended 2013 Plan are: (i) to enable us to attract and retain the types of qualified employees, officers, directors, consultants and other service providers who will contribute to our long range success; (ii) to align the interests of employees, officers, directors, consultants and other service providers with those of the stockholders; (iii) to promote the success of our business; and (iv) with respect to inducement awards, provide an inducement material for certain individuals to enter into employment with us within the meaning of NASDAQ Listing Rule 5635(c)(4).

Types of Awards

The Amended 2013 Plan authorizes the grant of the following types of awards: stock options, SARs, restricted stock, restricted stock unit awards (“RSUs”), and performance compensation awards. Awards may be granted to employees, officers, non-employee board members, consultants and other service providers of us and our affiliates. However, incentive stock options (“ISOs”) may be granted only to employees, including officers.

Inducement awards that may be granted under the Amended 2013 Plan may include: (i) non-qualified stock options (“NSOs”), (ii) SARs, and (iii) Restricted Awards. Inducement awards may only be granted to individuals who satisfy the standards for inducement grants under NASDAQ Listing Rule 5635(c)(4) and the related guidance under NASDAQ IM 5635-1.

Shares Available for Awards

Under the Amended 2013 Plan, subject to certain changes in our capitalization, the aggregate number of shares of common stock that may be issued pursuant to awards from and after June 28, 2018 (the date of stockholder approval of the Amended 2013 Plan), will not exceed 7,922,955 (the “Share Reserve”) on a pre-Reverse Split basis which is the sum of (1) 4,400,000 new pre-Reverse Split shares, plus (2) the 3,522,955 pre-Reverse Split shares originally authorized for issuance under the 2013 Plan which were previously approved by the board of directors and stockholders, plus (3) any shares underlying outstanding awards that were granted under the Amended 2013 Plan or 2007 Plan that become available for issuance again from time to time under the Amended 2013 Plan because the awards are forfeited, terminated or expire, as further described below, excluding (4) 333,333 pre-Reverse Split shares that may be issued solely pursuant to inducement awards.

Shares subject to awards that have been cancelled, expired unexercised, or are forfeited do not count as shares issued and therefore will again to that extent become available for issuance under the Amended 2013 Plan. However, shares in the following categories may not again be made available for issuance under the Amended 2013 Plan: (i) shares of common stock used to pay the exercise or purchase price of an award, including as a result of the net exercise of outstanding stock options, (ii) shares of common stock used to pay withholding taxes related to awards, (iii) shares of common stock covered by a stock-settled SAR that were not issued upon settlement of the SAR or (iv) shares of common stock repurchased by us on the open market with the proceeds of the exercise or purchase price of an award.

 

25


 

Eligibility

All of our 86 employees, 6 non-employee directors and 6 consultants as of May 1, 2018 are eligible to participate in the Amended 2013 Plan and may receive all types of awards other than ISOs. ISOs may be granted under the Amended 2013 Plan only to our employees (including officers) and employees of our affiliates.

The only persons eligible to receive grants of inducement awards under the Amended 2013 Plan are individuals who satisfy the standards for inducement grants under NASDAQ Listing Rule 5635(c)(4) and the related guidance under NASDAQ IM 5635-1. A person who previously served as an employee or director will not be eligible to receive inducement awards under the Amended 2013 Plan, other than following a bona fide period of non-employment.

We refer to eligible individuals who receive awards under the Amended 2013 Plan as “participants.”

 

Administration

The Amended 2013 Plan will be administered by our compensation committee. The compensation committee has the discretion to determine the individuals to whom awards may be granted under the Amended 2013 Plan, the number of shares of our common stock subject to each award, the type of award, the manner in which such awards will vest and the other conditions applicable to awards. The compensation committee is authorized to interpret the Amended 2013 Plan, to establish, amend and rescind any rules and regulations relating to the Amended 2013 Plan and to make any other determinations that it deems necessary or desirable for the administration of the Amended 2013 Plan. All decisions, determinations and interpretations by the compensation committee, and any rules and regulations under the Amended 2013 Plan and the terms and conditions of or operation of any award, are final and binding on all participants.

Notwithstanding the foregoing, the board of directors also has authority to take action expressly or implicitly in the capacity of the administrator of the Amended 2013 Plan, and the board of directors also may delegate, to the extent allowed under Delaware law and subject to NASDAQ Listing Rule 5635(c)(4) and the related guidance under NASDAQ IM 5635-1with regard to inducement awards, its authority to one or more members of the board of directors with respect to awards that do not involve “insiders” within the meaning of Section 16 of the Exchange Act.

The compensation committee, the board of directors and any authorized member of the board of directors authorized to administer the Amended 2013 Plan is considered to be the “Plan Administrator” for purposes of this Proposal 3.

Inducement Awards

On July 25, 2016, the board of directors approved an amendment to the 2013 Plan to reserve 333,333 shares of our common stock to be used exclusively for the grant of inducement awards in compliance with NASDAQ Listing Rule 5635(c)(4). Under the Amended 2013 Plan, an inducement award may be granted only to an employee who has not previously been an employee or a director of us or an affiliate, or following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment with us within the meaning of NASDAQ Listing Rule 5635(c)(4). In addition, all such inducement awards must be granted by a committee consisting of the majority of our independent directors or our independent compensation committee, in either case in accordance with NASDAQ Listing Rule 5635(c)(4).

Repricing; Cancellation and Re-Grant of Stock Awards

Under the Amended 2013 Plan, the Plan Administrator does not have the authority to reprice any outstanding stock option or SAR by reducing the exercise or strike price of the stock option or SAR or to cancel any outstanding stock option or SAR that has 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 without obtaining the approval of the stockholders. Such approval must be obtained within 12 months prior to such repricing or cancellation and re-grant event.

 

Minimum Vesting Requirements

Under the Amended 2013 Plan, except with respect to inducement awards and subject to the provisions of the Amended 2013 Plan relating to treatment of stock awards in connection with a change in control, no stock option or SAR (including a stock option or SAR that that is a performance compensation award or otherwise vests based on performance goals) will vest (or, if applicable, be exercisable) until at least 12 months following the date of grant of the award; provided, however, that up to 5% of the Share Reserve (excluding inducement shares) may be subject to stock options or SARs which do not meet such vesting (and, if applicable, exercisability) requirements.

 

26


 

Stock Options

Stock options may be granted under the Amended 2013 Plan pursuant to stock option award agreements. The Amended 2013 Plan permits the grant of stock options that are intended to qualify as ISOs and NSOs.

The exercise price of a stock option granted under the Amended 2013 Plan may generally not be less than 100% of the fair market value of our 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 Amended 2013 Plan may not exceed ten years and, in some cases (see “Limitations on Incentive Stock Options” below), may not exceed five years. Except as otherwise provided in a participant’s stock option award agreement or in an employment agreement with us or one of our affiliates, if a participant’s service relationship with us or any of our affiliates (referred to in this Proposal 3 as “continuous service”) terminates (other than for cause and other than upon the participant’s death or disability), the participant may exercise any vested stock options for up to three months following the participant’s termination of continuous service. Except as otherwise provided in a participant’s stock option award agreement or employment agreement with us or one of our affiliates, if a participant’s continuous service terminates due to the participant’s disability or death, the participant, or his or her beneficiary, as applicable, may exercise any vested stock options for up to 12 months following the participant’s termination. Except as explicitly provided otherwise in a participant’s stock option award agreement or employment agreement with us or one of our affiliates, if a participant’s continuous service is terminated for cause (as defined in the Amended 2013 Plan), all stock options held by the participant will terminate upon the participant’s termination of continuous service and the participant will be prohibited from exercising any stock option from and after such termination date. A participant’s stock option award agreement may provide that the term of a stock option shall be extended if the exercise of the stock option following the participant’s termination of continuous service for any reason would violate the registration requirements under the Securities Act or any other state or federal securities law or rules of any securities exchange or interdealer quotation system. In no event, however, may a stock option be exercised after its original expiration date.

A participant may exercise a stock option by written notice and payment of the exercise price in cash or by check, or in the discretion of the Plan Administrator, in the form of an irrevocable commitment by a broker to pay over the net proceeds from a sale of the shares issuable under an option, the delivery of previously owned shares and/or withholding of shares deliverable upon exercise, net-exercise, or any combination of these methods, or in any other form of legal consideration that may be acceptable to the Plan Administrator.

Subject to certain minimum vesting requirements (see “Minimum Vesting Requirements” above), stock options granted under the Amended 2013 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 Amended 2013 Plan may be subject to different vesting schedules as the Plan Administrator may determine.

The Plan Administrator may impose limitations on the transferability of stock options granted under the Amended 2013 Plan in its discretion. Generally, a participant may not transfer a stock option granted under the Amended 2013 Plan other than by will or the laws of descent and distribution. However, ISOs can be transferred pursuant to a qualified domestic relations order and, subject to approval by the Plan Administrator, NSOs can be transferred without consideration to certain family members and other permitted transferees not prohibited by applicable tax and securities laws.

Limitations on Incentive Stock Options

The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to 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 years from the date of grant.

Subject to adjustment for certain changes in our capitalization, the aggregate maximum number of shares of our common stock that may be issued pursuant to the exercise of ISOs under the Amended 2013 Plan is 7,922,955 shares. The aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of ISOs granted under the Amended 2013 Plan is the number of shares subject to the Amended 2013 Plan’s Share Reserve not including the inducement grant pool.

 

27


 

Stock Appreciation Rights

SARs may be granted under the Amended 2013 Plan pursuant to SAR award agreements. Each SAR is denominated in common stock share equivalents. The strike price of each SAR will be determined by the Plan Administrator but will generally not be less than 100% of the fair market value of the common stock subject to the SAR on the date of grant. Subject to certain minimum vesting requirements (see “Minimum Vesting Requirements” above), the Plan Administrator may also impose restrictions or conditions upon the vesting of SARs that it deems appropriate. The appreciation distribution payable upon exercise of a SAR may be paid in shares of our common stock, in cash, in a combination of cash and stock, or in any other form of consideration determined by the Plan Administrator. Generally, the treatment of a SAR upon termination of a participant’s continuous service and restrictions on transfer of a SAR will be determined by the Plan Administrator and set forth in the SAR award agreement.

Restricted Stock Awards

Restricted stock awards may be granted under the Amended 2013 Plan pursuant to restricted stock award agreements. A restricted stock award may be granted in consideration for cash, the participant’s past services performed for us or any of our affiliates, or future services to be performed for us or any of our affiliates, subject to applicable law and if permitted by the Plan Administrator. 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, which may include performance-based conditions. Rights to acquire shares of our common stock under a restricted stock award may be transferred only upon such terms and conditions as are set forth in the restricted stock award agreement. Subject to the terms of the restricted stock award agreement, dividends paid on restricted stock generally will be subject to the same vesting conditions as apply to the shares subject to the restricted stock award. Generally, the treatment of a restricted stock award upon termination of a participant’s continuous service will be determined by the Plan Administrator and set forth in the restricted stock award agreement.

Restricted Stock Unit Awards

RSU awards may be granted under the Amended 2013 Plan pursuant to RSU award agreements. A RSU may be settled by the delivery of shares of our common stock, in cash, in a combination of cash and stock, or in any other form of consideration determined by the Plan Administrator and set forth in the RSU award agreement. RSUs may be subject to vesting in accordance with a vesting schedule to be determined by the Plan Administrator, which may include performance-based conditions. Subject to the terms of the RSU award agreement, dividend equivalents generally may be credited in respect of shares of our common stock covered by a RSU, 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 RSU. The treatment of a RSU upon termination of a participant’s continuous service will be determined by the Plan Administrator and set forth in the RSU award agreement.

Performance Compensation Awards

The Amended 2013 Plan allows us to grant performance compensation awards, which are awards denominated in shares of our common stock, cash or a combination thereof, which are earned during a specified performance period subject to the attainment of performance criteria.

 

Vesting of performance compensation awards may be subject to a requirement of continuous service and/or the satisfaction of one or more performance goals. The performance goals may vary from participant to participant, group to group, and period to period. Performance goals may be weighted for different factors and measures. The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained will be determined by the Plan Administrator.

Performance goals under the Amended 2013 Plan will be based on any one or more of the following performance criteria: (a) net earnings or net income (before or after taxes); (b) basic or diluted earnings per share (before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue; (e) gross profit or gross profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital, equity, or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital); (i) earnings before or after taxes, interest, depreciation and/or amortization; (j) gross or operating margins; (k) improvements in capital structure; (l) budget and expense management; (m) productivity ratios; (n) economic value added or other value added measurements; (o) share price (including, but not limited to, stock price growth measures and total stockholder return); (p) expense targets; (q) margins; (r) operating efficiency; (s) working capital targets; (t) enterprise value; (u) safety record; (v) regulatory milestones; (w) scientific milestones; (x) customer acquisition; (y) completion of partnering agreement; (z) workforce retention; (aa) completion of acquisitions or business expansion; and (bb) individual business objectives.

 

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Performance goals may be based on a Biocept, Inc. or affiliate-wide basis, with respect to one or more business units, divisions, or our operational units or an affiliate or any combination thereof, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Our compensation committee or other authorized committee or the Plan Administrator is authorized to make appropriate adjustments in the method of calculating the attainment of performance goals for a performance period based on the following events: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor or pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results of operations appearing in our annual report to stockholders for the applicable year; (f) acquisitions or divestitures; (g) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (h) foreign exchange gains and losses; and (i) a change in our fiscal year.

Transferability

Awards granted under the Amended 2013 Plan generally may not be transferred in any manner other than by will or by the laws of descent and distribution and awards generally may not be transferred if the participant is to receive consideration in connection with the transfer. Stock options may be transferred in the limited circumstances described above under the section entitled “Stock Options.”

Clawback Policy

The Amended 2013 Plan provides that rights, payments and benefits with respect to an award granted under the Amended 2013 Plan will be subject to reduction, cancellation forfeiture or recoupment in recovery under any law, government regulation or listing requirement as well as any clawback policy that we adopt pursuant to such laws, regulations or requirements.

 

Changes to Capital Structure

In the event of certain capitalization adjustments, the Plan Administrator will appropriately adjust: (i) the class(es) and maximum number of securities subject to the Amended 2013 Plan; (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of ISOs; (iii)  the class(es) and number of securities and price per share of stock subject to outstanding stock awards; and (iv) the class(es) and maximum number of securities that may be issued pursuant to inducement awards.

Change in Control

In the event of a change in control of us (as defined in the Amended 2013 Plan and described below) in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue outstanding awards under the Amended 2013 Plan or substitute similar stock awards for such outstanding awards, then the Plan Administrator may, in its discretion and upon at least 10 days’ advance notice to the affected persons, accelerate the vesting (and exercisability, as applicable) of outstanding awards under the Amended 2013 Plan in full or in part to a date prior to the effective time of the change in control transaction and, to the extent not exercised (if applicable) at or prior to the effective time of the transaction, cancel all outstanding awards upon or immediately before the change in control and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such awards (including, at the Plan Administrator’s discretion, any unvested portion of the award) based upon the value per share of common stock received or to be received or deemed received by our other stockholders in the transaction. In the case of any stock option or SAR with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the change in control, the Plan Administrator may cancel the option or SAR without the payment of consideration therefor.

In addition, in the event of a participant’s termination of continuous service without cause or resignation for good reason during the 10 day period before a change in control or during the 12 month period following a change in control, all stock options and SARs under the Amended 2013 Plan will become immediately exercisable with respect to 100% of the shares subject to such stock options or SARs, and/or the restricted period will expire immediately with respect to 100% of the shares of restricted stock or RSUs as of the date of the participant’s termination or resignation.

With respect to performance compensation awards, in the event of a change in control, all incomplete performance periods in respect of such award in effect on the date the change in control occurs will end on the date of such change in control and the Plan Administrator will (i) determine the extent to which performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information then available as it deems relevant and (ii) cause to be paid to the applicable participant partial or full awards with respect to performance goals for each such performance period based upon the Plan Administrator’s determination of the degree of attainment of performance goals or, if not determinable, assuming that the applicable “target” levels of performance have been attained, or on such other basis determined by the Plan Administrator.

 

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For purposes of the Amended 2013 Plan, a change in control generally will be deemed to occur in the event: (i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of a merger or consolidation) of all or substantially all of the properties or our assets and our subsidiaries, to any person or group that is not one of our subsidiaries; (ii) the “incumbent directors” (as described below) cease to constitute at least a majority of the board of directors; (iii) a person, entity or group acquires beneficial ownership of 50% or more of either our then outstanding shares of common stock or of the combined voting power of our then outstanding securities; (iv) there is a consummated reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving us that requires our stockholder approval. Certain acquisitions and other transactions are exempted from the definition of a change in control, as further described in the Amended 2013 Plan, including a transaction where (a) immediately after such transaction more than 50% of the total voting power of the resulting entity is represented by the combined voting power of our outstanding voting securities immediately before the transaction in substantially the same proportions as their ownership of our outstanding voting securities immediately prior to such transaction, (b) no person or group or any employee benefit plan sponsored or maintained by the surviving entity is the beneficial owner of 50% or more of the total voting power of the parent company of the surviving entity in the transaction and (c) at least a majority of the members of the board of directors of the parent company of the surviving entity were members of our board of directors at the time of approval of the initial agreement providing for such transaction. “Incumbent directors” for purposes of the definition of “change in control” means the individuals who are on the board of directors as of the original effective date of the 2013 Plan (July 31, 2013) or individuals whose nomination or election was approved by a vote of at least two-thirds of the incumbent directors then still on the board of directors.

Plan Amendments and Termination

The Plan Administrator will have the authority to amend or terminate the Amended 2013 Plan at any time. However, except as otherwise provided in the Amended 2013 Plan or an award agreement, no amendment or termination of the Amended 2013 Plan may materially impair a participant’s rights under his or her outstanding awards without the participant’s consent. We will obtain stockholder approval of any amendment to the Amended 2013 Plan as required by applicable law and listing requirements. No ISOs may be granted under the Amended 2013 Plan after May 7, 2028.

U.S. Federal Income Tax Consequences Associated with the Amended 2013 Plan

The following is a general summary of the principal United States federal income taxation consequences to participants and us under current law with respect to participation in the Amended 2013 Plan. This summary is not intended to be exhaustive and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside or the rules applicable to deferred compensation under Section 409A of the Code. Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income as well as the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of our tax reporting obligations.

Non-Statutory 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. On exercise of an NSO the participant will recognize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares on the date each such stock option is exercised over the stock option exercise price. The participant’s basis for the stock for purposes of determining gain or loss on subsequent disposition of such shares generally will be the fair market value of the common stock on the date the participant exercises such stock option. Any subsequent gain or loss will be generally taxable as capital gains or losses. Subject to certain restrictions and limitations, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

Incentive Stock Options. Generally, a participant is not subject to ordinary income tax upon the grant or exercise of an ISO, although the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price of the ISO generally will be an adjustment included in the participant’s alternative minimum taxable income for the year in which the ISO is exercised. If a participant holds a share received on 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 on 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 the ISO was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the ISO, 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 ISO, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

 

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Upon a disqualifying disposition of shares in the year in which the stock option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to those shares. In computing alternative minimum taxable income, the tax basis of a share acquired on 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 an income tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired on an exercise of an ISO after the required holding period. If there is a disqualifying disposition of a share, however, we are allowed a deduction in an amount equal to the ordinary income includible in income by the participant, subject to Section 162(m) of the Code and provided that amount constitutes an ordinary and necessary business expense for us and is reasonable in amount, and either the participant includes that amount in income or we timely satisfy our reporting requirements with respect to that amount.

An ISO exercised more than three months after a participant terminates employment, other than by reason of death or disability, will be taxed as a NSO, and the participant will have been deemed to have received income on the exercise taxable at ordinary income rates. We will be entitled to a tax deduction equal to the participant’s ordinary income, if any.

SARs. In general, the tax treatment of a SAR is similar to that of a NSO.

Restricted Stock Awards. Generally, the recipient of a restricted stock award will recognize ordinary income at the time the shares are received equal to the excess, if any, of the fair market value of the shares received over any amount paid by the recipient for the shares. If a share is not vested when it is received, the participant generally will not recognize income until the share becomes vested, at which time the participant will recognize ordinary income equal to the excess, if any, of the fair market value of the share on the date it becomes vested over any amount paid by the participant in exchange for the share. A participant may file an election with the Internal Revenue Service, within 30 days following his or her receipt of the restricted stock award, to recognize ordinary income, as of the date the participant receives the award, equal to the excess, if any, of the fair market value of the share on the date the award is granted over any amount paid by the participant for the share. The participant’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from restricted stock awards will be the amount paid for such shares plus any ordinary income recognized either when the share is received or when the share becomes vested.

Subject to the satisfaction of certain reporting requirements and other conditions as described above, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

RSU Awards. Generally, a participant who receives a RSU structured to either comply with or be exempt from the requirements of Section 409A of the Code will recognize ordinary income at the time the shares of our common stock are delivered equal to the excess, if any, of the fair market value of the shares of our common stock received over any amount paid by the participant in exchange for the shares of our common stock. The participant’s basis in the shares will be the amount paid plus any ordinary income recognized when the shares are delivered. Subject to the satisfaction of certain reporting requirements and other conditions as described above, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

Dividend Equivalents. A participant who receives a dividend equivalent with respect to an award generally will not recognize taxable income at the time of grant, and we will not be entitled to a deduction at that time. When a dividend equivalent is paid, the participant generally will recognize ordinary income. Subject to the satisfaction of certain reporting requirements and other conditions as described above, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

Performance Compensation Awards. A participant who has been granted a performance compensation award generally will not recognize taxable income at the time of grant, and we will not be entitled to a deduction at that time. When an award is paid, whether in cash or common stock, the participant generally will recognize ordinary income. Subject to the satisfaction of certain reporting requirements and other conditions as described above, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.

Impact of Section 409A of the Code. Amended The Amended 2013 Plan provides for the grant of various types of awards which may not be exempt from Section 409A of the Code. If an award is subject to Section 409A of the Code, and if the requirements of Section 409A of the Code are not met, the taxable events as described above could apply earlier than described and also could result in the imposition of additional taxes and penalties.

Section 162 Limitations

Compensation of persons who are “covered employees” of the Company is subject to the tax deduction limits of Section 162(m) of the Code. The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for

 

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taxable years beginning after December 31, 2017, such that compensation paid to our covered employees in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.

New Plan Benefits

 

Amended 2013 Plan

 

 

Name and position

 

Number of shares

Michael W. Nall

President and Chief Executive Officer

 

(1)

All other current executive officers as a group (3 people)

 

(1)

All current directors who are not executive officers as a group (6 people)

 

(2)

All employees, including all current officers who are not executive officers, as a group (82 people)

 

(1)

All consultants as a group (6 people)

 

(1)

 

(1)

Awards granted under the Amended 2013 Plan to our executive officers and other employees, as well as consultants, are discretionary and are not subject to set benefits or amounts under the terms of the Amended 2013 Plan, and we have not granted any awards under the Amended 2013 Plan subject to stockholder approval of this Proposal 3. Accordingly, the benefits or amounts that will be received by or allocated to our executive officers and other employees, as well as consultants, under the Amended 2013 Plan are not determinable.

 

(2)

Awards granted under the Amended 2013 Plan to our non-employee directors are discretionary and are not subject to set benefits or amounts under the terms of the Amended 2013 Plan. However, our cash and equity compensation policies for non-employee members of the board of directors establishes the number of shares subject to initial and annual stock option awards that automatically will be granted to our non-employee directors, whereby on the last day of the month of each annual meeting, each of our current non-employee directors who is to continue as a non-employee director (and who has been serving on the board of directors for at least 6 months as of the date the Annual Meeting) will be granted an annual stock option award under the Amended 2013 Plan consisting of an option to purchase 15,000 shares of our common stock or 30,000 shares for each non-employee director who is initially elected or appointed to the board, with a one-year vesting period commencing on such year’s annual meeting date.

Vote Required; Recommendation of the Board of Directors

The affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting will be required to approve the Amended 2013 Plan. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A “FOR” VOTE FOR THIS

PROPOSAL

 


 

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PROPOSAL 4: APPROVAL OF REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK

General

Our board of directors has adopted and is recommending that our stockholders approve proposed amendments to our Certificate of Amendment of Certificate of Incorporation, and thereby authorize our board of directors, if in their judgment it is necessary, to select and file one such amendment to effect a reverse stock split of our outstanding shares of common stock. Holders of our common stock are being asked to approve the proposal that our Certificate of Amendment of Certificate of Incorporation be amended to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors. Pursuant to the law of the State of Delaware, our state of incorporation, if our board of directors adopts any amendment to our Certificate of Amendment of Certificate of Incorporation, the amendment must be submitted to our stockholders for their approval. The form of proposed amendment to our Certificate of Amendment of Certificate of Incorporation to effect the reverse stock split is attached as Annex B to this Proxy Statement. However, the text of the proposed amendment is subject to revision to include such changes as may be required by the Secretary of State of the State of Delaware and as our board of directors deems necessary and advisable to effect the proposed amendment of the Company’s Certificate of Amendment of Certificate of Incorporation.

By approving this proposal, stockholders will approve a series of amendments to our Certificate of Amendment of Certificate of Incorporation pursuant to which any whole number of outstanding shares between and including 20 and 30 would be combined into one share of our common stock, and authorize our board of directors to file only one such amendment, as determined by our board of directors in the manner described herein, and to abandon each amendment not selected by our board of directors. Our board of directors believes that stockholder approval of amendments granting our board of directors this discretion, rather than approval of a specified exchange ratio, provides our board of directors with maximum flexibility to react to then-current market conditions and, therefore, is in the best interests of the Company and its stockholders. Our board of directors may effect only one reverse stock split as a result of this authorization. Our board of directors may also elect not to do any reverse split. Our board of directors’ decision as to whether and when to effect the reverse stock split will be based on a number of factors, including market conditions, existing and expected trading prices for our common stock, and the continued listing requirements of The NASDAQ Capital Market. Although our stockholders may approve the reverse stock split, we will not effect the reverse stock split if our board of directors does not deem it to be in the best interests of the Company and its stockholders. The reverse split will take effect, if at all, after it is approved by our stockholders holding a majority of the shares of our common stock outstanding, is deemed by the board of directors to be in the best interests of the Company and its stockholders, and after filing the amendment to our Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware.  

Background

Our common stock is currently quoted on The Nasdaq Capital Market.  In order for our common stock to continue to be quoted on The Nasdaq Capital Market, we must satisfy various listing maintenance standards established by Nasdaq.  Among other things, our common stock must have a minimum bid price of at least $1.00 per share.  If we are unable to meet The Nasdaq Capital Market requirements, our common stock may be transferred to the OTC Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau.

Under Nasdaq’s listing maintenance standards for The Nasdaq Capital Market, if the closing bid price of our common stock is under $1.00 per share for 30 consecutive business days and does not thereafter reach $1.00 per share or higher for a minimum of ten consecutive business days during the 180 calendar days (the “grace period”) following notification by Nasdaq, Nasdaq may delist our common stock from trading.  If a delisting from The Nasdaq Capital Market were to occur, our common stock would trade on the OTC Bulletin Board or in the “pink sheets.”  Such alternatives are generally considered to be less efficient markets and not as broad as The Nasdaq Capital Market.

On January 22, 2018, Nasdaq notified us that the bid price of our common stock had closed below the required $1.00 per share for 30 consecutive trading days, and, accordingly, that we did not comply with the applicable Nasdaq minimum bid price requirement. We have been provided 180 calendar days by Nasdaq to regain compliance with this requirement.  Accordingly, our board of directors adopted resolutions, subject to approval by our stockholders, to amend our Certificate of Amendment of Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors.  These resolutions were approved as a means of increasing the share price of our common stock above $1.00, which is required for continued listing on The Nasdaq Capital Market.  

 

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Purpose and Material Effects of Proposed Reverse Split

One of the key requirements for continued listing on The Nasdaq Capital Market is that our common stock must maintain a minimum bid price above $1.00 per share.  We believe that the reverse split will improve the price level of our common stock so that we are able to maintain compliance with the Nasdaq minimum bid price listing standard.  We also believe that the higher share price could help generate interest in us among investors.  Furthermore, we believe that maintaining our Nasdaq listing may provide us with a broader market for our common stock.

However, the effect of the reverse split upon the market price for our common stock cannot be predicted, and the history of similar reverse stock splits for companies in like circumstances is varied.  The market price per share of our common stock after the reverse split may not rise in proportion to the reduction in the number of shares of our common stock outstanding resulting from the reverse split.  The market price per post-reverse split share may not either exceed or remain in excess of the $1.00 minimum bid price as required by Nasdaq, or otherwise meet the requirements of Nasdaq for continued inclusion for trading on The Nasdaq Capital Market.  The market price of our common stock may also be based on our performance and other factors, some of which may be unrelated to the number of shares outstanding.

The reverse split will affect all of our stockholders uniformly and will not affect any stockholder’s percentage ownership interests in our company or proportionate voting power, except for minor adjustment due to the additional net share fraction that will need to be issued as a result of the treatment of fractional shares. No fractional shares will be issued in connection with the reverse stock split. Instead, the Company will issue one full share of the post- reverse stock split common stock to any stockholder who would have been entitled to receive a fractional share as a result of the process.

The principal effect of the reverse split will be that (i) the number of shares of common stock issued and outstanding will be reduced from 68,213,349 shares as of May 14, 2018 to a number of shares between and including one-twentieth to one-thirtieth that amount, as the case may be based on the ratio for the reverse stock split as determined by our board of directors, (ii) all outstanding options entitling the holders thereof to purchase shares of common stock will enable such holders to purchase, upon exercise of their options, between and including one-twentieth to one-thirtieth of the number of shares of common stock which such holders would have been able to purchase upon exercise of their options immediately preceding the reverse split at an exercise price equal to between and including twenty to thirty times the exercise price specified before the reverse split, resulting in the same aggregate price being required to be paid therefor upon exercise thereof immediately preceding the reverse split, as the case may be based on the ratio for the reverse stock split as determined by our board of directors, and (iii) the number of shares reserved for issuance pursuant to our 2013 Plan (or the Amended 2013 Plan if Proposal 3 is approved by stockholders) will be reduced to between and including one-twentieth to one-thirtieth of the number of shares then included in such plan, as the case may be based on the ratio for the reverse stock split as determined by our board of directors.

The reverse split will not affect the par value of our common stock.  As a result, on the effective date of the reverse split, the stated capital on our balance sheet attributable to the common stock will be reduced to between and including one-twentieth to one-thirtieth of its present amount, as the case may be based on the ratio for the reverse stock split as determined by our board of directors, and the additional paid-in capital account shall be credited with the amount by which the stated capital is reduced.  The per share net income or loss and net book value of our common stock will be retroactively increased for each period because there will be fewer shares of our common stock outstanding.

The amendment will not change the terms of our common stock.  The shares of new common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the common stock now authorized. The common stock issued pursuant to the reverse split will remain fully paid and non-assessable.  The reverse split is not intended as, and will not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Securities Exchange Act of 1934.  We will continue to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934.

Because our authorized common stock will not be reduced by the reverse stock split, the overall effect will be an increase in authorized but unissued shares of common stock.  These shares may be issued by our board of directors in its discretion.  Any future issuances will have the effect of diluting the percentage of stock ownership and voting rights of the present holders of common stock.

While our board of directors believes it advisable to authorize and approve the reverse stock split for the reasons set forth above, our board of directors is aware that the increase in the number of authorized but unissued shares of common stock may have a potential anti-takeover effect.  Our ability to issue additional shares could be used to thwart persons, or otherwise dilute the stock ownership of stockholders, seeking to control the company.  The reverse stock split is not being recommended by our board of directors as part of an anti-takeover strategy.    

 

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Certain Effects of the Reverse Split

Stockholders should recognize that if the reverse split is effectuated they will own fewer shares than they presently own (a number equal to the number of shares owned immediately prior to the filing of the amendment divided by twenty to thirty, as the case may be based on the ratio for the reverse stock split as determined by our board of directors).  The reverse split will have no effect on the number of our currently authorized but unissued shares of common stock.  While we expect that the reverse split will result in an increase in the market price of our common stock, the reverse split may not increase the market price of our common stock by a multiple equal to the exchange number or result in the permanent increase in the market price (which is dependent upon many factors, including our performance and prospects). Also, should the market price of our common stock decline, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would pertain in the absence of the reverse split.  Furthermore, the possibility exists that liquidity in the market for our common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse split.  The reverse stock split may result in some stockholders owning “odd-lots” of less than 100 shares of our common stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares. Consequently, the reverse split may not achieve the desired results that have been outlined above.

Procedure for Effecting Reverse Split and Exchange of Stock Certificates

If the reverse split is approved by our stockholders, the reverse stock split would become effective at such time as it is deemed by our board of directors to be in the best interests of the Company and its stockholders and we file the amendment to our Certificate of Amendment of Certificate of Incorporation with the Secretary of State of Delaware.  Even if the reverse stock split is approved by our stockholders, our board of directors has discretion not to carry out or to delay in carrying out the reverse stock split.  Upon the filing of the amendment, all the old common stock will be converted into new common stock as set forth in the amendment.

As soon as practicable after the effective time of the reverse stock split, stockholders will be notified that the reverse split has been effected.  If you hold shares of common stock in a book-entry form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the reverse stock split with instructions on how to exchange your shares. After you submit your completed transmittal letter, a transaction statement will be sent to your address of record as soon as practicable after the effective date of the reverse split indicating the number of shares of common stock you hold.

Some stockholders hold their shares of common stock in certificate form or a combination of certificate and book-entry form. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates, if applicable. If you are a stockholder holding pre-split shares in certificate form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the reverse stock split. The transmittal letter will be accompanied by instructions specifying how you can exchange your certificate representing the pre-split shares of our common stock for a statement of holding. When you submit your certificate representing the pre-split shares of our common stock, your post-split shares of our common stock will be held electronically in book-entry form in the Direct Registration System. This means that, instead of receiving a new stock certificate, you will receive a statement of holding that indicates the number of post-split shares you own in book-entry form. We will no longer issue physical stock certificates unless you make a specific request for a share certificate representing your post-split ownership interest.

STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.

Beginning on the effective time of the reverse stock split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.

Fractional Shares

No fractional shares will be issued in connection with the reverse stock split. Instead, the Company will issue one full share of the post-reverse stock split common stock to any stockholder who would have been entitled to receive a fractional share as a result of the process. Each common stockholder will hold the same percentage of the outstanding common stock immediately following the reverse split as that stockholder did immediately prior to the reverse split, except for minor adjustment due to the additional net share fraction that will need to be issued as a result of the treatment of fractional shares.

Criteria to be used for Decision to Apply the Reverse Stock Split

In the event that approval for the reverse stock split is obtained, our board of directors will be authorized to proceed with the reverse split.  If our stock closes at a bid price equal to or greater than $1.00 for the ten business days prior to the Annual Meeting, our board of directors may delay its decision to execute the reverse stock split indefinitely.  In that case, if at any time during the twelve month

 

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period following the Annual Meeting the stock price falls below $1.00 for a 30 day period and therefore fails to comply with the applicable Nasdaq Capital Market minimum listing requirements, then the reverse stock split may be executed as a cure for this condition.

No Dissenter’s Rights

Under the Delaware General Corporation Law, our stockholders are not entitled to dissenter’s rights with respect to our proposed amendment to our Certificate of Amendment of Certificate of Incorporation to effect the reverse split and we will not independently provide our stockholders with any such right.

Federal Income Tax Consequences of the Reverse Split

The following summary of the federal income tax consequences of the reverse stock split is based on current law, including the Internal Revenue Code of 1986, as amended, and is for general information only.  The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of such stockholder, and the discussion below may not address all the tax consequences for a particular stockholder.  For example, foreign, state and local tax consequences are not discussed below.  Accordingly, each stockholder should consult his or her tax adviser to determine the particular tax consequences to him or her of a reverse stock split, including the application and effect of federal, state, local and/or foreign income tax and other laws.

Generally, a reverse stock split will not result in the recognition of gain or loss for federal income tax purposes.  The adjusted basis of the new shares of common stock will be the same as the adjusted basis of the common stock exchanged for such new shares.  The holding period of the new, post-reverse split shares of the common stock resulting from implementation of the reverse stock split will include the stockholder’s respective holding periods for the pre-reverse split shares.  

Vote Required

The affirmative vote of a majority of the outstanding shares of our common stock will be required to approve the amendment of our Certificate of Amendment of Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio in the range of 1:20 to 1:30, such ratio to be determined in the discretion of our board of directors.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A “FOR” VOTE FOR THIS

PROPOSAL

 


 

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PROPOSAL 5: AUTHORIZATION TO ADJOURN THE ANNUAL MEETING

General

If the Annual Meeting is convened and a quorum is present, but there are not sufficient votes to approve Proposal 3 or Proposal 4, our proxy holders may move to adjourn the Annual Meeting at that time in order to enable our board of directors to solicit additional proxies.

In this proposal, we are asking our stockholders to authorize the holder of any proxy solicited by our board of directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the Annual Meeting to another time and place, if necessary, to solicit additional proxies in the event that there are not sufficient votes to approve Proposal 3 or Proposal 4.  If our stockholders approve this proposal, we could adjourn the Annual Meeting and any adjourned session of the Annual Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from our stockholders that have previously voted.  Among other things, approval of this proposal could mean that, even if we had received proxies representing a sufficient number of votes to defeat Proposal 3 or Proposal 4, we could adjourn the Annual Meeting without a vote on such proposals and seek to convince our stockholders to change their votes in favor of such proposals.

If it is necessary to adjourn the Annual Meeting, no notice of the adjourned meeting is required to be given to our stockholders, other than an announcement at the Annual Meeting of the time and place to which the Annual Meeting is adjourned, so long as the meeting is adjourned for 30 days or less and no new record date is fixed for the adjourned meeting.  At the adjourned meeting, we may transact any business which might have been transacted at the original meeting.

Vote Required

Approval of this proposal requires the affirmative vote of a majority of the shares of our common stock present or represented by proxy at the Annual Meeting and entitled to vote on such matter.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A “FOR” VOTE FOR THIS

PROPOSAL

 

 


 

 

37


 

EXECUTIVE OFFICERS

Our executive officers, and their respective ages and positions with us as of May 1, 2018, are as follows:

 

Name

 

 

Age

 

Position

Michael W. Nall

55

President, Chief Executive Officer and Director

Lyle J. Arnold, Ph.D.

71

Senior Vice-President of Research & Development and Chief Scientific Officer

Timothy C. Kennedy

60

Chief Financial Officer, Senior Vice-President of Operations and Corporate Secretary

Michael Terry

63

Senior Vice-President of Commercial Operations

Mr. Nall’s biography can be found under the heading “Directors.”

Lyle J. Arnold, Ph.D. joined us as Senior Vice-President of Research & Development and Chief Scientific Officer at Biocept in 2011. Dr. Arnold is a biotechnology executive, entrepreneur, and developer of innovative technologies covering therapeutics, molecular diagnostics, and genomics. Prior to joining Biocept, Dr. Arnold founded Aegea Biotechnologies to acquire, develop, and commercialize, next generation nucleic acid technologies. Dr. Arnold has served on the board of directors of numerous companies, including Asuragen and Aegea, as well as, non-profit organizations. Dr. Arnold has also held senior scientific and management positions at Molecular Biosystems (co-founder), Genta, Synteni, Incyte Genomics, Oasis Biosciences (co-founder), and Gen-Probe (now Hologic). In addition, Dr. Arnold was a faculty member in the UCSD School of Medicine and a member of the UCSD Cancer Center. Dr. Arnold is an inventor or co-inventor on 49 issued U.S. patents and more than 160 issued and pending patents worldwide. He is the principal inventor of the chemiluminescent Hybridization Protection Assay (HPA) and associated technologies core to Hologic assays that generate more than $500M in product revenue annually. Dr. Arnold is also the inventor of the patented Switch-Blocker technology for detecting extremely rare genetic events that Biocept uses for interrogating ctDNA for cancer associated mutations. In addition, he has authored more than 50 scientific publications. Dr. Arnold received a B.S. in Chemistry from the University of California at Los Angeles and a Ph.D. in Chemistry/Biochemistry from the University of California at San Diego.

Timothy C. Kennedy joined us as Chief Financial Officer, Senior Vice-President of Operations and Corporate Secretary in July 2016. Mr. Kennedy has over 30 years of executive, financial, and operational leadership experience, with over 25 years in the clinical diagnostics industry. Mr. Kennedy previously served as Chief Financial Officer of Millennium Health, a privately held leading urine drug testing and pharmacogenetics laboratory company, from 2013 to July 2016. Prior to joining Millennium Health, Mr. Kennedy was Chief Financial Officer and General Manager of PLUS Diagnostics, a urology, gastroenterology and oncology lab from 2008 through 2012. Prior to Plus Diagnostics, Mr. Kennedy held an ownership position in Diagnostic Imaging Management, a multi-site imaging company from 1997 to 2008, expanding from 12 to 33 free-standing centers across the United States. From 1988 to 1997, Mr. Kennedy held a number of management positions with National Health Laboratories, where he served as the Head of Finance, completing over 50 acquisitions and the merger with Roche Biomedical Labs to form LabCorp in 1995. Mr. Kennedy serves on the Board of Directors of MyCircle Health, a data services company that helps patients with chronic health conditions measure, evaluate, control and communicate daily test results to their healthcare providers and physicians. Mr. Kennedy holds a bachelor’s degree in Business - Accounting/Information Technology from Keane University.

Michael Terry joined us as Senior Vice-President of Commercial Operations in February 2017. A seasoned veteran in the molecular diagnostics and liquid biopsy industries, Mr. Terry has previously served as Executive Vice President, Commercial Operations and Corporate Development of Trovagene, Inc. from 2012 to 2014, as well as Executive Vice President of Sequenom, Inc., where he managed global commercial operations from 2003 to 2005. Mr. Terry’s career also includes 4 years at GE Healthcare’s Marquette Medical division, where he held key executive positions in sales management, commercial operations and eBusiness from 1997 to 2001. At GE Healthcare, he earned a certification in Six Sigma. Mr. Terry has also served as the Executive Vice President of European Operations for Lumenis Ltd., Vice President of Global Sales for Aspect Medical Systems Inc., and Chief Executive Officer of Ligand Diagnostics. Mr. Terry earned a B.S. in Economics and Business from the University of Wisconsin – Madison.

 

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common stock as of May 1, 2018 by:

 

each person, or group of affiliated persons, whom we know to beneficially own more than 5% of our common stock;

 

each of our named executive officers;

 

each of our directors and director nominees; and

 

all of our executive officers and directors as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities.  In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before June 30, 2018, which is 60 days after May 1, 2018.  These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

Except as otherwise noted below, the address for persons listed in the table is c/o Biocept, Inc., 5810 Nancy Ridge Drive, San Diego, California 92121.

 

 

39


 

Name of Beneficial Owner

 

Number of Shares Beneficially Owned

 

 

 

Percentage
of Shares Beneficially Owned

 

5% Stockholders

 

 

 

 

 

 

 

 

Ally Bridge LB Healthcare Master Fund Limited(1)

 

 

4,582,306

 

 

 

6.6

%

Named Executive Officers and Directors:

 

 

 

 

 

 

 

 

David F. Hale(2)

 

 

364,552

 

 

 

*

%

Marsha A. Chandler, Ph.D. (3)

 

 

49,899

 

 

 

*

%

Bruce E. Gerhardt, CPA(4)

 

 

164,199

 

 

 

*

%

Bruce A. Huebner(5)

 

 

84,617

 

 

 

*

%

Michael W. Nall(6)

 

 

365,992

 

 

 

*

%

Ivor Royston, M.D.(7)

 

 

54,332

 

 

 

*

%

M. Faye Wilson, MBA(8)

 

 

79,281

 

 

 

*

%

Timothy C. Kennedy(9)

 

 

184,595

 

 

 

*

%

Lyle J. Arnold, Ph. D.(10)

 

 

222,882

 

 

 

*

%

All Executive Officers and Directors as a group (10 persons)(11)

 

 

1,589,916

 

 

 

2.3

%

 

*

denotes less than 1%.

(1)

Includes 1,434,639 shares of common stock issuable upon exercise of warrants held by Ally Bridge LB Healthcare Master Fund Limited and exercisable until August 2022 at a price of $1.50 per share, pursuant to the price set in our October 2016 public offering and according to a Schedule 13D/A filed with the SEC on August 17, 2017 by (i) Ally Bridge LB Healthcare Master Fund Limited, a limited company incorporated under the laws of the Cayman Islands, (ii) Ally Bridge LB Management Limited, a limited company incorporated under the laws of the Cayman Islands, (iii) Mr. Fan Yu, a director and executive officer of Ally Bridge LB Healthcare Master Fund Limited and Ally Bridge LB Management Limited and (iv) Mr. Bin Li, a director and executive officer of Ally Bridge LB Healthcare Master Fund Limited and Ally Bridge LB Management Limited (Ally Bridge LB Healthcare Master Fund Limited, Ally Bridge LB Management Limited, Mr. Yu and Mr. Li collectively being referred to as the “Reporting Persons”). The address of the principal business and principal office of each of the Reporting Persons is Unit 1602, 16/F, Wheelock House, 20 Pedder Street, Central, Hong Kong. Ally Bridge LB Management Limited owns the sole voting share in Ally Bridge LB Healthcare Master Fund Limited. Mr. Fan Yu and Mr. Bin Li are the shareholders and directors of Ally Bridge LB Management Limited. Ally Bridge LB Management Limited, by virtue of it being the holder of sole voting share of Ally Bridge LB Healthcare Master Fund Limited, and each of Mr. Yu and Mr. Li, by virtue of being a shareholder and director of Ally Bridge LB Management Limited, may be deemed to have voting control and investment discretion over the securities held by Ally Bridge LB Healthcare Master Fund Limited. Each of Ally Bridge LB Management Limited, Mr. Yu and Mr. Li disclaims beneficial ownership of such securities and the filed Schedule 13D shall not be deemed an admission that any of them is the beneficial owner of, or has any pecuniary interest in, such securities for any purposes. In addition, pursuant to Section 13(d)(3) of the Exchange Act, the Reporting Persons, the other sponsors and certain of their respective affiliates may, on the basis of the facts described elsewhere in the filed Schedule 13D/A, be considered to be a “group”. Ally Bridge LB Healthcare Master Fund Limited has the power to vote or direct the vote and to dispose or direct the disposition of the warrants to purchase 1,434,639 shares of common stock. Ally Bridge LB Management Limited may, by virtue of its or their ownership interest in Ally Bridge LB Healthcare Master Fund Limited, and each of Mr. Yu and Mr. Li, as a shareholder and director of Ally Bridge LB Management Limited, may be deemed to share with Ally Bridge LB Healthcare Master Fund Limited the power to vote or to direct the vote and to dispose or to direct the disposition of the warrants to purchase 1,434,639 shares of common stock. Each of Ally Bridge LB Management Limited, Mr. Yu and Mr. Li disclaims such power to vote or direct the vote or power to dispose or direct the disposition of the warrants to purchase 1,434,639 shares of common stock for all other purposes.

(2)

Includes 72,700 shares of common stock underlying stock options. Includes shares held by Mr. Hale’s individual retirement account, shares held by Hale BioPharma Ventures LLC, which is controlled by Mr. Hale, and shares held by the Hale Family Trust, which is controlled by Mr. Hale as co-trustee. The calculation of the percentage of shares beneficially owned also includes 7,391 shares, 13,333 shares, and 90,909 shares for which common stock warrants held by Hale BioPharma Ventures LLC are exercisable at per share prices of $30.00, $4.68, and $1.10, respectively, according to prices set in our initial, February 2015, and October 2016 public offerings. The calculation of the percentage of shares beneficially owned also includes 11,666 shares for which common stock warrants held by Mr. Hale’s individual retirement account are exercisable at a price of $3.90 per share, according to the price set in our May 2016 public offering.

(3)

Includes 36,950 shares of common stock underlying stock options. The number of shares beneficially owned also includes outstanding shares held by a family trust affiliated with Dr. Chandler. The calculation of the percentage of shares beneficially owned includes 833 shares, 666 shares, and 4,545 shares for which common stock warrants held by Dr. Chandler are exercisable at per share prices of $30.00, $4.68 and $1.10, respectively, according to prices set in our initial, February 2015, and October 2016 public offerings.

 

40


 

(4)

Includes 31,871 shares of common stock underlying stock options. The calculation of the percentage of shares beneficially owned also includes 166 shares, 6,666 shares, 5,833 shares, and 50,000 shares for which common stock warrants held by Mr. Gerhardt are exercisable at per share prices of $30.00, $4.68, $3.90, and $1.10, respectively, according to prices set in our initial, February 2015, May 2016, and October 2016 public offerings.

(5)

Includes 36,617 shares of common stock underlying stock options. The calculation of the percentage of shares beneficially owned also includes 4,000 shares and 20,000 shares for which common stock warrants held by Mr. Huebner are exercisable at per share prices of $4.68 and $1.10, respectively, according to the prices set in our February 2015 and October 2016 public offerings.

(6)

Includes 201,054 shares of common stock underlying stock options and 50,000 shares of common stock underlying restricted stock units. Includes outstanding shares held by a family trust. The calculation of the percentage of shares beneficially owned also includes 4,000 shares for which common stock warrants held by Mr. Nall are exercisable at a price of $4.68 per share, according to the price set in our February 2015 public offering. The calculation of the percentage of shares beneficially owned also includes 36,363 shares for which common stock warrants held by a family trust are exercisable at a price of $1.10 per share, according to the price set in our October 2016 public offering.

(7)

Includes 33,038 shares of common stock underlying stock options. Includes shares owned by Dr. Royston’s individual retirement account, a family trust and an individual trust account. The calculation of the percentage of shares beneficially owned also includes 4,000 shares for which common stock warrants held by Dr. Royston’s individual retirement account are exercisable at a price of $4.68 per share according to the price set in our February 2015 public offering.

(8)

Includes 41,205 shares of common stock underlying stock options. Includes shares held by Ms. Wilson’s individual retirement account as well as Wilson Boyles & Co., LLC, a company controlled by Ms. Wilson. The calculation of the percentage of shares beneficially owned also includes 416 shares, 1,333 shares, and 13,636 shares for which common stock warrants held by Ms. Wilson are exercisable at per share prices of $30.00, $4.68, and $1.10, respectively, according to prices set in our initial, February 2015, and October 2016 public offerings.

(9)

Includes 61,869 shares of common stock underlying stock options and 25,000 shares of common stock underlying restricted stock units. The calculation of percentage of shares beneficially owned also includes warrants to purchase up to 36,363 shares of common stock exercisable at $1.10 per share, according to the price set in our October 2016 public offering.

(10)

Includes 87,644 shares of common stock underlying stock options and 25,000 shares of common stock underlying restricted stock units. The calculation of percentage of shares beneficially owned also includes warrants to purchase up to 45,000 shares of common stock exercisable at $1.10 per share, according to the price set in our October 2016 public offering.

(11)

Includes 16,667 shares of common stock and 2,900 shares of common stock underlying stock options for an executive officer not named in the table above.

 

 

 

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table shows the compensation awarded to or earned in our last two fiscal years by our principal executive officer and our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers as of December 31, 2017. The persons listed in the following table are referred to herein as the “named executive officers.”

 

Name and Principal Position

 

Year

 

 

Salary
($)(1)

 

 

Stock

Awards

($)(2)

 

 

Option

Awards

($)(2)

 

 

Non-equity

Incentive Plan

Compensation

($)(3)

 

 

 

Other

Compensation

($)(4)

 

 

 

Total ($)

 

Michael W. Nall

 

 

2017

 

 

394,631

 

(5)

 

112,500

 

 

 

509,476

 

 

86,366

 

(6)

 

35,667

 

(7)

 

 

1,138,640

 

President and Chief Executive Officer

 

 

2016

 

 

376,367

 

(5)

 

46,500

 

 

 

145,636

 

 

107,250

 

(6)

 

42,628

 

(7)

 

 

718,381

 

Timothy C. Kennedy

 

 

2017

 

 

329,569

 

(8)

 

75,000

 

 

 

150,834

 

 

63,750

 

(9)

 

 

—  

 

 

 

 

619,153

 

CFO, SVP of Operations

 

 

2016

 

 

138,504

 

(8)

 

48,750

 

 

 

138,592

 

 

 

43,515

 

(9)

 

 

—  

 

 

 

 

369,361

 

Lyle J. Arnold, Ph.D.

 

 

2017

 

 

 

282,416

 

(10)

 

75,000

 

 

 

152,086

 

 

40,574

 

(11)

 

 

—  

 

 

 

 

550,076

 

SVP R&D, Chief Scientific Officer

 

 

2016

 

 

282,752

 

(10)

 

31,000

 

 

 

24,919

 

 

 

57,573

 

(11)

 

 

—  

 

 

 

 

396,244

 

 

(1)

The “Salary ($)” column includes salary earned for each named executive officer and the net increase or decrease in each named executive officer’s accrued vacation balance, or accrued vacation, in each year ended December 31.

(2)

The amounts in the “Option Awards ($)” and “Stock Awards ($)” columns reflect the grant date fair values of stock option and RSU awards, respectively, granted during the year. These amounts are determined in accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718, rather than an amount paid to or realized by the executive officer. For a description of these stock option and RSU awards, see “Narrative Disclosure to Summary Compensation Table” within this “Executive Compensation” section.

(3)

The “Non-equity Incentive Compensation Plan Compensation ($)” column includes discretionary amounts earned by each named executive officer pursuant to an employment agreement or our approved Annual Incentive Plan.

(4)

The “Other Compensation ($)” column includes amounts earned by each named executive officer but not otherwise included in amounts within the “Salary ($),” “Stock Awards ($),” “Option Awards ($),” or “Non-equity Incentive Plan Compensation ($)” columns.

(5)

2017 salary amount includes accrued vacation of $18,857. 2016 salary amount includes accrued vacation of $17,482.

(6)

2017 non-equity incentive plan compensation amount includes a bonus of $86,366 related to the achievement of corporate performance goals during 2017. 2016 non-equity incentive plan compensation amount includes a bonus of $107,250 related to the achievement of corporate performance goals during 2016.

(7)

2017 other compensation amount includes $20,000 commuting expenses reimbursement benefit we provided to Mr. Nall plus $15,667 of income taxes we paid for Mr. Nall in respect of such benefit. 2016 other compensation amount includes $24,000 commuting expenses reimbursement benefit we provided to Mr. Nall plus $18,628 of income taxes we paid for Mr. Nall in respect of such benefit.

(8)

Mr. Kennedy commenced employment on July 25, 2016, and therefore his 2016 salary reflects his service for only a portion of the year. 2017 salary amount includes accrued vacation of $17,069. 2016 salary amount includes accrued vacation of $3,600.

(9)

2017 non-equity incentive plan compensation amount includes a bonus of $63,750 related to the achievement of both corporate and individual performance goals during 2017. 2016 non-equity incentive plan compensation amount includes a bonus of $43,515 related to the achievement of both corporate and individual performance goals from Mr. Kennedy’s employment commencement date of July 25, 2016 through December 31, 2016.

(10)

2017 salary amount includes a decrease of $7,397 in Dr. Arnold’s accrued vacation balance. 2016 salary amount includes accrued vacation of $475.

(11)

2017 non-equity incentive plan compensation amount includes a bonus of $40,574 related to the achievement of both corporate and individual performance goals during 2017. 2016 non-equity incentive plan compensation amount includes a bonus of $57,573 related to the achievement of both corporate and individual performance goals during 2016.

Narrative Disclosure to Summary Compensation Table

Michael W. Nall

We entered into an employment agreement effective as of August 26, 2013, as amended on November 6, 2015, with Michael W. Nall, or collectively, the CEO Employment Agreement, in connection with his appointment as our Chief Executive Officer and President. The CEO Employment Agreement provided Mr. Nall the following: (i) a base salary of $350,000 per year; (ii) a housing allowance of $2,000 per month; and (iii) stock options under our 2013 Plan to purchase a number of shares of common stock equal to at least 4% of our fully diluted stock outstanding as of August 26, 2013, vesting in equal monthly installments over four years beginning August 15, 2013 with a term of 10 years. During the years ended December 31, 2016 and 2017, Mr. Nall was eligible to participate in our annual

 

42


 

incentive plan with a target bonus amount equal to 50% of Mr. Nall’s annual base salary, of which 100% was dependent on the achievement of corporate performance goals. Effective as of April 4, 2016 and April 1, 2017, Mr. Nall’s base salary was increased to $360,000 and $372,000 per year, respectively, as approved by the compensation committee of our board of directors. Effective as of November 1, 2017, the CEO Employment Agreement was amended to reflect a base salary increase to $412,961 and the removal of the housing allowance of $2,000 per month, as approved by the compensation committee of our board of directors.

The CEO Employment Agreement provides that in the event of termination of Mr. Nall’s employment by us without cause or his resignation for good reason, the vesting of any of his outstanding unvested stock options and RSUs which would have vested over the following 12 months will accelerate (unless the applicable stock option or RSU agreement provides for more favorable acceleration terms). Also, in the event of a change of control, if the surviving or acquiring corporation (or its parent company) does not assume or continue Mr. Nall’s outstanding unvested stock options or RSUs or substitute similar stock awards for such stock options or RSUs, then all of Mr. Nall’s unvested stock options and RSUs will immediately vest and become exercisable, provided Mr. Nall is providing continued service to us immediately prior to the change of control. In addition, solely with respect to Mr. Nall’s unvested stock options and RSUs granted prior to November 6, 2015, in the event of a change of control where Mr. Nall’s unvested stock options and RSUs are not fully accelerated, the vesting of 50% of any of Mr. Nall’s outstanding unvested stock options and RSUs will accelerate on the date of the change of control and the remaining unvested stock options and RSUs will vest on the earliest of (i) the date of the termination of his employment by us without cause, (ii) the date of his resignation for good reason, or (iii) the first anniversary of the change of control (unless the applicable stock option or RSU agreement provides for more favorable acceleration terms). (For example, the foregoing would not apply to the initial stock option grant, which would fully accelerate upon a change in control.) Additionally, if during the 10-day period before a change of control or during the 12-month period following a change of control, Mr. Nall’s employment is terminated without cause or Mr. Nall resigns for good reason, then the vesting of each of Mr. Nall’s outstanding unvested stock options and RSUs will accelerate immediately. The CEO Employment Agreement provides that if Mr. Nall has a separation from service as a result of his discharge by us without cause or his resignation with good reason then, provided that he gives us an effective waiver and release of claims, he will be entitled to 12 months’ salary and up to 12 months of COBRA premiums (or substantially equivalent health insurance coverage).

On February 29, 2016, an option award exercisable for 16,666 shares of common stock with an estimated grant date fair value of $49,837 was issued to Mr. Nall under the 2013 Plan. The exercise price of these options of $4.02 per share is equal to the closing price of our common stock on the date of grant. The share amount for the option award was determined by dividing the award value by $2.99, which is the fair value per share of the option exercisable into our common stock on the date of grant, estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model include a volatility rate of 90.0%, a risk-free interest rate of 1.39%, a dividend yield of 0.00%, and an expected term of 6.08 years. The option award vests over a four-year period with 25% of all shares vesting on the one-year anniversary of the grant date and the remainder vesting in equal monthly installments over the following three years ending February 29, 2020, with a term of 10 years from the date of grant.

On July 6, 2016, the compensation committee of our board of directors approved retention RSUs for 25,000 shares of common stock to be granted to Mr. Nall pursuant to the 2013 Plan. This retention RSU award had a grant date fair value of $1.86 per share for a total grant date fair value of $46,500 and vested fully on the one-year anniversary of the date of grant.

On May 2, 2017, our board of directors approved the issuance of 300,000 time-based stock options, 200,000 performance-based stock options, 50,000 time-based RSUs, and 25,000 performance RSUs to Mr. Nall under the 2013 Plan, which were granted on May 31, 2017 with per share estimated grant date fair values of $1.04, $0.99, $1.50 and $1.50, respectively. The exercise price of the time-based and performance stock options of $1.50 per share is equal to the closing price of our common stock on the date of grant, with a term of 10 years from the date of grant. The grant date fair values of the time-based and performance stock options were estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model for the time-based stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.89%, a dividend yield of 0.00%, and an expected term of 6.04 years. The assumptions used in the Black-Scholes valuation model for the performance stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.79%, a dividend yield of 0.00%, and an expected term of 5.29 years. Each time-based stock option award vests over a four-year period with 25% of all shares vesting on the one-year anniversary of the vesting commencement date, or May 2, 2018, with the remainder vesting in 36 equal monthly installments over the following three years ending May 2, 2021, subject to continuing service. Vesting of the time-based RSUs granted on May 31, 2017 occurred on the one-year anniversary of the vesting commencement date, or May 2, 2018. Vesting of the performance-based stock options and RSUs granted on May 31, 2017 was as determined by our board of directors or our compensation committee of our board of directors upon the achievement of specified corporate goals for 2017. Subsequent to the year ended December 31, 2017, none of the performance stock options and performance RSUs granted on May 31, 2017 were declared vested, and the 225,000 shares underlying these awards were forfeited.

 

43


 

Timothy C. Kennedy

We entered into an employment agreement effective July 25, 2016 with Timothy Kennedy, or the CFO Employment Agreement, in connection with his appointment as our Chief Financial Officer and Senior Vice President of Operations and Corporate Secretary. The CFO Employment Agreement provides Mr. Kennedy the following: (i) a base salary of $305,000 per year; (ii) a target annual bonus of 40% of base salary, pro-rated from employment commencement date for 2016, of which 50% was guaranteed only for 2016; (iii) time-based inducement stock options under our 2013 Plan to purchase 66,666 shares of common stock at its fair market value on the date of grant, with 25% of all shares vesting on the one-year anniversary of the grant date and the remainder vesting in equal monthly installments over the following three years; (iv) performance inducement stock options under our 2013 Plan to purchase 33,333 shares of common stock at its fair market value on the date of grant, with vesting as determined by our board of directors or its compensation committee based on the achievement of specified goals for 2016; and (v) inducement RSUs under our 2013 Plan for 25,000 shares of common stock, with vesting occurring on the one-year anniversary of the commencement of Mr. Kennedy’s employment. During 2016 and 2017, Mr. Kennedy was eligible to participate in our annual incentive plan with 80% of the annual target bonus dependent on the achievement of corporate performance goals and 20% of the annual target bonus dependent on the achievement of individual performance goals. Effective as of April 1, 2017, Mr. Kennedy’s base salary was increased to $315,000 per year as approved by the compensation committee of our board of directors.

The CFO Employment Agreement provides that if Mr. Kennedy’s continuous service is terminated without cause or he resigns with good reason (at any time other than during the three months before change in control or during the 12 months following a change in control), then, provided that he gives us an effective waiver and release of claims, he will be entitled to nine months’ salary paid as a lump sum on the 10th day following his separation from service, plus up to nine months of COBRA premiums, and notwithstanding any contrary terms of any stock option grant, option agreement or other equity award agreement, he shall receive accelerated vesting for all stock options and other equity awards outstanding as of the date of termination that are subject to time-based vesting requirements and that would have otherwise vested during the 12 month period following the date of his termination without a separation from service. However, if he is terminated without cause or he resigns with good reason within three months before or 12 months after a change in control, then, provided that he gives us an effective waiver and release of claims, he will be entitled to 12 months’ salary paid as a lump sum on the 10th day following his separation from service, plus up to 12 months of COBRA premiums, and all of his then-outstanding time-based stock options and other equity awards covering our common stock will fully vest.

On July 29, 2016, 66,666 time-based inducement stock options and 33,333 performance inducement stock options were granted to Mr. Kennedy with per share estimated grant date fair values of $1.45 and $1.26, respectively. The time-based and performance stock options have a term of 10 years from the date of grant and an exercise price of $1.95 per share, which is equal to the closing price of our common stock on the date of grant. The grant date fair values of the time-based and performance stock options were estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model for the time-based stock options include a volatility rate of 90.0%, a risk-free interest rate of 1.17%, a dividend yield of 0.00%, and an expected term of 6.07 years. The assumptions used in the Black-Scholes valuation model for the performance stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.01%, a dividend yield of 0.00%, and an expected term of 5.21 years. The inducement RSU award granted to Mr. Kennedy on July 29, 2016 for 25,000 shares of common stock had a grant date fair value of $1.95 per share for a total grant date fair value of $48,750, and vested fully on July 25, 2017. Subsequent to the year ended December 31, 2016, 16,383 of the performance stock options granted on July 29, 2016 were declared vested by our board of directors, and the remaining 16,950 shares underlying these awards were forfeited.

On May 2, 2017, our board of directors approved the issuance of 50,000 time-based stock options, 100,000 performance-based stock options, 25,000 time-based RSUs, and 25,000 performance RSUs to Mr. Kennedy under the 2013 Plan, which were granted on May 31, 2017 with per share estimated grant date fair values of $1.04, $0.99, $1.50 and $1.50, respectively. The time-based and performance stock options have a term of 10 years from the date of grant and an exercise price of $1.50 per share, which is equal to the closing price of our common stock on the date of grant. The grant date fair values of the time-based and performance stock options were estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model for the time-based stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.89%, a dividend yield of 0.00%, and an expected term of 6.04 years. The assumptions used in the Black-Scholes valuation model for the performance stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.79%, a dividend yield of 0.00%, and an expected term of 5.29 years. Each time-based stock option award vests over a four-year period with 25% of all shares vesting on the one-year anniversary of the vesting commencement date, or May 2, 2018, with the remainder vesting in 36 equal monthly installments over the following three years ending May 2, 2021. Vesting of the time-based RSUs granted on May 31, 2017 occurred on the one-year anniversary of the vesting commencement date, or May 2, 2018. Vesting of the performance-based stock options and RSUs granted on May 31, 2017 was as determined by our board of directors or our compensation committee of our board of directors upon the achievement of specified corporate goals for 2017. Subsequent to the year ended December 31, 2017, none of the performance stock options and performance RSUs granted on May 31, 2017 were declared vested, and the 125,000 shares underlying these awards were forfeited.

 

44


 

Lyle J. Arnold, Ph. D.

We entered into an employment agreement, or the CSO Employment Agreement, as of April 30, 2011 with Lyle J. Arnold in connection with his appointment as our Senior Vice-President of Research and Development and Chief Scientific Officer. The CSO Employment Agreement provided Dr. Arnold a base salary of $250,000 per year. During the years ended December 31, 2016 and 2017, Dr. Arnold was eligible to participate in our annual incentive plan with a target bonus amount equal to 35% of Dr. Arnold’s annual base salary, of which 80% was dependent on the achievement of corporate performance goals and 20% was dependent on the achievement of individual performance goals. Effective as of April 4, 2016 and April 1, 2017, Dr. Arnold’s base salary was increased to $283,250 and $292,000 per year, respectively, as approved by the compensation committee of our board of directors.

On February 29, 2016, an option award exercisable for 8,333 shares of common stock with an estimated grant date fair value of $24,919 was issued to Dr. Arnold under the 2013 Plan. The exercise price of these options of $4.02 per share is equal to the closing price of our common stock on the date of grant. The share amount for the option award was determined by dividing the award value by $2.99, which is the fair value per share of the option exercisable into our common stock on the date of grant, estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model include a volatility rate of 90.0%, a risk-free interest rate of 1.39%, a dividend yield of 0.00%, and an expected term of 6.08 years. The option award has a ten-year term from the date of grant and vests over a four-year period with 25% of all shares vesting on the one-year anniversary of the grant date and the remainder vesting in equal monthly installments over the following three years ending February 29, 2020.

On July 6, 2016, the compensation committee of our board of directors approved retention RSUs for 16,666 shares of common stock to be granted to Dr. Arnold pursuant to the 2013 Plan. This retention RSU award had a grant date fair value of $1.86 per share for a total grant date fair value of $31,000 and vested fully on the one-year anniversary of the date of grant.

On May 2, 2017, our board of directors approved the issuance of 75,000 time-based stock options, 75,000 performance-based stock options, 25,000 time-based RSUs, and 25,000 performance RSUs to Dr. Arnold under the 2013 Plan, which were granted on May 31, 2017 with per share estimated grant date fair values of $1.04, $0.99, $1.50 and $1.50, respectively. The time-based and performance stock options have a term of 10 years from the date of grant and an exercise price of $1.50 per share, which is equal to the closing price of our common stock on the date of grant. The grant date fair values of the time-based and performance stock options were estimated using a Black-Scholes valuation model. The assumptions used in the Black-Scholes valuation model for the time-based stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.89%, a dividend yield of 0.00%, and an expected term of 6.04 years. The assumptions used in the Black-Scholes valuation model for the performance stock options include a volatility rate of 80.0%, a risk-free interest rate of 1.79%, a dividend yield of 0.00%, and an expected term of 5.29 years. Each time-based stock option award vests over a four-year period with 25% of all shares vesting on the one-year anniversary of the vesting commencement date, or May 2, 2018, with the remainder vesting in 36 equal monthly installments over the following three years ending May 2, 2021. Vesting of the time-based RSUs granted on May 31, 2017 occurred on the one-year anniversary of the vesting commencement date, or May 2, 2018. Vesting of the performance-based stock options and RSUs granted on May 31, 2017 was as determined by our board of directors or our compensation committee of our board of directors upon the achievement of specified corporate goals for 2017. Subsequent to the year ended December 31, 2017, none of the performance stock options and performance RSUs granted on May 31, 2017 were declared vested, and the 100,000 shares underlying these awards were forfeited.

Annual Incentive Plan

On May 19, 2014, the compensation committee of our board of directors approved an annual incentive plan, or the Annual Incentive Plan, to provide our employees, including our executive officers, with an incentive for such employees to perform to the best of their abilities, to further our growth, development and financial success, and to enable us to attract and retain highly qualified employees. Each executive officer is eligible for an award based upon the achievement of certain corporate performance goals and objectives approved by the compensation committee and, with respect to our executive officers other than our chief executive officer, individual performance. In 2017, total compensation of $405,543 was paid to employees, including our executive officers, pursuant to the Annual Incentive Plan related to the achievement of both corporate and individual performance goals earned in 2016. In 2018, total compensation of approximately $379,000 was paid to employees, including our executive officers, pursuant to the Annual Incentive Plan related to the achievement of both corporate and individual performance goals earned in 2017.


 

45


 

OUTSTANDING EQUITY AWARDS

The following table sets forth certain information, on an award-by-award basis, concerning unexercised options to purchase common stock and RSUs that have not yet vested for each named executive officer, which were outstanding as of December 31, 2017:

 

 

 

 

 

 

Option Awards

 

 

Restricted Stock Units

 

Name

 

Grant Date

 

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

 

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)

 

 

Option
Exercise
Price ($)

 

 

Option
Expiration
Date

 

 

Number of
Unvested
Securities
Underlying
(#)(2)

 

 

Market
Value of
Units that
are
Unvested
($)(3)

 

Michael W. Nall

 

7/31/2013

 

 

 

6,435

 

 

 

—  

 

 

 

15.54

 

 

7/30/2023

 

 

 

—  

 

 

 

—  

 

 

 

7/31/2013

 

 

 

26,898

 

 

 

—  

 

 

 

15.54

 

 

7/30/2023

 

 

—  

 

 

 

—  

 

 

 

6/12/2014

 

 

 

21,815

 

 

 

3,125

 

 

 

16.05

 

 

6/11/2024

 

 

 

—  

 

 

 

—  

 

 

 

6/12/2014

 

 

 

60

 

 

 

—  

 

 

 

16.05

 

 

6/11/2024

 

 

 

—  

 

 

 

—  

 

 

 

8/31/2015

 

 

 

—  

 

 

 

16,599

 

 

 

6.03

 

 

 

8/30/2025

 

 

 

—  

 

 

 

—  

 

 

 

8/31/2015

 

 

 

29,166

 

 

 

4,235

 

 

 

6.03

 

 

 

8/30/2025

 

 

 

—  

 

 

 

—  

 

 

 

8/31/2015

 

 

 

6,333

 

 

 

—  

 

 

 

6.03

 

 

 

8/30/2025

 

 

 

—  

 

 

 

—  

 

 

 

2/29/2016

 

 

 

—  

 

 

 

4,861

 

 

 

4.02

 

 

 

2/28/2026

 

 

 

—  

 

 

 

—  

 

 

 

2/29/2016

 

 

 

7,639

 

 

 

4,166

 

 

 

4.02

 

 

 

2/28/2026

 

 

 

—  

 

 

 

—  

 

 

 

2/29/2016

 

 

 

10,000

 

 

 

—  

 

 

 

4.02

 

 

 

2/28/2026

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

118,053

 

 

 

1.50

 

 

 

5/30/2027

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

181,947

 

 

 

1.50

 

 

 

5/30/2027

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

200,000

 

 

 

1.50

 

 

 

5/30/2027

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

—  

 

 

 

—  

 

 

 

—  

 

 

 

50,000

 

 

 

34,965

 

 

 

5/31/2017

 

 

 

—  

 

 

 

—  

 

 

 

—  

 

 

 

—  

 

 

 

25,000

 

 

 

17,348

 

Timothy C. Kennedy

 

7/29/2016

 

 

 

23,611

 

 

 

43,055

 

 

 

1.95

 

 

7/28/2026

 

 

 

—  

 

 

 

—  

 

 

 

7/29/2016

 

 

 

16,383

 

 

 

—  

 

 

 

1.95

 

 

7/28/2026

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

50,000

 

 

 

1.50

 

 

5/30/2027

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

100,000

 

 

 

1.50

 

 

5/30/2027

 

 

 

—  

 

 

 

—  

 

 

 

5/31/2017

 

 

 

—  

 

 

 

—  

 

 

 

—  

 

 

—  

 

 

 

25,000

 

 

 

17,348

 

 

 

5/31/2017

 

 

 

—  

 

 

 

—  

 

 

 

—  

 

 

—  

 

 

 

25,000

 

 

 

17,348

 

Lyle J. Arnold, Ph. D.

 

3/25/2011

 

 

 

1,984

 

 

 

—  

 

 

 

13.86

 

 

3/24/2021

 

 

 

—  

 

 

 

—  

 

 

 

7/31/2013

 

 

 

7,501

 

 

 

—  

 

 

 

15.54

 

 

7/30/2023

 

 

 

—  

 

 

 

—  

 

 

 

5/16/2014

 

 

 

10,451

 

 

 

1,215

 

 

 

13.14

 

 

5/15/2024

 

 

 

—  

 

 

 

—  

 

 

 

8/31/2015

 

 

 

20,368

 

 

 

23,640

 

 

 

6.03

 

 

8/30/2025

 

 

 

—  

 

 

 

—  

 

 

 

8/31/2015

 

 

 

13,659

 

 

 

666

 

 

 

6.03

 

 

8/30/2025

 

 

 

—  

 

 

 

—  

 

 

 

2/29/2016

 

 

 

—  

 

 

 

2,430

 

 

 

4.02

 

 

2/28/2026

 

 

 

—  

 

 

 

—  

 

 

 

2/29/2016

 

 

 

3,819

 

 

 

2,084