Item
5.02 - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers.
CEO
Compensation
On
March 8, 2022, the Board of Directors of Oncocyte (the “Board”) approved a cash bonus in the amount of $297,600 and adopted
a compensation plan (the “Plan”) for the Company’s Chief Executive Officer, Ronnie Andrews. The Plan is designed to
continue to align the interests of the Chief Executive Officer with Oncocyte’s business goals and strategies. As discussed below,
the Plan is intended to reward Mr. Andrews for his individual contribution to Oncocyte’s achievement of pre-established product-related
milestones and financial performance, corporate budget and market capitalization objectives during fiscal years 2022 through 2024.
Base
Salary and One-Time RSU Grant
Pursuant
to the Plan, Mr. Andrews will receive a base salary of $500,000 for the year ending December 31, 2022. He will also receive a one-time
grant of 35,000 restricted stock units (“RSUs”) under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”),
100% of which will vest one year after the date of grant, subject to Mr. Andrews’ continuous service as an employee through the
vesting date, and further subject to the acceleration provisions set forth in Mr. Andrews’ Employment Agreement and the Oncocyte
Change in Control and Severance Plan.
Bonus
In
fiscal year 2022, Mr. Andrews will be eligible to earn an annual bonus award (a “Bonus”) ranging from 125,000 to 375,000
stock options under the 2018 Plan. The exercise price of the stock options will be the closing price on March 15, 2022, the grant date
of the stock options. In fiscal year 2023, Mr. Andrews will be eligible to earn a Bonus, ranging from 50% to 150% of his base salary,
to be delivered in cash, RSUs and/or stock options at the Board’s discretion. The actual amount of the Bonus that Mr. Andrews will
earn in each fiscal year will be determined by the level of achievement of performance goals set by the Board or its Compensation Committee.
If the Bonus is delivered in RSUs or stock options, the Bonus will vest in annual installments over three years. Vesting will be conditioned
upon Mr. Andrews’ continuous service as an employee through the applicable vesting dates, subject to the acceleration provisions
set forth in Mr. Andrews’ Employment Agreement and the Oncocyte Change in Control and Severance Plan.
The
Bonus will be earned based on the achievement by Oncocyte of specified product-related milestones and financial performance and corporate
budget objectives. The percentage of the Bonus that is subject to the product-related milestones and financial performance and corporate
budget objectives, respectively, is set forth in the table below:
Bonus Components | |
Percentage of Target Bonus | |
Product-Related Milestones | |
| 40 | % |
Financial Performance Objectives | |
| 25 | % |
Corporate Budget Objectives | |
| 35 | % |
TOTAL | |
| 100 | % |
Product-Related
Milestones
The
portion of the Bonus that relates to the product-related milestones generally requires Oncocyte to achieve regulatory clearance and commercially
launch certain products within a required time period. In order for a minimum payout of 50% of this portion of the Bonus, 85% of the
product-related milestones must be achieved. If the Company achieves 95% of the product related milestones, 100% of this portion of the
Bonus will be earned. If the Company achieves 100% of the product-related milestones and/or the Company’s products exceed a pre-defined
breadth of indication, up to 150% of this portion of the Bonus may be earned. The determination of achievement of these product-related
milestones shall be subject to the Board’s or the Compensation Committee’s final discretion, and determination of whether
or not this portion of the Bonus has been earned will be based on the level of achievement by Oncocyte of these product-related milestones
during the previous fiscal year.
Financial
Performance Objectives
The
portion of the Bonus that relates to financial performance objectives may be earned based on Oncocyte’s actual annual revenue in
the applicable year as compared to a pre-established revenue target for the applicable fiscal year (the “Revenue Target”).
Subject to the foregoing, the financial performance objective portion of the Bonus may be earned under the Plan as follows:
| ● | If
the Company’s actual revenues in the applicable fiscal year are at least 90% of the
Revenue Target, then 50% of this portion of the Bonus will be earned. |
| ● | If
the Company’s actual revenues in the applicable fiscal year meet the Revenue Target,
100% of this portion of the Bonus will be earned. |
| ● | If
the Company’s actual revenues in the applicable fiscal year exceed the Revenue Target,
up to 150% of this portion of the Bonus may be earned, which will be calculated and the amount
of the Bonus will be determined proportionately on a straight-line basis, based on the percentage
by which the Company’s’ actual revenues in the applicable fiscal year exceeded
the Revenue Target, up to a maximum of 150%. |
Corporate
Budget Objectives
The
portion of the Bonus that relates to the corporate budget objectives generally requires Oncocyte to achieve pre-established budget targets.
In order for a minimum of 50% of this portion of the Bonus to be earned, the Company’s actual expenses in the applicable fiscal
year must not exceed budgeted expenses for such fiscal year by more than 3%. If the Company’s actual expenses in the applicable
fiscal year do not exceed the budget target, 100% of this portion of the Bonus will be earned. If the Company’s actual expenses
in the applicable fiscal year are less than the budget target by 3% or more, up to 150% of this portion of the Bonus may be earned. The
determination of achievement of these budget-related objectives is subject to the Board’s or the Compensation Committee’s
final discretion, and determination of whether or not this portion of the Bonus has been earned will be based on the level of Oncocyte
expenses during the applicable fiscal year.
Change
in Control
If
Mr. Andrews is terminated within three months before or 12 months after a change in control of Oncocyte, maximum achievement with respect
to all three components of the Bonus will be deemed earned in the year that such change in control occurs, and the Bonus for that year
will be paid in cash. Any unvested RSU or stock option Bonus awards will be subject to the acceleration provisions set forth in Mr. Andrews’
Employment Agreement and the Oncocyte Change in Control and Severance Plan.
Long-Term
Incentive Options
Pursuant
to the Plan, Mr. Andrews will also receive, in each of fiscal years 2022 and 2023, options to purchase up to 500,000 shares of Oncocyte’s
common stock (the “LT Options”) under the 2018 Plan. The LT Options will be issued at the beginning of each year.
Time-Based
Options
In
fiscal year 2022, 300,000 of the LT Options will vest over four years, with 25% of the LT Options vesting on the first anniversary of
the grant date and the remaining LT Options vesting in 36 equal monthly installments thereafter. In fiscal year 2023, 200,000 of the
LT Options will vest over four years, with 25% of the LT Options vesting on the first anniversary of the grant date and the remaining
LT Options in 36 equal monthly installments thereafter.
Performance-Based
Options
In
fiscal year 2022, 200,000 of the LT Options will vest based on the achievement of pre-defined product development, regulatory and financial
goals in 2022. 100% of the performance-based LT Options will vest on December 31, 2023, if such pre-defined goals have been achieved
in 2022.
In
fiscal year 2023, 300,000 of the LT Options will vest based on the achievement of the same product-related milestones and financial performance
and corporate budget objectives used to determine Mr. Andrews’ Bonus. Upon the achievement of 100% of such milestones and objectives
in both fiscal years 2023 and 2024, 25% of the performance-based LT Options will vest on December 31, 2024, and the remaining will vest
in 36 equal monthly installments thereafter.
Vesting
Conditions
Vesting
of all of the LT Options will be conditioned upon Mr. Andrews’ continuous service as an employee through each of the applicable
vesting dates, subject to applicable acceleration provisions set forth in Mr. Andrews’ Employment Agreement and his Oncocyte Change
in Control and Severance Plan Agreement.
Long-Term
Incentive RSUs
Pursuant
to the Plan, Mr. Andrews will also receive, in fiscal year 2022, an award of up to 500,000 RSUs (the “PRSUs”) under the 2018
Plan. The PRSUs will vest immediately based on the achievement of pre-established market capitalization objectives and product-related
milestones during the period beginning on January 1, 2022 and ending on December 31, 2024.
The
percentage of the PRSUs that is subject to vesting based on achievement of the market capitalization objectives and product-related milestones,
respectively, is set forth in the table below:
Bonus Components | |
Percentage of Target Bonus | |
Market Capitalization Objectives | |
| 50 | % |
Product-Related Milestones | |
| 50 | % |
TOTAL | |
| 100 | % |
Market
Capitalization Objectives
The
portion of the PRSUs that vest based on the achievement of the market capitalization objectives is generally dependent on Oncocyte obtaining
and maintaining pre-established market capitalization goals for two consecutive fiscal quarters. Based on the level of achievement of
such market capitalization goals, the PRSUs shall vest with respect to 87,500 shares, 175,000 shares, or 250,000 shares under the PRSUs.
Product-Related
Milestones
The
portion of the PRSUs that vest based on achievement of the product-related milestones is generally dependent on Oncocyte commercially
launching at least four products, excluding DetermaRx which is currently being commercialized. Based on the level of achievement of such
product-related milestones, the PRSUs shall vest with respect to 87,500 shares, 175,000 shares, or 250,000 shares under the PRSUs.
Vesting
Conditions
Vesting
of all of the PSRUs will be conditioned upon Mr. Andrews’ continuous service as an employee through each of the applicable vesting
dates, subject to applicable acceleration provisions set forth in Mr. Andrews’ Employment Agreement and his Oncocyte Change in
Control and Severance Plan Agreement.
Other
Executive Compensation
On
March 8, 2022, the Board approved cash bonuses and equity awards as shown in the following table to certain of the Company’s executive
officers who were “named executive officers” for whom compensation information was required in Oncocyte’s most recent
proxy statement.
| |
| |
| | |
Number of | |
Name of Executive | |
Office | |
Bonus | | |
Stock Options | |
Mitchell Levine | |
Chief Financial Officer | |
$ | 110,638 | | |
| 175,000 | |
Padma Sundar | |
Chief Commercial Officer | |
$ | 95,686 | | |
| 175,000 | |
The
stock options to be granted to each of the executives are to be granted under the 2018 Plan and 50% of such stock options will vest based
on the passage of time and thereby become exercisable as follows: 25% will vest upon the completion of one year of continuous service
as an employee from the date of grant, and the balance will vest in 36 equal monthly installments commencing on the first anniversary
of the date of grant, subject to the executive’s continuous service as an employee on the applicable vesting date. The remaining
50% of the stock options will vest based on the achievement of pre-defined regulatory goals in 2022. 100% of these performance-based
stock options will vest one year after such regulatory goals have been achieved. The exercise price of the time-based and performance-based
stock options will be the closing price on March 15, 2022, the effective grant date of the stock options.
The
options will be incentive stock options pursuant to Section 422 of the Internal Revenue Code, to the extent permitted by the Code.
The
stock options will be subject to the terms and conditions of a stock option agreement and the Plan, and any applicable provisions of
the executive’s employment agreement, and will expire if not exercised within ten years from the date of grant, subject to earlier
termination in the event of the termination of the executive’s employment.