determining the manner in which stockholders may send communications to our Board of Directors, as well as the process by which stockholder communications will be relayed to our Board of Directors and what our Board of Directors’ response, if any, should be;
reviewing governance-related stockholder proposals and recommending our Board of Directors’ responses;
reviewing and approving conflicts of interest of our directors and corporate officers, other than related person transactions reviewed by the audit committee.Audit Committee; and
reviewing and evaluating, at least annually, the performance of the Compensation Committee and its members, including compliance of the Compensation Committee with its charter.
Our nominatingNominating and corporate governance committeeCorporate Governance Committee operates under a written charter that satisfies the NASDAQNasdaq Rules. A copy of the charter of our nominating and corporate governance committee is available on our website at www.caredxinc.com in the Corporate Governance section of our Investors webpage. During 2016,fiscal year 2018, our nominatingNominating and corporate governance committeeCorporate Governance Committee held two meetings and did not take any actions by written consent.
Science and Technology Committee
Our scienceScience and technology committeeTechnology Committee is comprised of Fred E. Cohen, M.D., D. Phil and Ralph Snyderman, M.D., each of whom is anon-employee member of our boardBoard of directors.Directors. In addition, Amy Abernethy, M.D., Ph.D. was appointed to our Science and Technology Committee on July 1, 2018 and served until her resignation from our Board of Directors on January 31, 2019. Dr. SnydermanCohen is the chair of our scienceScience and technology committee.Technology Committee. Our scienceScience and technology committeeTechnology Committee is responsible for, among other things:
meeting with the Company’s science and technology leaders to review the Company’s internal research and technology development activities and provide input as it deems appropriate;
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reviewing the Company’s development of its technical goals and research and development strategies.
Our scienceScience and technology committeeTechnology Committee operates under a written charter. During 2016fiscal year 2018, our scienceScience and technology committeeTechnology Committee held one meetingtwo meetings and did not take any actions by written consent.
Considerations in Evaluating Director Nominees
Our nominatingNominating and corporate governance committeeCorporate Governance Committee uses a variety of methods for identifying and evaluating director nominees. In its evaluation of director candidates, our nominatingNominating and corporate governance committeeCorporate Governance Committee will consider the composition of our boardBoard of directors,Directors, including, without limitation, issues of character, integrity, judgment, diversity, age, independence, skills, education, expertise, business acumen, business experience, length of service, understanding of our business and other commitments. Members of our boardBoard of directorsDirectors are expected to prepare for, attend, and participate in all boardBoard of directorDirectors and applicable committee meetings. Our nominatingNominating and corporate governance committeeCorporate Governance Committee requires the following minimum qualifications to be satisfied by any nominee for a position on our boardBoard of directors:Directors: (i) the highest personal and professional ethics and integrity, (ii) proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment, (iii) skills that are complementary to those of the existing boardBoard of directors,Directors, (iv) the ability to assist and support management and make significant contributions to our success, and (v) an understanding of the fiduciary responsibilities that are required of a member of our boardBoard of directorsDirectors and the commitment of time and energy necessary to diligently carry out those responsibilities. Other than the foregoing, there are no other stated minimum criteria for director nominees, although our nominatingNominating and corporate governance committeeCorporate Governance Committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders’ best interests.
Although our boardBoard of directorsDirectors does not maintain a specific policy with respect to board diversity, our boardBoard of directorsDirectors believes that our boardBoard of directorsDirectors should be a diverse body, and our nominatingNominating and corporate governance committeeCorporate Governance Committee considers a broad range of backgrounds and experiences. In making determinations regardingdetermining nominations of directors, our nominatingNominating and corporate governance committeeCorporate Governance Committee may take into account the benefits of diverse viewpoints. Our nominatingNominating and corporate governance committeeCorporate Governance Committee also considers these and other factors as it oversees the annual boardBoard of directorsDirectors and committee evaluations. After completing its review and evaluation of director candidates, our nominatingNominating and corporate governance committeeCorporate Governance Committee recommends to our full boardBoard of directorsDirectors the director nominees for selection.
Stockholder Recommendations for Nominations to the Board of Directors
Our nominatingNominating and corporate governance committeeCorporate Governance Committee will consider candidates for directorsdirector recommended by stockholders holding at least one percent (1%) of the fully diluted capitalization of the companyCompany continuously for at least 12 months prior to the date of the submission of the recommendation. Our nominatingNominating and corporate governance committeeCorporate Governance Committee will evaluate such recommendations in accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee criteria described above. This process is designed to ensure that our boardBoard of directorsDirectors includes members with diversity of experience, skills and experience, including appropriate financial and other expertise relevant to our business. Stockholders wishing to recommend a candidate for nomination should contact our Corporate Secretary in writing. Such recommendations must include the candidate’s name, home and business contact information, detailed biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to serve on our boardBoard of directors,Directors, information regarding any relationships between the candidate and CareDx and evidence of the recommending stockholder’s ownership of our common stock. Such recommendations must also include a statement from the recommending stockholder in support of the candidate, particularly within the context of the criteria for boardBoard of directors’Directors’ membership. Our nominatingNominating and corporate governance committeeCorporate Governance Committee has discretion to decide which individuals to recommend for nomination as directors.
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A stockholder can nominate a candidate directly for election to our boardBoard of directorsDirectors by complying with the procedures in Section 2.4(ii) of our amended and restated bylaws and the rules and regulations of the SEC. Any eligible stockholder who wishes to submit a nomination should review the requirements in theour amended and restated bylaws on nominations by stockholders. Any nomination should be sent in writing to our Corporate Secretary at CareDx, Inc., 3260 Bayshore Blvd., Brisbane, California 94005. To be timely for our 20182020 annual meeting of stockholders, our Corporate Secretary must receive the nomination no earlier than March 19, 2018February 17, 2020 and no later than AprilMarch 18, 2018.2020. The notice must state the information required by Section 2.4(ii) of our amended and restated bylaws and otherwise must comply with applicable federal and state law.
Communications with the Board of Directors
Stockholders wishing to communicate with our boardBoard of directorsDirectors or with an individual member of our boardBoard of directorsDirectors may do so by writing to our boardBoard of directorsDirectors or to the particular member of our boardBoard of directors,Directors, and mailing the correspondence to our Chief Financial Officer at CareDx, Inc., 3260 Bayshore Blvd., Brisbane, CA 94005. Our Chief Financial Officer will review all incoming stockholder communications (excluding mass mailings, product complaints or inquiries, job inquiries, business solicitations and patently offensive or otherwise inappropriate material), and if deemed appropriate, the stockholder communications will be forwarded to the appropriate member or members of our boardBoard of directors,Directors, or if none is specified, to the chairman of our boardBoard of directors.Directors. This procedure does not apply to stockholder proposals submitted pursuant toRule 14a-8 under the Exchange Act.
Corporate Governance Guidelines and Code of Business Conduct and Ethics
Our boardBoard of directorsDirectors has adopted Corporate Governance Guidelines. These guidelines address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies
and standards applicable to us in general. In addition, our boardBoard of directorsDirectors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of our Corporate Governance Guidelines and our Code of Business Conduct and Ethics is posted on our website at www.caredx.com in the Corporate Governance section of our Investor Relations webpage. We intend to post any amendments to our Code of Business Conduct and Ethics, and any waivers of our Code of Business Conduct and Ethics for directors and executive officers, on the same website.
Board’sBoard of Directors’ Role in Risk Oversight
Risk is inherent with every business, and we face a number of risks, including strategic, financial, business and operational, legal and compliance, and reputational. We have designed and implemented processes to manage risk in our operations. Management is responsible for theday-to-day management of risks we face, while our boardBoard of directors,Directors, as a whole and assisted by its committees, has responsibility for the oversight of risk management. In its risk oversight role, our boardBoard of directorsDirectors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are appropriate and functioning as designed.
Our boardBoard of directorsDirectors believes that open communication between management and our boardBoard of directorsDirectors is essential for effective risk management and oversight. Our boardBoard of directorsDirectors meets with our Chief Executive Officer and other members of the senior management team at quarterly meetings of our boardBoard of directors,Directors, where, among other topics, they discuss strategy and risks facing the Company, as well as at such other times as they deemed appropriate.
While our boardBoard of directorsDirectors is ultimately responsible for risk oversight, our board committees assist our boardBoard of directorsDirectors in fulfilling its oversight responsibilities in certain areas of risk. Our audit committeeAudit Committee assists our boardBoard of directorsDirectors in fulfilling its oversight responsibilities with respect to risk management in the areas of internal control over financial reporting and disclosure controls and procedures, legal and regulatory compliance, and
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discusses with management and the independent auditor guidelines and policies with respect to risk assessment and risk management. Our audit committeeAudit Committee also reviews our major financial risk exposures and the steps management has taken to monitor and control these exposures. In addition, our audit committeeAudit Committee monitors certain key risks on a regular basis throughout the fiscal year, such as risk associated with internal control over financial reporting and liquidity risk. Our nominatingNominating and corporate governance committeeCorporate Governance Committee assists our boardBoard of directorsDirectors in fulfilling its oversight responsibilities with respect to the management of risk associated with board organization, membership and structure, and corporate governance. Our compensation committeeCompensation Committee assesses risks created by the incentives inherent in our compensation policies. Finally, our full boardBoard of directorsDirectors reviews strategic and operational risk in the context of reports from the management team, receives reports on all significant committee activities at each regular meeting, and evaluates the risks inherent in significant transactions.
Directors who are employees do not receive any additional compensation for their service on our boardBoard of directors.Directors. We reimburse ournon-employee directors for their reasonableout-of-pocket costs and travel expenses in connection with their attendance at boardBoard of directorsDirectors and committee meetings. In 2016,2018, certain of ournon-employee directors received cash compensation, restricted stock unit awards and options to purchase shares of our common stock pursuant to our 2014 Equity Incentive Plan in effect during 2018 as set forth below.
Ournon-employee directors received an annual retainer of $30,000$35,000 for their service on our boardBoard of directors and any committee thereof.Directors (increased to $40,000 effective January 1, 2019). Members of our audit committee, compensation committee, nominatingAudit Committee, Compensation Committee, Nominating and corporate governance committee,Corporate Governance Committee and scienceScience and technology committee,Technology Committee, other than the chair of each such committee, received an additional annual retainer of $10,000, $6,000, $4,000$5,000 and $5,000, respectively. The chair of our audit committee, compensation committee, nominatingAudit Committee, Compensation Committee, Nominating and corporate governance,Corporate
Governance Committee and scienceScience and technology committeeTechnology Committee each received an additional annual retainer of $20,000, $12,000, $8,000$10,000 and $10,000, respectively. Additionally, thenon-employee individual acting as Chairman of our boardBoard of directorsDirectors received an additional annual retainer of $65,000.$30,000 (increased to $40,000 effective January 1, 2019). All annual retainers were paid quarterly andpro-rated for partial service in any year. Two-thirds of each Ournon-employee director’s retainer was paid in the form of common stock of the Company, the remaining one-third was paid in cash. At the individual’s election each quarter, each non-employee director was permitted to elect to receive 100% of their retainer in the form of common stock of the Company. Effective March 31, 2017, our non-employee directors are entitled to elect the ratio of shares of common stock of the Company to cash issuable or payable to thenon-employee director for the payment of the annual retainers.
We will also continue to reimburse ournon-employee directors for their reasonableout-of-pocket costs and travel expenses in connection with their attendance at boardBoard of directorsDirectors and committee meetings in accordance with our travel policy.
In addition, under our outside director compensation policy in effect for 2018, nondiscretionary, automatic grants of nonstatutorynon-statutory stock options will beand restricted stock units (“RSUs”) were made to ournon-employee directors. Anynon-employee director who first joinsjoined our boardBoard of directors will beDirectors was automatically granted an initial stock option to purchase 30,000 shares of our common stock at an exercise price equal to the fair market value of our common stock on the date of grant and an award of 10,000 restricted stock units (“RSUs”).RSUs. Each of these options will vestvests and become exercisable in equal monthly installments beginning with the first monthly anniversary after the grant date over the following three years, and each of these RSUs will vestvests in three equal, annual installments beginning with the first annual anniversary after the grant. On the first business day after each annual meeting of our stockholders, eachnon-employee director who continuescontinued to serve on our boardBoard of directors will beDirectors was automatically granted an option to purchase an additional 15,000 shares of our common stock at an exercise price equal to the fair market value of our common stock on the date of grant and an award of 5,000 RSUs. Each of these options will vestvests and become exercisable in equal monthly installments beginning with the first monthly anniversary after the grant date over the following one year, and each of these RSUs will vestvests in one installment on the one year anniversary of the grant date. The vesting of the options and the RSUs described above will accelerate in full upon a “change in control” as defined in our 2014 Equity Incentive Plan. The option
In December 2018, the Compensation Committee approved an RSU and performance unit deferral election program, pursuant to which ournon-employee directors, executive officers and certain other employees may elect, on an annual basis, to defer the settlement of all RSU amounts set forth above are subjectand performance unit awards granted to adjustment for stock dividends, stock splits, combinations or other similar recapitalizations with respect to our common stock.such individuals in the following fiscal year, so that such awards will settle in a number of substantially equal annual installments selected by the individual, on every June 30 starting in the calendar year immediately following the year in which the individual incurs a separation of service.
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The following table sets forth the compensation accrued or paid by us to ournon-employee directors during the year ended December 31, 2016,2018, for service on our boardBoard of directorsDirectors and its committees.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Option Awards ($)(3)(4) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Option Awards ($)(3)(4) | Total ($) | ||||||||||||||||||||||||
Michael D. Goldberg | — | 137,175 | 31,648 | 168,823 | 40,373 | 171,045 | 117,250 | 328,668 | ||||||||||||||||||||||||
George W. Bickerstaff, III | 16,204 | 52,527 | 31,648 | 100,379 | — | 140,067 | 117,250 | 257,317 | ||||||||||||||||||||||||
Brook Byers(5) | — | 34,475 | — | 34,475 | ||||||||||||||||||||||||||||
Fred E. Cohen | — | 68,674 | 31,648 | 100,322 | ||||||||||||||||||||||||||||
Fred E. Cohen, M.D., D. Phil | 52,000 | 73,700 | 117,250 | 242,950 | ||||||||||||||||||||||||||||
William A. Hagstrom | 7,670 | 62,526 | 31,648 | 101,844 | 34,004 | 94,119 | 117,250 | 245,373 | ||||||||||||||||||||||||
Douglas Miller(6) | 7,731 | 55,820 | 66,000 | 129,551 | ||||||||||||||||||||||||||||
Ralph Snyderman | — | 66,964 | 31,648 | 98,612 | ||||||||||||||||||||||||||||
Ralph Snyderman, M.D. | 9,203 | 128,929 | 117,250 | 255,382 | ||||||||||||||||||||||||||||
Amy Abernethy, M.D., Ph.D.(5) | 3,765 | 32,200 | 26,347 | 83,967 | ||||||||||||||||||||||||||||
| (1) | The amounts in this column represent the fair value of common stock granted in lieu of cash retainers pursuant to our outside director compensation plan. Amounts represent the aggregate fair value of the stock awards computed as of the grant date of each stock award in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. Our assumptions with respect to the calculation of these values are set forth in Note |
| (2) | As of December 31, |
| (3) | Amounts represent the aggregate fair value of the option awards computed as of the grant date of each option award in accordance with FASB ASC Topic 718. Our assumptions with respect to the calculation of these values are set forth in Note |
| (4) | As of December 31, |
| (5) |
Amy Abernethy, M.D., Ph.D. was appointed to our |
Effective April 18, 2019, the Compensation Committee approved an amendment and restatement of our outside director compensation policy (the “Amended Outside Director Compensation Policy”). Pursuant to the Amended Outside Director Compensation Policy, the equity award grants that each of ournon-employee directors is entitled to receive thereunder were amended to be as follows:
| 1. | Anynon-employee director who first joins our Board of Directors will be automatically granted an initial stock option to purchase shares of our common stock having a grant date fair value of $150,000, rounded down to the nearest whole share, at an exercise price equal to the fair market value of our common stock on the date of grant and an award of RSUs having a grant date fair value of $150,000, rounded down to the nearest whole share. Consistent with our outside director compensation policy in effect for 2018, each of these options will vest and become exercisable in equal monthly installments beginning with the first monthly anniversary after the grant date over the following three years, and each of these RSUs will vest in three equal, annual installments beginning with the first annual anniversary after the grant. |
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| 2. | On the first business day after each annual meeting of our stockholders, eachnon-employee director who continues to serve on our Board of Directors will be automatically granted an option to purchase shares of our common having a grant date fair value of $100,000, rounded down to the nearest whole share at an exercise price equal to the fair market value of our common stock on the date of grant and an award of RSUs having a grant date fair value of $100,000, rounded down to the nearest whole share. Consistent with our outside director compensation policy in effect for 2018, each of these options will vest and become exercisable in equal monthly installments beginning with the first monthly anniversary after the grant date over the following one year, and each of these RSUs will vest in one installment on the one year anniversary of the grant date. |
Also consistent with our outside director compensation policy in effect for 2018, the vesting of the options and the RSUs described above will accelerate in full upon a “change in control” as defined in our 2014 Equity Incentive Plan.
All other terms of the Amended Outside Director Compensation Policy, including the cash retainer amounts disclosed above, are unchanged from the compensation provided to ournon-employee directors in 2018.
Equity Compensation Plan Information
The following table provides information as of December 31, 2018 with respect to shares of our common stock that may be issued under our existing equity compensation plans.
Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(1) | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||||
Equity compensation plans approved by stockholders(2) | 3,406,631 | $ | 9.15 | 287,490 | ||||||||
Equity compensation plans not approved by stockholders(3) | 62,790 | $ | 4.48 | 34,687 | ||||||||
Total: | 3,469,421 | N/A | 322,177 | |||||||||
| (1) | The weighted average exercise price is calculated based solely on outstanding stock options and warrants and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs, which have no exercise price. |
| (2) | Includes the following plans: CareDx, Inc. 1998 Equity Incentive Plan, CareDx, Inc. 2008 Equity Incentive Plan, ImmuMetrix 2013 Equity Incentive Plan, the 2014 Plan and the CareDx, Inc. 2014 Employee Stock Purchase Plan (“ESPP”). Our 2014 Plan provides that on the first day of each fiscal year beginning in 2015, the number of shares available for issuance thereunder is automatically increased by a number equal to the least of (i) four percent (4.0%) of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or (ii) such other amount as may be determined by our Board of Directors. Our ESPP provides that on the first day of each fiscal year beginning in 2015, the number of shares available for issuance thereunder is automatically increased by a number equal to the least of (i) 133,900 shares of common stock, (ii) one andone-half percent (1.5%) of the outstanding shares of Common Stock on the last day of the immediately preceding fiscal year, or (iii) such other amount as may be determined by our Board of Directors. On January 1, 2019, the number of shares available for issuance under our 2014 Plan and our ESPP increased by 1,655,398 shares and 133,900 shares, respectively, pursuant to these provisions. These increases are not reflected in the table above. |
| (3) | Consists of shares available for issuance under the CareDx, Inc. 2016 Inducement Equity Incentive Plan. |
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit committeeAudit Committee has appointed ErnstDeloitte & YoungTouche LLP (“EY”Deloitte”) as our independent registered public accounting firm to audit our consolidated financial statements for our fiscal year ending December 31, 2017. EY2019. Deloitte also served as our independent registered public accounting firm for our fiscal year ended December 31, 2016.2018.
At the Annual Meeting, stockholders are being asked to ratify the appointment of EYDeloitte as our independent registered public accounting firm for our fiscal year ending December 31, 2017.2019. Stockholder ratification of the appointment of EYDeloitte is not required by our amended and restated bylaws or other applicable legal requirements. However, our boardBoard of directorsDirectors is submitting the appointment of EYDeloitte to our stockholders for ratification as a matter of good corporate governance. In the event that this appointment is not ratified by the affirmative vote of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote, such appointment will be reconsidered by our audit committee.Audit Committee. Even if the appointment is ratified, our audit committee,Audit Committee, in its sole discretion, may appoint another independent registered public accounting firm at any time during our fiscal year ending December 31, 20172019 if our audit committeeAudit Committee believes that such a change would be in the best interests of CareDx and its stockholders. A representative of EYDeloitte is expected to be present at the Annual Meeting, will have an opportunity to make a statement if he or she wishes to do so and is expected to be available to respond to appropriate questions from stockholders.
Changes in Independent Registered Public Accounting Firm
On April 10, 2018, the Audit Committee dismissed Ernst & Young LLP (“EY”) as our independent registered public accounting firm.
The reports of EY on our consolidated financial statements for the fiscal years ended December 31, 2017 and 2016 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of EY on our consolidated financial statements for the fiscal year ended December 31, 2016 contained an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern.
During the fiscal years ended December 31, 2017 and 2016 and the subsequent interim period through April 10, 2018, there have been no “disagreements” (as defined in Item 304(a)(1)(iv) of RegulationS-K and related instructions) with EY on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of EY, would have caused EY to make reference thereto in their reports on the consolidated financial statements for such fiscal years.
During the fiscal years ended December 31, 2017 and 2016 and any subsequent interim period through April 10, 2018, there have been no “reportable events” (as defined in Item 304(a)(1)(v) of RegulationS-K), except that, as of December 31, 2016, we identified the following four material weaknesses in our internal control over financial reporting relating to: (i) certain areas of our financial statement close process, specifically with respect to an incorrect classification of the deferred consideration payable to the former majority shareholders of CareDx International AB (“CareDx International AB”), within our statement of cash flows following the CareDx International AB acquisition, ensuring that our bonus accrual and contingent liability balances were accurate, ensuring the proper application of foreign exchange rates in our consolidation process, and ensuring the proper review of terms and conditions of a debt agreement, (ii) a failure to design and implement transaction level or management review controls for the oversight, integration and consolidation of the acquired entities or controls to assess the completeness and accuracy of information, including key inputs and assumptions used by third party specialists, used in estimating the fair value of assets acquired and liabilities assumed, (iii) a failure to properly apply the revenue recognition criteria to certain contractual arrangements with payers, specifically with respect to
controls over the proper analysis and review of the terms and conditions of contractual arrangements and controls over the review of our aged accounts receivables, and (iv) a failure in the design and implementation of controls over our accounting for inventory overhead absorption. We remediated each of these material weaknesses as of December 31, 2017.
We provided EY with a copy of the disclosure set forth in Item 4.01 of the Current Report on Form8-K that was filed with the SEC on April 16, 2018 (the “Form8-K”) and requested that EY furnish us with a copy of its letter addressed to the SEC, pursuant to Item 304(a)(3) of RegulationS-K, stating whether or not EY agrees with the statements related to them made by us in the Form8-K. A copy of EY’s letter to the SEC dated April 16, 2018 was filed as Exhibit 16.1 to the Form8-K.
On April 10, 2018, the Audit Committee approved the appointment of Deloitte as our new independent registered public accounting firm, effective immediately. During the fiscal years ended December 31, 2017 and 2016 and the subsequent interim period through April 10, 2018, neither we, nor anyone on our behalf, consulted Deloitte regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements , and no written report or oral advice was provided to us by Deloitte that Deloitte concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of RegulationS-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of RegulationS-K).
Fees Paid to the Independent Registered Public Accounting Firm
The following table presents fees for professional audit services and other services rendered to us by EY for our fiscal yearsyear ended December 31, 20162018 by Deloitte and 2015.for our fiscal year ended December 31, 2017 by EY, in each case, our principal independent registered public accounting firm for such period.
| 2016 | 2015 | 2018 | 2017 | |||||||||||||
Audit Fees(1) | $ | 5,067,000 | $ | 1,255,000 | $ | 1,182,800 | $ | 2,335,000 | ||||||||
Audit-Related Fees(2) | 736,000 | 11,000 | 95,000 | — | ||||||||||||
Tax Fees(3) | — | — | 147,000 | — | ||||||||||||
All Other Fees(4) | — | 2,000 | 3,790 | 2,000 | ||||||||||||
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| $ | 5,803,000 | $ | 1,268,000 | $ | 1,428,590 | $ | 2,337,000 | |||||||||
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| (1) | Audit Fees include fees andout-of-pocket expenses, whether or not yet invoiced, for professional services associated with the annual audit of our financial statements, the reviews of our interim financial statements, the issuance of consents and comfort letters in connection with registration statement filings with the |
| (2) | Audit-Related Fees consist of fees for other audit-related professional services. In |
| (3) | Tax Fees include fees for corporate tax |
| (4) | All Other Fees include any fees billed that are not audit, audit related or tax fees. |
In 2016,2018, there were no other professional services provided by EYDeloitte that would have required our audit committeeAudit Committee to consider their compatibility with maintaining the independence of EY.Deloitte.
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Audit Committee Policy onPre-Approval of Audit and PermissibleNon-Audit Services of Independent Registered Public Accounting Firm
Our audit committeeAudit Committee has established a policy governing our use of the services of our independent registered public accounting firm. Under the policy, our audit committeeAudit Committee is required topre-approve all audit and
permissiblenon-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair such accounting firm’s independence. The policy generallypre-approves specified services in the defined categories of audit services, audit-related services, tax services and other services up to specified amounts. Thepre-approval of services may be delegated to one or more of the audit committee’sAudit Committee’s members, but the decision must be reported to the full audit committeeAudit Committee at its next scheduled meeting. In the years ended December 31, 20162018 and 2015,2017, services and related fees identified above under the captions “Audit Fees,” “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” that were billed by either Deloitte or EY were approved by the audit committeeAudit Committee in accordance with SEC requirements.
The ratification of the appointment of EYDeloitte requires the affirmative vote of a majority of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote AGAINST the proposal.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNSTDELOITTE & YOUNGTOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR OUR FISCAL YEAR ENDING DECEMBER 31, 2017.2019.
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The information contained in the following Audit Committee Report shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that CareDx, Inc. (the “Company”) specifically incorporates it by reference in such filing.
The audit committeeAudit Committee has reviewed and discussed the Company’s audited consolidated financial statements with management and ErnstDeloitte & YoungTouche LLP (“EY”Deloitte”), the Company’s independent registered public accounting firm. The audit committeeAudit Committee has discussed with EYDeloitte the matters required to be discussed by Auditing Standard No. 16,1301, “Communications with Audit Committees” (which superseded Statement on Auditing Standards No. 61 for fiscal years beginning after December 15, 2012) of the Public Company Accounting Oversight Board.
The audit committeeAudit Committee has received and reviewed the written disclosures and the letter from EYDeloitte required by the applicable requirements of the Public Company Accounting Oversight Board regarding EY’sDeloitte’s communications with the audit committeeAudit Committee concerning independence, and has discussed with EYDeloitte its independence.
Based on the review and discussions referred to above, the audit committeeAudit Committee recommended to the boardBoard of directorsDirectors that the Company’s audited consolidated financial statements be included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2016, as amended,2018 for filing with the Securities and Exchange Commission.
Respectfully submitted by the members of the audit committeeAudit Committee of the boardBoard of directors:Directors:
George Bickerstaff (Chair)
Michael D. Goldberg
William A. Hagstrom
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STOCKHOLDER APPROVAL OF ISSUANCE OF SHARES UPON CONVERSION OR REDEMPTION OF DEBENTURES
On March 15, 2017, we entered into a Securities Purchase Agreement (the “SPA”), with certain purchasers (each, a “Purchaser” and collectively, the “Purchasers”) pursuant to which, on March 15, 2017, we sold, in a private placement transaction, for an aggregate purchase price of $25 million, $27.78 million in aggregate principal amount of Senior Secured Debentures (the “Debentures”) and warrants (the “Warrants”) to purchase up to an aggregate of 1.25 million shares of our common stock (the “Financing”). We used $11.2 million of the net proceeds from the Financing to repay our existing indebtedness under our prior Loan and Security Agreement dated as of January 30, 2015, as amended, with East West Bank.
The Debentures mature on February 28, 2020, accrue interest at 9.5% per year and are convertible into shares of our common stock at a price of $4.56 per share (the “Conversion Price”) at the holder’s option. Additionally, after September 1, 2017, upon the satisfaction of certain conditions, including the volume weighted average price of our common stock exceeding 250% of the Conversion Price for twenty consecutive trading days, we can require that the Debentures be converted into shares of our common stock, subject to certain limitations. Commencing on March 1, 2018, each of the holders of the Debentures will have the right, at its option, to require us to redeem up to $937,500 of the outstanding principal amount of its Debenture per month. We will be required to promptly, but in any event no more than one trading day after the holder delivers a redemption notice to us, pay the applicable redemption amount in cash or, at our election and subject to certain conditions, in shares of our common stock. If we elect to pay the redemption amount in shares of our common stock, then the shares will be delivered based on a price equal to the lesser of (a) a 12% discount to the average of the three lowest volume weighted average prices of our common stock over the prior 20 trading days, (b) a 12% discount to the prior trading day’s volume weighted average price, or (c) the Conversion Price. We may only opt for payment in shares of our common stock if certain conditions are met.
Our obligations under the Debentures can be accelerated upon the occurrence of certain customary events of default as specified in the Debentures. In the event of default and acceleration of our obligations, we would be required to pay (i) 115% of all amounts of principal and interest then outstanding under the Debentures in cash if the Debenture is accelerated on or prior to March 1, 2018, (ii) 108% of all amounts of principal and interest then outstanding under the Debentures in cash if the Debenture is accelerated after March 1, 2018, but prior to March 1, 2019, and (iii) 105% of all amounts of principal and interest then outstanding under the Debentures in cash if the Debenture is accelerated on or after March 1, 2019. Our obligations under the Debentures are secured under a Security Agreement by a senior lien on all of our assets, other than its interest in CareDx International AB (formerly known as Allenex AB), which is subject to a negative pledge prohibiting the incurrence of additional or replacement debt.
The foregoing description of the SPA and the Debentures, and the transactions contemplated thereby does not purport to be complete and is subject to, and is qualified in its entirety by the full text of the SPA and the form of Debenture, which we filed as Exhibit 10.1 and Exhibit 4.1, respectively, to the Current Report on Form 8-K we filed with the SEC on March 15, 2017, which are incorporated herein by reference.
Reasons for Requesting Stockholder Approval
Our common stock is listed on the NASDAQ Global Market and, therefore, we are subject to the NASDAQ Rules. NASDAQ Listing Rule 5635(d) requires that an issuer obtain stockholder approval prior to the issuance of common stock or securities convertible into or exchangeable for common stock in a non-public offering at a price less than the greater of market price or book value of the issuer’s common stock. Accordingly, because the conversion and redemption prices applicable to the Debentures are or may be less than such amounts, we cannot issue more than an aggregate of 4,269,522 shares of our common stock (which represented 19.99% of our
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outstanding shares of common stock on the date the Debentures were originally issued) upon conversion or redemption of the Debentures unless our stockholders first approve such issuances (the “20% Cap”).
We are seeking stockholder approval to make such issuances of our common stock described above in accordance with NASDAQ Listing Rule 5635 so that we can make as many monthly redemptions of the Debentures with shares of our common stock as we deem appropriate and the holders of the Debentures can convert some or all of the outstanding balance of the Debentures.
Possible Effects if Proposal No. 3 is Approved
As of May 15, 2017, the Record Date, we had 21,421,016 shares of our common stock issued and outstanding. Based on the current terms of the Debentures and the requirement that the minimum volume-weighted average price of our common stock is not less than $1.00, but disregarding the 20% Cap, we could potentially issue up to a maximum of 31,568,181 shares of our common stock upon redemptions of principal only of the Debenture, which amount would represent 59.6% of our total outstanding common stock following the issuance of such maximum based on our current outstanding common stock. Accordingly, if this Proposal No. 3 is approved, our stockholders may experience significant additional dilution in the event we issue shares of our common stock upon redemptions or conversions of the Debenture in excess of the 20% Cap to which we are currently subject. Such additional dilution would afford our current stockholders a smaller percentage interest in the voting power, liquidation value and aggregate book value of the Company. Additionally, the resale of the shares of our common stock issued in satisfaction of the Debentures into the public markets could cause the market price of our common stock to decline.
Our board of directors believes approval of Proposal No. 3 is in the best interests of our Company and our stockholders because it will provide us additional flexibility to determine whether or not to satisfy redemptions and conversions of the Debentures in shares of our common stock or in cash. If Proposal No. 3 is not approved by our stockholders, then we will be limited to issuing a maximum of 4,269,522 shares of our common stock in satisfaction of the Debentures. Any additional payment obligations would need to be satisfied in cash. In order to generate the cash needed to satisfy redemptions of the Debentures, we would likely need to sell shares of our common stock in separate private placements or public offerings, which may be difficult to complete or may need to be completed at times or prices when the market conditions for our common stock are not optimal. If we are not able to generate the cash needed to satisfy our obligations under the Debentures and do not then have sufficient unrestricted cash to pay redemptions under the Debentures, then we may be forced to default under the Debentures if we have then issued shares up to the 20% Cap. Accordingly, we believe approval of Proposal No. 3 will afford us with significant flexibility to meet our obligations under the Debentures and simultaneously help to preserve our cash resources for our planned operating activities.
Possible Effects if Proposal No. 3 is Not Approved
If Proposal No. 3 is not approved by our stockholders, then we may not issue more than 4,269,522 shares upon redemption or conversion of the Debentures.
Under NASDAQ Listing Rule 5635, the affirmative vote of a majority of the votes cast is required for stockholder approval of the proposal to approve the issuance of shares of the Company’s common stock upon the conversion or redemption of the Debentures without the need for any limitation or cap on issuances. Abstentions and broker non-votes are not counted as votes cast and will not be counted in determining whether the proposal has been approved.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE ISSUANCE OF SHARES OF THE COMPANY’S COMMON STOCK UPON THE CONVERSION OR REDEMPTION OF THE COMPANY’S 9.5% ORIGINAL ISSUE DISCOUNT SENIOR SECURED DEBENTURES DUE FEBRUARY 28, 2020 WITHOUT THE NEED FOR ANY LIMITATION OR CAP ON ISSUANCES AS REQUIRED BY AND IN ACCORDANCE WITH NASDAQ LISTING RULE 5635.
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The following table identifies certain information about our executive officers as of May 15, 2017.April 30, 2019. Each executive officer serves at the discretion of our boardBoard of directorsDirectors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
Name | Age | Position(s) | ||||
Peter Maag, Ph.D. | Chief Executive Officer and Director | |||||
Reginald Seeto, MBBS | 47 | President and Chief | ||||
Michael Bell | Chief Financial Officer | |||||
| ||||||
| ||||||
| ||||||
| Chief Commercial Officer | |||||
James P. Yee, | Chief Medical Officer | |||||
Peter Maag, Ph.D.For a brief biography of Dr. Maag, please see “BOARD OF DIRECTORS AND CORPORATE GOVERNANCE—DirectorsContinuing Directors.”
Reginald Seeto, MBBS has served as our President and Chief Business Officer since November 2018. Dr. Seeto served as the Chief Operating Officer of Ardelyx, Inc., a specialized biopharmaceutical company, from October 2016 throughmid-August 2018 and continued with Terms ExpiringArdelyx, Inc. from August 2018 through December 2018 as a consultant. From April 2008 until October 2016, Dr. Seeto held various positions of increasing responsibility at MedImmune Limited, a biotechnology company and subsidiary of AstraZeneca Plc, and at AstraZeneca, most recently serving as vice president, head of partnering and strategy for AstraZeneca. Earlier, he served as company president of AstraZeneca Thailand and before that, as executive vice president of corporate development and strategy for MedImmune. Prior to joining AstraZeneca/MedImmune, Dr. Seeto held senior marketing roles at Organon Biosciences, which was acquired by Schering Plough in 2007, and Boehringer Ingelheim Pharmaceuticals. Earlier, Dr. Seeto served as an engagement manager for McKinsey & Company and started his career as a practicing medical doctor and clinical researcher in Australia. Dr. Seeto earned both his B.S. and MBBS in medical studies from the Annual Meeting—Nominees for Director.”University of Sydney, Australia.
Michael Bell has served as our Chief Financial Officer since April 2017. He has over 20 years of international finance and accounting experience. From January 2016 to March 2017, Mr. Bell served as the Chief Financial Officer of Metabiota, Inc., a San Francisco-based company that develops and sells risk analytics products focused on infectious disease. From May 2012 to January 2016, he served as the Chief Financial Officer of Singulex, Inc., a clinical diagnostics company. Prior to that, Mr. Bell held leadership and executive positions within Novartis, including with Novartis Diagnostics, a global provider of blood screening solutions, where he served as Chief Financial Officer from 2011 to 2012, and Senior Director, Global Head of Finance from 2008 to 2011. Mr. Bell also previously worked for several years in public accounting with both Ernst & Young LLP and Deloitte, UK. He holds a Bachelor of Science degree in Mathematics with Computing from the University of Leicester in the United Kingdom, and is a Fellow of the Institute of Chartered Accountants in England & Wales.
Anders Karlsson,Sasha King, M.B.A. has served as our Chief International Business Officer since April 2016. Prior to that, he served as the Chief Executive Officer of Allenex AB, a life sciences company that developed, manufactured, marketed and sold products for safer transplantation of blood stem cells and organs, since 2011. In April 2016, Allenex AB was acquired by us and continues operations as a wholly owned subsidiary. From 2009 to 2011, Mr. Karlsson served as the Chief Executive Officer of Olerup International AB, a global distributor of molecular diagnostic products and services. From 2008 to 2009, Mr. Karlsson served as the Chief Executive Officer of AbSorber AB, a biotech company that develops products for increasing the probability of transplantation success. Prior to that, Mr. Karlsson held positions of increasing responsibility at Novartis Pharmaceutical in Sweden, including Head of Sales, Head of Sales and Marketing, and Country President for Novartis Norway. Mr. Karlsson studied economics at University of Jönköping and marketing management at IHM Business School Linköping. Mr. Karlsson received his M.B.A. from the Henley Business School of the University of Reading, United Kingdom.
Mitchell J. Nelles, Ph.D. has served as our Chief Operating Officer since January 2012. Prior to that, he served as our Vice President, Research and Development and Technical Operations since December 2006. From August 2003 to October 2006, Dr. Nelles was Vice President of North America Research and Development at bioMérieux, Inc., anin vitro diagnostics company. From December 2001 to July 2003, Dr. Nelles was Vice President of Research and Development at TriPath Oncology, a subsidiary of TriPath Imaging Inc., a company that develops, manufactures, markets and sells solutions to improve the clinical management of cancer. Dr. Nelles holds a B.A. in Biological Sciences from Rutgers College, a Ph.D. in Biomedical Sciences (Immunology) from the University of Texas, Health Sciences Center at Dallas, and has completed postdoctoral training in Immune Regulation at Brandeis University.
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John J. Sninsky, Ph.D. has served as our Chief Scientific Officer since January 2015. Prior to that, he served in a variety of increasingly senior roles at early stage biotechnology and global pharmaceutical companies. From November of 2000 to August 2014, Dr. Sninsky served as Vice President of Discovery Research at Celera Corporation (now part of Quest Diagnostics), a molecular diagnostic company focused on personalizing disease management. He has been responsible for high throughput DNA genotyping, RNA expression, biostatistics, bioinformatics and computational biology groups with a focus on infectious disease, cardiometabolic disease and oncology. Dr. Sninsky received a bachelor’s degree in biology from Bates College and a Ph.D. in biology from Purdue University. He was a postdoctoral fellow in Genetics and Medicine at Stanford University School of Medicine.
Todd Whitsonhas served as our Chief Commercial Officer since April 2016.October 2017. Ms. King brings over 10 years of diagnostics and genetic testing experience. Prior to that, from August 2011 to April 2016, hebecoming our Chief Commercial Officer, she served as Vice Presidentour Ad Interim Chief Commercial Officer from June to October 2017 and as our Head of Commercial Operations ofMarketing from March to June 2017. From August 2015 to March 2017, she worked in companion diagnostics marketing at Genentech, and was a sales leader at Ariosa Diagnostics from July 2013 to August 2015. While at Genentech, she worked on the launch of the first FDA approved cell free DNA test in oncology, thePD-Ll test launch, and the Foundation Medicine partnership. Ms. King was an early member of the commercial team at Ariosa, a company that provides non-invasiveleader in the field of noninvasive prenatal testing. Mr. Whitson served as Vice Presidenttesting (“NIPT”), which is now part of Oncology Sales for LabCorpthe Roche Group. She led the launch of their test into Asia Pacific and Canada. From August 2008 to July 2011, Ms. King worked at Fletcher Spaght, a life science consulting and venture capital fund. She received a bachelor of science in bioengineering from January 2011 until August 2011. From JanuaryMassachusetts Institute of Technology in 2008 Mr. Whitson held several senior sales positions with Genzyme Genetics. He held these positions with Genzyme Genetics until January 2011, when LabCorp acquired Genzyme Genetics. Prior to joining Genzyme Genetics, Mr. Whitson held District Sales Manager positions with Eli Lilly and then with Novartis. Mr. Whitson earned a B.A. in economics and psychology, cum laude, from Lafayette College and an M.A.M.B.A. from Stanford Graduate School of Business in sports administration from the University of Richmond.2013.
James P. Yee, M.D., Ph.D. has served as our Chief Medical Officer since August 2006. From January 2003 to June 2006, Dr. Yee wasbrings more than 25 years of research and development experience. Prior to CareDx, Dr. Yee served as Vice President and Head of Development for Celera Genomics Inc., a diagnostics company. Fromfrom January 2003 to June 2006, where he built the development organization at Celera South San Francisco and led clinical research and therapeutic development activities for cancer and immune-mediated inflammatory diseases. Prior to his work at Celera, Dr. Yee served as Vice President of Clinical andPre-Clinical Research for the Inflammatory and Viral Diseases Unit at Roche Pharmaceuticals from June 1995 to December 2002,2002. In this role, he was Vice President of Preclinicalled the team responsible for selecting and Clinical Development at Roche Bioscience, a division of F. Hoffmann-La Roche Ltd.evaluating compounds for clinical drug development and oversaw groups responsible for toxicology, drug metabolism, pharmacokinetics, bioanalytical chemistry, analytical chemistry, formulations, regulatory affairs, project management, and clinical research. Earlier in his career, Dr. Yee held a variety of research and development positions of increasing responsibility at Syntex Corporation, including Vice President and Director of the Institute for Clinical Medicine from 1989 to 1992. Dr. Yee is certified in internal medicine by the American Board of Internal Medicine. Dr. Yee holds a B.S. in Electrical Engineering and Computer Science and a Ph.D. in Biophysicsreceived his bachelor’s degree from the University of California at Berkeley in electrical engineering and an M.D. fromcomputer science. Dr. Yee went on to earn a PhD in biophysics at University of California at Berkeley. He attended the University of California, Los Angeles School of Medicine.Medicine, where he earned his medical degree, and he is board certified in internal medicine.
Legal Proceedings with Executive Officers
There are no legal proceedings related to any of the executive officers which require disclosure pursuant to Items 103 or 401(f) ofRegulation S-K.
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Our named executive officers for 2016,2018, which consist of our principal executive officer and the next two most highly compensated executive officers, are:
Peter Maag, Ph.D., our Chief Executive Officer;
Reginald Seeto, MBBS, our President and Chief ExecutiveBusiness Officer; and
Michael Bell, our Chief Operating Officer; and
Financial Officer.
Processes and Procedures for Compensation Decisions
Our compensation committeeCompensation Committee is responsible for the executive compensation programs for our executive officers and reports to our boardBoard of directorsDirectors on its discussions, decisions and other actions. The salary and bonuses paid to our executive officers are reviewed annually by the compensation committee.Compensation Committee. Typically, our Chief Executive Officer makes recommendations to our compensation committee,Compensation Committee, often attends committee meetings and is involved in the determination of compensation for the respective executive officers who report to him, except that the Chief Executive Officer does not make recommendations as to his own compensation. Our Chief Executive Officer makes recommendations to our compensation committeeCompensation Committee regarding short- and long-term compensation for all executive officers (other than himself) based on our results, an individual executive officer’s contribution toward these results and performance toward individual goal achievement. Our Chief Executive Officer recuses himself from compensation committeeCompensation Committee and board discussions when his compensation is reviewed. Our compensation committeeCompensation Committee then reviews the recommendations and other data and makes decisions as to total compensation for each executive officer other than the Chief Executive Officer, as well as each individual compensation component. Our compensation committeeCompensation Committee makes recommendations to our boardBoard of directorsDirectors regarding, or determines, compensation for the Chief Executive Officer. The Compensation Committee or the independent members of our boardBoard of directorsDirectors make the final decisions regarding executive compensation for the Chief Executive Officer.
Our compensation committeeCompensation Committee is authorized to retain the services of one or more executive compensation advisors, as it sees fit, in connection with the establishment of our compensation programs and related policies. Beginning in 2014, the compensation committeeCompensation Committee retained Radford Associates, a national compensation consultant, to provide it with information, recommendations and other advice relating toabout executive compensation on an ongoing basis. Accordingly, Radford now serves at the discretion of our compensation committee.Compensation Committee. Our compensation committeeCompensation Committee engaged Radford to assist in developing an appropriate group of peer companies to help us determine the appropriate level of overall compensation for our executive officers, as well as assess each separate element of compensation, with a goal of ensuring that the compensation we offer to our executive officers is competitive and fair.
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The following table provides information regarding the compensation awarded to, or earned by, our named executive officers during 20152017 and 2016.2018.
Summary Compensation Table
Name and Principal Position(1) | Year | Salary ($) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Peter Maag, | 2016 | 450,000 | 111,988 | 135,341 | 185,625 | — | 882,954 | |||||||||||||||||||||
| President and Chief Executive Officer | 2015 | 438,490 | 162,250 | 216,848 | 185,625 | 3,846 | 1,007,059 | |||||||||||||||||||||
Mitchell J. Nelles, | 2016 | 325,000 | 57,970 | 70,059 | 97,500 | — | 550,529 | |||||||||||||||||||||
| Chief Operating Officer | ||||||||||||||||||||||||||||
James P. Yee, | 2016 | 376,620 | 57,970 | 86,745 | 112,986 | — | 634,321 | |||||||||||||||||||||
| Chief Medical Officer | ||||||||||||||||||||||||||||
Name and Principal Position(1) | Year | Salary ($) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Peter Maag, Ph.D., | 2018 | 483,750 | 2,728,322 | 1,324,759 | 693,000 | 1,560 | 5,231,391 | |||||||||||||||||||||
| Chief Executive Officer | 2017 | 450,000 | 306,900 | 264,837 | 378,000 | 1,560 | 1,401,297 | |||||||||||||||||||||
Reginald Seeto, MBBS | 2018 | 40,909 | 1,386,000 | 1,711,391 | 30,000 | 80 | 3,168,380 | |||||||||||||||||||||
| President and Chief Business Officer | ||||||||||||||||||||||||||||
Michael Bell | 2018 | 340,653 | 1,006,422 | 438,090 | 308,284 | 1,560 | 2,095,009 | |||||||||||||||||||||
| Chief Financial Officer | 2017 | 237,292 | 147,500 | 190,544 | 114,319 | 1,105 | 690,760 | |||||||||||||||||||||
| (1) | In accordance with |
| (2) | The amounts in this column represent the fair value of the award computed as of the grant date of each stock award computed |
| (3) | The amounts in this column represent the aggregate fair value of the award computed as of the grant date of each option award in accordance with FASB ASC Topic 718. Our assumptions with respect to the calculation of these values are set forth in Note |
| (4) | Represents amounts paid as a discretionary bonus to our executive officers, including our named executive officers, for their performance in |
Non-Equity Incentive Plan Compensation
Each of our named executive officers is eligible for cash annual incentive payments. For 2016,2018, Dr. Maag had a target annual incentive of up to 55%70% of his base salary as contractually set forth in his Chief Executive Employment Agreement described below. Dr. Nellesand Mr. Bell was eligible for a target annual incentive of 40% of his base salary, and Dr. Yee was eligible for a target annual incentive of 40%45% of his base salary.
Payment of an incentive is based on our performance against certain key performance indicators. For 2016,2018, our key performance indicators included patients served, our profits, our partnering relationships, our pipeline,Total Sales, AlloSure Volume and our performance culture.EBITDA. We measure our actual performance against our budgeted goals, and then determine an incentive payout. For fiscal year 2016, all of2018, our executive officers were awarded 75%between 180% and 200% of the target annual bonus amounts.amounts, and our NEOs were specifically awarded the following percentages of their target annual bonus amounts:
Dr. Maag: 200%; and
Mr. Bell: 200%.
Employment Agreements for Named Executive Officers
Peter Maag, Ph.D.
We entered into a Chief Executive Employment Agreement with Dr. Maag, dated September 19, 2012, under which Dr. Maag serves as our President and Chief Executive Officer. The agreement provides for “at-will”
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“at-will”employment and
sets forth certain agreed upon terms and conditions of employment. During fiscal year 2018, Dr. Maag’s current annual base salary iswas $450,000, which was increased to $495,000 effective April 1, 2018 and hewhich was further increased to $514,800 effective April 1, 2019. He is currently eligible for a target annual bonus of up to 55%80% of his base salary.
Mitchell J. Nelles
We entered into an offer letter with Mitchell J. Nelles, dated November 21, 2006, under which Dr. Nelles was initially employed as our Vice President, R&D/Tech Ops. The agreement provides for “at-will” employment and sets forth certain agreed upon terms and conditions of employment. Effective, January 2012, Dr. Nelles was promoted and has since served as our Chief Operating Officer. Dr. Nelles’ current annual base salary is $325,000, and he is currently eligible for a target annual bonus of up to 40% of his base salary.
James P. YeeReginald Seeto, MBBS
We entered into an offer letter with Dr. Yee,Seeto, dated July 31, 2006,November 16, 2018, under which Dr. YeeSeeto serves as our President and Chief MedicalBusiness Officer. The agreement provides for “at-will”“at-will” employment and sets forth certain agreed upon terms and conditions of employment. During fiscal year 2016,2018, Dr. Yee’sSeeto’s annual base salary was $376,000, which was increased to $385,000 effective April 1, 2017.$400,000. He is currently eligible for a target annual bonus of up to 40%70% of his base salary.
Michael Bell
We entered into an offer letter with Mr. Bell, dated April 21, 2017, under which Mr. Bell serves as our Chief Financial Officer. The agreement provides for“at-will” employment and sets forth certain agreed upon terms and conditions of employment. During fiscal year 2018, Mr. Bell’s annual base salary was $335,000, which was increased to $342,538 effective April 1, 2018 and which was further increased to $359,700 effective April 1, 2019. He is currently eligible for a target annual bonus of up to 60% of his base salary.
Potential Payments and Benefits upon Termination or Change of Control for Officers
Peter Maag, Ph.D.
Pursuant to Dr. Maag’s Change of Control and Severance Agreement, dated May 1, 2014, if within two months prior to, or twelve months following a change of control, we or our successor terminate Dr. Maag’s employment without cause, Dr. Maag will be entitled to (a) twelve months’ severance, (b) acceleration of vesting equal to 100% of any unvested options, (c) a lump sum payment equal to Dr. Maag’s annual bonus, and (d) twelve months of continued benefits,provided, that such reimbursement will cease on the date that Dr. Maag becomes covered under a similar plan of a new employer. Pursuant to the agreement, if we or a successor terminate Dr. Maag’s employment without cause and such termination occurs outside of a change of control event, Dr. Maag will be entitled to (a) twelve months’ severance, and (b) twelve months of continued benefits,provided, that such reimbursement will cease on the date that Dr. Maag becomes covered under a similar plan of a new employer.
Mitchell J. NellesReginald Seeto, MBBS
Pursuant to Dr. Nelles’Seeto’s Change of Control and Severance Agreement, dated June 30, 2014,November 26, 2018, if within two months prior to, or twelve months following a change of control, we or our successor terminate Dr. Nelles’Seeto’s employment without cause, Dr. NellesSeeto will be entitled to (a) twelvesix months’ severance, (b) acceleration of vesting equal to 100% of any unvested options, (c) a lump sum payment equal to Dr. Nelles’Seeto’s annual bonus and (d) twelvesix months of continued benefits, provided, that such reimbursement will cease on the date that Dr. NellesSeeto becomes covered under a similar plan of a new employer. Pursuant to the agreement, if we or a successor terminate Dr. Nelles’Seeto’s employment without cause and such termination occurs outside of a change of control event, Dr. NellesSeeto will be entitled to (a) six months’ severance, and (b) six months of continued benefits,provided, that such reimbursement will cease on the date that Dr. NellesSeeto becomes covered under a similar plan of a new employer.
James P. YeeMichael Bell
Pursuant to Dr. Yee’sMr. Bell’s Change of Control and Severance Agreement, dated May 1, 2014,April 17, 2017, if within two months prior to, or twelve months following a change of control, we or our successor terminate Dr. Yee’sMr. Bell’s employment
without cause, Dr. YeeMr. Bell will be entitled to (a) twelve months’ severance, (b) acceleration of vesting equal to 100% of any unvested options, (c) a lump sum payment equal to Dr. Yee’sMr. Bell’s annual bonus and (d) twelve months of
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continued benefits, provided, that such reimbursement will cease on the date that Dr. YeeMr. Bell becomes covered under a similar plan of a new employer. Pursuant to the agreement, if we or a successor terminate Dr. Yee’sMr. Bell’s employment without cause and such termination occurs outside of a change of control event, Dr. YeeMr. Bell will be entitled to (a) six months’ severance, and (b) six months of continued benefits,provided, that such reimbursement will cease on the date that Dr. YeeMr. Bell becomes covered under a similar plan of a new employer.
For purposes of the change of control agreements, “cause” means generally:
executive’s material failure to perform his stated duties after a notice of failure and a cure period of ten days;
executive’s material violation of our policies or any written agreement or covenant with us;
executive’s conviction of, or entry of a plea of guilty or nolo contendere to, a felony;
a willful act by executive that constitutes gross misconduct and which is injurious to us;
executive’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to us;
the unauthorized use or disclosure by executive of any of our proprietary information or trade secrets or any other party to whom he owes an obligation of nondisclosure as a result of his relationship with us; or
executive’s willful failure to cooperate with an investigation by a governmental authority.
Our retirement plan, which we refer to as the 401(k) plan, is qualified under Section 401 of the Code. Eligible employees, including all of our full-time employees, may elect to reduce their current compensation by an amount no greater than the statutorily prescribed annual limit and may have that amount contributed to the 401(k) plan. Matching contributions may be made to the 401(k) plan at the discretion of our board. To date,Board of Directors. On January 1, 2018, we have not made any matchingbegan to make contributions to the 401(k) plan. We matched 50 cents on the dollar of the first four percent an employee contributes to the 401(k) plan (maximum cap of $4,000). Beginning on January 1, 2019, we changed the contribution to dollar for dollar on the first three percent an employee contributes to the 401(k) plan (with a cap of $5,000).
Outstanding Equity Awards at FiscalYear-End
The following table presents certain information concerning equity awards held by our executive officers, including each of our named executive officers, as of December 31, 2016.2018.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($) | |||||||||||||||||||||
Peter Maag | 10/17/2012 | 189,938 | — | 0.548 | 10/17/2022 | — | — | |||||||||||||||||||||
| 4/8/2014 | (1) | 113,868 | — | 12.3985 | 4/8/2024 | — | — | |||||||||||||||||||||
| 3/6/2015 | (2) | 38,333 | 41,667 | 6.4900 | 3/6/2025 | — | — | |||||||||||||||||||||
| 1/22/2016 | (3) | — | 63,750 | 5.27 | 1/22/2026 | — | — | |||||||||||||||||||||
| 3/6/2015 | (4) | — | — | — | — | 18,750 | 50,625 | |||||||||||||||||||||
| 1/22/2016 | (5) | — | — | — | — | 21,250 | 57,375 | |||||||||||||||||||||
Mitchell J. Nelles | 5/15/2009 | 10,948 | — | 3.3565 | 9/27/2017 | — | — | |||||||||||||||||||||
| 4/8/2010 | 3,649 | — | 3.699 | 4/8/2020 | — | — | ||||||||||||||||||||||
| 4/8/2014 | (1) | 14,598 | — | 12.3985 | 4/7/2024 | — | — | |||||||||||||||||||||
| 3/6/2015 | (2) | 16,771 | 18,229 | 6.4900 | 3/6/2025 | — | — | |||||||||||||||||||||
| 1/22/2016 | (3) | — | 33,000 | 5.27 | 1/22/2026 | — | — | |||||||||||||||||||||
| 3/6/2015 | (6) | — | — | — | — | 7,500 | 20,250 | |||||||||||||||||||||
| 1/22/2016 | (5) | — | — | — | — | 11,000 | 29,700 | |||||||||||||||||||||
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| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($) | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($) | ||||||||||||||||||||||||||||||||||||||||||
James P. Yee | 5/15/2009 | 29,197 | — | 3.3565 | 9/27/2017 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Peter Maag, Ph.D. | 3/6/2015 | (1) | 40,697 | 1,667 | 6.49 | 3/6/2025 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| 4/8/2010 | 3,649 | — | 3.699 | 4/8/2020 | — | — | 1/22/2016 | (2) | 46,484 | 17,266 | 5.27 | 1/22/2026 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 8/27/2010 | 3,649 | — | 3.973 | 8/27/2020 | — | — | 2/17/2017 | (3) | 28,750 | 31,250 | 2.30 | 2/17/2027 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 4/8/2014 | (1) | 21,987 | — | 12.3985 | 4/7/2024 | — | — | 9/1/2017 | (4) | 13,542 | 11,458 | 2.80 | 9/1/2027 | — | — | |||||||||||||||||||||||||||||||||||||||||
| 3/6/2015 | (2) | 16,771 | 18,229 | 6.4900 | 3/6/2025 | — | — | 10/27/2017 | (5) | 13,125 | 31,875 | 5.90 | 10/27/2027 | — | — | |||||||||||||||||||||||||||||||||||||||||
| 1/22/2016 | (3) | — | 33,000 | 5.27 | 1/22/2026 | — | — | 11/09/2017 | (6) | 23,158 | 23,158 | 5.49 | 11/9/2024 | — | — | |||||||||||||||||||||||||||||||||||||||||
| 10/28/2016 | (7) | — | 10,000 | 3.67 | 10/28/2026 | — | — | 1/19/2018 | (7) | 44,425 | 6.31 | 1/19/2028 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 3/6/2015 | (6) | — | — | — | — | 7,500 | 20,250 | 6/29/2018 | (8) | — | 150,000 | 12.24 | 6/29/2028 | — | — | |||||||||||||||||||||||||||||||||||||||||
| 1/22/2016 | (5) | — | — | — | — | 11,000 | 29,700 | 3/6/2015 | (9) | — | — | — | — | 6,250 | 157,125 | |||||||||||||||||||||||||||||||||||||||||
| 1/22/2016 | (10) | — | — | — | — | 10,625 | 267,113 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2/17/2017 | (11) | — | — | — | — | 13,500 | 339,390 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 10/27/2017 | (12) | — | — | — | — | 45,000 | 1,131,300 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 1/19/2018 | (13) | — | — | — | — | 44,425 | 1,116,845 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 6/29/2018 | (14) | — | — | — | — | 150,000 | 3,771,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Michael Bell | 4/21/2017 | (15) | 4,167 | 23,333 | 1.00 | 4/21/2027 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| 9/1/2017 | (4) | 5,417 | 4,583 | 2.80 | 9/1/2027 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| 10/27/2017 | (5) | 13,125 | 31,875 | 5.90 | 10/27/2027 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| 1/19/2018 | (7) | — | 14,013 | 6.31 | 1/19/2028 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| 6/29/2018 | (8) | — | 50,000 | 12.24 | 6/29/2028 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| 10/27/2017 | (12) | — | — | — | — | 25,000 | 628,500 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 1/19/2018 | (16) | — | — | — | 14,013 | 352,287 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 6/29/2018 | (17) | — | — | — | — | 50,000 | 1,257,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Reginald Seeto, MBBS | 11/26/2018 | (18) | 100,000 | 27.72 | 11/26/2028 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| 11/26/2018 | (19) | — | — | — | — | 50,000 | 1,257,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (1) |
One quarter of the total shares vested on January 21, 2016, and |
One quarter of the total shares |
One quarter of the total shares |
| (4) | One half of the total shares vested on September 1, 2018 and 1/72nd of the shares subject to the option will vest monthly thereafter. |
| (5) | One quarter of the total shares vested on October 20, 2018 and 1/48th of the shares subject to the option will vest monthly thereafter. |
| (6) | Options are scheduled to vest in three equal installments based upon the Company’s achievement of certain performance goals as follows: (i) one third of the options vest upon the Company’s determination, which has been reviewed by the Company’s independent registered public accounting firm, that the Company has achieved $10 million of total cumulative sales of AlloSure, its proprietary next-generation sequencing-based |
| test to detect donor-derived, cell-free DNA after transplantation, commencing November 8, 2017, (ii) one third of the options vest upon the Company’s determination, which has been reviewed by the Company’s independent registered public accounting firm, that the Company has achieved quarterly revenues of at least $18.75 million for two consecutive fiscal quarters commencing after November 8, 2017, and (iii) one third of the options vest in the event the closing sales price of the Company’s common stock is at or above $5.00 per share, as quoted by Nasdaq, for 10 consecutive trading days after November 8, 2017. |
| (7) | Full grant amount is unvested as of December 31, 2018. One quarter of the total shares vest on January 19, 2019 and 1/48th of the shares subject to the option vest each month thereafter. |
| (8) | Full grant amount is unvested as of December 31, 2018. One quarter of the total shares vest on June 1, 2019 and 1/48th of the shares subject to the option vest each month thereafter. |
| (9) | 6,250 of the shares subject to this RSU award vested on January 21, 2018. An additional 6,250 of the shares subject to this RSU award vested on January 21, 2019. |
| (10) | 5,313 of the shares subject to this RSU award vested on January 21, 2018. An additional 5,313 of the shares subject to this RSU award vested on January 21, 2019, and 5,313 of the shares will vest on January 21, 2020. |
| (11) | 4,500 of the shares subject to this RSU award vested on January 27, 2018. An additional 4,500 of the shares subject to this RSU award vested on January 27, 2019 and 4500 of the shares will vest on each of January 27, 2020 and January 27, 2021. |
| (12) | Full grant amount is unvested as of December 31, 2018. The shares subject to this RSU vested in full on March 1, 2019, upon such time that the Company’s independent registered public accounting firm determined, pursuant to a review or audit of the Company’s financial information or statements, that the Company achieved more than $60.0 million in revenue in 2018. |
| (13) | Full grant amount is unvested as of December 31, 2018. 11,106 of the shares subject to this RSU award vested on January 19, 2019. An additional 11,106 of the shares subject to this RSU award will vest on each of January 19, 2020, January 19, 2021 and January 19, 2022. |
| (14) | Full grant amount is unvested as of December 31, 2018. 37,500 of the shares subject to this RSU award will vest on June 1, 2019. An additional 37,500 of the shares subject to this RSU award will vest on each of June 1, 2020, June 1, 2021 and June 1, 2022. |
| (15) | One quarter of the total shares vested on April 17, 2018, and 1/48th of the shares subject to the option will vest each month thereafter, subject to executive’s continued employment on each applicable vesting date. |
| (16) | Full grant amount is unvested as of December 31, 2018. One quarter of the shares subject to this RSU award vested on January 19, 2019. An additional one quarter of the shares subject to this RSU award will vest on each of January 19, 2020, January 19, 2021 and January 19, 2022. |
| (17) | Full grant amount is unvested as of December 31, 2018. 12,500 of the shares subject to this RSU award will vest on June 1, 2019. An additional 12,500 of the shares subject to this RSU award will vest on each of June 1, 2020, June 1, 2021 and June 1, 2022. |
| (18) | Full grant amount is unvested as of December 31, 2018. One quarter of the total shares vest on November 26, 2019 and 1/48th of the shares subject to the option vest each month thereafter. |
| (19) | Full grant amount is unvested as of December 31, 2018. 12,500 of the shares subject to this RSU award will vest on November 26, 2019. An additional 12,500 of the shares subject to this RSU award will vest on each of November 26, 2020, November 26, 2021 and November 26, 2022. |
RSU and Performance Unit Deferral Election Program
In December 2018, the Compensation Committee approved an RSU and performance unit deferral election program, pursuant to which ournon-employee directors, executive officers and certain other employees may elect, on an annual basis, to defer the settlement of all RSU and performance unit awards granted to such individuals in the following fiscal year, so that such awards will settle in a number of substantially equal annual installments selected by the individual, on every June 30 starting in the calendar year immediately following the year in which the individual incurs a separation of service.
Our insider trading policy prohibits our directors, officers (including our executive officers), employees and agents, as well as their immediate family members, from engaging in short sales of our securities and from engaging in transactions in publicly-traded options and other derivative securities with respect to our securities. This prohibition extends to any hedging or similar transactions designed to decrease the risks associated with holding our securities. Our insider trading policy also prohibits certain individuals, including our directors and executive officers, from pledging our securities as collateral for loans.
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Equity Compensation Plan Information
The following table provides information as of December 31, 2016 with respect to shares of our common stock that may be issued under our existing equity compensation plans.
Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(1) | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||||
Equity compensation plans approved by stockholders(2) | 1,792,286 | $ | 6.15 | 365,074 | ||||||||
Equity compensation plans not approved by stockholders | — | — | — | |||||||||
Total: | 1,792,286 | N/A | 365,074 | |||||||||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of May 15, 2017March 31, 2019 for:
each of our current directors and nominees for director;
each of our named executive officers;
all of our current directors and executive officers as a group; and
each person or group who beneficially owned more than 5% of our common stock.
We have determined beneficial ownership in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable.
We have based our calculation of the percentage of beneficial ownership on 21,421,01641,812,653 shares of our common stock outstanding as of May 15, 2017.March 31, 2019. We have deemed shares of our common stock subject to warrants or stock options that are currently exercisable or exercisable within 60 days of May 15, 2017,March 31, 2019, or issuable pursuant to restricted stock unitsRSUs that are subject to vesting conditions expected to occur within 60 days of May 15, 2017,March 31, 2019, to be outstanding and to be beneficially owned by the person holding the warrants, stock option or restricted stock unitsRSUs for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o CareDx, Inc., 3260 Bayshore Blvd., Brisbane, CA 94005.
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned | ||||||
5% Stockholders: | ||||||||
Entities affiliated with Gagnon Securities LLC(1) | 3,844,901 | 17.9 | % | |||||
James D. Dondero(2) | 2,178,931 | 9.9 | % | |||||
Midroc Invest AB(3) | 1,918,042 | 8.8 | % | |||||
FastPartner AB(4) | 1,706,812 | 7.8 | % | |||||
Paragon Associates and Paragon Associates II Joint Venture(5) | 1,683,800 | 7.8 | % | |||||
Townsend Group Investments, Inc.(6) | 1,210,816 | 5.7 | % | |||||
Merckle International GmbH(7) | 1,118,830 | 5.2 | % | |||||
Directors and Named Executive Officers: | ||||||||
Peter Maag(8) | 414,179 | 1.9 | % | |||||
Mitchell J. Nelles(9) | 109,319 | * | ||||||
James P. Yee(10) | 109,468 | * | ||||||
George W. Bickerstaff, III(11) | 52,379 | * | ||||||
Fred E. Cohen(12) | 59,359 | * | ||||||
Michael D. Goldberg(13) | 222,525 | 1.0 | % | |||||
William A. Hagstrom(14) | 44,610 | * | ||||||
Ralph Snyderman(15) | 87,463 | * | ||||||
All current directors and executive officers as a group (12 persons)(16) | 1,197,365 | 5.4 | % | |||||
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned | ||||||
5% Stockholders: | ||||||||
Entities affiliated with Alger Associates, Inc.(1) | 4,203,690 | 10.1 | % | |||||
Entities affiliated with Gagnon Securities LLC(2) | 3,450,959 | 8.3 | % | |||||
BlackRock, Inc.(3) | 2,491,800 | 6.0 | % | |||||
The Vanguard Group(4) | 2,175,503 | 5.2 | % | |||||
Directors and Named Executive Officers: | ||||||||
Peter Maag, Ph.D.(5) | 462,279 | 1.1 | % | |||||
Reginald Seeto, MBBS | — | * | ||||||
Michael Bell(6) | 19,886 | * | ||||||
George W. Bickerstaff, III(7) | 142,906 | * | ||||||
Fred E. Cohen, M.D., D. Phil(8) | 93,840 | * | ||||||
Michael D. Goldberg(9) | 236,784 | * | ||||||
William A. Hagstrom(10) | 95,225 | * | ||||||
Ralph Snyderman, M.D.(11) | 131,721 | * | ||||||
All current directors and executive officers as a group (10 persons)(12) | 1,354,607 | 3.2 | % | |||||
| * | Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock. |
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| (1) | Based on information reported on a Schedule 13G filed with the SEC on February 14, 2019, this consists of 4,203,690 shares of common stock over which Fred Alger Management, Inc. (“FAM”) has sole voting and dispositive power. These shares of common stock are beneficially owned by one or moreopen-end |
| investment companies or other managed accounts that are investment management clients of FAM, a registered investment adviser. FAM is a 100% owned subsidiary of Fred Alger & Company, Incorporated (“FAC”) a registered broker dealer. FAC is a 100% owned subsidiary of Alger Associates, Inc., a holding company. The address for each of these stockholders is 360 Park Avenue South, New York, NY 10010. |
| (2) | Based on information reported on a Schedule 13G/A filed with the SEC on |
| (3) | BlackRock, Inc. (“BlackRock”) filed a Schedule 13G |
| (4) | The Vanguard Group (“Vanguard”) filed a Schedule 13G on February 11, 2019, reporting that it had sole voting power with respect to 69,780 shares, shared voting power with respect to 2,072 shares, sole dispositive power with respect to 2,106,590 shares, shared dispositive power with respect to 68,913 shares and beneficial ownership of an aggregate of |
Represents |
Represents |
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Represents |
Represents |
Represents |
Represents |
Represents |
Comprised of shares included under “Directors and Named Executive Officers”, |
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The following is a description of transactions or series of transactions since January 1, 2016,2018, or any currently proposed transaction, to which we were or are to be a participant in which the amount involved in the transaction or series of transactions exceeds $120,000, and in which any of our directors, executive officers or persons who we know held more than five percent of any class of our capital stock, including their immediate family members, had or will have a direct or indirect material interest, other than compensation arrangements that are described under “Executive Compensation” above.
Financial Advisors and Placement Agents Agreements
We entered into financial advisors and placement agents agreements (the “Agreements”) with M.M. Dillon & Co., LLC (“MMD”), an investment banking firm, Brookline Group LLC (“Brookline”), a consulting firm, and Leerink Partners LLC (collectively, the “Advisors”) to act as our lead financial advisors and placement agents in connection with a private equity placement of Common Stock (the “Private Placement”) and the execution of any such Private Placement that we may choose to pursue. George W. Bickerstaff, III, a member of our board of directors, is the managing director of MMD. Mr. Bickerstaff did not receive any of the compensation paid to MMD in connection with the Agreements or the Private Placement.
On April 12, 2016, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors named therein and the Private Placement was consummated on April 14, 2016. In connection with the consummation of the Private Placement, we agreed to pay MMD and Brookline a placement fee (the “Placement Fee”) in cash equal to three and one-half percent (3.5%) of the aggregate gross proceeds from securities sold in the Private Placement, including (i) proceeds funded under a financing commitment arranged in the Private Placement and (ii) any follow-on investment by the new investor(s) for a period of three (3) months following the closing of the Private Placement. The Placement Fee was to be reduced by fifty percent (50%) for any funds received from our or Allenex AB’s then-current major stockholders. Pursuant to the Agreements, we paid the Advisors an aggregate of $1,093,573.
Pursuant to the Agreements, each of MMD and Brookline received warrants (the “Placement Agent Warrants”) to purchase an aggregate of 100,000 shares of our stock. The Placement Agent Warrants have an exercise price equal to $3.99 and contain terms customarily included in warrants of similar type. We agreed to bear all expenses in connection with the Advisors’ services to be provided under the Agreements, including and without limitation, certain out-of-pocket expenses incurred by Advisors and their counsel, counsel and accounting fees, and roadshow expenses, if any.
We believe that we entered into the transaction described above on terms no less favorable to us than we could have obtained from an unaffiliated third party.
Private Investment in Public Equity Financings
On April 12, 2016, we entered into the Purchase Agreement in connection with the sale and issuance of units (“Units”) in the Private Placement, each comprised of common stock, preferred stock and warrants, to certain private investors, including our 5% stockholders and persons or entities associated with them. Specifically, each Unit is comprised of: (i) one share of our common stock, par value $0.001 per share (the “Common Stock”); (ii) five shares of our Series A Mandatorily Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred”); and (iii) three warrants (the “Common Warrants”), each to purchase one share of Common Stock upon exercise of such Common Warrants, at a purchase price of $23.94 per Unit (the equivalent of $3.99 per share of Common Stock, assuming conversion of the Series A Preferred).
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The following table summarizes the purchases on April 14, 2016 of our securities by our 5% stockholders:
Stockholder | Aggregate number of common shares purchased | Aggregate number of preferred shares purchased | Aggregate number of warrant shares purchased | Aggregate number of Units purchased | Aggregate purchase price ($) | |||||||||||||||
Persons and Entities affiliated with Gagnon Securities LLC(1) | 102,106 | 510,530 | 306,318 | 102,106 | $ | 2,444,17.64 | ||||||||||||||
Paragon Associates and Paragon Associates II Joint Venture | 70,000 | 350,000 | 210,000 | 70,000 | $ | 1,675,800.00 | ||||||||||||||
Entities affiliated with Industry Ventures Healthcare, LLC(2) | 62,656 | 313,280 | 187,968 | 62,656 | $ | 1,499,984.64 | ||||||||||||||
We entered into a voting agreement (the “Voting Agreement”) with certain stockholders (the “Stockholders”) representing a majority of our outstanding Common Stock, pursuant to which each Stockholder agreed to vote certain of its shares of Common Stock in favor of the issuance of Units under the Private Placement. The Voting Agreement limited the ability of each Stockholder to sell or otherwise transfer the shares of Common Stock it beneficially owns.
We entered into commitment agreements (the “Commitment Agreements”) with certain stockholders of ours, pursuant to which each stockholder committed to investing in a subsequent financing and purchasing an aggregate amount of $8 million worth of Units (the “Subsequent Financing”). The Subsequent Financing was completed on June 15, 2016 on substantially the same terms as the Purchase Agreement, and we sold an aggregate of 334,169 Units to Midroc Invest AB, FastPartner AB and Xenella Holding AB, the former majority shareholders of Allenex AB (the “Majority Shareholders”).
On April 14, 2016, we acquired 98.3% of the outstanding common stock of Allenex AB (now known as CareDx International AB) (“Allenex AB”). Under the terms of certain Conditional Share Purchase Agreements entered into on December 16, 2015, as amended, and the tender offer prospectus dated March 7, 2016, and as a result of the tender offer, the aggregate purchase consideration paid by us was approximately $34.1 million and consisted of (i) $26.9 million of cash, of which $5.7 million (which represents SEK 50,620,000 as of the acquisition date) was deferred purchase consideration originally payable to the Majority Shareholders by no later than March 31, 2017, subject to certain contingencies being met, and (ii) the issuance of 1,375,029 shares of our common stock valued at $7.2 million. The date by which the deferred purchase consideration was due to the Majority Shareholders was subsequently extended to July 1, 2017. In addition, interest began accruing on our obligations to the Majority Shareholders at a rate of 10.0% per year commencing on January 1, 2017 and will continue to accrue until the date the obligations are paid in full. Of the total cash consideration, $8.0 million of cash payable to the Majority Shareholders was deposited into an escrow account by us and subsequently invested in us by the Majority Shareholders through a purchase of our equity securities in the Subsequent Financing. Upon the
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completion of the Subsequent Financing, certain contingencies in the Conditional Share Purchase Agreements were waived, and the deferred purchase consideration is due to the Majority Shareholders by no later than July 1, 2017. Our deferred purchase consideration obligations are secured by a pledge of shares of Allenex.
Allenex Subordinated Promissory Notes
FastPartner Subordinated Promissory Notes
On December 29, 2015, Allenex AB issued a SEK 2,000,000 (approximately $0.2 million in U.S. dollars) subordinated promissory note to FastPartner AB (“FastPartner”), a related party, which matured on December 31, 2016 and has an annual interest rate of 10.0%. Principal and accrued interest are payable on the maturity date and subject to working capital requirements that had not been met in fiscal years 2016 and 2015. However, pursuant to an intercreditor agreement among Allenex AB, Danske Bank A/B (“Danske”), FastPartner AB, Mohammed Al Amoudi and Olerup SSP AB, dated June 25, 2013 (the “Intercreditor Agreement”), until Allenex AB’s term loan facility with Danske (the “Term Loan Facility”) is repaid, FastPartner may not demand or receive payment of its subordinated promissory note, or foreclose on any collateral securing Allenex AB’s obligations under the subordinated promissory note, without Danske’s prior written consent. Allenex AB’s obligations under the promissory note is secured by a pledge of Allenex AB shares to FastPartner. The full amount of subordinated promissory note was outstanding as of December 31, 2016 and is due July 1, 2017.
On March 7, 2016, Allenex AB issued a SEK 4,000,000 (approximately $0.4 million in U.S. dollars) subordinated promissory note to FastPartner, a related party, which matured on December 31, 2016 and has an annual interest rate of 10.0%. Principal and accrued interest are payable on the maturity date and subject to working capital requirements that had not been met during the year ended December 31, 2016. However, pursuant to the Intercreditor Agreement, until the Term Loan Facility with Danske is repaid, FastPartner may not demand or receive payment of its subordinated promissory note, or foreclose on any collateral securing Allenex AB’s obligations under the subordinated promissory note, without Danske’s prior written consent. Allenex AB’s obligations under the promissory note is secured by a pledge of Allenex AB shares to FastPartner. The full amount of the subordinated promissory note was outstanding as of December 31, 2016 and is due July 1, 2017. Pursuant to the terms of the two promissory notes, as of December 31, 2016, we owe principal totaling SEK 15,400,000, or approximately $1.7 million in U.S. dollars. FastPartner is also a stockholder of the Company and is considered a related party.
Mohammed Al Amoudi Subordinated Promissory Note
On June 28, 2013, Allenex AB issued a SEK 10,600,000 (approximately $1.2 million in U.S. dollars) subordinated promissory note to Mohammed Al Amoudi, which provides for an annual interest rate of 10.0%. Principal payments of SEK 1,000,000 (approximately $0.1 million in U.S. dollars) and accrued interest are payable quarterly at September 30, December 31, March 31 and June 30, subject to meeting certain requirements for working capital. The promissory note had an initial maturity date of June 28, 2016. On December 31, 2016, the maturity date was extended until July 1, 2017. However, pursuant to the Intercreditor Agreement, until the Term Loan Facility with Danske is repaid, Mohammed Al Amoudi may not demand or receive payment of its subordinated promissory note, or foreclose on any collateral securing Allenex AB’s obligations under the subordinated promissory note, without Danske’s prior written consent. The full amount of the promissory note was outstanding as of December 31, 2016. Allenex AB’s obligations under the promissory note is secured by a pledge of Allenex AB shares to Mohammed Al Amoudi. Pursuant to the terms the promissory note, as of December 31, 2016, we owe principal in the amount of SEK 10,600,000, or approximately $1.2 million in U.S. dollars. Mohammed Al Amoudi is also a stockholder of the Company and is considered a related party.
We are party to an investors’ rights agreement which provides, among other things, that certain holders of our common stock have the right to demand that we file a registration statement or request that their shares of our common stock be covered by a registration statement that we are otherwise filing.
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We have also entered into indemnification agreements with our directors and certain of our executive officers. The indemnification agreements and our certificate of incorporation and amended and restated bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.
Policies and Procedures for Related Party Transactions
Our audit committee hasAudit Committee adopted a formal written policy providing that our audit committeeAudit Committee is responsible for reviewing “related party transactions,transactions.” which are transactions (i)A “related person transaction” is a transaction, arrangement, or relationship in which we (including any of our subsidiaries) and any “related person” were, are, or will be a participant, (ii) in which the aggregateparticipants involving an amount involvedthat exceeds or may be expected to exceed $120,000, and (iii) in which a related person had, has or will have a direct or indirect material interest.$120,000. For purposes of this policy, a related person is defined as a director, nominee for director, executive officer, or greater than 5% beneficial owner of our common stock and their immediate family members, any entity in which such person is employed or is a general partner or principal and any entity where such person has a 5% or greater beneficial ownership interest.
Under this policy, all related party transactions may be consummated or continued only if approved or ratified by our audit committee.Audit Committee. In determining whether to approve or ratify any such proposal, our audit committeeAudit Committee will take into account, among other factors it deems appropriate, (a) whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, and (b) the extent of the related party’s interest in the transaction. The policy grants standingpre-approval of certain transactions, including (1) certain compensation arrangements of executive officers, (2) certain director compensation arrangements, (3) transactions with another company at which a related party’s only relationship is as anon-executive employee, director or beneficial owner of less than 5% of that company’s shares, (4) transactions where a related party’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis, and (5) transactions available to all U.S. employees generally.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our executive officers and directors, and persons who own more than 10% of our common stock, file reports of ownership and changes of ownership with the SEC. Such directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
SEC regulations require us to identify in this proxy statement anyone who failed to file a timely required report during the most recent fiscal year. Based solely upon our review of forms we received, or written representations from reporting persons stating that they were not required to file these forms, we believe that during our fiscal year ended December 31, 2016,2018, all Section 16(a) filing requirements were satisfied on a timely basis, except for(i) one Form 4 for each of Peter Maag, one Form 4 forPh.D., Michael Bell, James Yee, M.D., Ph.D., Anders Karlsson, Sasha King and Mitchell J. Nelles, Ph.D. and one Form 4 for Todd Whitson, each of, which were due on September 28, 2016January 23, 2018, but were inadvertently filed late on OctoberJanuary 25, 2018, (ii) one Form 4/A for each of Peter Maag, Ph.D. and Mitchell J. Nelles, Ph.D., which were due January 24, 2018, but were inadvertently filed late on January 25, 2018, (iii) one Form 4/A for each of Peter Maag, Ph.D., Michael Bell, James Yee, M.D., Ph.D., Sasha King and Mitchell J. Nelles, Ph.D., which were due July 3, 2018, but were inadvertently filed late on July 12, 2018, (iv) one Form 4 2016.for each of Fred E. Cohen, M.D., D. Phil., Ralph Snyderman, M.D., George W. Bickerstaff, William A. Hagstrom and Michael D. Goldberg, which were due on June 22, 2018, but were inadvertently filed late on July 3, 2018 and (v) one Form 5 for Ralph Snyderman, M.D. which was due on February 14, 2019, but was inadvertently filed late on February 22, 2019.
Our financial statements for our fiscal year ended December 31, 20162018 are included in our Annual Report onForm 10-K for the year ended December 31, 2016, as amended.2018. This proxy statement and our annual report are posted on the Investor Relations section of our website at investors.caredxinc.com and are available from the SEC at its website at www.sec.gov. You may also obtain a copy of our annual report without charge by sending a written request to CareDx, Inc., Attention: Investor Relations, 3260 Bayshore Blvd., Brisbane, California 94005.
We maintain a website at www.caredx.com. Information contained on, or that can be accessed through, our website is not intended to be incorporated by reference into this proxy statement, and references to our website address in this proxy statement are inactive textual references only.
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Our boardBoard of directorsDirectors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented at the Annual Meeting, the persons named on the enclosed proxy card will have discretion to vote the shares of common stock they represent in accordance with their own judgment on such matters.
It is important that your shares of common stock be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote over the Internet or by telephone as instructed on the proxy card or execute and return, at your earliest convenience, the proxy card.
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| ENDORSEMENT_LINE 000004 MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 C123456789 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext Your vote matters – here’s how to vote! You may vote online or by phone instead of mailing this card. Votes submitted electronically must be received by 11:59 p.m., Pacific Time, on June 16, 2019. Online Go to www.envisionreports.com/CDNA or scan the QR code — login details are located in the shaded bar below. Phone Call toll free | ||||||||||||||
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q (8683) within the USA, US territories and Canada Save paper, time and money! Sign up for electronic delivery at www.envisionreports.com/CDNA Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. 2019 Annual Meeting Proxy Card 1234 5678 9012 345 IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION,VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. qA Proposals — The Board of Directors recommends a vote FOR all of the nominees listed in Proposal 1 and FOR Proposal 2. 1. Election of Directors: For Withhold For Withhold 01 - Fred E. Cohen, M.D., D. Phil 02 - William A. Hagstrom For Against Abstain 2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2019. B Authorized Signatures — This section must be completed for your vote to count. Please date and sign below. Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. 0326IA C 1234567890 J N T 21BV 419043 MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
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| 2. | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2017. |
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☐ | 3. | To approve the issuance of shares of the Company’s common stock upon the conversion or redemption of the Company’s 9.5% Original Issue Discount Senior Secured Debentures due February 28, 2020 without the need for any limitation or cap on issuances as required by and in accordance with NASDAQ Listing Rule 5635. |
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20172019 Annual Meeting of
StockholdersAdmission Ticket 2019 Annual Meeting of CareDx, Inc.
Thursday, July 13, 2017 at Stockholders June 17, 2019, 10:00 am Local Time
00am PST CareDx, Inc. Headquarters
3260 Bayshore Blvd., Brisbane, CaliforniaCA 94005
q Small steps make an impact. Help the environment by consenting to receive electronic delivery, sign up at www.envisionreports.com/CDNA IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION,VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
Proxy — CareDx, Inc.
+ Notice of 20172019 Annual Meeting of Stockholders
Proxy Solicited by Board of Directors for Annual Meeting — Thursday, July 13, 2017
Monday, June 17, 2019 Peter Maag and Michael Bell, or any of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Stockholders of CareDx, Inc. to be held on July 13, 2017June 17, 2019 or at any postponement or adjournment thereof.
Shares represented by this proxy will be voted by the stockholder. If no such directions are indicated, the Proxies will have authority to vote FOR all nominees in Proposal 1 FOR Proposal 2 and FOR Proposal 3.
2. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
This proxy is governed by the laws of the State of Delaware.
(Items (Items to be voted appear on reverse side.)side) CNon-Voting Items Change of Address — Please print new address below. Comments — Please print your comments below.