UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(RULE
14a-101)
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed
by Registrant [X]
Filed
by a Party other than the Registrant [ ]
Check
the appropriate box:
[ ]
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Preliminary
Proxy Statement
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[ ]
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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[ ]
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Definitive
Additional Materials
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[ ]
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Soliciting
Material Under Rule 14a-12
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COMBIMATRIX
CORPORATION
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
[X]
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No
fee required.
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[ ]
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class
of securities to which transaction applies:
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(2)
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Aggregate number of
securities to which transaction applies:
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(3)
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Per unit price or
other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate
value of transaction:
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(5)
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Total fee paid:
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[ ]
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Fee paid previously
with preliminary materials:
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[ ]
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Check box if any part
of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously
Paid:
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(2)
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Form, Schedule or
Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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May
9, 2016
Dear
Stockholder:
You
are cordially invited to attend CombiMatrix Corporation’s 2016 Annual Meeting of Stockholders (the “Annual Meeting”)
to be held on June 16, 2016. The meeting will be held at the offices of Dorsey & Whitney LLP, 600 Anton Boulevard, Suite 2000,
Costa Mesa, California 92626 beginning at 1:00 p.m. local time. The formal meeting notice and proxy statement for the Annual Meeting
are attached and describe the matters to be presented at the Annual Meeting.
Whether
or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. Therefore,
you are urged to complete, sign, date and promptly return the enclosed proxy card in the enclosed postage-paid envelope. Returning
your completed proxy card will ensure your representation at the Annual Meeting. If you later decide to attend the Annual Meeting
and wish to change your vote, you may do so simply by voting in person at the meeting. Due to voting rules that may prevent your
bank or broker from voting your uninstructed shares on a discretionary basis in the election of directors and other non-routine
matters, it is important that you cast your vote.
We
look forward to seeing you at the Annual Meeting.
Sincerely,
Mark McDonough
President, Chief Executive Officer and Director
COMBIMATRIX
CORPORATION
310
Goddard, Suite 150
Irvine,
CA 92618
(949)
753-0624
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD JUNE 16, 2016
TO
OUR STOCKHOLDERS
:
NOTICE
IS HEREBY GIVEN that the 2016 Annual Meeting of Stockholders (the “Annual Meeting”) of CombiMatrix Corporation, a
Delaware corporation (the “Company”), will be held on June 16, 2016, at 1:00 p.m. local time at the offices of Dorsey
& Whitney LLP, 600 Anton Boulevard, Suite 2000, Costa Mesa, California 92626. The Annual Meeting will be held for the following
purposes, as more fully described in the proxy statement accompanying this notice:
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1.
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ELECTION
OF DIRECTORS.
To elect the six (6) directors named in the attached proxy statement to serve until the 2017 annual meeting
of stockholders and until their successors have been duly elected and qualified;
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2.
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AMENDMENT
AND RESTATEMENT OF 2006 STOCK INCENTIVE PLAN
. To approve the amendment and restatement of our 2006 Stock Incentive Plan
to increase the number of shares of common stock available for grant thereunder by 300,000 shares, from 200,000 shares to
500,000 shares, and to effect various other changes thereunder;
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3.
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APPROVAL
OF THE COMPENSATION OF NAMED EXECUTIVE OFFICERS
. To approve, on an advisory basis, the compensation of our named executive
officers;
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4.
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RATIFICATION
OF AUDITORS.
To ratify the appointment of Haskell & White LLP as our independent registered public accounting firm
for 2016;
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5.
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APPROVAL
OF ADJOURNMENT PROPOSAL
. To approve an adjournment of the Annual Meeting, if necessary and appropriate, to solicit additional
proxies if there are insufficient votes at the time of the Annual Meeting to approve any of the proposals; and
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6.
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ANY
OTHER BUSINESS
that may properly come before the Annual Meeting or any adjournments or postponements thereof.
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We
recommend that stockholders vote FOR the matters listed above. Only stockholders of record at the close of business on April 25,
2016 are entitled to receive notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Our stock
transfer books will remain open between the record date and the date of the meeting. A list of stockholders entitled to vote at
the Annual Meeting will be available for inspection at our principal executive offices and at the Annual Meeting.
All
stockholders are cordially invited to attend the Annual Meeting in person. However, to assure your representation at the Annual
Meeting, you are urged to mark, sign, date and return the enclosed proxy card promptly in the postage-paid envelope enclosed for
that purpose. Should you receive more than one proxy card because your shares are registered in different names and addresses,
each proxy card should be signed and returned to assure that all your shares will be voted. Stockholders may have a choice of
voting their shares over the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions
are printed on the proxy card(s) sent to you. For detailed information regarding voting instructions, please refer to the section
entitled “Voting and Related Matters” on page 2 of the Proxy Statement.
You
may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote at the Annual Meeting will be counted. If your shares are held in the name of
a bank, broker, or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record in order
to be able to vote in person at the Annual Meeting.
Please
note: If you hold your shares in the name of a broker, bank or other nominee, your nominee may determine to vote your shares at
its own discretion, absent instructions from you. However, due to voting rules that may prevent your bank or broker from voting
your uninstructed shares on a discretionary basis in the election of directors and other non-routine matters, it is important
that you cast your vote. Accordingly, please provide appropriate voting instructions to your broker or bank to ensure your vote
will count.
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 16, 2016
: This
notice of annual meeting of stockholders, the proxy statement, and our annual report on Form 10-K for 2015 are available at http://investor.combimatrix.com/annuals.cfm.
Sincerely,
Mark
McDonough
President,
Chief Executive Officer and Director
Irvine,
California
May
9, 2016
YOUR
VOTE IS VERY IMPORTANT
IN
ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY
AS POSSIBLE AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PLEASE REFER TO THE SECTION ENTITLED “VOTING AND
RELATED MATTERS” ON PAGE 2 OF THE PROXY STATEMENT FOR A DESCRIPTION OF THESE VOTING METHODS
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COMBIMATRIX
CORPORATION
310
Goddard, Suite 150
Irvine,
California 92618
(949)
753-0624
PROXY
STATEMENT
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 16, 2016
: This
notice of annual meeting of stockholders, the proxy statement, and our annual report on Form 10-K for 2015 are available at http://investor.combimatrix.com/annuals.cfm.
The
enclosed proxy is solicited on behalf of CombiMatrix Corporation, a Delaware corporation, by its Board of Directors (the “Board”)
for use at its 2016 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 1:00 p.m. local time on June
16, 2016, or at any adjournments or postponements thereof, for the purposes set forth in this proxy statement and in the accompanying
notice. The Annual Meeting will be held at the offices of Dorsey & Whitney LLP, 600 Anton Boulevard, Suite 2000, Costa Mesa,
California 92626.
These
proxy materials were first sent or given on or about May 9, 2016 to all stockholders entitled to vote at the Annual Meeting. Stockholders
who owned CombiMatrix Common Stock at the close of business on April 25, 2016 (the “Record Date”) are entitled to
receive notice of, attend and vote at the Annual Meeting. On the Record Date, there were (i) 1,333,684 shares of Common Stock
outstanding; (ii) no shares of Series A 6% Convertible Preferred Stock (“Series A Stock”) outstanding; (iii) no shares
of Series B 6% Convertible Preferred Stock (“Series B Stock”) outstanding; (iv) no shares of Series C 6% Convertible
Preferred Stock (“Series C Stock”) outstanding; (v) no shares of Series D Convertible Preferred Stock (“Series
D Stock”) outstanding; (vi) no shares of Series E 6% Convertible Preferred Stock (“Series E Stock”) outstanding;
and (vii) 6,155 shares of Series F Convertible Preferred Stock (“Series F Stock”) outstanding.
We
will provide, without charge, additional copies of our annual report on Form 10-K to each stockholder of record as of the Record
Date that requests a copy in writing. Any exhibits listed in the annual report on Form 10-K report also will be furnished upon
request at the actual expense we incur in furnishing such exhibit. Any such requests should be directed to our Corporate Secretary
at our executive offices set forth above.
References
to the “Company,” “CombiMatrix,” “our,” “us” or “we” mean CombiMatrix
Corporation.
TABLE
OF CONTENTS
VOTING
AND RELATED MATTERS
Voting
Procedures
As
a stockholder of CombiMatrix, you have a right to vote on certain business matters affecting us. The proposals that will be presented
at the Annual Meeting and upon which you are being asked to vote are discussed below in the “Proposals” section. Each
share of CombiMatrix common stock you owned as of the Record Date entitles you to one vote on each proposal presented at the Annual
Meeting.
Methods
of Voting
You
may vote over the Internet, by telephone, by mail or in person at the Annual Meeting. Please be aware that if you vote by telephone
or over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible.
Voting
over the Internet.
You can vote via the Internet. The website address for Internet voting is provided on your proxy card.
To vote via the Internet, you will need to use the control number appearing on your proxy card. You can use the Internet to transmit
your voting instructions up until 11:59 p.m. Eastern Time on June 15, 2016. Internet voting is available 24 hours a day. If you
vote via the Internet, you do not need to vote by telephone or return a proxy card.
Voting
by Telephone
. You can vote by telephone by calling the toll-free telephone number provided on your proxy card. You will need
to use the control number appearing on your proxy card to vote by telephone. You may transmit your voting instructions from any
touch-tone telephone up until 11:59 p.m. Eastern Time on June 15, 2016. Telephone voting is available 24 hours a day. If you vote
by telephone, you do not need to vote over the Internet or return a proxy card.
Voting
by Mail.
You can vote by marking, dating and signing it, and returning it in the postage-paid envelope provided. Please promptly
mail your proxy card to ensure that it is received prior to the closing of the polls at the Annual Meeting.
Voting
in Person at the Meeting.
If you attend the Annual Meeting and plan to vote in person, we will provide you with a ballot at
the Annual Meeting. If your shares are registered directly in your name, you are considered the stockholder of record and you
have the right to vote in person at the Annual Meeting. If your shares are held in the name of your broker or other nominee, you
are considered the beneficial owner of shares held in street name. As a beneficial owner, if you wish to vote at the Annual Meeting,
you will need to bring to the Annual Meeting a legal proxy from your broker or other nominee authorizing you to vote those shares.
Revoking
Your Proxy
You
may revoke your proxy at any time before it is voted at the Annual Meeting. To do this, you must:
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enter
a new vote over the Internet or by telephone, or by signing and returning a replacement proxy card;
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provide
written notice of the revocation to our Corporate Secretary at our principal executive office,
310
Goddard, Suite 150, Irvine, CA 92618
; or
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attend
the Annual Meeting and vote in person.
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Quorum
and Voting Requirements
Stockholders
of record at the close of business on April 25, 2016 (the “Record Date”), are entitled to receive notice and vote
at the meeting. On the Record Date, there were 1,333,684 issued and outstanding shares of our Common Stock, no issued and outstanding
shares of Series A stock, no issued and outstanding shares of Series B Stock, no issued and outstanding shares of Series C Stock,
no issued and outstanding shares of Series D Stock, no issued and outstanding shares of Series E Stock and 6,155 issued and outstanding
shares of Series F Stock. Each holder of Common Stock voting at the meeting, either in person or by proxy, may cast one vote per
share of Common Stock held on the Record Date on all matters to be voted on at the meeting. The Series A Stock, Series B Stock,
Series C Stock, Series D Stock, Series E Stock and Series F Stock may not vote. Stockholders may not cumulate votes in the election
of directors.
The
presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote constitutes
a quorum for the transaction of business at the Annual Meeting. Assuming that a quorum is present:
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(1)
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a
plurality of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election
of directors will be required to elect Board nominees;
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(2)
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the
approval of the amendment and restatement of our 2006 Stock Incentive Plan to increase the number of shares of common stock
available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000 shares, and to effect various other changes
thereunder, will be approved if a majority of the total votes cast on the proposal in person or by proxy are voted in favor
of such approval;
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(3)
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the
compensation of our named executive officers will be approved on an advisory basis if a majority of the shares of common stock
present in person or represented by proxy at the Annual Meeting and entitled to vote at the Annual Meeting are voted in favor
of such approval;
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(4)
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the
ratification of the appointment of Haskell &White LLP as our independent registered accounting firm for 2016 will be approved
if a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to
vote at the Annual Meeting are voted in favor of such ratification; and
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(5)
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the
approval of an adjournment of the Annual Meeting, if necessary and appropriate, to solicit additional proxies if there are
insufficient votes at the time of the Annual Meeting to approve any of the proposals, will be approved if a majority of the
shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote at the Annual
Meeting are voted in favor of such approval.
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Votes
cast by proxy or in person at the Annual Meeting will be tabulated by the election inspectors appointed for the meeting, who will
determine whether a quorum is present. The election inspectors will treat abstentions and broker non-votes (i.e., shares held
by a broker or nominee that are represented at the Annual Meeting, but with respect to which such broker or nominee is not instructed
to vote on a particular proposal and does not have discretionary voting power) as shares that are present for purposes of determining
the presence of a quorum. With regard to Proposal One, broker non-votes and votes marked “withheld” will not be counted
towards the tabulations of votes cast on such proposal presented to the stockholders, will not have the effect of negative votes
and will not affect the outcome of the election of the directors. With regard to Proposal Two, abstentions and broker non-votes
will not be counted for purposes of determining whether the proposals have been approved, and will not have the same effect as
negative votes. With regard to Proposals Three, Four and Five, abstentions will be counted towards the tabulations of votes cast
on such proposal presented to the stockholders and will have the same effect as negative votes, whereas broker non-votes will
not be counted for purposes of determining whether such proposal has been approved and will not have the effect of negative votes.
If
your shares are held by a bank or broker in street name, it is important that you cast your vote if you want it to count in the
election of directors and other non-routine matters as determined by the New York Stock Exchange (the “NYSE”). Voting
rules may prevent your bank or broker from voting your uninstructed shares on a discretionary basis in the election of directors
and other non-routine matters. Accordingly, if your shares are held by a bank or broker in street name and you do not instruct
your bank or broker how to vote in the election of directors or any other non-routine matters, no votes will be cast on your behalf.
Voting
of Proxies
When
a proxy is properly executed and returned, the shares it represents will be voted at the Annual Meeting as directed. If no specification
is indicated, the shares will be voted:
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(1)
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“for”
the election of each Board nominee set forth in this proxy statement unless the authority to vote for such directors is withheld;
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(2)
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“for”
the approval of the amendment and restatement of our 2006 Stock Incentive Plan to increase the number of shares of common
stock available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000 shares, and to effect various other
changes thereunder;
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(3)
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“for”
the approval, on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement;
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(4)
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“for”
the ratification of the Audit Committee’s appointment of Haskell & White LLP as our independent registered accounting
firm for 2016;
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(5)
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“for”
the approval of an adjournment of the Annual Meeting, if necessary and appropriate, to solicit additional proxies if there
are insufficient votes at the time of the Annual Meeting to approve any of the proposals; and
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(6)
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at
the discretion of your proxies on any other matter that may be properly brought before the Annual Meeting.
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Voting
Results
Voting
results will be announced at the Annual Meeting and published in a Current Report on Form 8-K that will be filed with the Securities
and Exchange Commission within four business days after the Annual Meeting.
Householding
of Proxy Materials
We
are sending only one annual report and proxy statement to certain street-name stockholders who share a single address, unless
we received contrary instructions from any stockholder at that address. This practice, known as “householding,” is
designed to reduce our printing and postage costs. However, if you are residing at such an address and wish to receive a separate
annual report on Form 10-K or proxy statement in the future, you may telephone our Corporate Secretary at (949) 753-0624 or write
to him at CombiMatrix Corporation, 310 Goddard, Suite 150, Irvine, California 92618. If you are receiving multiple copies of our
annual report on Form 10-K and proxy statement, you may request householding by contacting the Corporate Secretary in the same
manner.
Proxy
Solicitation
We
will bear the cost of this solicitation. In addition, we may reimburse brokerage firms and other persons representing beneficial
owners of shares for reasonable expenses incurred in forwarding solicitation materials to such beneficial owners. Proxies also
may be solicited by our directors, officers or employees, personally, by telephone, facsimile, Internet or other means, without
additional compensation. We may retain a proxy solicitor to assist in the distribution of proxies and proxy solicitation materials,
and in the solicitation of proxies. Generally, the fee for such services is approximately $20,000 plus expenses. If we do elect
to retain a proxy solicitor, we will pay the proxy solicitor reasonable and customary fees. Except as described above, we do not
presently intend to solicit proxies other than by mail.
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 16, 2016
:
The notice of annual meeting of stockholders, this proxy statement, and our annual report on Form 10-K for 2015 are available
at http://investor.combimatrix.com/annuals.cfm.
EXECUTIVE
OFFICERS AND DIRECTORS
Our
executive officers and directors and their ages as of March 31, 2016, are as follows:
Name
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Age
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Position(s)
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Mark
McDonough*
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46
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President,
Chief Executive Officer and Director
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Scott
R. Burell
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51
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Chief
Financial Officer, Secretary and Treasurer
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R.
Judd Jessup*+
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68
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Chairman
of the Board
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Scott
Gottlieb, M.D.*
^
†
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43
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Director
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Robert
E. Hoffman* +
^
†
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50
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Director
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Jeremy
M. Jones*†
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74
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Director
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Lâle
White* +
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60
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Director
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*
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Nominee
for election to Board
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+
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Member
of the Audit Committee
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^
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Member
of the Nominating and Governance Committee
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†
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Member
of the Compensation Committee
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Mark
McDonough
has served as our President, Chief Executive Officer and a member of our Board since March 2013. From August
2012 to March 2013, Mr. McDonough served as our Chief Commercial Officer. Mr. McDonough has over 18 years of experience in diagnostic
healthcare and life sciences. Prior to joining us, Mr. McDonough was Vice President of Sales and Service at Pathwork Diagnostics,
a venture capital backed molecular diagnostic company, from September 2008 to August 2012. He also served in an executive capacity
at Dianon, a division of Laboratory Corporation of America, from September 2007 to July 2008 and at Laboratory Corporation of
America, a public laboratory services company, from July 2008 to September 2008. From January 2002 to September 2007, Mr. McDonough
held various positions at US LABS, a Pathology services company that eventually became a division of LabCorp, a public company,
ultimately becoming Vice President of Sales. From May 2001 to January 2002, Mr. McDonough was a Sales executive with EMC Corporation,
a data storage company, and from August 1997 to May 2001, he held various positions of increasing responsibility with Ventana
Medical Systems, a capital equipment, cancer diagnostics company. Prior to entering the healthcare industry, Mr. McDonough was
a ranking officer in the United States Navy for six years where he served as Navigator of the USS Fletcher (DD 992). Mr. McDonough
received a Bachelor’s Degree in Finance from Miami University—Ohio. We believe Mr. McDonough’s qualifications
to serve on our Board include his commercial expertise as an executive, his technical depth in microarray technology and cancer
diagnostics, his strategic vision, and familiarity with senior executives in industry as well as with venture capitalists.
Scott
R. Burell
has served as our Chief Financial Officer, Secretary and Treasurer since November 2006. He successfully led
the split-off of the Company in 2007 from its former parent, has led several successful public and private debt and equity financing
transactions as well as the Company’s reorganization in 2010. Prior to this, Mr. Burell had served as our Vice President
of Finance since November 2001 and as our Controller from February 2001 to November 2001. From May 1999 to first joining CombiMatrix
in February 2001, Mr. Burell was the Controller for Network Commerce, Inc., a publicly traded technology and information infrastructure
company located in Seattle. Prior to this, Mr. Burell spent 9 years with Arthur Andersen’s Audit and Business Advisory practice
in Seattle. During his tenure in public accounting, Mr. Burell worked with many clients, both public and private, in the high-tech
and healthcare markets, and was involved in numerous public offerings, spin-offs, mergers and acquisitions. Mr. Burell obtained
his Washington state CPA license in 1992 and is a certified public accountant (currently inactive). He holds Bachelor of Science
degrees in Accounting and Business Finance from Central Washington University.
R.
Judd Jessup
has served on our Board since August 2010, has served as Chairman of our Board since March 2013 and served
as our President and Chief Executive Officer from August 2010 to March 2013. Mr. Jessup has over 35 years of experience in the
healthcare and managed care industries. Most recently, he was Chief Executive Officer of US LABS, a national laboratory which
provides cancer diagnostics and genetic testing services, from 2002 to 2005. He has extensive background in the managed care industry
having served as President of the Health Plans Division for FHP International from 1994 to 1996 as well as President of TakeCare,
Inc., a publicly traded HMO operating in California, Colorado, Illinois and Ohio until it was sold to FHP. Mr. Jessup currently
serves on the board of directors of Corvel Corporation, a publicly traded company. He served on the board of directors of NovaMed,
Inc., a publicly traded company, from November 1998 until May 2011. We believe Mr. Jessup’s qualifications to serve on our
Board include his significant executive experience with the strategic, financial, and operational requirements of large health
care organizations, including serving as an audit committee chair.
Scott
Gottlieb, M.D.
has served on our Board since January 2009. Dr. Gottlieb is currently a Resident Fellow at the American
Enterprise Institute. Dr. Gottlieb is also a Clinical Assistant Professor at the NYU School of Medicine. From 2005 until 2007,
Dr. Gottlieb served at the Food and Drug Administration (“FDA”) as Deputy Commissioner for Medical and Scientific
Affairs and before that, from 2003 until 2004, as Senior Advisor for Medical Technology to the FDA Commissioner and as the FDA’s
Director of Medical Policy Development. He left the FDA in the spring of 2004 to work on implementation of the new Medicare Drug
Benefit as a Senior Adviser to the Administrator of Medicare and Medicaid Services, where he supported the agency’s policy
work on quality improvement and coverage and payment decision making, particularly related to new medical technologies. Dr. Gottlieb
currently serves on the board of directors of Molecular Insight Pharmaceuticals. Dr. Gottlieb completed his residency in internal
medicine at the Mount Sinai Hospital in New York City and is a graduate of the Mount Sinai School of Medicine and of Wesleyan
University in Connecticut. We believe Dr. Gottlieb’s qualifications to serve on our Board include his experience as a Wall
Street analyst, practicing physician, and most importantly in senior roles in the U.S. government, including his former role as
Deputy Commissioner of the U.S. Food and Drug Administration. CombiMatrix operates in business markets where regulation and regulatory
strategy need to be considered and Dr. Gottlieb’s insights are beneficial to us.
Robert
E. Hoffman
has served on our Board since July 2013. He is the Chief Financial Officer of AnaptysBio, Inc., a privately
held biopharmaceutical company, where he has served since July 2015. Mr. Hoffman was the Senior Vice President, Finance and Chief
Financial Officer of Arena Pharmaceuticals, Inc., a publicly traded biopharmaceutical company, until July 2015 where he had served
in various finance and accounting roles since 1997, except that from March 2011 to August 2011, Mr. Hoffman served as Chief Financial
Officer for Polaris Group, a privately held drug development company. Mr. Hoffman is a member of the business and financial advisory
board of Innovus Pharmaceuticals, a publicly traded emerging pharmaceuticals company. Mr. Hoffman also serves as a member of the
Financial Accounting Standards Board’s Small Business Advisory Committee and the steering committee of the Association of
Bioscience Financial Officers. Mr. Hoffman is also a member and a former director and President of the San Diego Chapter of Financial
Executives International. Mr. Hoffman holds a bachelor’s degree in business administration from St. Bonaventure University,
and is licensed as a C.P.A. (inactive) in the State of California. Mr. Hoffman is also a member of the board of directors of MabVax
Therapeutics Holdings, Inc. and Kura Oncology, Inc. We believe Mr. Hoffman’s qualifications to serve on our Board include
his experience as an executive of a drug development company and knowledge of financial accounting in the medical technology field.
Jeremy
M. Jones
has served on our Board since November 2012. He is the Chairman of On Assignment, Inc., a publicly traded professional
staffing firm, where he has served as a director since May 1995. Mr. Jones has been an investor and business development consultant
since February 1998. From 1987 to 1995, Mr. Jones was Chief Executive Officer and Chairman of the Board of Homedco Group, Inc.,
a home healthcare services company, which became publicly traded in 1991. Homedco merged into Apria Healthcare Group, Inc. in
1995 and from 1995 through January 1998, Mr. Jones was Chief Executive Officer and Chairman of the Board of Apria Healthcare Group,
Inc., which also provided home healthcare services. Mr. Jones served as Chairman of the Board of Byram Healthcare Centers, a provider
of retail medical supplies, from February 1999 until its sale in March of 2008. Mr. Jones was a director for Access Point Medical
from May 2004 to December 2005. Mr. Jones was a director of US LABS from November 2003 through February 2005. From July 2003 to
January 2011, Mr. Jones served as Chairman of LifeCare Solutions, Inc., a provider of integrated home healthcare products and
services. Mr. Jones became a Director of the Hoag Hospital Foundation, Newport Beach, California as of July 2014. Mr. Jones holds
a bachelor’s degree in business administration from the University of Iowa. We believe Mr. Jones’ qualifications to
serve on our Board include his significant executive experience with the strategic, financial, and operational requirements of
public health care organizations, including serving as Chairman for those organizations.
Lâle
White
has served on our Board since March 2015. Ms. White is the chief executive officer of XIFIN, Inc. (“XIFIN”),
a financial cloud computing company, with over 25 years of experience in information systems development and medical billing.
She lectures extensively on these topics and has consulted for major laboratories and laboratory associations throughout the U.S.
Ms. White worked with HCFA and the U.S. Office of the Inspector General to develop the first OIG Model Compliance Program. She
is a member of the board of directors of bioTheranostics, part of the worldwide bioMerieux group, and is a longstanding member
of the California Clinical Lab Association, where for the last eight years she has chaired the state and federal contractor committees
that work with the Medicare Administrative Contractors and the Department of Health and Human Services. Ms. White was previously
vice president - finance of Laboratory Corporation of America, one of the largest clinical reference laboratories in the U.S.,
and its predecessor National Health Laboratories, where she led the software development of several accounts receivable, inventory,
cost accounting and financial management systems for the laboratory industry. Ms. White has a BA in finance and an MBA from Florida
International University. We believe Ms. White’s qualifications to serve on our Board include her significant executive
experience with the strategic, financial, and operational requirements of health care organizations, particularly in the area
of billing and reimbursement.
Directors
and officers are elected on an annual basis. The term of each director’s service expires at our next annual meeting of stockholders
and at such time as his or her successor is duly elected and qualified. Officers serve at the discretion of the Board.
There
are no family relationships between any of our director nominees or executive officers and any other of our director nominees
or executive officers.
BOARD
OF DIRECTORS
Overview
Our
Bylaws provide that the size of our Board is to be determined from time to time by resolution of the Board but shall consist of
at least five and no more than nine members. Our Board has fixed the exact number of directors at seven. Our Board currently consists
of six members, five of whom – Dr. Gottlieb, Ms. White and Messrs. Hoffman, Jessup and Jones – our Board has determined
to be independent under the rules of the NASDAQ Stock Market. Mr. Jessup serves as Chairman of the Board, and we believe that
separation of the Chairman and Chief Executive Officer roles supports the independent nature of our Board. At each annual meeting
of stockholders, members of our Board are elected to serve until the next annual meeting and until their successors are duly elected
and qualified. If the nominees named in this proxy statement are elected, the Board will consist of six persons and there will
be one vacancy on the Board.
The
Board has nominated Mark McDonough, R. Judd Jessup, Robert Hoffman, Scott Gottlieb, M.D., Lâle White and Jeremy M. Jones
for election at the annual meeting based on the recommendation of our Nominating and Governance Committee. The nominees have agreed
to serve if elected, and management has no reason to believe that the nominees will be unavailable for service. If any nominee
is unable or declines to serve as a director at the time of the Annual Meeting or any adjournment or postponement thereof, the
proxies will be voted for such other nominees as may be designated by the present Board.
We
are subject to a number of technological, regulatory, product, legal and other types of risks. The Board and its constituent committees
are responsible for overseeing these risks, and we employ a number of procedures to help them carry out that duty. For example,
Board members regularly consult with executive management about pending issues and expected challenges, and at each Board meeting
directors receive updates from, and have an opportunity to interview and ask questions of, key personnel and management. Furthermore,
because our Chief Executive Officer serves as a member of our Board, we believe that the Board has a direct channel and better
access to insights into our performance, business and challenges.
Committees
of the Board of Directors
The
Board has established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. Each committee
operates pursuant to a charter that may be viewed on our website at
www.combimatrix.com
. The inclusion of our website address
in this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.
Audit
Committee.
Our Audit Committee oversees our accounting and financial reporting processes and is responsible for (i) retaining,
evaluating and, if appropriate, recommending the termination of our independent registered public accounting firm, (ii) approving
the services performed by our independent registered public accounting firm and (iii) for reviewing and evaluating our accounting
principles, financial reporting practices, and system of internal accounting controls. The Audit Committee is also responsible
for maintaining communication between the Board and our independent registered public accounting firm, and has established procedures
for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters,
and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.
In addition, all related person transactions are reviewed and approved by the Audit Committee.
In
2015, our Audit Committee consisted of Messrs. Hoffman (the committee’s Chairman) and Jones and Dr. Gottlieb until May 2015
and, thereafter, consisted of Messrs. Hoffman (the committee’s Chairman) and Jones and Ms. White until April 2016. From
April 2016 through the date of this proxy statement, our Audit Committee consists of Messrs. Hoffman (the committee’s Chairman)
and Jessup and Ms. White. The Board has determined that all members of our Audit Committee are independent under the listing standards
of the NASDAQ Stock Market and the rules of the Securities and Exchange Commission, and that Mr. Hoffman qualifies as an “audit
committee financial expert,” as defined by the rules of the Securities and Exchange Commission.
Compensation
Committee
.
Our Compensation Committee assists our Board in determining the compensation of our executive officers
and directors. The Compensation Committee is responsible for approving the compensation package of each executive officer and
recommending each executive officer’s compensation to the Board. The Compensation Committee also administers our 2006 Stock
Incentive Plan, as amended. The Compensation Committee may form and delegate any of its responsibilities to subcommittees when
appropriate.
In
2015 and through the date of this proxy statement, our Compensation Committee consists of Messrs. Jones (the committee’s
Chairman) and Hoffman and Dr. Gottlieb. The Board has determined that all members of our Compensation Committee are independent
under the listing standards of the NASDAQ Stock Market.
Nominating
and Governance Committee
.
Our Nominating and Governance Committee assists our Board by identifying and recommending individuals
qualified to become members of our Board (subject to legal rights, if any, of third parties to nominate or appoint directors),
and establishing, evaluating and overseeing our corporate governance processes and guidelines.
In
2015 and through the date of this proxy statement, our Nominating and Governance Committee consists of Dr. Gottlieb (the committee’s
Chairman) and Mr. Hoffman. The Board has determined that all members of our Nominating and Governance Committee are independent
under the listing standards of the NASDAQ Stock Market.
The
Nominating and Governance Committee will consider candidates recommended by stockholders. To recommend director candidates, stockholders
should submit their suggestions in writing to the Corporate Secretary, providing the proposed nominee’s name, biographical
data and other information about the proposed nominee and the nominating stockholder(s) as required by our Bylaws, together with
a consent from the proposed nominee to serve on the Board if nominated and elected.
There
are no specific minimum qualifications that the Nominating and Governance Committee requires to be met by a director nominee recommended
for a position on the Board, nor are there any specific qualities or skills that are necessary for one or more members of our
Board to possess, other than as are necessary to meet the requirements of the rules and regulations applicable to us. The Nominating
and Governance Committee considers a potential candidate’s experience, areas of expertise, and other factors relative to
the overall composition of the Board, including the following characteristics:
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●
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broad
experience in business, finance or administration;
|
|
|
|
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●
|
the
independence requirements imposed by the Securities and Exchange Commission and the NASDAQ Stock Market; and
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|
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●
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a
background that provides a portfolio of experience and knowledge relevant to our industry.
|
The
Nominating and Governance Committee has the following policy with regard to the consideration of any director candidates recommended
by security holders for the 2017 annual meeting of stockholders (subject to legal rights, if any, of third parties to nominate
or appoint directors):
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●
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A
stockholder wishing to nominate a candidate for election to the Board at the next annual meeting is required to give written
notice addressed to CombiMatrix Corporation, 310 Goddard, Suite 150, Irvine, CA 92618, Attn: Corporate Secretary, of his or
her intention to make such a nomination. The notice of nomination must be received by the Corporate Secretary at this address
within the timeframe required by our Bylaws, in order to be considered for nomination at the next annual meeting.
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●
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The
notice of nomination should include information regarding the recommended candidate relevant to a determination of whether
the recommended candidate would be barred from being considered independent under NASDAQ Stock Market’s Listing Qualifications
or, alternatively, a statement that the recommended candidate would not be so barred. The notice of nomination also must include
the nominee’s name, age, business address, residence address, principal occupation or employment, and any other information
required by Section 2.10 of our Bylaws or by applicable laws or regulations. A nomination that does not comply with these
requirements will not be considered.
|
The
Nominating and Governance Committee also considers director candidates that are suggested by its members, the Board or management.
The Nominating and Governance Committee may, in the future, retain a third-party executive search firm to identify candidates
on terms and conditions acceptable to the Nominating and Governance Committee, in its sole discretion. The process used by the
Nominating and Governance Committee for identifying and evaluating nominees for director, including nominees recommended by stockholders,
involves (with or without the assistance of a retained search firm) compiling names of potentially eligible candidates, conducting
background and reference checks, conducting interviews with the candidate and others (as schedules permit), meeting to consider
and approve the final candidates and, as appropriate, preparing and presenting to the full Board an analysis with regard to particular
recommended candidates. The Nominating and Governance Committee endeavors to identify director nominees who have the highest personal
and professional integrity, have demonstrated exceptional ability and judgment, and, together with other director nominees and
members, are expected to serve the long-term interest of our stockholders and contribute to our overall corporate goals. Candidates
proposed by stockholders will be evaluated by the Nominating and Governance Committee using the same criteria as for all other
candidates. The Nominating and Governance Committee does not have a formal policy with respect to diversity; however, the Board
and the Nominating and Governance Committee believe that it is essential that the Board members represent diverse viewpoints.
Number
of Meetings
The
Board held a total of 9 meetings during 2015. Our Audit Committee, Compensation Committee and Nominating and Governance Committee
held six, three and three meetings, respectively, during 2015. Each incumbent director attended 75% or more of the aggregate of
(i) the total number Board meetings (during the period that he/she served) and (ii) the total number of Board committee meetings
(during the periods that he/she served), except that Mr. Gottlieb attended 50% of the Compensation Committee meetings due to scheduling
conflicts and Ms. White attended 50% of the Audit Committee meetings due to scheduling conflicts, but each received information
regarding the meetings and provided input through subsequent Board of Directors and committee meetings as well as communications
with management.
Board
Member Attendance at Annual Stockholder Meetings
Although
we do not have a formal policy regarding director attendance at annual stockholder meetings, directors are expected to attend
these annual meetings absent extenuating circumstances. The directors who served in 2015 and attended our annual meeting of stockholders
in 2015 were Mr. McDonough, Mr. Jessup, Mr. Hoffman, and Mr. Jones.
Director
Compensation
Directors
who are also our employees receive no separate compensation from us for their service as members of the Board. Prior to June 17,
2015, non-employee directors automatically received a non-discretionary initial grant of options to purchase 133 shares of our
common stock upon joining the Board. On the first business day of each calendar year, each non-employee Board member then in office
was automatically granted additional options to purchase 133 shares of our common stock, provided such individual had served as
a non-employee Board member for at least six (6) months. All such grants were granted at an exercise price equal to the closing
market price on the date of grant. Options granted since 2012 vest in four equal annual installments over a 48 month period measured
from the grant date. On June 17, 2015, our stockholders approved certain changes to our 2006 Stock Incentive Plan, including the
removal of the auto-grant feature for non-employee directors.
In
January 2015, each of our non-employee directors received a discretionary award of restricted stock units (RSUs) for 835 shares
of our common stock. 25% of the shares of common stock subject to the RSUs vest on each anniversary of the grant date over a four
year period. The RSUs may vest on an accelerated basis in accordance with the terms of our 2006 Stock Incentive Plan and, in the
event of death or a permanent disability, the vesting of the RSUs will accelerate by twelve months.
Prior
to January 26, 2016, non-employee directors received compensation in the amount of $1,500 per month for their service as members
of the Board. The Chairman of the Board received compensation in the amount of $2,000 per month for service as Chairman of the
Board. During 2015, non-employee directors received $1,000 for each meeting of the Board attended in person, $1,000 for each meeting
attended by telephone that was longer than one hour in length, and $500 for each meeting attended by telephone if the meeting
was one hour or less in length. On January 26, 2016, our Board and Compensation Committee approved a modification to director
compensation such that per-meeting fees were eliminated, the Chairman of the Board is to receive $30,000 per year for his services
to the Company, and all other non-employee directors are to receive $24,000 per year for their services to the Company. These
fees will be paid quarterly. Also, Directors are reimbursed for expenses incurred in connection with attendance at meetings of
the Board and committees of the Board and in connection with the performance of Board duties.
Director
Compensation Table
The
following table summarizes the compensation of our directors who served during 2015 and who are not listed as named executive
officers.
Name
|
|
Fees
Earned or
Paid In
Cash
($)
|
|
|
Stock
Awards
($)(1)
|
|
|
Option
Awards ($)(1)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Judd Jessup
|
|
|
31,500
|
|
|
|
19,794
|
|
|
|
2,158
|
|
|
|
—
|
|
|
|
53,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert E. Hoffman
|
|
|
28,000
|
|
|
|
19,794
|
|
|
|
2,158
|
|
|
|
—
|
|
|
|
49,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Gottlieb, M.D.
|
|
|
25,500
|
|
|
|
19,794
|
|
|
|
2,158
|
|
|
|
—
|
|
|
|
47,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeremy M. Jones
|
|
|
28,000
|
|
|
|
19,794
|
|
|
|
2,158
|
|
|
|
—
|
|
|
|
49,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lâle White
|
|
|
20,968
|
|
|
|
25,181
|
|
|
|
3,337
|
|
|
|
—
|
|
|
|
49,486
|
|
(1)
|
Amounts
shown do not reflect cash compensation actually received by the non-employee directors.
Instead, the amounts shown are the non-cash aggregate grant date fair values of stock
option and RSU awards made during the periods presented as determined pursuant to ASC
Topic 718 and excludes the effect of forfeiture assumptions. Also, these awards generally
vest over a four-year period from the date of grant. The assumptions used to calculate
the fair value of stock option and RSU awards are set forth under Note 2 to the Consolidated
Financial Statements included in our annual report on Form 10-K for the year ended December
31, 2015 filed with the SEC on February 18, 2016.
|
Codes
of Business Conduct and Ethics
We
have adopted a corporate Code of Business Conduct and Ethics, which may be viewed on our website at
www.combimatrix.com
.
The Code of Business Conduct and Ethics applies to all our officers, directors and employees, including our principal executive
officer, principal financial and accounting officer and controller, or persons performing similar functions. If we effect an amendment
to, or waiver from, a provision of our code of ethics, we intend to satisfy our disclosure requirements by posting a description
of such amendment or waiver on the website above or via a current report on Form 8-K. The inclusion of our website address in
this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.
Stockholder
Communications with Directors
Stockholders
wishing to communicate with the Board or with a particular member or committee of the Board should address communications to the
Board, or to an individual member or committee as follows: c/o CombiMatrix Corporation, Attention: Corporate Secretary, 310 Goddard,
Suite 150, Irvine, California 92618. All communications will be relayed to that addressee. From time to time, the Board may change
the process through which stockholders communicate with the Board or its members or committees. There were no changes in this
process in 2015. Please refer to our website at
www.combimatrix.com
for any future changes in this process. The Board or
the particular director or committee of the Board to which a communication is addressed will, if it deems appropriate, promptly
refer the matter either to management or to the full Board depending on the nature of the communication. The inclusion of our
website address in this proxy statement does not include or incorporate by reference the information on our website into this
proxy statement.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following Summary Compensation Table sets forth certain information regarding the compensation, for services rendered in all capacities
to us during 2015 and 2014, of our current principal executive officer and our other most highly compensated executive officer
at the end of 2015 (together, the “named executive officers”). We did not have any other executive officers during
2015.
Names
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)(2)
|
|
|
Stock
Awards
($)(1)
|
|
|
Option
Awards
($)(1)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Mark McDonough
|
|
|
2015
|
|
|
|
342,577
|
|
|
|
25,000
|
|
|
|
263,925
|
|
|
|
—
|
|
|
|
—
|
|
|
|
631,502
|
|
President and Chief
Executive Officer; Former Chief Commercial Officer
|
|
|
2014
|
|
|
|
301,000
|
|
|
|
—
|
|
|
|
387,452
|
|
|
|
—
|
|
|
|
—
|
|
|
|
688,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott R. Burell
|
|
|
2015
|
|
|
|
261,000
|
|
|
|
10,000
|
|
|
|
131,962
|
|
|
|
—
|
|
|
|
—
|
|
|
|
402,962
|
|
Chief Financial
Officer, Secretary and Treasurer
|
|
|
2014
|
|
|
|
255,334
|
|
|
|
—
|
|
|
|
193,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
449,059
|
|
(1)
|
Amounts
shown do not reflect cash compensation actually received by the named executive officer. Instead, the amounts shown are the
non-cash aggregate grant date fair values of stock option and RSU awards made during the periods presented as determined pursuant
to ASC Topic 718 and excludes the effect of forfeiture assumptions. Also, these awards generally vest over a four-year period
from the date of grant. The assumptions used to calculate the fair value of stock option and RSU awards are set forth under
Note 2 to the Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31,
2015 filed with the SEC on February 18, 2016.
|
|
|
(2)
|
Represents
discretionary cash bonuses granted by the Compensation Committee on February 27, 2015.
|
The
objective of our executive compensation program is to attract, motivate and retain talented executives with related technical
and business expertise in the competitive diagnostic laboratory market have a demonstrated ability to effectively grow revenue
and control costs. We hope to retain our executives over the long term to provide continuity from year-to-year. Consequently,
we have chosen to compensate our executives with a salary and, in some cases, with stock option awards, RSU awards and bonuses
in order to align the executive’s interests with corporate success. In addition, since 2012, our executive stock option
and RSU awards are generally granted with a four year vesting schedule in order to incentivize our executives to continue to invest
their time and energy to ensure our collective success over a longer term.
In
determining the total amount and mixture of the compensation for each of our named executive officers, our Compensation Committee
subjectively evaluates each named executive in light of numerous factors including title and role, individual performance (including
past and expected future contribution to our business objectives) and our long term business needs and goals (including the need
to attract and retain key management personnel). Our Compensation Committee reviews the performance of each named executive officer
annually and determines whether the named executive officer should receive an increase in base salary and/or receive an equity
award based on such evaluation. In February 2014, we increased Mr. McDonough’s salary in connection with his service as
our President and Chief Executive Officer and also increased Mr. Burell’s salary in connection with his service as our Chief
Financial Officer, Treasurer and Secretary. In February 2015, we increased Mr. McDonough’s salary to $350,000 and granted
cash bonuses to Messrs. McDonough and Burell of $25,000 and $10,000, respectively, for performance-related reasons.
Severance
and Change in Control
We
provide certain severance benefits such that if an executive officer of CombiMatrix is terminated for other than cause, death
or disability, the executive will receive payments equal to three months’ base salary plus medical and dental benefits.
Our
Board of Directors adopted a Restated Executive Change of Control Severance Plan (the “Severance Plan”) that affects
certain of our senior management-level employees who are classified as “Section 16 Officers” of the Company. Pursuant
to the Severance Plan, if a participating employee is involuntarily terminated (other than for death, disability or for cause)
or resigns for “good reason” (as defined in the Severance Plan) during the two-year period following a “change
of control” (as defined in the Severance Plan), then, subject to execution of a release of claims against us, the employee
will be entitled to receive: (i) a cash severance payment equal to one-half times annual base salary (one times salary for the
CEO), in the case of other participating employees; (ii) immediate vesting of outstanding compensatory equity awards; and (iii)
payment of COBRA premiums for the participating employee and eligible dependents for a pre-determined period of time. Payment
of benefits under the Severance Plan will be limited by provisions contained in Section 409A of the U.S. Internal Revenue Code,
as amended (the “Code”). The Severance Plan is administered by a plan administrator, which initially is the Compensation
Committee of the Board of Directors. In order to participate in the Severance Plan, an eligible employee must waive any prior
retention or severance agreements. The Severance Plan automatically renews annually unless terminated upon 12 months prior written
notice.
On
December 2, 2015, our Board of Directors adopted a Transaction Bonus Plan (the “Transaction Bonus Plan”). The Transaction
Bonus Plan provides for certain bonus payments to be made, upon the consummation of a qualifying change of control transaction,
to certain employees of the Company as shall be determined from time to time by the Compensation Committee of our Board of Directors.
The aggregate value of the bonuses payable under the Transaction Bonus Plan shall not exceed the greater of (i) $1,000,000 or
(ii) ten percent of the net proceeds received in connection with a qualifying change of control transaction, and the percentage
of such bonus pool awarded to each eligible participant shall be determined from time to time by our Compensation Committee.
2006
Stock Incentive Plan
Our
2006 Stock Incentive Plan, as amended, provides for the grant of incentive or non-statutory stock options and other option awards
to our employees, directors and consultants. As of December 31, 2015, the net number of authorized but unissued shares under the
2006 Stock Incentive Plan was 194,039, with options to purchase 69,995 shares of common stock and unvested RSUs of 38,795 shares
of common stock remained outstanding, respectively, leaving 85,249 shares available to grant. As further described in Proposal
No. 2 of this proxy statement, the Board has approved the amendment and restatement of the 2006 Stock Incentive Plan, which would
increase the number of shares of common stock available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000
shares, and effect various other changes thereunder, and the Board is seeking stockholder approval of the same.
The
2006 Stock Incentive Plan is administered by our Compensation Committee. Subject to the provisions of the 2006 Stock Incentive
Plan, the Compensation Committee determines who will receive the options or RSUs, the number of options or RSUs granted, and the
manner of exercise and the exercise price of the options. The term of incentive stock options granted under the 2006 Stock Incentive
Plan may not exceed ten years, or five years for options granted to an optionee owning more than 10% of our voting stock. The
exercise price of any stock option granted under the 2006 Stock Incentive Plan must be equal to or greater than the fair market
value of the shares of our common stock on the date the option is granted. However, an incentive stock option granted to an optionee
owning more than 10% of our voting stock must have an exercise price equal to or greater than 110% of the fair market value of
our common stock on the date the option is granted.
Outstanding
Equity Awards at Fiscal Year-End 2015
The
following table sets forth information concerning the outstanding equity awards as of December 31, 2015 granted to the named executive
officers (as adjusted pursuant to a 15-for-1 reverse stock split effective January 29, 2016).
|
|
Number
of Securities
Underlying Unexercised
Options (#)(1)
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
|
|
Options
Exercise
Price
|
|
Option
Expiration
|
|
Number
of
Shares or
Units of
Stock that
Have
Not
Vested
|
|
Market
Value
of Shares
or
Units of
Stock that
Have
Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
that Have
Not
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of
Unearned
Shares,
Units or
other
Rights
that Have
Not
Vested
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Options
(#)
|
|
($)
|
|
Date
|
|
(#)(1)
|
|
($)
|
|
Vested(#)
|
|
($)
|
|
Mark
McDonough
|
|
642
|
(2)
|
214
|
|
—
|
|
67.50
|
|
10/19/2022
|
|
17,981
|
(3)
|
196,898
|
|
—
|
|
—
|
|
|
|
517
|
(4)
|
172
|
|
—
|
|
92.10
|
|
12/20/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
2,448
|
(5)
|
2,448
|
|
—
|
|
50.40
|
|
3/29/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
1,240
|
(6)
|
1,240
|
|
—
|
|
48.45
|
|
4/29/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
R. Burell
|
|
400
|
(7)
|
—
|
|
—
|
|
691.50
|
|
9/17/2017
|
|
8,990
|
(8)
|
98,448
|
|
—
|
|
—
|
|
|
|
415
|
(9)
|
—
|
|
—
|
|
1,575.00
|
|
7/21/2018
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
182
|
(10)
|
—
|
|
—
|
|
1,147.50
|
|
5/11/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
199
|
(11)
|
—
|
|
—
|
|
390.00
|
|
4/08/2021
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
50
|
(12)
|
16
|
|
—
|
|
232.50
|
|
2/28/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
1,844
|
(13)
|
1,844
|
|
—
|
|
48.45
|
|
4/29/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1)
|
All
awards were granted under the 2006 Stock Incentive Plan. The options were granted at an exercise price equal to the closing
price of our common stock on the date of grant and have a term of ten years.
|
|
|
(2)
|
These
options were granted on October 19, 2012 and vest in four equal annual installments over a four-year period measured from
the vesting commencement date of August 20, 2012.
|
|
|
(3)
|
Represents
6,845 RSUs granted on February 20, 2014 and 11,136 RSUs granted on January 9, 2015. These RSU’s vest in four equal annual
installments over a four-year period from the grant date.
|
|
|
(4)
|
These
options were granted on December 20, 2012 and vest in four equal annual installments over a four-year period measured from
the vesting commencement date of August 20, 2012.
|
|
|
(5)
|
These
options were granted on March 29, 2013 and vest in four equal annual installments over a four-year period measured from the
grant date.
|
|
|
(6)
|
These
options were granted on April 29, 2013 and vest in four equal annual installments over a four-year period measured from the
grant date.
|
(7)
|
These
options were granted on September 17, 2007 and vest in twelve equal installments quarterly over a three-year period.
|
|
|
(8)
|
Represents
3,422 RSUs granted on February 20, 2014 and 5,568 RSUs granted on January 9, 2015. These RSU’s vest in four equal annual
installments over a four-year period from the grant date.
|
|
|
(9)
|
These
options were granted on July 21, 2008 and vest quarterly over a three-year period.
|
|
|
(10)
|
These
options were granted on May 11, 2009 and vest quarterly over a three-year period.
|
|
|
(11)
|
These
options were granted on April 8, 2011. One-fourth vest on the one-year anniversary of grant and the remaining vest monthly
thereafter over a three-year period.
|
|
|
(12)
|
These
options were granted on February 28, 2012 and vest in four equal annual installments over a four-year period measured from
the grant date.
|
|
|
(13)
|
These
options were granted on April 29, 2013 and vest in four equal annual installments over a four-year period measured from the
grant date.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth information as of December 31, 2015 relating to all of our equity compensation plans (as adjusted pursuant
to a 15-for-1 reverse stock split effective as of January 29, 2016):
Plan
Category
|
|
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options and
rights (2)
|
|
(b)
Weighted
average
exercise price
of
outstanding
options and
rights (3)
|
|
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)) (4)
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
|
2006
CombiMatrix Stock Incentive Plan (1)
|
|
69,995
|
|
$
|
99.19
|
|
85,249
|
|
Equity
compensation plans not approved by security holders:
|
|
|
|
|
|
|
|
None
|
|
—
|
|
—
|
|
—
|
|
TOTAL
|
|
69,995
|
|
$
|
99.19
|
|
85,249
|
|
(1)
|
Consists
of our 2006 CombiMatrix Stock Incentive Plan, as amended, which allows for the granting of stock options and other awards
to eligible individuals, which generally includes directors, officers, employees and consultants. Please refer to Note 12
to our Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2015 filed
with the SEC on February 18, 2016 for additional information. As further described in Proposal No. 2 of this proxy statement,
the Board has approved the amendment and restatement of the 2006 Stock Incentive Plan which would increase the number of shares
of common stock available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000 shares, and would effect
various other changes thereunder and is seeking stockholder approval of the same.
|
|
|
(2)
|
Includes
shares of common stock subject to restricted stock units (“RSUs”) that entitle each holder to one share of common
stock for each such unit that vests over the holder’s period of continued service.
|
|
|
(3)
|
Calculated
without taking into account the 38,795 shares of common stock subject to outstanding RSUs that become issuable as those units
vest, without any cash consideration or other payment required for such shares.
|
|
|
(4)
|
Consists
of shares available for future issuance under our 2006 CombiMatrix Stock Incentive Plan as of December 31, 2015. As further
described in Proposal No. 2 of this proxy statement, the Board has approved the amendment and restatement of the 2006 Stock
Incentive Plan which would increase the number of shares of common stock available for grant thereunder by 300,000 shares,
from 200,000 shares to 500,000 shares, and would effect various other changes thereunder and is seeking stockholder approval
of the same.
|
Compliance
with Code Section 162(m)
Section
162(m) of the Code (“Section 162(m)”) generally disallows a tax deduction to a publicly traded company for compensation
in excess of $1 million paid to each of that company’s chief executive officer and four other most highly compensated executive
officers. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. In
the year ended December 31, 2015, none of our executive officers received compensation in excess of $1 million.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table shows information regarding the beneficial ownership of our common stock as of March 31, 2016 by (a) each stockholder,
or group of affiliated stockholders, that we know owns more than 5% of our outstanding common stock; (b) each of our named executive
officers; (c) each of our directors; and (d) all of our current directors and executive officers as a group. The table is based
upon information supplied by directors, executive officers and principal stockholders, and Schedules 13D and 13G filed with the
Securities and Exchange Commission.
Percentage
ownership in the table below is based on 1,067,788 shares of common stock outstanding as of March 31, 2016. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission, and generally includes voting power and/or
investment power with respect to the securities held. Any securities not outstanding but which are subject to options or warrants
exercisable within 60 days of March 31, 2016 are deemed outstanding and beneficially owned for the purpose of computing the percentage
of outstanding common stock beneficially owned by the stockholder holding such options or warrants, but are not deemed outstanding
for the purpose of computing the percentage of common stock beneficially owned by any other stockholder.
Unless
otherwise indicated, each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially
owned. The address for each director or named executive officer is c/o CombiMatrix Corporation, 310 Goddard, Suite 150, Irvine,
California 92618.
Name
of Beneficial Owner
|
|
No.
of
Shares
Beneficially
Owned
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
Officers
and Directors
|
|
|
|
|
|
|
|
|
Mark
McDonough(1)
|
|
|
11,938
|
|
|
|
1.1
|
%
|
Scott
R. Burell(2)
|
|
|
5,903
|
|
|
|
*
|
|
Robert
E. Hoffman(3)
|
|
|
4,127
|
|
|
|
*
|
|
R.
Judd Jessup(4)
|
|
|
3,944
|
|
|
|
*
|
|
Scott
Gottlieb, M.D.(5)
|
|
|
1,535
|
|
|
|
*
|
|
Jeremy
M. Jones(6)
|
|
|
990
|
|
|
|
*
|
|
Lâle White(7)
|
|
|
241
|
|
|
|
—
|
|
All
current directors and executive officers as a group (7 persons)
|
|
|
28,678
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
5%
Stockholders Not Listed Above
|
|
|
|
|
|
|
|
|
Edward
A. Hamilton(8)
|
|
|
115,230
|
|
|
|
10.8
|
%
|
Alpha
Capital Anstalt(9)
|
|
|
106,672
|
|
|
|
9.9
|
%
|
Perkins
Capital Management, Inc.(10)
|
|
|
60,054
|
|
|
|
5.4
|
%
|
Bard
Associates, Inc.(11)
|
|
|
160,156
|
|
|
|
13.0
|
%
|
*
Less than 1.0%.
(1)
|
Includes
3,586 shares of common stock. Also includes options to purchase 6,071 shares of common stock that were exercisable within
60 days of March 31, 2016. Also includes 2,281 restricted stock units that are scheduled to vest within 60 days of March 31,
2016.
|
|
|
(2)
|
Includes
1,631 shares of common stock. Also includes options to purchase 3,106 shares of common stock and warrants to purchase 26 shares
of common stock that were exercisable within 60 days of March 31, 2016. Also includes 1,140 restricted stock units that are
scheduled to vest within 60 days of March 31, 2016.
|
|
|
(3)
|
Includes
2,118 shares of common stock. Also includes options to purchase 99 shares of common stock and warrants to purchase 1,619 shares
of common stock. Also includes 291 restricted stock units that are scheduled to vest within 60 days of March 31, 2016.
|
|
|
(4)
|
Includes
500 shares of common stock. Also includes options to purchase 2,765 shares of common stock and warrants to purchase 388 shares
of common stock that were exercisable within 60 days of March 31, 2016. Also includes 291 restricted stock units that are
scheduled to vest within 60 days of March 31, 2016. Shares and warrants are held by the R. Judd & Charlene L. Jessup Trust.
|
|
|
(5)
|
Includes
513 shares of common stock and options to purchase 731 shares of common stock that were exercisable within 60 days of March
31, 2016. Also includes 291 restricted stock units that are scheduled to vest within 60 days of March 31, 2016.
|
|
|
(6)
|
Includes
500 shares of common stock and options to purchase 199 shares of common stock that were exercisable within 60 days of March
31, 2016. Also includes 291 restricted stock units that are scheduled to vest within 60 days of March 31, 2016.
|
|
|
(7)
|
Includes
options to purchase 33 shares of common stock that were exercisable within 60 days of March 31, 2016. Also includes 241 restricted
stock units that are scheduled to vest within 60 days of March 31, 2016.
|
|
|
(8)
|
Includes
1,128,308 shares jointly held by Mr. Hamilton and his spouse, with whom Mr. Hamilton shares voting and dispositive power over
such shares. The reported mailing address for Mr. Hamilton is 5925 Carnegie Boulevard, Suite 200, Charlotte, NC 28210. Information
based solely upon investor filings with the SEC.
|
|
|
(9)
|
The
securities held by Alpha Capital Anstalt are subject to a blocker that would prevent Alpha Capital Anstalt’s ownership
at any given time from exceeding 9.99% of our outstanding common stock. Absent this blocker and assuming all such securities
are convertible or exercisable within 60 days of March 31, 2016, Alpha Capital Anstalt would beneficially own an aggregate
of 1,635,339 shares, or 64.0%, of our common stock, consisting of an aggregate of 146,873 shares of common stock, 41 shares
of common stock issuable upon exercise of warrants issued in our Series A preferred stock financing, 6 shares of common stock
issuable upon exercise of additional warrants issued in June 2014, 18,334 shares of common stock issuable upon exercise of
warrants issued in our Series B preferred stock financing, 54,646 shares of common stock issuable upon exercise of warrants
issued in our Series C preferred stock financing, 129,450 shares of common stock issuable upon exercise of warrants issued
in our Series D preferred stock financing, 38,096 shares of common stock issuable upon exercise of warrants issued in our
Series E preferred stock financing, 83,811 shares of common stock issuable upon exercise of private placement warrants issued
in April 2015, 518,087 shares of common stock issuable upon conversion of Series F preferred stock and 645,995 shares of common
stock issuable upon exercise of warrants issued in our Series F preferred stock financing. Konrad Ackermann has voting and
investment power over such shares beneficially owned by Alpha Capital Anstalt. The reported mailing address for Alpha Capital
Anstalt is Pradafant 7, Furstentums 9490, Vaduz, Liechtenstein. Information based in part upon investor filings with the SEC.
|
(10)
|
Consists
of 24,231 shares of common stock, 11,207 shares of common stock issuable upon exercise of warrants issued in our Series A
preferred stock financing, 1,680 shares of common stock issuable upon exercise of additional warrants issued in June 2014,
11,813 shares of common stock issuable upon exercise of warrants issued in our Series D preferred stock financing, 3,476 shares
of common stock issuable upon exercise of warrants issued in our Series E preferred stock financing and 7,647 shares of common
stock issuable upon exercise of private placement warrants issued in April 2015. Richard C. Perkins has voting and investment
power over the shares. The reported mailing address for Perkins Capital Management, Inc. is 730 Lake Street East, Wayzata,
Minnesota 55391. Information based in part upon investor filings with the SEC.
|
|
|
(11)
|
Consists
of 80,054 shares of common stock issuable upon conversion of Series F preferred stock and 80,102 shares of common stock issuable
upon exercise of warrants issued in our Series F preferred stock financing. The reported mailing address for Bard Associates,
Inc. is 135 South LaSalle Street, Suite 3700, Chicago, IL 60603. Information based upon investor filings with the SEC.
|
Certain
Transactions
Since
January 1, 2015, there has not been, nor has there been proposed, any transaction, arrangement or relationship or series of similar
transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to
which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount
involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed
fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of
any class of our voting securities or any member of the immediate family of any of the foregoing persons, had or will have a direct
or indirect material interest, other than as described above under the heading “Executive Compensation” and other
than the transactions described below. Each of the transactions described below was reviewed and approved or ratified by our Audit
Committee.
On
January 9, 2015, pursuant to the authority granted under our 2006 Stock Incentive Plan, our Compensation Committee granted 11,136
restricted stock units to our Chief Executive Officer, Mark McDonough, 5,568 restricted stock units to our Chief Financial Officer,
Scott Burell, and 835 restricted stock units to each of our non-employee Board members. 25% of the shares of common stock subject
to the restricted stock units vest on each anniversary of the grant date over a four year period. The restricted stock units may
vest on an accelerated basis in accordance with the terms of our 2006 Stock Incentive Plan and our Restated Executive Change of
Control Severance Plan and, in the event of death or a permanent disability, the vesting of the restricted stock unit will accelerate
by twelve months.
On
February 13, 2015, we entered into a securities purchase agreement (the “Series E Purchase Agreement”) with certain
accredited institutional pre-existing investors (the “Investors”), including Alpha Capital Anstalt, Acuta Capital
Partners (formerly Longwood Capital Partners) and Perkins Capital Management, pursuant to which we sold an aggregate of up to
102,800 shares (the “Common Shares”) of common stock at a price of $26.25 per share, an aggregate of up to 2,201.493
shares of Series E 6% Convertible Preferred Stock (the “Series E Preferred Stock”) and warrants to purchase up to
an aggregate of 46,676 shares of common stock at an exercise price of $29.55 per share (the “Series E Warrants”, and
the transactions contemplated by the Series E Purchase Agreement, the “Series E Financing”). The Series E Preferred
Stock and Series E Warrants were sold in a fixed combination consisting of one share of Series E Preferred Stock and a Series
E Warrant to purchase approximately 21.1977 shares of common stock. Each fixed combination of Series E Preferred Stock and Series
E Warrants was sold at a price of $1,000.00. The Series E Preferred Stock was convertible into an aggregate of 83,871 shares of
common stock at a conversion price of $26.25 per share. The Investors agreed to be subject to a blocker that would prevent each
of their respective common stock ownership at any given time from exceeding 9.99% of our outstanding common stock. The net proceeds
to us from the sale and issuance of the Common Shares, Series E Preferred Stock and Series E Warrants, after deducting the offering
expenses borne by us, and excluding the proceeds, if any, from the exercise of the Series E Warrants, were approximately $4.7
million.
Each
share of Series E Preferred Stock carried a 6% per annum dividend that would begin accruing six months after the closing under
the Series E Purchase Agreement and would be payable only in cash, but these dividends had been waived for all time by the holders
of Series E Preferred Stock, as described below. Until the volume weighted average price of our common stock on Nasdaq exceeds
200% of the conversion price of the Series E Preferred Stock for ten consecutive trading days, the Series E Preferred Stock was
subject to full ratchet price based anti-dilution protection (subject to the limits imposed by General Instruction I.B.6. of Form
S-3). The Series E Warrants have a 5 ½ year term and have a cashless exercise provision in the event there is no effective
registration statement covering the common stock issuable upon exercise of the Series E Warrants. The Series E Warrants are not
exercisable for the first six months following issuance. Subject to the beneficial ownership limitation described above, if, after
the one year anniversary of the closing, the volume weighted average price of our common stock on Nasdaq exceeds 200% of the exercise
price for ten consecutive trading days, then we have the right to, within one trading day thereafter, call for cancellation of
up to 50% of the Series E Warrants for consideration equal to $0.001 per share of common stock underlying the Series E Warrants.
We may not exercise our call rights if, among other things, there is no effective registration statement registering the shares
of common stock issuable upon exercise of the Series E Warrants or the prospectus contained in the registration statement is not
available for the issuance of the shares of common stock issuable upon exercise of the Series E Warrants.
We
also agreed with the Investors that while such Investor holds Series E Preferred Stock and Series E Warrants, we will not effect
or enter into an agreement to effect a “Variable Rate Transaction,” which means a transaction in which we: (i) issue
or sell any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of, or quotations for, the shares of common stock at any time after the initial issuance of such
convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or
indirectly related to our business; or (ii) enter into any agreement (including, without limitation, an equity line of credit)
whereby we may sell securities at a future determined price.
We
also agreed with the Investors that, except under certain permitted circumstances: (i) until the later of the date that is six
months from the closing or 30 days following the date on which less than 7.5% of the Series E Preferred Stock remains outstanding,
we will not issue, or enter into any agreement to issue, any shares of common stock or equivalents thereof; (ii) until the time
that less than 7.5% of the Series E Warrants remain outstanding, neither we nor our subsidiaries will issue, or enter into any
agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Series E Warrants; (iii) until
the time that less than 7.5% of the Series E Preferred Stock remains outstanding, neither we nor our subsidiaries will issue,
or enter into any agreement to issue, common stock or equivalents thereof at a price below the conversion price of the Series
E Preferred Stock unless all shares of common stock underlying the Series E Preferred Stock (taking into consideration the effect
of the full adjustment of the anti-dilution provisions from such dilutive issuance) are permitted by General Instruction I.B.6.
of Form S-3 to be issued under the registration statement; (iv) if we issue or agree to issue securities within the six months
following the closing under the Series E Purchase Agreement, and subject to the preexisting rights of other security holders,
the Investors shall have the right of first refusal to purchase all of the securities on the same terms, conditions and price
provided for in the proposed issuance of securities; and (v) we will indemnify the Investors against certain losses resulting
from our breach of any of our representations, warranties, or covenants under agreements with the Investors, as well as under
certain other circumstances described in the Series E Purchase Agreement. As a result of the Repurchase Agreement described below,
we no longer have any Series E Preferred Stock issued or outstanding.
Substantially
concurrently with the closing of the Series E Financing, on February 13, 2015, we entered into a separate securities purchase
agreement (the “Warrant Purchase Agreement”) with selected accredited institutional pre-existing investors (the “Private
Placement Investors”), including Alpha Capital Anstalt, Acuta Capital Partners (formerly Longwood Capital Partners) and
Perkins Capital Management, pursuant to which we will sell to the Private Placement Investors warrants to purchase up to an aggregate
of 102,678 shares of Common Stock (the “Private Placement Warrants”, and the transactions contemplated by the Warrant
Purchase Agreement, the “Warrant Financing”). In consideration of an aggregate of $1,000, we agreed to sell the Private
Placement Warrants, which were issued on April 29, 2015 after our stockholders approved amending our Certificate of Incorporation
to increase our authorized common stock in an amount sufficient to permit the issuance of the common stock issuable upon exercise
of the Private Placement Warrants.
Each
Private Placement Warrant has an exercise price of $32.505 per share of common stock (subject to adjustment for stock splits and
the like), and will be exercisable at any time after the six month anniversary of entering into the Warrant Purchase Agreement
and on or prior to the close of business on the five year anniversary of the initial exercise date, subject to the beneficial
ownership limitation described below. If, at the time of exercise of a Private Placement Warrant, there is no effective registration
statement registering for resale the shares of common stock issuable upon exercise of the Private Placement Warrant, the holder
may exercise the Private Placement Warrant on a cashless basis. Subject to the beneficial ownership limitation described below,
if, after the one year anniversary of the date of entering into the Warrant Purchase Agreement, the volume weighted average price
of our common stock on Nasdaq exceeds 200% of the Private Placement Warrant exercise price for ten consecutive trading days, then
we may, within one trading day thereafter, call for cancellation of up to 50% of the Private Placement Warrants for consideration
equal to $0.001 per share of common stock underlying the Private Placement Warrants. We may not exercise our call rights if, among
other things, there is no effective registration statement registering for resale the shares of common stock issuable upon exercise
of the Private Placement Warrants. Subject to limited exceptions, a holder of Private Placement Warrants will not have the right
to exercise any portion of its Private Placement Warrants if the holder, together with its affiliates, would beneficially own
in excess of 4.99% (which may be increased, but not above 9.99%) of the number of shares of our common stock outstanding immediately
after giving effect to such exercise.
For
as long as the Private Placement Investors hold any Private Placement Warrants, we will not effect or enter into an agreement
to effect a “Variable Rate Transaction,” which means a transaction in which we: (i) issue or sell any convertible
securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading
prices of, or quotations for, the shares of the common stock at any time after the initial issuance of such convertible securities,
or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance
of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to our
business; or (ii) enter into any agreement (including, without limitation, an equity line of credit) whereby we may sell securities
at a future determined price. We also agreed with the Private Placement Investors that, except under certain permitted circumstances
until the time that less than 7.5% of the Private Placement Warrants remain outstanding, neither we nor our subsidiaries shall
issue, or enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Private
Placement Warrants. We also agreed that the terms of the Warrant Financing will be amended to reflect the most favorable terms
obtained by us in any future equity financing.
In
connection with the purchase of the Private Placement Warrants, we agreed to modify previously issued and outstanding warrants
held by the Private Placement Investors that were issued on October 1, 2012, March 20, 2013, May 6, 2013 and June 28, 2013, to
(i) reduce the exercise prices thereunder to $29.55 and (ii) prohibit the exercise of such modified warrants for a period of six
months after the date of the modification and (iii) extend the exercise period of such modified warrants for an additional six
months.
On
October 12, 2015, we entered into an Amendment No. 1 to Common Stock Purchase Warrants with each of the holders of (i) the Series
E Warrants and (ii) 100,847 of the Private Placement Warrants, to reduce the exercise prices of such warrants to $16.50 per share.
In consideration for entering into such amendments of these warrants, each holder of these warrants agreed to irrevocably waive
ab initio and for all time its right to receive cash dividends on its shares of our Series E Preferred Stock.
On
February 27, 2015, pursuant to the authority granted under our 2006 Stock Incentive Plan, our Compensation Committee adopted a
2015 Executive Performance Bonus Plan (the “2015 Bonus Plan”), effective as of January 1, 2015, to provide certain
members of our senior management the opportunity to earn incentive bonuses based on our attainment of specific financial performance
objectives for 2015. Our Compensation Committee determined that our Chief Executive Officer, Mark McDonough, and our Chief Financial
Officer, Scott Burell, are eligible to receive such awards under the 2015 Bonus Plan. A participant’s bonus under the 2015
Bonus Plan will consist of a cash incentive and will be based on achievement of between 89% and 150% of our 2015 net revenue target
as determined by our Compensation Committee. If we achieve 89% of the target net revenue, each of the CEO’s and CFO’s
cash bonus will equal $35,000. If we achieve 90% of the target net revenue, the CEO’s and CFO’s cash bonus will equal
$77,500 and $55,000, respectively; if we achieve 100% of the target net revenue, the CEO’s and CFO’s cash bonus will
equal $155,000 and $110,000, respectively; if we achieve 110% of the target net revenue, the CEO’s and CFO’s cash
bonus will equal $180,000 and $127,500, respectively; if we achieve 130% of the target net revenue, the CEO’s and CFO’s
cash bonus will equal $240,000 and $170,500, respectively; and if we achieve 150% of the target net revenue, the CEO’s and
CFO’s cash bonus will equal $270,000 and $191,500, respectively (and bonus payments will be computed on a pro rata basis
between 101% and 150% of the target achieved). In February 2016, the CEO and CFO each received a cash bonus payment of $35,000
under the 2015 Bonus Plan for achieving 89% of our 2015 net revenue target.
On
April 21, 2016, pursuant to the authority granted under our 2006 Stock Incentive Plan, our Compensation Committee adopted a 2016
Executive Performance Bonus Plan (the “2016 Bonus Plan”), effective as of January 1, 2016, to provide certain members
of our senior management the opportunity to earn incentive bonuses based on our attainment of specific financial performance objectives
for 2016. Our Compensation Committee determined that our Chief Executive Officer, Mark McDonough, and our Chief Financial Officer,
Scott Burell, are eligible to receive such awards under the 2016 Bonus Plan. A participant’s bonus under the 2016 Bonus
Plan will consist of a cash incentive and will be based on achievement of three separate components as follows: (i) 40% tied to
the achievement of our 2016 revenue target as determined by our Compensation Committee; (ii) 30% tied to our 2016 gross margin
target as determined by our Compensation Committee; and (iii) 30% tied to our 2016 EBITDA loss target as determined by our Compensation
Committee. Also each component includes three levels of achievement in order to encourage higher levels of performance. If we
achieve 90% of the 2016 target revenue, the target revenue portion of the cash bonus for our CEO and CFO will equal $35,000 and
$20,800, respectively. If we achieve 100% of the 2016 target revenue, the target revenue portion of the cash bonus for our CEO
and CFO will equal $70,000 and $41,600, respectively. If we achieve 110% of the 2016 target revenue, the target revenue portion
of the cash bonus for our CEO and CFO will equal $87,500 and $52,000, respectively (and the target revenue portion of the cash
bonus will be computed on a pro rata basis between 100% and 110% of the target achieved). If we achieve 100% of the 2016 gross
margin target, the target gross margin portion of the cash bonus for our CEO and CFO will equal $18,375 and $10,920, respectively.
If we achieve 105% of the 2016 gross margin target, the target gross margin portion of the cash bonus for our CEO and CFO will
equal $52,500 and $31,200, respectively. If we achieve 110% of the 2016 gross margin target, the target gross margin portion of
the cash bonus for our CEO and CFO will equal $65,625 and $39,000, respectively (and the target gross margin portion of the cash
bonus will be computed on a pro rata basis between 105% and 110% of the target achieved). If we achieve 98% of the 2016 EBITDA
loss target, the EBITDA loss target portion of the cash bonus for our CEO and CFO will equal $18,375 and $10,920, respectively.
If we achieve 95% of the 2016 EBITDA loss target, the EBITDA loss target portion of the cash bonus for our CEO and CFO will equal
$52,500 and $31,200, respectively. If we achieve 90% of the 2016 EBITDA loss target, the EBITDA loss target portion of the cash
bonus for our CEO and CFO will equal $65,625 and $39,000, respectively (and the EBITDA loss target portion of the cash bonus will
be computed on a pro rata basis between 95% and 90% of the target achieved). Cash bonus payments, if earned, will be paid once
our auditors have completed their annual audit of our consolidated financial statements, and will be paid out within seventy-five
days following December 31, 2016. In order to receive a bonus payment, the participant must be employed by us or our subsidiary
at the time bonuses are computed and distributed.
On
March 24, 2016, the Company completed a registered underwritten public offering (the “Offering”) of an aggregate of
8,000 units, with each unit consisting of one share of Series F Convertible Preferred Stock and 258.397875 Warrants each to purchase
one share of Common Stock. Immediately after completion of the Offering through March 31, 2016, the Company issued an aggregate
of 210,859 shares of Common Stock upon conversions of Series F Convertible Preferred Stock by holders thereof. As a result of
these issuances, the Company has 1,067,788 shares of Common Stock issued and outstanding as of March 31, 2016. In addition, immediately
after completion of the Offering, the Company repurchased all of its outstanding Series E Preferred Stock pursuant to the terms
of the previously reported Series E 6% Convertible Preferred Stock Repurchase Agreement (the “Repurchase Agreement”)
dated February 4, 2016. Pursuant to the terms of the Repurchase Agreement, we agreed to pay each holder $300 per share of Series
E Preferred Stock in consideration for the right to repurchase such holder’s Series E Preferred Stock at a price per share
of $1,000 (the “Repurchase Price”), which was the original price per share paid by the holders for their Series E
Preferred Stock in February 2015.
One
of our directors, Lâle White, is the Chief Executive Officer of XIFIN, Inc., a financial cloud computing company. We utilize
XIFIN’s cloud-based billing and revenue cycle management software tools, which resulted in approximately $182,000 of payments
made by us to XIFIN during 2015.
Pursuant
to our 2006 Stock Incentive Plan, Ms. White received a non-discretionary initial grant of options to purchase 133 shares of our
common stock upon joining our Board on March 12, 2015. Such options were granted at an exercise price equal to the closing market
price of our common stock on the date of grant. The options vest in four equal annual installments over a 48-month period measured
from the grant date. Pursuant to our 2006 Stock Incentive Plan, Ms. White also received a discretionary restricted stock unit
award of 835 shares of our common stock which will vest in four equal annual installments beginning March 12, 2016. The restricted
stock units may vest on an accelerated basis in accordance with the terms of our 2006 Stock Incentive Plan and, in the event of
death or a permanent disability, the vesting of the restricted stock unit will accelerate by twelve months. We and Ms. White also
entered into our standard director indemnification agreement.
Future
transactions with our officers, directors or greater than five percent stockholders will be on terms no less favorable to us than
could be obtained from independent third parties, and all such transactions will be reviewed and subject to approval by members
of our Audit Committee.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors, officers, and
persons that own more than 10 percent of a registered class of our equity securities to file reports of ownership and changes
in ownership with the SEC. Officers, directors and greater than 10 percent stockholders are required by SEC regulations to furnish
us with copies of all Section 16(a) forms they file.
Based
solely upon our review of the copies of such forms received by us during the year ended December 31, 2015, we believe that each
person who, at any time during such year, was a director, officer, or beneficial owner of more than 10% of our common stock met
the filing requirements during such year.
PRINCIPAL
ACCOUNTANTS
Principal
Accountant Fees and Services
Audit
and Audit-Related Fees.
Fees for audit and audit related services by our principal independent registered public accounting
firm, Haskell & White LLP (“H&W”), for the years ended December 31, 2015 and 2014 were as follows:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Audit fees
|
|
$
|
101,000
|
|
|
$
|
101,855
|
|
Audit related
fees
|
|
|
15,395
|
|
|
|
65,640
|
|
|
|
|
|
|
|
|
|
|
Total audit and
audit related fees
|
|
$
|
116,395
|
|
|
$
|
167,495
|
|
Tax
Fees; All Other Fees.
We were not billed for any tax fees or for any other fees from our principal accountants in 2015 or
2014.
Audit
Committee Pre-Approval Policies and Procedures
The
Audit Committee charter provides that the Audit Committee will pre-approve all audit services and non-audit services to be provided
by our independent auditors before the accountant is engaged to render these services. The Audit Committee may consult with management
in the decision-making process but may not delegate this authority to management. The Audit Committee may delegate its authority
to pre-approve services to one or more committee members, provided that the designees present the pre-approvals to the full committee
at the next committee meeting. All audit and non-audit services performed by our independent accountants have been pre-approved
by our Audit Committee to assure that such services do not impair the auditors’ independence from us.
Determination
of Independence
There
were no fees billed by H&W for non-audit services.
Attendance
at Annual Meeting
Representatives
from H&W are expected to be present at the annual meeting, will have the opportunity to make a statement if they desire to
do so, and are expected to be available to respond to appropriate questions.
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The
Audit Committee has reviewed and discussed the audited financial statements with management. The Audit Committee has discussed
with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA,
Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, as
well as the matters required to be discussed by Auditing Standard No. 16 as adopted by the Public Company Accounting Oversight
Board. The Audit Committee also has received the written disclosures and the letter from the independent accountant required by
applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications
with the Audit Committee concerning independence and has discussed with the independent accountant the accountant’s independence.
Based on the review and discussions referred to above, the Audit Committee recommended to the Company’s Board of Directors
that the audited financial statements be included in the Company’s annual report on Form 10-K for the year ended December
31, 2015.
Respectfully
submitted,
AUDIT
COMMITTEE
Robert
E. Hoffman, Chairman
R.
Judd Jessup (from April 2016)
Jeremy
M. Jones (until April 2016)
Lâle
White
PROPOSALS
PROPOSAL
NO. 1 –
ELECTION OF DIRECTORS
Overview
There
are currently six members of our Board. The terms of all of our directors are scheduled to expire at the 2016 Annual Meeting of
Stockholders, at which time all six of the incumbents will stand for re-election.
Nominees
Upon
the recommendation of our Nominating and Governance Committee, the Board has nominated the following individuals to serve until
the 2017 annual meeting of stockholders and until their respective successors are duly elected and qualified:
Mark
McDonough
R.
Judd Jessup
Robert
E. Hoffman
Scott
Gottlieb, M.D.
Jeremy
M. Jones
Lâle
White
Vote
Required
A
plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors
will be required to elect Board nominees. The six nominees receiving the highest number of affirmative votes cast at the Annual
Meeting will be elected as our directors. Proxies cannot be voted for a greater number of persons than the number of nominees
named.
Recommendation
The
Board recommends that stockholders vote
FOR
the election of each of the above-listed nominees.
Unless
marked otherwise, proxies received will be voted FOR the election of each of these director nominees.
PROPOSAL
NO. 2 –
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF OUR 2006 STOCK INCENTIVE PLAN
TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR GRANT THEREUNDER BY 300,000 SHARES, FROM 200,000 SHARES TO 500,000
SHARES, AND TO EFFECT VARIOUS OTHER CHANGES THEREUNDER
Overview
We
are seeking stockholder approval to amend and restate our 2006 Stock Incentive Plan (as proposed to be amended, the “Plan”)
to increase the number of shares of common stock available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000
shares, and to effect various other changes thereunder. On April 21, 2016, subject to stockholder approval, our Board approved
the amendment and restatement of the 2006 Stock Incentive Plan to increase the number of shares of common stock available for
grant thereunder by 300,000 shares, from 200,000 shares to 500,000 shares, and to effect various other changes thereunder, and
is seeking stockholder approval of the same. This amount of increase represents 9% of our fully-diluted capitalization and we
believe it is necessary in order to attract and retain talented employees and management and will enable grants to be made to
eligible recipients for an estimated four years based on the Plan’s average burn rate over the past 3 years.
In
addition, we are seeking stockholder approval to amend the Plan to increase the number of shares of common stock that may be issued
to any one person pursuant to stock options or separately exercisable stock appreciation rights that may qualify as performance-based
compensation under Internal Revenue Code Section 162(m) within any calendar year by 30,000 shares to a maximum of 50,000 shares
of common stock. We also seek approval to increase the number of shares of common stock that may be issued to any one person pursuant
to direct stock issuances or restricted stock units that may qualify as performance-based compensation under Internal Revenue
Code Section 162(m) within any calendar year by 30,000 shares to a maximum of 50,000 shares of common stock.
A
copy of the Plan is attached to this proxy statement as
Appendix A
and is incorporated herein by reference. The
following summary of the material terms of the Plan does not purport to be a complete description of the Plan and is qualified
in its entirety by reference to the complete copy of the Plan in
Appendix A
.
Plan
Description
Administration
.
Our Plan is administered by our Board or any committee designated by the Board consisting of not less than two directors. However,
administration of the Plan with respect to persons subject to Section 16 of the Exchange Act is done by our Compensation Committee
or another committee that qualifies under the requirements of Section 16. Subject to the terms of our Plan, the plan administrator
is authorized to select eligible persons to receive awards under the Plan, determine the type, number and other terms and conditions
of, and all other matters relating to, awards, prescribe award agreements (which need not be identical for each plan participant),
and the rules and regulations for the administration of the Plan, construe and interpret the Plan and award agreements, and make
all other decisions and determinations as the plan administrator may deem necessary or advisable for the administration of our
Plan. The plan administrator may not, without prior approval of our stockholders and the consent of the affected holder, reduce
the exercise price of any outstanding award under the Plan, cancel any outstanding award and grant in substitution a new award
covering the same or a different number of shares, cash or other property or similar action that is treated as a re-pricing under
generally accepted accounting principles.
Eligibility
.
The persons eligible to receive awards under our Plan are the employees, members of our Board, consultants and other independent
advisers who provide services to us or any related entity. However, only our employees and employees of our subsidiaries or any
parent may receive incentive stock options.
Types
of Awards
. Our Plan provides for the issuance of stock options, stock appreciation rights, stock awards, restricted stock
unit, other share-based awards and performance awards. Performance awards may be based on the achievement of certain business
criteria or goals, as determined by the plan administrator, and may consist of stock-based awards or cash bonuses.
Shares
Available for Awards; Annual Per-Person Limitations
. The total number of shares of common stock that may be subject to the
granting of awards under our Plan at any time during the term of the Plan shall be equal to 500,000 shares. In addition, with
respect to incentive stock options, no more than 500,000 shares may be issued under the Plan. Shares will become available for
issuance under new awards to the extent awards previously granted under our Plan are forfeited, expire or otherwise terminate
without issuance of shares. Notwithstanding anything to the contrary in the Plan, the following shares will not again become available
for issuance under the Plan: (i) any shares which would have been issued upon any exercise of an option but for the fact that
the exercise was paid by a cancellation of such shares, (ii) any shares withheld by us or tendered to satisfy any tax withholding
obligation with respect to an option or stock appreciation right, (iii) shares covered by a stock appreciation right issued under
the Plan that are not issued in connection with settlement in shares upon exercise or (iv) shares that are repurchased by us using
option exercise proceeds.
Our
Plan imposes individual limitations on certain awards. Under these limitations, as amended, at such time as awards granted under
the Plan may qualify as “performance-based” compensation pursuant to Section 162(m), then during any fiscal year,
no participant may be granted stock options or stock appreciation rights with respect to more than 50,000 shares and no participant
may be granted stock, restricted stock unit or other share-based awards with respect to more than 50,000 shares, subject to adjustment
upon certain changes in our capitalization. The maximum dollar value that may be paid out to any participant for any performance
award with respect to awards granted in any calendar year is $1,000,000.
In
the event that any stock dividend, recapitalization, forward or reverse split, reorganization, merger, combination, share exchange
or other similar corporate transaction or event affects the shares of our common stock, appropriate adjustment will be made by
the plan administrator to (i) the maximum number, type and/or class of securities that may be issued under the Plan and the maximum
number of shares that may be issued pursuant to incentive stock options, (ii) the number type and/or class of shares by which
award limitations are measured, as described in the preceding paragraph, (iii) the number type and/or class of shares subject
to or deliverable in respect of outstanding awards, (iv) the exercise price, grant price or purchase price relating to any award
or the provision for payment of cash or other property in respect of any outstanding award, and (v) any other aspect of any award
that the plan administrator determines to be appropriate.
Stock
Options and Stock Appreciation Rights
. The plan administrator is authorized to grant stock options, including both incentive
stock options, which can result in potentially favorable tax treatment to the recipient, and non-qualified stock options, and
stock appreciation rights (“SARs”) entitling the recipient to receive the amount by which the fair market value of
a share of common stock on the date of exercise exceeds the grant price of the SAR. The exercise price per share subject to an
option and the grant price of a SAR are determined by the plan administrator, but in the case of a stock option must not be less
than the fair market value of a share of common stock on the date of grant, except (i) where required to satisfy legal or regulatory
requirements of a foreign jurisdiction or (ii) if granted in substitution for a stock option previously granted by an acquired
or merged entity. For purposes of our Plan, the term “fair market value” means the fair market value of our common
stock, awards or other property as determined by the plan administrator or under procedures established by the plan administrator.
Unless otherwise determined by the plan administrator, the fair market value of a share of our common stock as of any given date
shall be the closing sales price per share of common stock as reported on the principal stock exchange or market on which the
common stock is traded on the date as of which such value is being determined or, if there is no sale on that date, then on the
last previous day on which a sale was reported. The maximum term of each option or SAR, the times at which each option or SAR
will be exercisable, and provisions requiring forfeiture of unexercised options or SARs at or following termination of service
generally are fixed by the plan administrator, except that no stock option may have a term exceeding ten years. Methods of exercise
and settlement and other terms of the stock options and SARs are determined by the plan administrator. The plan administrator
determines the methods in which the exercise price of options awarded under the Plan may be paid, which may include cash, shares,
other awards or other property (including, to the extent permitted by law, loans to participants), net exercise or a cashless
exercise procedure.
Restricted
Stock, Restricted Stock Units and Other Stock-Based Awards
. The plan administrator is authorized to grant shares of stock,
including restricted stock, and restricted stock unit awards. Restricted stock is a grant of shares of common stock which may
not be sold or disposed of, and which may be forfeited in the event of certain terminations of employment, prior to the end of
a restricted period specified by the plan administrator. A participant granted restricted stock generally has all of the rights
of a stockholder, unless otherwise determined by the plan administrator. A restricted stock unit award confers upon a participant
the right to receive shares of common stock at the end of a specified period, subject to possible forfeiture of the award in the
event of certain terminations of employment prior to the end of such specified period. The plan administrator is also authorized
to grant other share-based awards that are denominated, payable in, or otherwise based on or related to shares of stock. The plan
administrator shall determine the terms and conditions of such other share-based awards, subject to the terms of the Plan and
any award agreement. However, no other share-based award shall contain a purchase right or option-like exercise feature. Prior
to settlement, a restricted stock unit or other share-based award carries no voting or dividend rights or other rights associated
with share ownership.
Performance
Awards
. The plan administrator is authorized to grant performance awards, consisting of stock-based awards and/or cash bonuses,
to participants on terms and conditions established by the plan administrator. The performance criteria to be achieved during
any performance period and the length of the performance period is determined by the plan administrator upon the grant of the
performance award. Performance awards may be valued by reference to a designated number of shares of common stock or by reference
to a designated amount of property including cash. Performance awards may be settled by delivery of cash, shares or other property,
or any combination thereof, as determined by the plan administrator. Performance awards granted to persons whom the plan administrator
expects will, for the year in which a deduction arises, be “covered employees” (as described below) will, if and to
the extent intended by the plan administrator, be subject to provisions that should qualify such awards as “performance
based compensation” not subject to the limitation on tax deductibility under Section 162(m). For purposes of Section 162(m),
the term “covered employee” means our Chief Executive Officer and each other person whose compensation is required
to be disclosed in our filings with the Securities and Exchange Commission by reason of that person being among our three highest
compensated officers (other than the Chief Executive Officer) as of the end of a taxable year. If and to the extent required under
Section 162(m), any power or authority relating to a performance award intended to qualify under Section 162(m) is to be exercised
by the plan administrator and not the board of directors.
If
and to the extent that the plan administrator determines that these provisions of our Plan are to be applicable to any award,
one or more of the following business criteria, on a consolidated basis, and/or for our subsidiaries, or for our business or geographical
units and/or a related entity, shall be used by the plan administrator in establishing performance goals for awards under our
Plan: (1) earnings per share; (2) revenues or margins; (3) cash flow; (4) operating margin; (5) return on net assets, investment,
capital, or equity; (6) direct contribution; (7) net income; pretax earnings; (8) earnings before interest and taxes; earnings
before interest, taxes, depreciation and amortization; earnings after interest expense and before extraordinary or special items;
operating income; income before interest income or expense, unusual items and income taxes, local, state or federal and excluding
budgeted and actual bonuses which might be paid under any ongoing bonus plans of the company; (9) working capital; (10) management
of fixed costs or variable costs; (11) identification or consummation of investment opportunities or completion of specified projects
in accordance with corporate business plans, including strategic mergers, acquisitions or divestitures; (12) total shareholder
return; (13) debt reduction; (14) costs or expenses; (15) ratios (including one or more of price-to-earnings, debt-to-assets,
debt-to-net assets and ratios regarding liquidity, solvency, fiscal capacity, productivity or risk); (16) unit volume; (17) value
creation; (18) market share; (19) market capitalization; (20) employee retention; (21) production metrics; and (22) stock price.
Any of the above goals may be determined on a relative or absolute basis or as compared to the performance of a published or special
index deemed applicable by the plan administrator.
Transferability
.
Awards granted under our Plan generally may not be pledged or otherwise encumbered and are not transferable except by will or
by the laws of descent and distribution, or to a designated beneficiary upon the participant’s death, except to the extent
expressly permitted by the plan administrator in the award agreement.
Acceleration
of Vesting; Corporate Transaction
. The plan administrator may, in its discretion, accelerate the exercisability, the lapsing
of restrictions or the expiration of deferral or vesting periods of any award, including if we undergo a “corporate transaction”,
as defined in our Plan. Upon any such corporate transaction, the plan administrator also has the ability to provide for (i) termination
of any award, whether or not vested in exchange for cash or property in an amount equal to the amount that would have been attained
upon exercise or realization of the award, if any; (ii) replacement of the award with other rights or property, (iii) assumption
of the award by the successor or survivor corporation, as appropriately adjusted; or (iv) termination of the vesting, exercise
or realization of any award after a date certain in the future, which may be the effective date of the corporate transaction.
Amendment
and Termination
. The Board may amend, alter, suspend, discontinue or terminate our Plan without further stockholder approval,
except stockholder approval must be obtained for any amendment or alteration that increases the shares reserved for issuance under
the Plan or increases the classes of participants eligible under the Plan or if such approval is required by applicable law or
regulation. Our Plan will terminate on the earliest of (i) the tenth anniversary of the most recent amendment and restatement
of the Plan, (ii) the tenth anniversary of the date of stockholder approval of the most recent amendment and restatement of the
Plan; (iii) the date that all shares under the Plan have been issued and are fully vested and (iv) the termination of all outstanding
awards in connection with a change in control. Awards outstanding upon expiration of our Plan shall remain in effect until they
have been exercised or terminated, or have expired.
Certain
Federal Income Tax Consequences
The
following is a summary of the principal U.S. federal income tax consequences generally applicable to awards made under the Plan.
Options
and SARs
. The grant of an option or SAR is not expected to result in any taxable income for the recipient. The holder of an
incentive stock option generally will have no taxable income upon exercising the incentive stock option (except that an alternative
minimum tax liability may result), and we will not be entitled to a tax deduction when an incentive stock option is exercised.
Upon exercising an option other than an incentive stock option, the option holder must recognize ordinary income equal to the
excess of the fair market value of the shares of our common stock acquired on the date of exercise over the exercise price, and
we will generally be entitled at that time to a tax deduction for the same amount. Upon the exercise of an SAR, the amount of
any cash received and the fair market value on the exercise date of any shares of our common stock received are taxable to the
recipient as ordinary income, and are deductible by us.
The
tax consequence upon a disposition of shares of our common stock acquired through the exercise of an option or SAR will depend
on how long the shares have been held and whether the shares were acquired by exercising an incentive stock option or by exercising
a non-incentive stock option or SAR. Generally, there will be no tax consequences to us in connection with the disposition of
shares acquired pursuant to an option or SAR. However, we may be entitled to a tax deduction in the case of a disposition of shares
acquired pursuant to an incentive stock option before the applicable incentive stock option holding periods set forth in the Code
have been satisfied.
Other
Awards
. For other awards granted under the Plan that are payable in cash or shares of our common stock and that are either
transferable or not subject to substantial risk of forfeiture, the holder of such an award must recognize ordinary income equal
to the excess of (a) the cash or the fair market value of the shares of our common stock received (determined as of the date of
such receipt) over (b) the amount (if any) paid for the shares of our common stock by the holder of the award. We will generally
be entitled at that time to a deduction for the same amount if and to the extent that amount satisfies general rules concerning
deductibility of compensation.
For
an award that is payable in shares of our common stock that are restricted as to transferability and subject to substantial risk
of forfeiture, unless a special election is made pursuant to Section 83(b) of the Code, the holder of the award must recognize
ordinary income equal to the excess of (x) the fair market value of the shares of our common stock received (determined as of
the first time the shares became transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over
(y) the amount (if any) paid for the shares of our common stock by the holder. We will generally be entitled at that time to a
tax deduction for the same amount if and to the extent that amount satisfies general rules concerning deductibility of compensation.
Special
Rules
. Special rules may apply in the case of individuals subject to Section 16 of the Exchange Act. In particular, unless
a special election is made pursuant to Section 83(b) of the Code, shares of our common stock received pursuant to the exercise
of an option or SAR may be treated as restricted as to transferability and subject to a substantial risk of forfeiture for a period
of up to six months after the date of exercise. Accordingly, the amount of any ordinary income recognized, and the amount of our
tax deduction, may be determined as of the end of such period.
Deductibility
of Executive Compensation Under Code Section 162(m)
. Section 162(m) generally limits to $1,000,000 the amount that a publicly-held
corporation is allowed each year to deduct for the compensation paid to each of the corporation’s chief executive officer
and the corporation’s other three most highly compensated executive officers (other than the chief financial officer). However,
“qualified performance-based compensation” is not subject to the $1,000,000 deduction limit. In general, to qualify
as performance-based compensation, the following requirements need to be satisfied: (1) payments must be computed on the basis
of an objective, performance-based compensation standard determined by a committee consisting solely of two or more “outside
directors,” (2) the material terms under which the compensation is to be paid, including the business criteria upon which
the performance goals are based, and a limit on the maximum bonus amount which may be paid to any participant pursuant with respect
to any performance period, must be approved by a majority of the corporation’s stockholders and (3) the committee must certify
that the applicable performance goals were satisfied before payment of any performance-based compensation.
The
Plan has been designed to permit grants of options and SARs issued under the Plan to qualify under the performance-based compensation
rules so that income attributable to the exercise of a non-incentive stock option or an SAR may be exempt from $1,000,000 deduction
limit. Grants of other awards under the Plan may also qualify for this exemption. The Plan’s provisions are consistent in
form with the performance-based compensation rules, so that if the committee that grants options, SARs or other awards consists
exclusively of members of our board of directors who qualify as “outside directors,” and the exercise price (or deemed
exercise price, with respect to SARs) is not less than the fair market value of the shares of our common stock to which such grants
relate, the compensation income should qualify as performance-based compensation which is deductible even if that income would
be in excess of the otherwise applicable limits on deductible compensation income under Section 162(m).
Accounting
Treatment
We
account for stock-based compensation under Accounting Standards Codification 718, Compensation—Stock Compensation, which
requires the fair value of all option grants or stock issuances made to employees or directors on or after January 1, 2007, as
well as a portion of the fair value of each option and stock grant made to employees or directors prior to that date which represents
the unvested portion of these share-based awards as of such implementation date, to be recognized as an expense. These amounts
are expensed over the respective vesting periods of each award using the straight-line attribution method. We calculate stock
option-based compensation by estimating the fair value of each option as of its date of grant using the Black-Scholes option pricing
model.
New
Plan Benefits
Awards
under the Plan are made at the discretion of our Compensation Committee. It is not possible to determine the benefits or amounts
that will be received by eligible participants under the Plan after the date of this proxy statement because no decisions have
been made on the amount and type of awards to be granted under the Plan to eligible participants in the future, nor do we have
any specific current plans or commitments for granting any future awards.
The
following table sets forth, with respect to our named executive officers and the other indicated persons and groups, the aggregate
number of shares of common stock underlying stock options and restricted stock units that have been granted under our Plan from
the effective date of the Plan through March 31, 2016. As of March 31, 2016, there are 69 participants under the Plan.
Name and Position
|
|
Number
of
Shares Underlying Options
|
|
|
Number
of
Shares Underlying Restricted Stock Units(1)
|
|
Mark McDonough
President,
Chief Executive Officer and Director
|
|
|
8,922
|
|
|
|
20,263
|
|
Scott R. Burell
Chief Financial
Officer, Secretary and Treasurer
|
|
|
4,950
|
|
|
|
10,131
|
|
Robert E. Hoffman
Director
|
|
|
266
|
|
|
|
2,001
|
|
Scott Gottlieb, M.D.
Director
|
|
|
931
|
|
|
|
2,001
|
|
R. Judd Jessup
Director
|
|
|
2,932
|
|
|
|
2,001
|
|
Jeremy M. Jones
Director
|
|
|
399
|
|
|
|
2,001
|
|
Lâle White
Director
|
|
|
133
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
All current executive officers, as a
group
|
|
|
13,872
|
|
|
|
30,394
|
|
All current directors who are not executive
officers, as a group
|
|
|
4,661
|
|
|
|
8,839
|
|
All employees and consultants, including
all current officers who are not executive officers, as a group
|
|
|
56,754
|
|
|
|
4,609
|
|
Vote
Required
The
proposal to approve the amendment and restatement of our 2006 Stock Incentive Plan to increase the number of shares of common
stock available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000 shares, and to effect various other changes
thereunder, will be approved if a majority of the total votes cast on the proposal in person or by proxy are voted in favor of
the proposal.
Recommendation
The
Board recommends that stockholders vote
FOR
approval of the amendment and restatement of our 2006 Stock Incentive Plan
to increase the number of shares of common stock available for grant thereunder by 300,000 shares, from 200,000 shares to 500,000
shares, and to effect various other changes thereunder.
Unless
marked otherwise, proxies received will be voted FOR Proposal Two.
PROPOSAL
NO. 3 – APPROVAL ON AN ADVISORY BASIS OF THE COMPENSATION OF NAMED EXECUTIVE OFFICERS
Overview
The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our stockholders
to vote to approve, on a non-binding advisory basis, the compensation of our named executive officers as disclosed in this proxy
statement in accordance with applicable SEC rules.
Our
goal for our executive compensation program is to attract, motivate and retain a talented team of executives who will provide
leadership for our success, and thereby increase stockholder value. We believe that our executive compensation program satisfies
this goal and is strongly aligned with the long-term interests of our stockholders. We urge stockholders to read the section titled
“Executive Compensation” elsewhere in this proxy statement for additional details about our executive compensation
programs, including information about the compensation of our named executive officers in 2015.
We
are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy
statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express
their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation,
but rather the overall compensation of our named executive officers described in this proxy statement. Accordingly, we will ask
our stockholders to vote
FOR
the following resolution at the Annual Meeting:
|
|
“RESOLVED,
that the stockholders of CombiMatrix Corporation approve, on an advisory basis, the compensation of the named executive officers,
as disclosed in the CombiMatrix proxy statement for the Annual Meeting of Stockholders pursuant to the compensation disclosure
rules of the SEC.”
|
This
say-on-pay vote is advisory, and therefore, is not binding on us, our Compensation Committee or our Board. Our Board and our Compensation
Committee value the opinions of our stockholders, and to the extent there is any significant vote against the named executive
officer compensation as disclosed in this proxy statement, we may review and consider the results of this advisory vote in future
compensation deliberations.
Under
the rules of the NYSE, brokers are prohibited from giving proxies to vote on executive compensation matters unless the beneficial
owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your
shares, you must give voting instructions to your broker with respect to this Proposal if you want your broker to vote your shares
on this Proposal.
Vote
Sought
The
proposal to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement
will be approved if a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and
entitled to vote at the Annual Meeting are voted in favor of the proposal.
Recommendation
Our
Board recommends that stockholders vote
FOR
the approval, on an advisory basis, of the compensation of our named executive
officers as disclosed in this proxy statement.
Unless
marked otherwise, proxies received will be voted FOR Proposal No. 3.
PROPOSAL
NO. 4 – RATIFICATION OF APPOINTMENT OF HASKELL & WHITE LLP
Overview
The
Audit Committee intends to engage the registered public accounting firm of Haskell & White LLP as our independent registered
public accounting firm to audit our financial statements for the year ending December 31, 2016. Haskell & White LLP audited
our financial statements for the years ended December 31, 2015 and December 31, 2014. Please refer to “Principal Accountants”
above for information about fees and services paid to Haskell & White LLP in 2015 and 2014, and our Audit Committee’s
pre-approval policies. Stockholder ratification of such selection is not required by our Bylaws or other applicable legal requirement.
However, our Board is submitting the selection of Haskell & White LLP to stockholders for ratification as a matter of good
corporate practice. In the event that stockholders fail to ratify the selection, our Audit Committee will reconsider whether or
not to retain that firm. Even if the selection is ratified, our Audit Committee in its discretion may direct the appointment of
a different independent registered public accounting firm at any time during the year if our Audit Committee believes that such
a change would be in our and our stockholders’ best interests.
Representatives
of Haskell & White LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate questions.
Vote
Sought
The
proposal to ratify the appointment of Haskell & White LLP as our independent registered public accounting firm to audit our
financial statements for the year ending December 31, 2016 will be approved if a majority of the shares of common stock present
in person or represented by proxy at the Annual Meeting and entitled to vote at the Annual Meeting are voted in favor of the proposal.
Recommendation
The
Board recommends that stockholders vote
FOR
the proposal to ratify the appointment of Haskell & White LLP as our independent
registered public accounting firm to audit our financial statements for the year ending December 31, 2016.
Unless
marked otherwise, proxies received will be voted FOR Proposal Four.
PROPOSAL
NO. 5 – TO APPROVE ADJOURNMENT OF ANNUAL MEETING, IF NECESSARY AND APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES
Overview
We
seek stockholder approval to adjourn the Annual Meeting, if necessary and appropriate, to solicit additional proxies if we do
not have sufficient votes at the Annual Meeting to approve any of the proposals set forth above. We currently do not intend to
propose adjournment at our Annual Meeting if there are sufficient votes to approve each of the proposals. If it is necessary to
adjourn the Annual Meeting, and the adjournment is for a period of less than 30 days, no notice of the time or place of the reconvened
meeting will be given to our stockholders, other than an announcement made at the Annual Meeting.
Vote
Required
The
proposal to approve an adjournment of the Annual Meeting, if necessary and appropriate, to solicit additional proxies if there
are insufficient votes at the time of the Annual Meeting to approve any of the proposals, will be approved if a majority of the
shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting are voted in favor of such approval.
Recommendation
The
Board recommends that stockholders vote
FOR
approval to adjourn the Annual Meeting, if necessary and appropriate, to solicit additional
proxies.
Unless
marked otherwise, proxies received will be voted FOR Proposal Five.
OTHER
BUSINESS
We
know of no other matters to be submitted to the stockholders at the Annual Meeting. If any other matters properly come before
the stockholders at the Annual Meeting, the persons named on the enclosed proxy card intend to vote the shares they represent
as the Board may recommend.
ANNUAL
REPORT ON FORM 10-K
On
February 18, 2016, we filed our annual report on Form 10-K for the year ended December 31, 2015. A copy of the annual report on
Form 10-K has been sent concurrentl y with this proxy statement to all stockholders entitled to notice of and to vote at the annual
meeting. Additionally, the reports and other information filed by us with the SEC can be inspected on the SEC’s website
at www.sec.gov and such information can also be inspected and copies ordered at the public reference facilities maintained by
the SEC at the following location: 100 F Street NE, Washington, D.C. 20549.
S
TOCKHOLDER
Proposals
Stockholders
may present proposals for action at a future meeting if they comply with SEC rules, state law and our Bylaws.
Pursuant
to Rule 14a-8 under the Exchange Act, some stockholder proposals may be eligible for inclusion in the proxy statement for our
2017 Annual Meeting of Stockholders (the “2017 Annual Meeting”). These stockholder proposals, along with proof of
ownership of our stock in accordance with Rule 14a-8(b)(2), must be received by us not later than January 9, 2017, which is 120
calendar days prior to the anniversary date of the mailing of this proxy statement. Stockholders are also advised to review our
Bylaws which contain additional advance notice requirements, including requirements with respect to advance notice of stockholder
proposals (other than non-binding proposals presented under Rule 14a-8) and director nominations.
The
proxies to be solicited by us through our Board for our 2017 Annual Meeting will confer discretionary authority on the proxy holders
to vote on any stockholder proposal presented at that meeting, unless we receive notice of such stockholder’s proposal not
later than March 27, 2017, which is 45 calendar days prior to the anniversary date of the mailing of this proxy statement.
Stockholder
proposals must be in writing and should be addressed to c/o CombiMatrix Corporation, Attention: Corporate Secretary, 310 Goddard,
Suite 150, Irvine, California 92618. It is recommended that stockholders submitting proposals direct them to our corporate secretary
and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The Chairman of the Annual Meeting
reserves the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply
with these and other applicable requirements, including conditions set forth in our Bylaws and conditions established by the SEC.
We
have not been notified by any stockholder of his or her intent to present a stockholder proposal from the floor at this year’s
Annual Meeting. The enclosed proxy grants the proxy holders discretionary authority to vote on any matter properly brought before
this year’s Annual Meeting.
By
Order of the Board of Directors
Mark
McDonough
President,
Chief Executive Officer and Director
May
9, 2016
Irvine,
California
APPENDIX A
COMBIMATRIX
CORPORATION
2006
STOCK INCENTIVE PLAN
(as
amended and restated [DATE], 2016)
ARTICLE
One
GENERAL
PROVISIONS
I.
PURPOSE OF THE PLAN
This
CombiMatrix Corporation 2006 Stock Incentive Plan is intended to promote the interests of CombiMatrix Corporation, a Delaware
corporation, by providing eligible persons in the Corporation’s Service with the opportunity to acquire a proprietary interest,
or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such Service.
Capitalized
terms shall have the meanings assigned to such terms in the attached Appendix.
II.
STRUCTURE OF THE PLAN
A.
The Plan shall be divided into three separate equity incentive programs:
●
the Discretionary Option/Stock Appreciation Right Grant Program under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock, and
●
the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation
(or any Parent or Subsidiary).
B.
The provisions of Articles One and Five shall apply to all equity incentive programs under the Plan and shall govern the interests
of all persons under the Plan.
III.
ADMINISTRATION OF THE PLAN
A.
The Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs
with respect to Section 16 Insiders. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect
to all other persons eligible to participate in those programs may, at the Board’s discretion, be vested in the Committee,
or the Board may retain the power to administer those programs with respect to all such persons. Other than with respect to Section
16 Insiders, the Board may also appoint an Executive Officer Committee to administer the Discretionary Option Program and Stock
Issuance Program, subject to the applicable limitations and requirements of the Delaware Corporate Law. However, any discretionary
option grants or stock issuances to members of the Committee must be authorized and approved by a disinterested majority of the
Board.
B.
Members of the Committee or, if applicable, the Executive Officer Committee, shall serve for such period of time as the Board
may determine and may be removed by the Board at any time.
C.
The Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of
the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations
of, the provisions of those programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any
stock option or stock issuance thereunder.
D.
Service on the Committee shall constitute Service as a Board member, and members of each such committee shall accordingly be entitled
to full indemnification and reimbursement as Board members for their service on such committee. No member of the Committee or,
if applicable, the Executive Officer Committee, shall be liable for any act or omission made in good faith with respect to the
Plan or any option grants or stock issuances under the Plan.
IV.
ELIGIBILITY
A.
The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows:
|
(i)
|
Employees,
|
|
|
|
|
(ii)
|
non-employee
members of the Board or the board of directors of any Parent or Subsidiary, and
|
|
|
|
|
(iii)
|
consultants
and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
|
B.
The Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive such
grants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status
of the granted option as either an Incentive Option or a Non-Statutory Option, if, and the extent to which, each option is to
be exercisable at a different time or times than those times set forth in Section I.B.1. of Article Two of the Plan, the vesting
schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii)
with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive such issuances, the time
or times when the issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration for such shares.
C.
The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option/Stock
Appreciation Right Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.
V.
STOCK SUBJECT TO THE PLAN
A.
The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. Subject to adjustment by the Plan Administrator pursuant to Section V.E below, effective
[DATE], 2016, the number of shares of Common Stock reserved for issuance over the term of the Plan shall not exceed 500,000 shares
of Common Stock. For purposes of clarification, the shares of Common Stock subject to the Assumed Options are not included in
the 500,000 shares of Common Stock reserved hereunder for issuance pursuant to this paragraph, though the shares of Common Stock
subject to the Assumed Options may become available for grant under this Plan to the extent provided in Article One, Section V.D.
below. (See Amendment to this Section V.A. below on page 25).
B.
The maximum aggregate number of shares of Common Stock that may be issued under the Plan through Incentive Options shall be 500,000
shares of Common Stock.
C.
At such time as stock option or stock appreciation rights granted under the Plan may qualify as performance-based compensation
under Code Section 162(m), no one person participating in the Plan may receive stock options or separately exercisable stock appreciation
rights for more than 50,000 shares of Common Stock in the aggregate per calendar year. At such time as direct stock issuances,
restricted stock unit or other share-based awards granted under the Plan may qualify as performance-based compensation under Code
Section 162(m), no one person participating in the Plan may receive direct stock issuances, restricted stock unit or other share-based
awards for more than 50,000 shares of Common Stock in the aggregate per calendar year. In addition, the maximum dollar value payable
to any one Participant with respect to awards granted under Article Five, Section VIII.B. is $1,000,000 per calendar year.
D.
Shares of Common Stock subject to outstanding options, Assumed Options or stock appreciation rights shall be available for subsequent
issuance under the Plan to the extent such shares are not issued pursuant to such options, Assumed Options or stock appreciation
rights prior to the expiration, termination or cancellation of such options, Assumed Options or stock appreciation rights for
any reason. Shares of Common Stock subject to outstanding restricted stock unit or other share-based awards shall be available
for subsequent issuance under the Plan to the extent those restricted stock unit or other share-based awards expire, terminate
or are cancelled for any reason prior to the issuance of all shares of Common Stock subject to such restricted stock unit or other
share-based awards. Unvested shares issued under the Plan and subsequently cancelled, forfeited or repurchased by the Corporation,
at a price per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase
rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan. Notwithstanding
anything to the contrary in this Section, the following shares of Common Stock will not again become available for issuance under
the Plan: (i) any shares of Common Stock which would have been issued upon any exercise of an option but for the fact that the
exercise was paid by a cancellation of such shares of Common Stock pursuant to Section I.A.2.ii of Article Two, (ii) any shares
of Common Stock withheld by the Corporation or shares of Common Stock tendered to satisfy any tax withholding obligation with
respect to an option or stock appreciation right, (iii) shares of Common Stock covered by a stock appreciation right issued under
the Plan that are not issued in connection with settlement in shares of Common Stock upon exercise, or (iv) shares of Common Stock
that are repurchased by the Corporation using option exercise proceeds.
E.
If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, merger, reorganization,
combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number, type and/or
class of securities issuable under the Plan, (ii) the maximum number, type and/or class of securities for which any one person
may be granted (x) stock options and separately exercisable stock appreciation rights and (y) direct stock issuances, restricted
stock unit and other share-based awards under the Plan per calendar year, (iii) the number, type and/or class of securities and
the exercise price per share in effect under each outstanding option and stock appreciation right under the Plan, (iv) the number,
kind and/or class of securities under each restricted stock unit or other share-based award, and (v) the maximum number, type
and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions
of Section V.B. of this Article One. Such adjustments to the outstanding awards are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
ARTICLE
Two
DISCRETIONARY
OPTION/Stock Appreciation right GRANT PROGRAM
I.
OPTION TERMS
Each
option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each
such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be
subject to the provisions of the Plan applicable to such options.
A.
EXERCISE PRICE.
1.
The exercise price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of
the Fair Market Value per share of Common Stock on the option grant date, provided, however, that the Plan Administrator may designate
a purchase price below Fair Market Value on the date of grant (A) to the extent necessary or appropriate, as determined by the
Plan Administrator, to satisfy applicable legal or regulatory requirements of a foreign jurisdiction or (B) if the Option is granted
in substitution for a stock option previously granted by an entity that is acquired by or merged into the Corporation (or an affiliate).
2.
The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of the documents
evidencing the option, be payable in one or more of the forms specified below:
(i)
cash or check made payable to the Corporation, or
(ii)
shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date (including the cancellation of shares of Common Stock
subject to the option), or
(iii)
to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in order to complete the sale, or
(iv)
to the extent permitted by the Plan Administrator, by delivering to the Optionee a number of shares of Common Stock having an
aggregate Fair Market Value (determined as of the Exercise Date) equal to the excess, if positive, of the Fair Market Value of
the shares of Common Stock underlying the Option being exercised on the Exercise Date, over the exercise price of the Option for
such shares of Common Stock, or
(v)
Any other form of legal consideration, as determined by the Plan Administrator and specifically included in the stock option agreement.
Except
to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B.
EXERCISE AND TERM OF OPTIONS.
1.
Each option shall vest and be exercisable at such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing the option.
2.
Notwithstanding any other provision of the Plan, no option shall have a term in excess of ten (10) years measured from the option
grant date.
C.
EFFECT OF TERMINATION OF SERVICE.
1.
The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or
death:
(i)
Termination of Service
. Subject to earlier termination of the option as otherwise provided in the Plan and unless otherwise
specifically provided by the Plan Administrator with respect to an option and set forth in the award agreement (either at grant
or by amendment at a later time), an option shall remain exercisable, to the extent vested, after a Optionee’s termination
of Service only during the applicable time period determined in accordance with this Section and thereafter shall terminate and
no longer be exercisable:
(A)
Death or Permanent Disability
. If the Optionee’s Service terminates because of the death or Permanent Disability
of the Optionee, the option, to the extent unexercised, vested and exercisable on the date on which the Optionee’s Service
terminated, may be exercised by the Optionee (or the Optionee’s legal representative or estate, as applicable) at any time
prior to the expiration of twelve (12) months (or such other period of time as determined by the Plan Administrator, in its discretion)
after the date on which the Optionee’s Service terminated, but in any event only with respect to the unexercised and vested
portion of the option and not after the maximum term of the option.
(B)
Termination for Misconduct
. Notwithstanding any other provision of the Plan to the contrary, if the Optionee’s Service
is terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one or more outstanding options,
then all such options shall terminate immediately and cease to be outstanding.
(C)
Other Termination of Service
. If the Optionee’s Service terminates for any reason, except Permanent Disability, death
or Misconduct, the option, to the extent unexercised, vested and exercisable by the Optionee on the date on which the Optionee’s
Service terminated, may be exercised by the Optionee at any time prior to the expiration of three (3) months (or such longer or
shorter period of time as determined by the Plan Administrator, in its discretion) after the date on which the Optionee’s
Service terminated, but in any event only with respect to the unexercised and vested portion of the option and not the maximum
term of the option.
(ii)
Any option held by the Optionee at the time of death and exercisable in whole or in part at that time may be subsequently exercised
by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant
to the Optionee’s will or the laws of descent and distribution or by the Optionee’s designated beneficiary or beneficiaries
of that option.
(iii)
During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration
of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon
the Optionee’s cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
2.
The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while
the option remains outstanding, to:
(i)
extend the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from
the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the option term and in no event to such extent to make the option subject
to Section 409A (unless given the prior consent of the Optionee), and/or
(ii)
permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but
also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in
Service.
D.
STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E.
REPURCHASE RIGHTS.
The Plan Administrator shall have the discretion to grant options which are exercisable for unvested
shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right,
but not the obligation, to repurchase any or all of those unvested shares at a price per share equal to the
lower
of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of the Optionee’s
cessation of Service. The terms upon which such repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set
forth in the document evidencing such repurchase right.
F.
LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee
and shall not be assignable or transferable other than by will or the laws of descent and distribution following the Optionee’s
death. Non-Statutory Options shall be subject to the same limitation, except as otherwise determined by the Plan Administrator,
including an assignment to the Optionee’s Immediate Family. To the extent that a Non-Statutory Option is assigned, the assigned
portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment.
The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. Notwithstanding
the foregoing, the Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Two, and those options shall, in accordance with such designation, automatically be transferred to
such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred
option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s
death.
II.
INCENTIVE OPTIONS
The
terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all
the provisions of Articles One and Two shall be applicable to Incentive Options. Options which are specifically designated as
Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II.
A.
ELIGIBILITY. Incentive Options may only be granted to Employees.
B.
EXERCISE PRICE. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C.
DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates
of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or
any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options
as Incentive Options shall be applied on the basis of the order in which such options are granted. To the extent that the options
exceed this limit, the excess amount shall be considered Non-Statutory Options.
D.
FAILURE TO QUALIFY AS INCENTIVE OPTION. To the extent that any option governed by this Plan does not qualify as an Incentive Option,
by reason of the dollar limitation described in Section II.C of this Article Two or for any other reason, such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
E.
10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share
shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date,
and the option term shall not exceed five (5) years measured from the option grant date.
III.
STOCK APPRECIATION RIGHT TERMS
The
Plan Administrator may grant stock appreciation rights either in conjunction with all or part of any option or without regard
to any option, in each case upon such terms and conditions as the Plan Administrator may establish in its sole discretion, not
inconsistent with the provisions of the Plan. Each stock appreciation right shall be evidenced by one or more documents in the
form approved by the Plan Administrator;
provided
, however, that each such document shall comply with the terms specified
below.
A.
RIGHT TO PAYMENT.
1.
Each stock appreciation right shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof,
the excess of (A) the Fair Market Value of one share of Common Stock on the date of exercise over (B) the per share strike price
of the stock appreciation right.
2.
The Plan Administrator shall determine the method of settlement, form of consideration payable in settlement and method by or
forms in which shares of Common Stock will be delivered or deemed to be delivered to Participants.
3.
The strike price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the stock appreciation right grant date.
B.
EXERCISE AND TERM OF STOCK APPRECIATION RIGHTS.
Each stock appreciation right shall be exercisable at such time or times,
during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents
evidencing the stock appreciation right. However, no stock appreciation right shall have a term in excess of ten (10) years measured
from the stock appreciation right grant date.
C.
EFFECT OF TERMINATION OF SERVICE.
1.
The following provisions shall govern the exercise of any stock appreciation rights held by the Participant at the time of cessation
of Service or death:
(i)
Any stock appreciation right outstanding at the time of the Participant’s cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents
evidencing the stock appreciation right, but no such stock appreciation right shall be exercisable after the expiration of the
stock appreciation right term.
(ii)
Any stock appreciation right held by the Participant at the time of death and exercisable in whole or in part at that time may
be subsequently exercised by the personal representative of the Participant’s estate or by the person or persons to whom
the stock appreciation right is transferred pursuant to the Participant’s will or the laws of inheritance or by the Participant’s
designated beneficiary or beneficiaries of that stock appreciation right.
(iii)
Should the Participant’s Service be terminated for Misconduct or should the Participant otherwise engage in Misconduct while
holding one or more outstanding stock appreciation rights under this Article Two, then all those stock appreciation rights shall
terminate immediately and cease to be outstanding.
(iv)
During the applicable post-Service exercise period, the stock appreciation right may not be exercised in the aggregate for more
than the number of vested shares for which the stock appreciation right is exercisable on the date of the Participant’s
cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the stock appreciation
right term, the stock appreciation right shall terminate and cease to be outstanding for any vested shares for which the stock
appreciation right has not been exercised. However, the stock appreciation right shall, immediately upon the Participant’s
cessation of Service, terminate and cease to be outstanding to the extent the stock appreciation right is not otherwise at that
time exercisable for vested shares.
2.
The Plan Administrator shall have complete discretion, exercisable either at the time a stock appreciation right is granted or
at any time while the stock appreciation right remains outstanding, to:
(i)
extend the period of time for which the stock appreciation right is to remain exercisable following the Participant’s cessation
of Service from the limited exercise period otherwise in effect for that stock appreciation right to such greater period of time
as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the stock appreciation right term,
and/or
(ii)
permit the stock appreciation right to be exercised, during the applicable post-Service exercise period, not only with respect
to the number of vested shares of Common Stock for which such stock appreciation right is exercisable at the time of the Participant’s
cessation of Service but also with respect to one or more additional installments in which the Participant would have vested had
the Participant continued in Service.
D.
STOCKHOLDER RIGHTS. The holder of a stock appreciation right shall have no stockholder rights with respect to the shares subject
to the stock appreciation right until such person shall have exercised the stock appreciation right, received shares of common
stock in connection with such exercise and become a holder of record of the purchased shares.
E.
LIMITED TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. During the lifetime of the Participant, stock appreciation rights shall
be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance
following the Participant’s death, except that the Plan Administrator may structure one or more stock appreciation rights
under the Discretionary Option/Stock Appreciation Right Grant Program so that each such stock appreciation right may be assigned
in whole or in part during the Participant’s lifetime to one or more members of the Participant’s family or to a trust
established exclusively for one or more such family members or to Participant’s former spouse, to the extent such assignment
is in connection with the Participant’s estate plan or pursuant to a domestic relations order. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest in the stock appreciation right pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as those in effect for the stock appreciation right
immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. Notwithstanding the foregoing, the Participant may also designate one or more persons as the beneficiary
or beneficiaries of his or her outstanding stock appreciation rights under this Article Two, and those stock appreciation rights
shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s
death while holding those stock appreciation rights. Such beneficiary or beneficiaries shall take the transferred stock appreciation
rights subject to all the terms and conditions of the applicable agreement evidencing each such transferred stock appreciation
right, including (without limitation) the limited time period during which the stock appreciation right may be exercised following
the Participant’s death.
IV.
CANCELLATION AND REGRANT OF OPTIONS
The
Plan Administrator shall have the authority to effect, from time to time, and with prior approval of the Corporation’s stockholders
and the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option/Stock
Appreciation Right Grant Program (including outstanding options incorporated from the Predecessor Plans) and to grant (i) in substitution
new options or stock appreciation rights covering the same or a different number of shares of Common Stock but with an exercise
price per share calculated based upon the Fair Market Value per share of Common Stock on the new grant date; (ii) stock issuances
(including restricted stock unit awards); (iii) cash; or (iv) other property.
ARTICLE
Three
STOCK
ISSUANCE PROGRAM
I.
STOCK ISSUANCE TERMS
Shares
of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening
option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified
below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to (i) restricted stock unit awards
which entitle the recipients to receive those shares upon the attainment of designated performance goals or in one or more installments
over the Participant’s period of Service or (ii) other share-based awards.
A.
PURCHASE PRICE.
1.
The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than any legal limit required under
state law.
2.
Shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the
Plan Administrator may deem appropriate in each individual instance:
(i)
cash or check made payable to the Corporation for one hundred percent of the Fair Market Value of the shares of Common Stock to
be purchased,
(ii)
past services rendered to the Corporation (or any Parent or Subsidiary),
(iii)
services to be rendered to the Corporation (or any Parent or Subsidiary) during the vesting period, or
(iv)
any other form of legal consideration that may be acceptable to the Plan Administrator.
B.
VESTING PROVISIONS.
1.
Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon
attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to restricted stock unit awards
which shall not deliver shares of Common Stock upon grant, but shall entitle the recipients to receive those shares upon the attainment
of designated performance goals or in one or more installments over the Participant’s period of Service. Upon the attainment
of such performance goals or Service period, fully vested shares of Common Stock shall be issued in satisfaction of those restricted
stock unit awards. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to other stock-based awards
that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of
Common Stock (including, without limitation, securities convertible into shares of Common Stock), as are deemed by the Plan Administrator
to be consistent with the purpose of the Plan. The Plan Administrator shall determine the terms and conditions of such other share-based
awards, subject to the terms of the Plan and any applicable Award Agreement. No other share-based award shall contain a purchase
right or option-like exercise feature.
2.
Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason
of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the
same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements
as the Plan Administrator shall deem appropriate.
3.
Aside from shares of Common Stock underlying unsettled restricted stock unit awards and other share-based awards, the Participant
shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the
right to vote such shares and to receive any regular cash dividends paid on such shares.
4.
Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common
Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness),
the Corporation shall repay to the Participant the
lower
of (i) the cash consideration paid for the surrendered
shares or (ii) the Fair Market Value of those shares at the time of cancellation.
5.
The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock
which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of the Participant’s interest in the shares
of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s
cessation of Service or the attainment or non-attainment of the applicable performance objectives.
6.
Outstanding restricted stock unit and other share-based awards under the Stock Issuance Program shall automatically terminate,
and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals or Service requirements
established for such awards are not attained. The Plan Administrator, however, shall have the discretionary authority to issue
shares of Common Stock under one or more outstanding restricted stock unit awards as to which the designated performance goals
or Service requirements have not been attained.
II.
SHARE ESCROW/LEGENDS
Unvested
shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest
in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those
unvested shares.
ARTICLE
Four
CORPORATE
TRANSACTIONS
I.
PERMITTED ACTIONS
A.
In the event of any reorganization, merger, consolidation, split-up, spin-off, combination, plan of arrangement, take-over bid
or tender offer, repurchase or exchange of shares of Common Stock or other securities of the Corporation or any other similar
corporate transaction or event involving the Corporation (any such action a “Corporate Transaction”), or the Corporation
shall enter into a written agreement to undergo a Corporate Transaction, the Plan Administrator may, in its sole discretion, provide
for any of the following to be effective upon the consummation of the event (or effective immediately prior to the consummation
of the Corporate Transaction, provided that the consummation of the Corporate Transaction subsequently occurs), and no action
taken under this Article Four shall be deemed to impair or otherwise adversely alter the rights of any holder of an Award or beneficiary
thereof:
(i)
either (A) termination of the Award, whether or not vested, in exchange for an amount of cash and/or other property, if any, equal
to the amount that would have been attained upon the exercise of the Award or realization of the Participant’s rights (and,
for the avoidance of doubt, if, as of the date of the occurrence of the Corporate Transaction, the Plan Administrator determines
in good faith that no amount would have been attained upon the exercise of the Award or realization of the Participant’s
rights, then the Award may be terminated by the Company without any payment) or (B) the replacement of the Award with other rights
or property selected by the Plan Administrator, in its sole discretion;
(ii)
that the Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted
for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and prices;
(iii)
that, subject to Article Four, Section I.B. below, the Award shall be exercisable or payable or fully vested with respect to all
shares of Common Stock covered thereby, notwithstanding anything to the contrary in the applicable Award Agreement; or
(iv)
that the Award cannot vest, be exercised or become payable after a date certain in the future, which may be the effective date
of the Corporate Transaction.
B.
No Award Agreement shall accelerate the exercisability of any Award or the lapse of restrictions relating to any Award in connection
with a change-in-control event unless such acceleration occurs upon the consummation of (or effective immediately prior to the
consummation of, provided that the consummation subsequently occurs) such Corporate Transaction.
ARTICLE
Five
MISCELLANEOUS
I.
NO FRACTIONAL SHARES
No
fractional shares of Common Stock shall be issued or delivered pursuant to the Plan, and the Plan Administrator shall determine
whether cash shall be paid in lieu of any fractional shares or whether such fractional shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.
II.
TAX WITHHOLDING
A.
The Corporation’s obligation to deliver shares of Common Stock upon a stock issuance, or the exercise of options or stock
appreciation rights or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable
income and employment tax withholding requirements. The Corporation shall also make appropriate arrangements to satisfy all applicable
foreign tax withholding requirements which may be imposed in connection with the grant or exercise of options or stock appreciation
rights under the Plan or the issuance or vesting of shares of Common Stock under the Plan.
B.
The Plan Administrator may, in its discretion, provide in the respective award agreement that (i) the Corporation, in its discretion,
may determine that shares of Common Stock from the award be withheld by the Corporation in satisfaction of all or part of the
Withholding Taxes which may become payable in connection with the an award granted under the Plan (pursuant to Article Five Section
II.B.1.) and (ii) any or all Optionees or Participants under the Plan (other than the non-employee Board members) with the right
to use shares of Common Stock in satisfaction of all or part of the Withholding Taxes to which such individuals may become subject
in connection with the grant or exercise of their options or stock appreciation rights or the issuance or vesting of their shares.
Such right to an individual may be provided to any such holder in either or both of the following formats:
1.
Stock Withholding
: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of options or stock appreciation rights or the issuance or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)
of the minimum Withholding Taxes required by law) designated by the holder.
2.
Stock Delivery
: The election to deliver to the Corporation, at the time the option or stock appreciation right is granted
or exercised or the shares are issued or vest, one or more shares of Common Stock previously acquired by such holder (other than
in connection with the option or stock appreciation right exercise or share vesting triggering the Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%) of the
minimum Withholding Taxes required by law) designated by the holder.
III.
EFFECTIVE DATE AND TERM OF THE PLAN
A.
The Plan shall become effective immediately upon the Plan Effective Date. Options may be granted under the Discretionary Option/Stock
Appreciation Right Grant Program at any time on or after the Plan Effective Date. However, no options granted under the Plan may
be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’s stockholders.
If such stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall
be issued under the Plan.
B.
The Plan shall terminate upon the earliest of (i) the tenth anniversary of the Plan Effective Date, (ii) the tenth anniversary
of the approval of the Plan by the Corporation’s stockholders, (iii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iv) the termination of all outstanding awards in connection with
a Change in Control. Upon such Plan termination, all option grants and unvested stock issuances outstanding at that time shall
thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances.
IV.
AMENDMENT OF THE PLAN
A.
The Board shall have complete and exclusive power and authority to amend or modify the Plan or any outstanding award granted under
the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations
with respect to stock options, stock appreciation rights or unvested stock issuances at the time outstanding, including restricted
stock unit awards or other share-based awards, under the Plan unless the Optionee or the Participant consents to such amendment
or modification. Notwithstanding the foregoing, any amendment to either increase the number of shares that may be issued under
the Plan or the Persons eligible to receive awards under the Plan shall require stockholder approval. In addition, certain amendments
may require stockholder approval pursuant to applicable laws or regulations.
B.
Options to purchase shares of Common Stock may be granted under the Discretionary Option/Stock Appreciation Right Grant Program
and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of
shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held
in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common
Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the
date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the
short term applicable federal rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically
cancelled and cease to be outstanding.
V.
USE OF PROCEEDS
Any
cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI.
REGULATORY APPROVALS
A.
The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock
(i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation’s
procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B.
No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any
stock exchange (or the Nasdaq Stock Market, if applicable) on which Common Stock is then listed for trading.
VII.
NO EMPLOYMENT/SERVICE RIGHTS
Nothing
in the Plan shall confer upon any Optionee or Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining
such person) or of any Optionee or Participant, which rights are hereby expressly reserved by each, to terminate such person’s
Service at any time for any reason, with or without cause.
VIII.
SECTION 162(m)
A.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
It
is the intent of the Corporation that any options or stock appreciation rights granted under the Plan to a “covered employee”
(as that term is defined in Section 162(m) of the Code) with an exercise price of not less than the Fair Market Value per share
of Common Stock on the date of grant shall qualify as “qualified performance-based compensation” (within the meaning
of Treas. Reg. § 1.162-27(e)) to the extent that options or stock appreciation rights granted under the Plan may qualify
as “qualified performance-based compensation” and the Plan shall be interpreted consistently with such intent. In
furtherance of the foregoing, if and to the extent that the Corporation intends that an option or a stock appreciation right granted
under the Plan to any covered employee shall qualify as qualified performance-based compensation, all decisions regarding the
grant of such option or stock appreciation right shall be made only by members of the Committee who qualify as “outside
directors” within the meaning of Treas. Reg. § 1.162-27(e)(3).
B.
PERFORMANCE AWARDS.
The
Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure (i) cash bonuses,
(ii) stock options, (iii) stock appreciation rights and (iv) stock issuances, including restricted stock unit awards and other
share-based awards, so that (x) the cash bonuses are only payable, (y) the shares of Common Stock received upon exercise of the
stock option or stock appreciation right and (z) the shares of Common Stock subject to such stock issuances shall only vest or
be issuable upon the achievement of certain pre-established objective corporate performance goals based on one or more of the
following criteria: (1) earnings per share; (2) revenues or margins; (3) cash flow; (4) operating margin; (5) return on net assets,
investment, capital, or equity; (6) direct contribution; (7) net income; pretax earnings; (8) earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization; earnings after interest expense and before extraordinary or special
items; operating income; income before interest income or expense, unusual items and income taxes, local, state or federal and
excluding budgeted and actual bonuses which might be paid under any ongoing bonus plans of the Company; (9) working capital; (10)
management of fixed costs or variable costs; (11) identification or consummation of investment opportunities or completion of
specified projects in accordance with corporate business plans, including strategic mergers, acquisitions or divestitures; (12)
total shareholder return; (13) debt reduction; (14) costs or expenses; (15) ratios (including one or more of price-to-earnings,
debt-to-assets, debt-to-net assets and ratios regarding liquidity, solvency, fiscal capacity, productivity or risk); (16) unit
volume; (17) value creation; (18) market share; (19) market capitalization; (20) employee retention; (21) production metrics;
and (22) stock price. In addition, such performance goals may be based upon the attainment of specified levels of the Corporation’s
performance under one or more of the measures described above relative to the performance of other entities and may also be based
on the performance of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Performance goals
may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified
portions of an award will be earned and a maximum level of performance at which an award will be fully earned. In furtherance
of the foregoing, if and to the extent that the Corporation intends that an award granted under the Plan pursuant to this paragraph
to any covered employee shall qualify as qualified performance-based compensation, all decisions regarding the grant of such award
shall be made only by members of the Committee who qualify as “outside directors” within the meaning of Treas. Reg.
§ 1.162-27(e)(3).
IX.
SECTION 409A
Notwithstanding
anything in the Plan or any Award Agreement to the contrary, to the extent that any amount or benefit that constitutes “deferred
compensation” to a Participant under Section 409A and applicable guidance thereunder is otherwise payable or distributable
to a Participant under the Plan or any Award Agreement solely by reason of the occurrence of a change in control or due to the
Participant’s disability or “separation from service” (as such term is defined under Section 409A), such amount
or benefit will not be payable or distributable to the Participant by reason of such circumstance unless the Committee determines
in good faith that (i) the circumstances giving rise to such change in control event, disability or separation from service meet
the definition of a change in control event, disability, or separation from service, as the case may be, in Section 409A(a)(2)(A)
of the Code and applicable proposed or final regulations, or (ii) the payment or distribution of such amount or benefit would
be exempt from the application of Section 409A by reason of the short term deferral exemption or otherwise. Any payment or distribution
that otherwise would be made to a Participant who is a Specified Employee (as determined by the Committee in good faith) on account
of separation from service may not be made before the date which is six months after the date of the Specified Employee’s
separation from service (or if earlier, upon the Specified Employee’s death) unless the payment or distribution is exempt
from the application of Section 409A by reason of the short term deferral exemption or otherwise.
APPENDIX
The
following definitions shall be in effect under the Plan:
A.
ASSUMED OPTIONS shall mean the stock options assumed by the Corporation from Acacia Research that were exercisable for Acacia
Research - CombiMatrix stock and which include, but are not limited to, the options outstanding as of the date of the Transaction
that were granted under the Acacia Research Corporation 2002 CombiMatrix Stock Incentive Plan, the CombiMatrix Corporation 1998
Stock Option Plan, the CombiMatrix Corporation 2000 Stock Awards Plan and the Acacia Research Corporation 1996 Stock Option Plan.
B.
AWARD shall mean a stock option or stock appreciation right granted under the Discretionary Option/Stock Appreciation Grant Program
pursuant to Article Two of the Plan or a grant of unvested shares of Common Stock, a restricted stock unit or other share-based
awards granted under the Stock Issuance Program pursuant to Article Three of the Plan.
C.
AWARD AGREEMENT shall mean the document(s) evidencing a grant of an option or stock appreciation right under the Discretionary
Option/Stock Appreciation Right Grant Program or a Stock Issuance Agreement.
D.
BOARD shall mean the Corporation’s Board of Directors.
E.
CERTIFICATE OF INCORPORATION shall mean the Certificate of Incorporation of CombiMatrix Corporation filed with the Delaware Secretary
of State on the Plan Effective Date and all subsequent amendments, supplements, modifications and replacements thereof.
F.
CODE shall mean the Internal Revenue Code of 1986, as amended.
G.
COMMITTEE shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary
Option/Stock Appreciation Right Grant Program with respect to Section 16 Insiders.
H.
COMMON STOCK shall mean the Corporation’s Common Stock (as defined in the Certificate of Incorporation).
I.
CORPORATION shall mean CombiMatrix Corporation, a Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of CombiMatrix Corporation, which shall by appropriate action adopt the Plan.
J.
DISCRETIONARY OPTION/STOCK APPRECIATION RIGHT GRANT PROGRAM shall mean the Discretionary Option/Stock Appreciation Right Grant
Program in effect under Article Two of the Plan.
K.
EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control
and direction of the employer entity as to both the work to be performed and the manner and method of performance.
L.
EXECUTIVE OFFICER COMMITTEE
shall mean the committee comprised of two (2) or more executive officers of the Corporation
appointed by the Board to administer the Discretionary Option/Stock Appreciation Right Grant Program and Stock Issuance Program
with respect to persons other than Section 16 Insiders, but subject to the applicable limitations and requirements of the Delaware
Corporate Law.
M.
EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise.
N.
FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(i)
If the Common Stock is at the time traded on the Nasdaq Stock Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is reported on the Nasdaq Stock Market. If there is no
closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii)
If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there
is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii)
If the Common Stock is at the time not traded on the Nasdaq Stock Market or listed on any Stock Exchange, but is regularly traded
in any over-the-counter market, then the Fair Market Value shall be the average of the bid and asked prices per share of Common
Stock in such over-the-counter market on the date in question. If there are no bid and asked prices on the date in question, then
the Fair Market Value shall be the average of the bid and asked prices in such over-the-counter market on the last preceding date
for which such prices exist.
(iv)
If the Common Stock is at the time not traded as described in (i), (ii) or (iii) above, then the Fair Market Value of a share
of Common Stock shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate.
O.
IMMEDIATE FAMILY shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and shall include adoptive relationships.
P.
INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.
Q.
MISCONDUCT shall, with respect to any Participant, have the meaning specified in the Participant’s award agreement. In the
absence of any definition in the award agreement, “Misconduct” shall have the equivalent meaning or the same meaning
as “misconduct” or “cause” set forth in any employment, consulting or other agreement for the performance
of services between the Participant and the Corporation or, in the absence of any such agreement or any such definition in such
agreement, such term shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant,
any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary)in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts
or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any
Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary).
R.
1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S.
NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422.
T.
OPTIONEE shall mean any person to whom an option is granted under the Discretionary Option Grant Program.
U.
PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such
chain.
V.
PARTICIPANT shall mean any person who is issued shares of Common Stock, restricted stock units or other share-based awards under
the Stock Issuance Program.
W.
PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death
or to be of continuous duration of twelve (12) months or more.
X.
PLAN shall mean the Corporation’s 2006 Stock Incentive Plan, as amended and as set forth in this document.
Y.
PLAN ADMINISTRATOR shall mean the particular body, whether the Committee or the Board, which is authorized to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to the persons under its jurisdiction.
Z.
PLAN EFFECTIVE DATE shall mean the date on which the Plan, as amended and restated, is approved by the stockholders of the Corporation.
AA.
SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section
16 of the 1934 Act.
BB.
SERVICE shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of
an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise
specifically provided in the documents evidencing the option grant or stock issuance.
CC.
SPECIFIED EMPLOYEE shall mean a specified employee as defined in Section 409A(a)(2)(B) of the Code or applicable proposed or final
regulations under Section 409A, determined in accordance with procedures established by the Corporation and applied uniformly
with respect to all plans maintained by the Corporation that are subject to Section 409A.
DD.
STOCK EXCHANGE shall mean the Nasdaq Stock Market, the American Stock Exchange or the New York Stock Exchange.
EE.
STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the Corporation and the Participant at the time of issuance
of shares of Common Stock under the Stock Issuance Program which may grant restricted stock, restricted stock unit or other share-based
awards.
FF.
STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under Article Three of the Plan.
GG.
SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation,
provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations
in such chain.
HH.
10% STOCKHOLDER shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
II.
WITHHOLDING TAXES shall mean the minimum Federal, state and local income and employment withholding taxes to which the holder
of options, stock appreciation rights, unvested shares of Common Stock, restricted stock units or other share-based awards may
become subject in connection with the exercise or vesting of such Awards.
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