UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

OncoCyte Corporation
 (Exact name of registrant as specified in its charter)

California
27-1041563
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

1301 Harbor Bay Parkway, Suite 100
Alameda, California 94502
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (510) 521-3390

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value

Securities to be registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer T (Do not check if a smaller reporting company)                
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No T
 

 


INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

Certain information required to be included in this Form 10 is incorporated by reference to specifically-identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

Item 1. Business

The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” Those sections are incorporated herein by reference.

Item 1A. Risk Factors

The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.

Item 2. Financial Information

The information required by this item is contained under the sections of the information statement entitled “Summary and Selected Financial Data,” “Capitalization,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those sections are incorporated herein by reference.

Item 3. Properties

The information required by this item is contained under the section of the information statement entitled “Business – Manufacturing – Facilities Required.” That section is incorporated herein by reference.

Item 4. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management.” That section is incorporated herein by reference.

Item 5. Directors and Executive Officers

The information required by this item is contained under the section of the information statement entitled “Management” and “Security Ownership of Certain Beneficial Owners and Management.” Those sections are incorporated herein by reference.

Item 6. Executive Compensation

The information required by this item is contained under the sections of the information statement entitled “Management – Compensation of Directors” and “Executive Compensation.” Those sections are incorporated herein by reference.

Item 7. Certain Relationships and Related Party Transactions; and Director Independence

The information required by this item is contained under the sections of the information statement entitled “Risk Factors – Risks Related to our Relationship with BioTime,” “Management,” “Executive Compensation,” and “Security Ownership of Certain Beneficial Owners and Management – Certain Relationships and Related Party Transactions.” Those sections are incorporated herein by reference.

Item 8. Legal Proceedings

The information required by this item is contained under the section of the information statement entitled “Business – Legal Proceedings.” This section is incorporated herein by reference.
 
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Item 9. Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters

The information required by this item is contained under the sections of the information statement entitled “Risk Factors,” “Dividend Policy,” “Capitalization,” “The Distribution,” “Shares Eligible for Future Sale,” and “Description of Securities.” Those sections are incorporated herein by reference.

Item 10. Recent Sales of Unregistered Securities

The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management — Certain Relationships and Related Party Transactions.” That section is incorporated herein by reference.

Item 11. Description of Registrant’s Securities to be Registered

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy” and “Description of Securities.” Those sections are incorporated herein by reference.

Item 12. Indemnification of Directors and Officers

The information required by this item is contained under the section of the information statement entitled “Management — Indemnification of Directors and Officers.” That section is incorporated herein by reference.

Item 13. Financial Statements and Supplementary Data

The information required by this item is contained under the sections of the information statement entitled “Index to Audited Financial Statements” (and the financial statements referenced therein) and “Index to Unaudited Condensed Interim Financial Statements” (and the financial statements referenced therein). Those sections are incorporated herein by reference.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
 
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Item 15. Financial Statement and Exhibits

(a) Financial Statements

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” (and the financial statements referenced therein). That section is incorporated herein by reference.

(b) Exhibits.

Exhibit Number
 
Exhibit Description
                
 
                                                
 
Articles of Incorporation, as amended*
     
 
By-Laws, as amended*
     
4.1
 
Specimen of Common Stock Certificate†
     
 
Shared Facilities Agreement, dated October 8, 2009 between OncoCyte Corporation and BioTime, Inc.*
     
 
Stock Option Plan, as amended*
     
 
Form of Employee Incentive Stock Option Agreement*
     
 
Form of Director/Consultant Option Agreement*
     
 
Employment Agreement, dated April 1, 2011, between OncoCyte Corporation and Karen Chapman*
     
 
Employment Agreement, dated June 15, 2015, between OncoCyte Corporation and William Annett*
     
 
Employment Agreement, dated August 1, 2015, between OncoCyte Corporation and Kristine Mechem *
     
 
Registration Rights Agreement dated October 15, 2009*
     
 
Amendment of Registration Rights Agreement, dated August 23, 2011*
     
 
Second Amendment of Registration Rights Agreement, dated May 8, 2015*
     
 
Subscription Agreement, dated May 8, 2015, between OncoCyte Corporation and George Karfunkel*
     
 
Subscription Agreement, dated May 8, 2015, between OncoCyte Corporation and Bernard Karfunkel*
     
 
Convertible Promissory Note, dated May 8, 2015, payable to BioTime, Inc.*
     
 
Agreement, dated June 26, 2015, between OncoCyte Corporation and George Karfunkel and Bernard Karfunkel*
     
 
Sponsored Research Agreement, dated September 18, 2013, between OncoCyte Corporation and The Wistar Institute of Anatomy and Biology (Portions of this exhibit have been omitted pursuant to a request for confidential treatment)*
     
 
First Amendment to the Sponsored Research Agreement, dated August 6, 2015, between OncoCyte Corporation and The Wistar Institute of Anatomy and Biology (Portions of this exhibit have been omitted pursuant to a request for confidential treatment)*
 
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Subscription Agreement, dated September 29, 2015, between OncoCyte Corporation and    BioTime, Inc.*
     
10.18   Second Amendment to the Sponsored Research Agreement, dated October 18, 2015, between OncoCyte Corporation and The Wistar Institute of Anatomy and Biology (Portions of this exhibit have been omitted pursuant to a request for confidential treatment)*
     
 
Information Statement of OncoCyte Corporation, preliminary and subject to completion, dated November 23, 2015*

* Filed herewith.

† To be filed by amendment.
 
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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized on the 23 rd day of November, 2015.

 
ONCOCYTE CORPORATION
   
 
By: 
/s/ William Annett
   
William Annett
   
Chief Executive Officer

 
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Exhibit 3.1
 
ARTICLES OF INCORPORATION
OF
ONCOCYTE CORPORATION

ONE: The name of this corporation is OncoCyte Corporation.

TWO: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code.

THREE: The name and address in this State of the corporation’s initial agent for service of process is:

Judith Segall
1301 Harbor Bay Parkway, Suite 100
Alameda, California 94502

FOUR: The corporation is authorized to issue two classes of shares, which shall be designated “Common Stock” and “Preferred Stock.”  The number of shares of Common Stock which the corporation is authorized to issue is 50,000,000, and the number of shares of Preferred Stock which the corporation is authorized to issue is 5,000,000.  The Preferred Stock may be issued in one or more series as the board of directors may by resolution designate.  The board of directors is authorized to fix the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon the Preferred Stock as a class, or upon any wholly unissued series of Preferred Stock.  The board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of Preferred Stock subsequent to the issue of shares of that series.

FIVE: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.  The corporation is authorized to indemnify “agents”, as such term is defined in Section 317 of the California Corporations Code, to the fullest extent permissible under California law.

DATED: September 3, 2009

 
/s/Richard S. Soroko
 
Richard S. Soroko, Incorporator
 

CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION

Joseph Wagner and Judith Segall certify that:
 
1.                They are the President and Secretary, respectively, of OncoCyte Corporation, a California corporation.

2.                Article FOUR of the Articles of Incorporation of the corporation is amended to read as follows:

FOUR: The corporation is authorized to issue two classes of shares, which shall be designated “Common Stock” and “Preferred Stock.”  The number of shares of Common Stock which the corporation is authorized to issue is 100,000,000, and the number of shares of Preferred Stock which the corporation is authorized to issue is 5,000,000.  The Preferred Stock may be issued in one or more series as the board of directors may by resolution designate.  The board of directors is authorized to fix the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon the Preferred Stock as a class, or upon any wholly unissued series of Preferred Stock.  The board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of Preferred Stock subsequent to the issue of shares of that series.

3.               The foregoing amendment of Articles of Incorporation has been duly approved by the board of directors.

4.               The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with section 902 of the Corporations Code.  The total number of outstanding shares of Common Stock of the corporation entitled to vote with respect to the amendment was 36,400,000.  The number of   shares of Common Stock voting in favor of the amendment equaled or exceeded the vote required.  The percentage vote required was more than 50%.  There are no Preferred Shares of the corporation issued and outstanding.

We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

Executed at Alameda, California on April 2, 2015.

 
/s/Joseph Wagner
 
Joseph Wagner,
 
President
   
 
/s/Judith Segall
 
Judith Segall, Secretary
 

CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION

William Annett and Judith Segall certify that:

1.         They are the President and Secretary, respectively, of OncoCyte Corporation, a California corporation.

2.         Article FOUR of the Articles of Incorporation of the corporation is amended to read as follows:

FOUR: The corporation is authorized to issue two classes of shares, which shall be designated “Common Stock” and “Preferred Stock.” The number of shares of Common Stock which the corporation is authorized to issue is 50,000,000, and the number of shares of Preferred Stock which the corporation is authorized to issue is 5,000,000. The Preferred Stock may be issued in one or more series as the board of directors may by resolution designate. The board of directors is authorized to fix the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon the Preferred Stock as a class, or upon any wholly unissued series of Preferred Stock. The board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of Preferred Stock subsequent to the issue of shares of that series. Upon the amendment of this Article to read as herein set forth, each outstanding share of Common Stock is converted into 0.5 of a share of Common Stock.

3.         The foregoing amendment of Articles of Incorporation has been duly approved by the board of directors.

4.         The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with section 902 of the Corporations Code. The total number of outstanding shares of Common Stock of the corporation entitled to vote with respect to the amendment was 47,827,714. The number of   shares of Common Stock voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. There are no Preferred Shares of the corporation issued and outstanding.

We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

Executed at Alameda, California on November 17, 2015.

 
/s/William Annett
 
William Annett, President
   
 
/s/Judith Segall
 
Judith Segall, Secretary

 


Exhibit 3.2
 
BYLAWS OF
ONCOCYTE CORPORATION
a California corporation

ARTICLE I
Offices

Section 1.  Principal Office .  Offices may be established and maintained at such place or places, either within or without the State of California, as the Board of Directors may from time to time designate.  The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or without the State of California.  If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the Board of Directors shall fix and designate a principal business office in the State of California.

ARTICLE II
Meetings of Shareholders

Section 1.  Place of Meetings .  All meetings of shareholders shall be held at such place, either within or without the State of California, as the Board of Directors may designate.  If no designation is made, the meeting shall be held at the principal executive office of the corporation.

Section 2.  Annual Meetings .  The annual meetings of shareholders shall be held once each year on a date and time designated by the Board of Directors, but in any event not less frequently than once every 15 months.  At each annual meeting, directors shall be elected to serve during the ensuing year and until their successors are elected and qualified; reports of the affairs of the corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders.

Section 3.  Special Meetings .  Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Chairman of the Board or by the President, or by the Board of Directors, or by any two directors, or by one or more shareholders entitled to cast not less than 10% of the votes eligible to be cast at that meeting.
 

Upon request in writing to the Chairman of the Board, the President, any Vice President or the Secretary, specifying the general nature of the business proposed to be transacted, sent by certified mail or telegraphic or other electronic facsimile transmission or delivered to such officer in person, by any person or persons (other than the Board of Directors) entitled to call a special meeting of shareholders, it shall be the duty of such officer forthwith to cause notice to be given to the shareholders entitled to vote that a meeting will be held on a date requested by the person or persons calling the meeting; provided, that the date of the meeting requested by such person or persons calling the meeting shall be not less than 35 nor more than 60 days after the receipt of such request.  If such notice shall not be given within 20 days after the date of receipt of such request, the person or persons entitled to call the meeting may fix the time of meeting and give the notice thereof in the manner provided by law or in these bylaws.  Nothing in this paragraph shall limit, fix, or affect the time or notice requirements for shareholder meetings called by the Board of Directors.

Section 4.  Notice of Shareholders' Meetings .  All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than 10 (or, if sent by third class mail, 30) nor more than 60 days before the date of the meeting.  The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders.  The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election.

If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code, (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the California Corporations Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the California Corporations Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the California Corporations Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the California Corporations Code, the notice shall also state the general nature of that proposal.

Section 5.  Manner of Giving Notice; Affidavit of Notice.   Notice of any meeting of shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice.  If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located.  Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.
 
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If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of 1 year from the date of the giving of the notice.
 
An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the Secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation.

Section 6.  Quorum .  The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting, annual or special, shall constitute a quorum for the transaction of business.  The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 7.  Adjourned Meeting and Notice Thereof .  Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy, but in the absence of a quorum at the commencement of the meeting, or if no quorum can be subsequently raised, no other business may be transacted at such meeting.

When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place are announced at the meeting at which the adjournment is taken, provided that if the adjournment is for more than forty-five (45) days from the date set for the original meeting, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.  At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
 
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Section 8.  Voting .  The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the California Corporations Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership).  The shareholders' vote may be by voice vote or by ballot, provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun.  On any matter other than the election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remainder shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote.  If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by California General Corporation Law or by the articles of incorporation.

At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder's shares) unless the candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes.  If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit.  The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.

Section 9.  Consent of Absentees .  The transactions of any meeting of shareholders, either annual or special, however called and noticed and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof.  The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that, if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
 
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Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting.

Section 10.  Shareholder Action by Written Consent Without a Meeting.   Any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted.  In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors, provided, however, that a director may be elected at any time to fill a vacancy on the Board of Directors other than a vacancy created by removal of a director, that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors.  All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records.  Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares to authorize the proposed action have been filed with the Secretary.
 
If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of the corporation action approved by the shareholders without a meeting.  This notice shall be given in the manner specified in Section 5 of this Article II.  In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code, (ii) indemnification of agents of the corporation, pursuant to Section 317 of the California Corporations Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the California Corporations Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the California Corporations Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval.
 
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Section 11.  Record Date for Shareholder Notice, Voting, and Giving Consents .  For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any meeting or action, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law.

If the Board of Directors does not so fix a record date:

(a)  The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(b)  The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the Board of Directors has been taken, shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to that action, or the 60th day before the date of such other action, whichever is later.

Section 12.  Proxies .  Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation.  A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney-in-fact.  A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted, provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided for in the proxy.  The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the California Corporations Code.
 
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Section 13.  Inspectors of Election .  Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment.  If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting.  The number of inspectors shall be either one (1) or three (3).  If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed.  If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy.

These inspectors shall:

(a)  Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies;

(b)  Receive votes, ballots or consents;

(c)  Hear and determine all challenges and questions in any way arising in connection with the right to vote;

(d)  Count and tabulate all votes or consents;

(e)  Determine when the polls shall close;

(f)  Determine the result; and

(g)  Do any other acts that may be proper to conduct the election or voting with fairness to all shareholders.
 
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ARTICLE III
Directors
 
Section 1.  Powers .  Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

Section 2.  Number and Qualification of Directors .  The authorized number of directors shall be not less than three (3) nor more than five (5) and, and the exact number of directors shall be fixed, within the limits specified, by approval of the board of directors.  After the issuance of shares, the provisions of this bylaw may be changed only by a duly adopted amendment adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, in accordance with the provisions of Section 212 of the California Corporations Code.

Section 3.  Election and Term of Office .  The directors shall be elected at each annual meeting of shareholders but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose.  All directors shall hold office until their respective successors are elected, or until death, resignation or removal.

Section 4.  Vacancies .  Vacancies in the Board of Directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote.  Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified.

A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting.
 
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The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.

Any director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective.  Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.  If the resignation of a director is effective at some future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.

No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.

Section 5.  Place of Meetings and Meetings by Telephone .  Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board of Directors.  In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation.  Special meetings of the Board of Directors shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at a principal executive office of the corporation.  Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting.

Section 6.  Regular Meetings .  Regular meetings of the Board of Directors shall be held, without call or notice, immediately following each annual meeting of shareholders for the purpose of organization, election of officers and the transaction of other business.  Other regular meetings may be held without call or notice at such time and place as may be fixed by the Board of Directors from time to time.

Section 7.  Special Meetings .  Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board or the President or the Secretary or any two directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation.  In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting.  In case the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegram corportion at least forty-eight (48) hours before the time of the holding of the meeting.  Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director.  The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.
 
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Section 8.  Action Without Meeting .  Any action by the Board of Directors may be taken without a meeting if all members of the Board of Directors shall individually or collectively consent in writing to such action.  Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors.

Section 9.  Quorum .  A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided.  Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 310 of the California Corporations Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the California Corporations Code (as to appointment of committees), and Section 317(e) of the California Corporations Code (as to indemnification of directors).  A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

Section 10.  Waiver of Notice .  The transactions of any meeting of the Board of Directors, however called or noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.  Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director.

Section 11.  Adjournment .  A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
 
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Section 12.  Notice of Adjournment .  Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 7 of this Article III, to the directors who were not present at the time of the adjournment.

Section 13.  Fees and Compensation .  Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors.  This Section 13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services.

Section 14.  Removal of Directors .  The entire Board of Directors or any individual director may be removed as provided by law.

Section 15.  Conduct of Meetings .  Directors' meetings shall be presided over by the Chairman of the Board, or, in the absence of the Chairman of the Board, by the President, or in the absence of both such officers, by a director chosen by a majority of the directors present.  The Secretary of the corporation shall act as secretary of the meetings of the Board of Directors.  In case the Secretary shall be absent from any meeting, the presiding officer may appoint any person to act as secretary of the meeting.

ARTICLE IV
Committees

Section 1.  Committees of Directors .  The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board of Directors.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee.  Any committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors, except with respect to:

(a)  the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval of the outstanding shares;

(b)  the filling of vacancies on the Board of Directors or on any committee;
 
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(c)  the fixing of compensation of the directors for serving on the Board of Directors or on any committee;

(d)  the amendment or repeal of the bylaws or the adoption of new bylaws;

(e)  the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable;

(f)   a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board of Directors; or

(g)  the appointment of any other committees of the Board of Directors or the members of such committees.

Section 2.  Meetings and Action of Committees .  Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 5 (place of meetings), 6 (regular meetings), 7 (special meetings and notice), 8 (action without meeting), 9 (quorum), 10 (waiver of notice), 11 (adjournment), and 12 (notice of adjournment), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; special meetings of committees may also be called by resolution of the Board of Directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee.  The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

ARTICLE V
Officers

Section 1.  Designation .  The officers of the corporation shall be a President, a Secretary and a Chief Financial Officer.  The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article.  Any number of offices may be held by the same person.
 
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Section 2.  Election .  The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors, and each shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment approved by the Board of Directors.

Section 3.  Subordinate Officers, etc .  The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the Board of Directors may from time to time determine.

Section 4.  Removal and Resignation .  Subject to his or her rights, if any, under any contract of employment, any officer may be removed, either with or without cause by the Board of Directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the corporation.  Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.  Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

Section 5.  Vacancies .  A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office.

Section 6.  Chairman of the Board .  The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the bylaws.  If there is no President, the Chairman of the Board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V.
 
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Section 7.  President .  Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall have general supervision, direction and control of the business and officers of the corporation.  The President shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or, if there be none, at all meetings of the Board of Directors.  The President shall be ex officio a member of all the standing committees, including the executive committee, if any.  The President may sign and execute, in the name of the corporation, deeds, mortgages, bonds, notes, contracts and other instruments authorized by the Board of Directors, and, in general, shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the bylaws.

Section 8.  Vice Presidents .  In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President.  The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the bylaws, and the President, or the Chairman of the Board.

Section 9.  Secretary .  The Secretary shall keep or cause to be kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of directors, committees of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.

The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give notice, or cause notice to be given, of all the meetings of the shareholders and of the Board of Directors of Directors as law or the bylaws require notice to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the bylaws.
 
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Section 10.  Chief Financial Officer .  The Chief Financial Officer, who may be designated as the Treasurer, shall keep and maintain, or cause to be kept and maintained, adequate and correct books and accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares.

The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors.  The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.

Section 11.  Salaries .  The salaries of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation.

ARTICLE VI
Indemnification of Directors, Officers, Employees, and Other Agents

Section 1.  Agents, Proceedings, and Expenses .  For the purposes of this Article, "agent" means any person who is or was a director, officer, employee, or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 4 or Section 5(c) of this Article.

Section 2.  Actions Other Than by the Corporation .  This corporation shall, to the maximum extent permitted by the California General Corporation Law, indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct of was unlawful.  The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that his conduct was unlawful.
 
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Section 3.  Actions by the Corporation .  This corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this corporation to procure a judgment in its favor by reason of the fact that person is or was an agent of this corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of this corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.  No indemnification shall be made under this Section 3:

(a)  In respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to this corporation in the performance of that person's duty to this corporation, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;

(b)  Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or

(c)  Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.

Section 4.  Successful Defense by Agent .  To the extent that an agent of this corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

Section 5.  Required Approval .  Except as provided in Section 4 of this Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by:
 
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(a)  A majority vote of a quorum consisting of directors who are not parties to the proceeding;

(b)  Approval by the affirmative vote of a majority of the shares of this corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote.  For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or

(c)  The court in which the proceeding is or was pending, on application made by this corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation.

Section 6.  Advance of Expenses .  Expenses incurred in defending any proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article.

Section 7.  Other Contractual Rights .  Nothing contained in this Article shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise.

Section 8.  Limitations .  No indemnification or advance shall be made under this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears:

(a)  That it would be inconsistent with a provision of the articles, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(b)  That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
 
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Section 9.  Insurance .  Upon and in event of a determination by the Board of Directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section.

Section 10.  Fiduciaries of Corporate Employee Benefit Plan .  This Article does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of the corporation as defined in Section 1 of this Article.  Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article.

ARTICLE VII
Records and Reports

Section 1.  Maintenance and Inspection of Share Register .  The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the Board of Directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder.

A shareholder or shareholders of the corporation holding at least 5% in the aggregate of the outstanding voting shares of the corporation may (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours on 5 days prior written demand on the corporation, and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand.  This list shall be made available to any such shareholder by the transfer agent on or before the later of 5 days after the demand is received or the date specified in the demand as the date as of which the list is to be compiled.  The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate.  Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.
 
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Section 2.  Maintenance and Inspection of Bylaws .  The corporation shall keep at its principal executive office, or, if its principal executive office is not in the State of California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours.  If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in this state, the Secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the bylaws as amended to date.

Section 3.  Maintenance and Inspection of Other Corporate Records .  The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and any committee or committees of the Board of Directors shall be kept at such place or places designated by the Board of Directors, or, in the absence of such designation, at the principal executive office of the corporation.  The minutes shall be kept either in written form or in any other form capable of being converted into written form.  The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate.  The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts.  These rights of inspection shall extend to the records of each subsidiary corporation of the corporation.

Section 4.  Inspection by Directors .  Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations.  This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

Section 5.  Annual Report to Shareholders .  The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders of the corporation as they consider appropriate.

Section 6.  Financial Statements .  A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for 12 months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder.
 
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If a shareholder or shareholders holding at least 5% of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then-current fiscal year ended more than 30 days before the date of the request, and a balance sheet of the corporation as of the end of that period, the Chief Financial Officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within 30 days after the receipt of the request.  If the corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to the shareholder or shareholders within 30 days after the request.

The corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared, and a balance sheet as of the end of that period.

The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation stating that the financial statements were prepared without audit from the books and records of the corporation.

Section 7.  Annual Statement of General Information .  The corporation shall annually file with the Secretary of State of the State of California, on the prescribed form, setting forth the authorized number of directors, the names and complete business or residence addresses of all incumbent directors, the names and complete business or residence addresses of the Chief Executive Officer, Secretary, and Chief Financial Officer, the street address of its principal executive office or principal office in this state, and the general type of business constituting the principal business activity of the corporation for the purpose of service of process, all in compliance with Section 1502 of the California Corporations Code.
 
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ARTICLE VIII
General Corporate Matters
                                
Section 1.  Record Date for Purposes Other Than Notice and Voting .  For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days before any such action, and in that case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law.

If the Board of Directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the applicable resolution or the 60th day before the date of that action, whichever is later.

Section 2.  Checks, Drafts, Evidences of Indebtedness .  All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors.

Section 3.  Corporation Contracts and Instruments; How Executed .  The Board of Directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

Section 4.  Certificates for Shares .  A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the Board of Directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid.  All certificates shall be signed in the name of the corporation by the Chairman of the Board, or Vice Chairman of the Board, or the President, or a Vice President, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder.  Any or all of the signatures on the certificate may be facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
 
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Section 5.  Lost Certificates .  Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and canceled at the same time.  The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Board of Directors may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.

Section 6.  Representation of Shares of Other Corporations .  The Chairman of the Board, the President, or any Vice President, or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation.  The authority granted to these officers to vote on behalf of or represent the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers.

Section 7.  Construction and Definitions .  Unless the context requires otherwise, the general provisions, rules of construction and definitions in the California General Corporation Law shall govern the construction of these bylaws.  Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, the use of the masculine includes the feminine and neuter, and the term "person" includes both a corporation and a natural person.
 
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ARTICLE IX
Amendments

Section 1. Amendment by Shareholders . New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, provided, however, that, if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation.
 
Section 2.  Amendment by Directors .  Subject to the rights of the shareholders as provided in Section 1 of this Article IX, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors, may be adopted, amended or repealed by the Board of Directors.
 

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CERTIFICATE OF SECRETARY
OF
ONCOCYTE CORPORATION
A California Corporation

I, the undersigned, do hereby certify:

1.    That I am the Secretary of the above-named California corporation.

2.    That the foregoing bylaws, consisting of 20 pages, constitute the bylaws of said corporation as duly adopted by the written consent of the Incorporator thereof dated October 8, 2009.

IN WITNESS WHEREOF, I have hereunto subscribed my name this 8 th day of October 2009.

 
/s/ Steven A. Seinberg
 
 
 Steven A. Seinberg, Secretary
 
 
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AMENDMENT OF BYLAWS
OF
ONCOCYTE CORPORATION
Adopted March 31, 2015

Section 2 of Article III of the Bylaws is amended in its entirety to read as follows:

ARTICLE III
Directors

Section 2. Number and Qualification of Directors . The authorized number of directors shall be not less than four (4) nor more than seven (7) and, and the exact number of directors shall be fixed, within the limits specified, by approval of the board of directors. After the issuance of shares, the provisions of this bylaw may be changed only by a duly adopted amendment adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, in accordance with the provisions of Section 212 of the California Corporations Code.
 
 
 


Exhibit 10.1
 
SHARED FACILITIES AND SERVICES AGREEMENT

This Agreement is made as of October 8, 2009 (the Effective Date ) by and between BioTime, Inc. ( BioTime ) and OncoCyte Corporation ( OncoCyte ).

Recitals

A. OncoCyte is a newly organized corporation that needs office and laboratory space and equipment, and the services of research, financial, management, and administrative personnel support;

B. BioTime subleases certain laboratory, office, and related work space at 1301 Harbor Bay Parkway, Suite 100, Alameda, California (the Premises ) and has surplus capacity at the Premises;

C. BioTime has employees and contractors who provide research, financial, management, and administrative services and is willing to make a portion of their services available to OncoCyte.

1.             Office, Laboratory and Work Space .

(a)              BioTime agrees to permit OncoCyte to use the Premises concurrently with BioTime for the conduct of OncoCyte’s business operations, but only to the extent that (a) the use is a business operation permitted to be conducted by BioTime under the sublease of the Premises, (b) OncoCyte uses the Premises in compliance with all applicable laws, ordinances, and regulations, (c) OncoCyte uses the Premises in compliance with any and all rules and regulations of the sublandlord and master lease landlord under BioTime’s sublease of the Premises, (d) OncoCyte’s use of the Premises does not interfere with BioTime’s use of the Premises.

(b)              BioTime and OncoCyte agree that the permission to use the Premises granted under this Agreement is in the nature of a license only and is not a sublease or assignment of the sublease under which BioTime occupies the Premises, and that OncoCyte shall not obtain any rights, and is not assuming any obligations, under that sublease.

(c)              The use of the Premises by OncoCyte shall be in a lawful, careful, safe, and proper manner, and OncoCyte shall not do or permit anything to be done in or about the Premises that would increase the rate or affect any fire or other insurance covering the Premises.  OncoCyte shall not commit nor suffer any waste on the Premises.

(d)              BioTime does not represent or warrant that the Premises may be used for any particular use or purpose, and OncoCyte has made OncoCyte’s own determination that the Premises may be lawfully used for OncoCyte’s purposes.
 

(e)               OncoCyte shall, at its sole cost and expense, comply with all laws, statutes, ordinances, and governmental rules, regulations, or requirements now in force or that may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting OncoCyte’s use of the Premises.

(f)               OncoCyte shall, at its sole cost and expense,  promptly repair any damage to the Premises caused by any act or omission of OncoCyte or its employees, agents, invitees, licenses, or contractors, including any acts or omissions of BioTime employees, contractors, and agents arising in the course of performing services for or conducting the business of OncoCyte.  Any and all repairs effected by OncoCyte shall be performed in a professional workmanlike manner, by licensed contractors, in compliance with all applicable statutes, codes, rules and regulations, and OncoCyte or OncoCyte’s contractors shall obtain all permits and approvals of government agencies required by applicable laws in connection therewith.

(g)              If BioTime deems any repairs required to be made by OncoCyte necessary, it may demand that OncoCyte make them, and if OncoCyte refuses or neglects to commence such repairs and to complete them with reasonable dispatch, BioTime may make or cause such repairs to be made.  If BioTime makes or causes repairs to be made, BioTime shall not be responsible to OncoCyte for any loss or damage that may accrue to OncoCyte’s business by reason of the repair work, and OncoCyte shall, on demand, immediately pay to BioTime the cost of the repairs.  OncoCyte waives the provisions of Sections 1941 and 1942 of the Civil Code of the State of California and all other statutes or laws permitting repairs by a lessee at the expense of a lessor or to terminate a lease by reason of the condition of the Premises.  OncoCyte shall keep the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by OncoCyte.

(h)              OncoCyte shall not make or install any alterations, improvements, additions, or fixtures that affect the exterior or interior of the Premises or any structural, mechanical, or electrical component of the Premises, or mark, paint, drill, or in any way deface any floors, walls, ceilings, partitions, or any wood, stone, or iron work.

(i)                Under no circumstances shall OncoCyte bring onto the Premises any substances or materials that are characterized or defined as “hazardous substances” or “hazardous materials” under any federal or state law or regulation pertaining to the release of substances into the environment, except for cleaning materials, paints, and solvents that are used, stored, and disposed of by OncoCyte in full compliance with applicable laws.
 
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2.            Equipment and Supplies .  BioTime agrees to permit OncoCyte to use BioTime’s office equipment, laboratory equipment, furniture, laboratory supplies, and general office supplies to the extent that such use does not interfere with the use by the employees, contractors, and agents of BioTime and other BioTime subsidiaries in the course of their business.  BioTime shall have no obligation to obtain or to provide OncoCyte with any additional equipment, furniture, or supplies.  If OncoCyte requires and obtains equipment, furniture, and supplies for its own use it may locate the same at the Premises subject to the conditions and limitations stated in Section 1 of this Agreement, and subject to the additional condition that BioTime shall have the right and sole discretion to (a) determine where in the Premises OncoCyte may locate OncoCyte’s furniture, equipment, and supplies, and (b) preclude OncoCyte from bringing onto or locating any furniture, supplies, or equipment in the Premises if  BioTime determines that it would in any way interfere with BioTime’s use of the Premises, violate any applicable laws, ordinances, and regulations, violate or conflict with any provisions of BioTime’s sublease of the Premises or any rules and regulations of the sublandlord or master landlord under BioTime’s sublease of the Premises, conflict with any term or condition of any policy of casualty or liability insurance held by BioTime, or pose a hazard or other risk to persons or property.

3.             Utilities .  OncoCyte shall be responsible to determine that there is sufficient Utilities capacity in the Premises for purposes of conducting OncoCyte’s use.  Utilities includes electricity, gas, heat, air conditioning, hot and cold domestic water, telephone, scavenger service, garbage removal, sewerage, and other similar services used on, in, or in connection with the Premises.  BioTime does not represent the availability or quantity of any Utilities in the Premises, and is not responsible for any interruption of any Utility service.

4.             Services.

(a)              BioTime shall provide basic accounting, billing, bookkeeping, payroll, treasury, collection of accounts receivable (excluding the institution of legal proceedings or taking of any other action to collect accounts receivable), payment of accounts payable, and other similar administrative services (the Administrative Services ) to OncoCyte.  BioTime may also provide the services of attorneys, accountants, and other professionals who may also provide professional services to BioTime and its other subsidiaries.

(b)               BioTime shall also provide OncoCyte with the services of its laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development work for OncoCyte at the Premises (the Laboratory Services ).  BioTime employees and contractors who perform Laboratory Services for OncoCyte shall enter into agreements containing customary provisions requiring the employees and contractors to (a) maintain the confidentiality and not to disclose OncoCyte trade secrets and other confidential information, and (b) assign to OncoCyte all rights to any inventions and discoveries made by such employees and contractors in the course of performing Laboratory Services for OncoCyte.

(c)               BioTime may, at the request of OncoCtye, provide OncoCyte the services of BioTime employees and contractors, including but not limited to executive officers, for matters other than Administrative Services and Laboratory Services ( Other Services ), but BioTime shall not be obligated to do so.
 
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(d)               Administrative Services, Laboratory Services, and Other Services (collectively, Services ) shall be provided by BioTime employees or contractors engaged by BioTime to provide such Services for the operation of BioTime’s own business.  BioTime shall not be obligated to hire any additional employees or engage the services of any additional contractors to provide Services to OncoCyte.  Nothing in this Agreement shall preclude OncoCyte from hiring employees and engaging contractors directly for its own account and at its own cost and expense.

(e)              OncoCyte shall be responsible for cooperating with BioTime’s employees and contractors in such a manner as may be reasonably required in order for the Services to be performed.

(f)               The Services shall be provided at the direction of OncoCyte; provided, that OncoCyte shall not request or direct any BioTime employee or contractor to provide any Services or to take any other act that would violate any federal, state, or municipal law, statute, ordinance, rule or regulation.

(g)               BioTime shall not be liable to OncoCyte for any loss or damages of any kind caused by, arising from, or in connection with (i) the performance of Services performed by BioTime personnel, or the failure of any BioTime employee, contractor, or agent to perform any Services, or (ii) any delay, error, or omission by any BioTime employee, contractor, or agent in the performance of Services performed by BioTime personnel, except to the extent such loss or damage is the result of fraud, gross negligence or willful misconduct by an BioTime employee, contractor, or agent.

5.             Use Fees.

(a)               OncoCyte shall pay BioTime the fees provided in this Section for the use of the Premises, equipment, supplies, professional services (such as the services of attorneys, accountants, and consultants), and for the Services provided or agreed to be provided by BioTime under this Agreement.  For each billing period, BioTime shall equitably prorate and allocate its Employee Costs, Equipment Costs, Insurance Costs, Lease Costs, Professional Costs, Software Costs, Supply Costs, and Utilities Costs, between BioTime and OncoCyte based upon actual documented use and cost by or for OncoCyte or upon proportionate usage by BioTime and OncoCyte, as reasonably estimated by BioTime.  OncoCyte shall pay 105%   of the allocated costs (the Use Fee ).  The allocated cost of BioTime employees and contractors who provide Services shall be based upon records maintained of the number of hours of such personnel devoted to the performance of Services.

(b)                The Use Fee shall be determined and invoiced to OncoCyte on a quarterly basis for each calendar quarter of each calendar year (such quarterly periods are sometimes referred to in this Agreement as “billing periods”).  If this Agreement terminates prior to the last day of a billing period, the Use Fee shall be determined for the number of days in the billing period elapsed prior to the termination of this Agreement.  Each invoice shall be payable in full by OncoCyte with in 30 days after receipt.  Any invoice or portion thereof not paid in full when due shall bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime employees from OncoCyte funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any OncoCyte employee or agent.
 
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(c)              In addition to the Use Fees, OncoCyte shall reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte, provided that invoices documenting such costs are delivered to OncoCyte with each invoice for the Use Fee.  Notwithstanding this paragraph, BioTime shall have no obligation to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte, and if any such supplies, goods, materials or services are obtained for OncoCyte, BioTime may arrange for the suppliers thereof to invoice OncoCyte directly.

(d)               Employee Costs means the salaries, wages, health insurance benefits, FICA, payroll taxes, workers compensation insurance premiums, and similar costs payable by BioTime to or on account of its employees and contractors who perform Services for OncoCyte under this Agreement during an applicable billing period, but excluding stock option, stock purchase, and similar equity participation plans.  Equipment Costs means all costs and expenses incurred by BioTime in acquiring, leasing, installing, maintaining, insuring, repairing, and disposing of any laboratory, production, and office equipment, fixtures, and furnishings used by OncoCyte or used by BioTime in the performance of Services.  Insurance Costs means all insurance premiums of any kind incurred or paid by BioTime for casualty insurance policies that insure BioTime and its subsidiaries, including OncoCyte, from the loss of or damage to the Premises, equipment, fixtures goods, supplies, and other personal property of BioTime (except to the extent such premiums are included in Lease Costs) that may be used by OncoCyte or by BioTime in the performance of Services, and liability coverage policies that insure BioTime and its subsidiaries, including OncoCyte, from liability of any kind to third parties (except to the extent such premiums are included in Lease Costs).  Lease Costs means all of BioTime’s costs and expenses of leasing or subleasing the Premises, including all base rent, taxes, common area or other expenses, insurance and other costs payable by BioTime to the lessor of the Premises under the sublease of the Premises, but excluding (a) any repairs not required to be effected or paid for by OncoCyte under any other provision of this Agreement, and (b) any alterations or improvements effected by BioTime for the exclusive use of BioTime and its subsidiaries other than OncoCyte.  Professional Costs means all costs and expenses incurred by BioTime for the services of independent accountants, attorneys, and other consultants who provide professional or consulting services for the benefit of OncoCyte.  Software Costs means all costs and expenses, including but not limited to license fees, incurred by BioTime to acquire and use any computer software or program of any kind that is used by OncoCyte or by BioTime in the performance of Services.  Supply Costs means all costs and expenses incurred by BioTime for the purchase and disposal of goods and materials of any kind, to the extent used in the performance of Services or used by OncoCyte employees or contractors.  Utilities Costs means all costs and expenses incurred by BioTime for the use or availability of Utilities during an applicable billing period.
 
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6.             Indemnification.

(a)              OncoCyte shall defend, indemnify, and hold harmless BioTime, BioTime’s shareholders, directors, officers, employees, and agents (collectively, the Indemnified Parties ) against and from any and all claims arising from OncoCyte’s use of the Premises, or from any activity, work, or other thing done or permitted by OncoCyte on the Premises, including all activities, work, and services performed by BioTime employees, contractors, and agents for OncoCyte.  OncoCyte shall further defend, indemnify, and hold harmless the Indemnified Parties against and from any and all claims arising from any breach or default in the performance of any obligation on OncoCyte’s part to be performed under the terms of this Agreement, or arising from any act or omission (including, but not limited to negligent acts or omissions) of OncoCyte, or of any officer, agent, employee, contractor, guest, or invitee of OncoCyte acting in such capacity.   The indemnity provided by this section shall include indemnification from and against all costs, attorneys’ fees, expenses, and liabilities incurred in connection with or arising from any such claim or any action or proceeding brought thereon; and in any suit, action, or proceeding brought against any of the Indemnified Parties by reason of any such claim, OncoCyte, upon notice from any of the Indemnified Parties, shall defend the same at OncoCyte’s expense by counsel satisfactory to the Indemnified Parties.  OncoCyte, as a material part of the consideration to BioTime, hereby assumes all risk of damage to property or injury to persons in, upon, or about the Premises, from any cause other than BioTime’s wilful malfeasance or sole gross negligence.

(b)               BioTime shall not be liable for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, or rain that may leak from any part of the Premises or from the pipes, appliances, or plumbing works therein or from the roof, street, or subsurface, or from any other place unless solely caused by or solely due to the gross negligence of BioTime.  BioTime and its agents and the other Indemnified Parties shall not be liable for interference with the light or other incorporeal hereditament, loss of business by OncoCyte, or any latent defect in the Premises, any equipment, furnishings, materials, or supplies.  OncoCyte shall give prompt notice to BioTime in case of fire or accidents in the Premises or of defects therein or in the fixtures, equipment, furniture, materials or supplies belonging to BioTime and used by OncoCyte.

(c)              OncoCyte shall be solely responsible for and shall indemnify, defend, and hold the Indemnified Parties and the owner of the Premises and each partner, shareholder, member, trustee, employee and agent of the owner or the Premises (collectively, the Owner Indemnified Parties ) harmless from any against any claim, loss, damage, cost, expense, liability, or cause of action directly or indirectly arising out of the use, generation, manufacture, storage, treatment, release, threatened release, discharge, disposal, transportation, or presence of any oil, gasoline, petroleum products, flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, hazardous wastes, toxic or contaminated substances, or similar materials, including, without limitation, any substances which are hazardous substances, hazardous wastes, hazardous materials, or toxic substances under applicable environmental laws, ordinances, or regulations (collectively, Hazardous Materials ) caused directly or indirectly by OncoCyte, its employees, agents, contractors, invitees, or assigns (other than any BioTime employees or agents performing BioTime rather than OncoCyte business) in, on, or under any of the Premises, including, without limitation: (i) all consequential damages; (ii) the costs of any required or necessary repair, cleanup, or detoxification of the Premises and the building and surrounding land in which the Premises are located,  and the preparation and implementation of any closure, remedial, or other required plans whether required under any Hazardous Materials Laws or otherwise; and (iii) all court costs, including reasonable attorneys’ fees, paid or incurred by BioTime, any other Indemnified Party, or any Owner Indemnified Party in connection with such claim.
 
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7.             Term; Termination .

(a)              This Agreement shall commence on the Effective Date and shall terminate on December 31, 2012, provided that, unless otherwise terminated under another provision of this Agreement, the term of this Agreement shall automatically be renewed and the termination date shall be extended for an additional year each year after December 31, 2012, unless either party gives the other party written notice stating that this Agreement shall terminate on December 31 of that year.

(b)               Notwithstanding paragraph (a) of this Section 7, either party may terminate this Agreement immediately upon the occurrence of a Default by the other party.  A party shall be in  Default if that party (i) fails to pay when due the Use Fee or any other sum due under this Agreement, or fails to perform any other obligation under this Agreement, and such failure continues for a period of 5 days after written notice from the party seeking to terminate this Agreement; (ii) becomes the subject of any order for relief in a proceeding under any Debtor Relief Law (as defined below); (iii) becomes unable to pay, or admits in writing the party’s inability to pay, its debts as they mature; (iv) makes an assignment for the benefit of creditors; (v) applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitation, or similar officer for the party or for all or any part of the party’s property or assets, or any such officer is appointed for such party or any part of its assets without the party’s consent and such appointment is not dismissed or discharged within 60 calendar days; (vi) institutes or consents to any proceeding under any Debtor Relief Law with respect to the party or all or any part of the party’s property or assets, (vii) becomes subject to any proceeding under any Debtor Relief Law without the consent of the party if such case or proceeding continues undismissed or unstayed for 60 calendar days; or (viii) dissolves or liquidates or takes any action to dissolve or liquidate.  As used in this Agreement, the term Debtor Relief Law shall mean the Bankruptcy Code of the United States of America, as amended, or any other similar debtor relief law affecting the rights of creditors generally.
 
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(c)              The obligations of OncoCyte under Sections 5 and 6 and to pay for any repairs of the Premises required to be paid by OncoCyte under this Agreement shall survive termination of this Agreement.

8.             No Third Party Beneficiaries.   The parties to this Agreement are BioTime and OncoCyte, and no other person or entity, whether a partner, member, shareholder, officer, director, employee, contractor, agent, or business invitee of OncoCyte or otherwise, shall have any rights or be entitled to any benefits under this Agreement, except for the rights of Indemnified Parties and Owner Indemnified Parties under Section 6.

9.            Characterization of Relationship .  It is the intent of the parties that the business relationship created by this Agreement, and any related documents is solely that of a commercial agreement between BioTime and OncoCyte and has been entered into by both parties in reliance upon the economic and legal bargains contained in this Agreement.  None of the covenants contained in this Agreement is intended to create a partnership between BioTime and OncoCyte, to make them joint venturers, to make either party an agent, legal representative, partner, subsidiary, or employee of the other party or to make either party in any way responsible for the debts, obligations, or losses of the other party.

10.           Binding on Successors and Assigns.  This Agreement shall be binding on each party and the party’s successors and assigns.

11.           Integration.  This Agreement constitutes all of the understandings and agreements existing between the parties concerning the subject of this Agreement and the rights and obligations created under it.  Neither party has made or relied upon any agreement, warranty, representation, promise, or statement, whether oral or written, not expressly included in this Agreement.

12.          Waivers, Delays, and Omissions.  One or more waivers, consents, or approvals by any party of any covenant, condition, act, or breach under this Agreement shall not be construed as a waiver, consent, or approval of any subsequent condition, covenant, act, or breach or as a consent or approval to the same or any other covenant or condition.  This Agreement and any term of this Agreement may be amended, discharged, or terminated only by a written instrument signed by the parties against whom enforcement of such amendment, discharge, or termination is sought.  No delay or omission to exercise any right, power, or remedy accruing to any party upon any breach or default of the other party under this Agreement shall impair any such right, power, or remedy of the party not in breach or default.

13.          References.  References in this Agreement to sections, paragraphs, subparagraphs, and exhibits are references to sections, paragraphs, and subparagraphs in this Agreement and exhibits attached to this Agreement unless specified otherwise.
 
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14.          Section Headings .  Section headings are for the convenience of the parties and do not form a part of this Agreement.

15.           Construction.  The parties agree that this Agreement is a negotiated agreement, with each party free to review and negotiate each section of the Agreement and otherwise clarify all sections of the Agreement that appear to the party (at the time of signing) to be ambiguous or unclear.  Both parties shall be deemed to be the drafting parties, and the rules of construction to the effect that any ambiguities are to be resolved against the drafting party or parties shall not be employed in the interpretation of this Agreement.

16.           Unenforceable Provisions .  If all or part of any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal, or unenforceable in any respect, the invalidity, illegality, or unenforceability shall not affect any other provisions, and this Agreement shall be equitably construed as if it did not contain the invalid, illegal, or unenforceable provision.

17.          Attorneys’ Fees .   It is expressly agreed that if this Agreement is referred to an attorney to collect any amount due under this Agreement, or to enforce or protect any rights conferred upon BioTime by this Agreement OncoCyte promises and agrees to pay on demand all costs, including without limitation, reasonable attorneys’ fees, incurred by BioTime in the enforcement of BioTime’s rights and remedies under this Agreement.  In the event an action is brought to enforce or interpret the provisions of this Agreement, the prevailing party in such action shall be entitled to an award of its attorneys’ fees and costs incurred in such action, including any fees and costs incurred in any appeal and in any collection effort.

IN WITNESS WHEREOF the parties have executed this Agreement as of the Effective Date.

BioTime, Inc.
 
     
By:
/s/ Michael D. West
 
 
Michael D West,
 
 
Chief Executive Officer
 
     
OncoCyte Corporation
 
     
By:
/s/ Robert W. Peabody
 
 
Robert W. Peabody,
 
 
Senior Vice President and
 
 
Chief Operating Officer
 
 
 
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Exhibit 10.2
 
ONCOCYTE CORPORATION
2010 STOCK OPTION PLAN

ARTICLE I
GENERAL

1.         PURPOSE

This OncoCyte Corporation 2010 Stock Option Plan (the “Plan”) is intended to increase incentive and to encourage stock ownership on the part of selected key officers, directors, employees, consultants, professionals, and other individuals whose efforts may aid OncoCyte Corporation, a California corporation (the “Company”) or any other corporations that are or which may become subsidiaries or a parent of the Company.  Except where the context obviously requires otherwise, as used in this Plan, the term “Company” includes OncoCyte Corporation, a California corporation, and any corporation that is or becomes a parent or subsidiary, as defined in Section 425 of the Internal Revenue Code of 1986, as amended (the “Code”), of OncoCyte Corporation.  It is intended that certain options granted pursuant to the Plan shall constitute incentive stock options within the meaning of Section 422(b) of the Code and that certain other options granted pursuant to the Plan shall not constitute incentive stock options (“nonqualified stock options”).

2.          ADMINISTRATION

The Plan shall be administered by the Company’s Board of Directors (the “Board”) or, in the discretion of the Board, by a committee (the “Committee”) of not less than two members of the Board.  The Committee’s interpretation and construction of any term or provision of the Plan or of any option granted under the Plan shall be final, unless otherwise determined by the Board, in which event such determination by the Board shall be final.  The Committee may from time to time adopt rules and regulations for carrying out this Plan and, subject to the provisions of this Plan, may prescribe the form or forms of the instruments evidencing any option granted under this Plan.  No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted, or with respect to any shares sold under any restricted stock purchase agreement, under the Plan.

Subject to the provisions of this Plan, the Board or the Committee shall have full and final authority in its discretion to select the eligible persons to whom options are granted or shares are sold under restricted stock purchase agreements, to grant such options and to sell shares as provided in this Plan, to determine the number of shares to be subject to options or sold pursuant to restricted stock purchase agreements, to determine the exercise prices of options or purchase prices of shares under restricted stock purchase agreements, the terms of exercise of options, expiration dates of options, and other pertinent terms and provisions of options and restricted stock purchase agreements.  The Board may delegate to the Committee the power to make all determinations with respect to the Plan, or may delegate to the Committee only certain aspects of Plan administration, such as selecting the eligible persons to whom options will be granted, or decisions concerning the timing, pricing, and amount of a grant or award of options or sale of shares under restricted stock purchase agreements.
 

3.         ELIGIBILITY

Subject to Section 2 of this Article I, the persons who shall be eligible to receive options or to purchase shares under restricted stock purchase agreements under the Plan shall be such officers, employees, directors, consultants, professionals, and independent contractors of the Company as the Board of Directors or the Committee may select.  Eligible persons who are not also salaried employees of the Company shall be eligible to receive nonqualified stock options (but such persons shall not be eligible to receive incentive stock options).

4.          SHARES OF STOCK SUBJECT TO THE PLAN

The shares that may be issued under the Plan shall be authorized and unissued or reacquired common stock, no par value, of the Company (the “Shares”).  The aggregate number of Shares which may be issued under the Plan shall not exceed 4,000,000, unless an adjustment is required in accordance with Article III.

5.          AMENDMENT OF THE PLAN

The Board may, insofar as permitted by law, from time to time, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, except that no such amendment shall alter or impair or diminish any rights or obligations under any option theretofore granted or under any restricted stock purchase agreement executed under the Plan, without the consent of the person to whom such option was granted or Shares were sold, except as permitted under Section 8 of this Article I.  Without further shareholder approval, no such amendment shall increase the number of shares subject to the Plan (except as authorized by Article III), change the designation in Section 3 of Article I of the class of persons eligible to receive options or purchase Shares under the Plan, extend the term during which options may be exercised, or extend the final date upon which options under the Plan may be granted or Shares may be sold under restricted stock purchase agreements.

6.          APPROVAL OF SHAREHOLDERS

All options granted under the Plan before the Plan is approved by affirmative vote of the holders of a majority of the voting shares of the Company present and eligible to vote at the next meeting of shareholders of the Company, or any adjournment thereof, shall be subject to such approval.  No option granted hereunder may become exercisable unless and until such approval is obtained.
 
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7.          TERM OF PLAN

Options may be granted and Shares may be sold under restricted stock purchase agreements under the Plan until June 1, 2020, the date of termination of the Plan.  Notwithstanding the foregoing, each option granted under the Plan shall remain in effect until such option has been exercised or terminated in accordance with its terms and the terms of the Plan.

8.         LISTING, REGISTRATION, QUALIFICATION, AND CONSENTS

All options granted under the Plan shall be subject to the requirement that, if at any time the Board or the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares subject to options granted under the Plan, upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issuance, if any, or purchase of shares in connection therewith, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board or the Committee.  Furthermore, if the Board or the Committee determines that any amendment to any option (including, but not limited to, an increase in the exercise price) is necessary or desirable in connection with the registration or qualification of any of its shares under any state securities or “blue sky” law, then the Board or the Committee shall have the unilateral right to make such changes without the consent of the optionee.

9.          NONASSIGNABILITY

Nonqualified options shall be transferable (i) by will, by the laws of descent and distribution, by instrument to an inter vivos or testamentary trust in which the nonqualified options are to be passed to beneficiaries upon the death of the optionee or (ii) to the extent and in the manner authorized by the Board or Committee by gift to members of the optionee’s immediate family.  Immediate family means a transferee as permitted by Rule 260.140.41 of Title 10 of the California Code of Regulations which includes 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 also include adoptive relationships.  Incentive stock options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the optionee, only by the optionee.  Notwithstanding the preceding two sentences, in conjunction with the exercise of an option, and for the purpose of obtaining financing for such exercise, the option holder may arrange for a securities broker/dealer to exercise an option on the option holder’s behalf, to the extent necessary to obtain funds required to pay the exercise price of the option.
 
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10.        WITHHOLDING TAXES

Whenever Shares are to be issued upon the exercise of any option under the Plan or under any restricted stock purchase agreement, the Company shall have the right to require the optionee or purchaser to remit to the Company an amount sufficient to satisfy federal, state, and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares.

11.       DEFINITION OF “FAIR MARKET VALUE”

For the purposes of this Plan, the term “fair market value,” when used in reference to the date of grant of an option or the date of surrender of Shares in payment for the purchase of Shares pursuant to the exercise of any option, as the case may be, shall mean the amount determined by the Board or the Committee as follows:

(a)        If the Shares are listed or have unlisted trading privileges on a national securities exchange, the Shares shall be valued at their last sale price on the principal national securities exchange (measured by volume of transactions in such Shares) on which such securities shall have traded, or, if available, such sales price as reported on the composite tape, on the last trading day immediately preceding the date of grant or surrender.

(b)         If prices of the Shares are quoted in the Nasdaq Stock Market (but not the National Market System), or the OTC Bulletin Board, the Shares shall be valued at their last sale price as reported on the composite tape, on the last trading day immediately preceding the date of grant or surrender.

(c)         If the Shares are described in either subparagraph (a) or (b) above but were not traded on the last trading day immediately preceding the date of grant or surrender, or if prices of the Shares are published by the National Quotation Bureau, Inc., then the Shares shall be valued at the last price reported on the composite tape or if not so reported the average between the last bid and the last asked prices reported in the Wall Street Journal or published by the National Quotation Bureau within the 30 days prior to the date of grant or surrender.

(d)        If the Shares are not described in and valued under subparagraphs (a) and (b) above, then the Shares shall be valued by the Board or the Committee, in its sole judgment, in good faith.
 
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ARTICLE II
STOCK OPTIONS

1.          AWARD OF STOCK OPTIONS

Awards of stock options may be made under the Plan under all the terms and conditions contained herein.  However, in the case of incentive stock options, the aggregate fair market value (determined as of the date of grant of the option) of the Shares with respect to which incentive stock options are exercisable for the first time by such officer or key employee during any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000.  The date on which any option is granted shall be the date of the Board’s or the Committee’s authorization of such grant or such later date as may be determined by the Board or the Committee at the time such grant is authorized.

2.          TERM OF OPTIONS AND EFFECT OF TERMINATION

Notwithstanding any other provision of the Plan, an option shall not be exercisable after the expiration of ten (10) years from the date of its grant.  In addition, notwithstanding any other provision of the Plan, no incentive stock option granted under the Plan to a person who, at the time such option is granted, owns shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or of any parent or subsidiary corporation, shall be exercisable after the expiration of five (5) years from the date of its grant.

In the event that any outstanding option under the Plan expires by reason of lapse of time or otherwise is terminated or canceled for any reason, then the Shares subject to any such option which have not been issued pursuant to the exercise of the option shall again become available in the pool of Shares for which options may be granted under the Plan.

3.         CANCELLATION OF AND SUBSTITUTION FOR OPTIONS

The Company shall have the right to cancel any option at any time before it otherwise would have expired by its terms and to grant to the same optionee in substitution therefor a new stock option stating an option price which is lower (but not higher) than the option price stated in the canceled option.  Any such substituted option shall contain all the terms and conditions of the canceled option provided, however, that notwithstanding Section 2 of Article II, such substituted option shall not be exercisable after the expiration of ten (10) years from the date of grant of the canceled option.
 
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4.         TERMS AND CONDITIONS OF OPTIONS

Options granted pursuant to the Plan shall be evidenced by agreements in such form as the Board or the Committee shall from time to time determine, which agreements shall comply with the following terms and conditions.
 
(a)        Number of Shares and Type of Option

Each option agreement shall state the number of Shares for which the option is exercisable and whether the option is intended to be an incentive stock option or a nonqualified stock option.

(b)        Option Price

Each option agreement shall state the exercise price per share or the method by which such price shall be computed.  The exercise price per share shall be determined by the Board or the Committee at the date such option is granted.  In the case of a nonqualified option, the exercise price may be not less than 85% of the fair market value of the Shares on the date such option is granted.  In the case of an incentive stock option, the exercise price shall be not less than 100% of the fair market value of the Shares on the date such option is granted.  Notwithstanding the foregoing, the exercise price per share of a option granted to a person who, on the date of such grant and in accordance with Section 425(d) of the Code, owns shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or of any parent or subsidiary corporation, shall be not less than 110% of the fair market value of the Shares on the date that the option is granted.

(c)        Medium and Time of Payment

The exercise price shall be payable upon the exercise of an option in the lawful currency of the United States of America or, in the discretion of the Board or the Committee, in Shares or in a combination of such currency and such Shares.  Upon receipt of payment, the Company shall deliver to the optionee (or person entitled to exercise the option) a certificate or certificates for the Shares purchased through such exercise.

(d)         Exercise of Options

Options granted under the Plan shall vest, and thereby become exercisable, at the time or times, or upon the happening of the events or circumstances, determined by the Board or the Committee.  Options may vest at any time or from time to time upon the satisfaction of reasonable conditions to vesting determined by the Board or Committee.  Without limiting the other events and circumstances upon which vesting may be determined, the Board or Committee may make vesting conditioned upon continued employment by the Company.  The terms under which options shall vest shall be stated in each option agreement.  The Board or the Committee may, in its discretion, accelerate (but not delay or postpone) the time or times at which an option vests.
 
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To the extent that an option has become vested (except as provided in Article III), and subject to the foregoing restrictions, it may be exercised in whole or in such lesser amount as may be authorized by the option agreement.  If exercised in part, the unexercised portion of an option shall continue to be held by the optionee and may thereafter be exercised as herein provided.

(e)          Termination of Employment Except By Disability or Death

In the event that an optionee who is an employee of the Company shall cease to be employed by the Company for any reason other than his or her death or disability, his or her option shall terminate on the date (3) months after the date that he ceases to be an employee of the Company.  The Committee or the Board may waive the provisions of this Subsection 4(e) at the date of grant of an option or at a later date.

(f)         Disability of Optionee

If an optionee who is an employee of the Company shall cease to be employed by the Company by reason of his or her becoming disabled, such option shall terminate on the date one (1) year after cessation of employment due to such disability.  “Disability” means that an employee is unable to carry out the responsibilities and functions of the position held by the employee by reason of any medically determinable physical or mental impairment.  The Committee or the Board may waive the provisions of this Subsection 4(f) at the time of grant of an option or at a later date if the option is not an incentive stock option.

(g)         Death of Optionee and Transfer of Option

If an optionee should die while in the employ of the Company, or within the three-month period after termination of his or her employment with the Company during which he or she is permitted to exercise an option in accordance with Subsection 4(f) of this Article II, such option shall terminate on the date one (1) year after the optionee’s death.  During such one-year period, such option may be exercised by the executors or administrators of the optionee’s estate or by any person or persons who shall have acquired the option directly from the optionee by his or her will or the applicable law of descent and distribution.  During such one year period, such option may be exercised with respect to the number of Shares for which the deceased optionee would have been entitled to exercise it at the time of his or her death.  The Committee or the Board may waive the provisions of this Subsection 4(g) at the date of grant of an option or at a later date if the option is not an incentive stock option.
 
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ARTICLE III
RECAPITALIZATIONS AND REORGANIZATIONS

The number of Shares covered by the Plan, and the number of Shares and price per share of each outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding Shares resulting from a subdivision or consolidation of Shares or the payment of a stock dividend, or any other increase or decrease in the number of issued and outstanding Shares effected without receipt of consideration by the Company.

Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company as a result of which the outstanding securities of the class then subject to options hereunder are changed into or exchanged for cash or property or securities not of the Company’s issue, or upon a sale of substantially all the property of the Company to, or the acquisition of shares representing more than eighty percent (80%) of the voting power of the shares of the Company then outstanding by, another corporation or person, the Plan shall terminate, and all options theretofore granted hereunder shall terminate, unless provision can be made in writing in connection with such transaction for the continuance of the Plan and/or for the assumption of options theretofore granted, or the substitution for such options of options covering the shares of a successor corporation, or a parent or a subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, in which event the Plan and options theretofore granted shall continue in the manner and under the terms so provided.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes or its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.

ARTICLE IV
SALE OF RESTRICTED STOCK IN LIEU OF GRANT OF OPTIONS

1.          RESTRICTED STOCK
 
(a)        Number of Shares

Each restricted stock purchase agreement shall state the number of Shares sold under such agreement.
 
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(b)        Purchase Price

Each restricted stock purchase agreement shall state the purchase price per Share or the method by which such price shall be computed.  The Purchase price per Share shall be determined by the Board or the Committee at the date the sale of the Shares is approved (the “Approval Date”); provided that the purchase price per Share may be not less than 85% of the fair market value per Share on the Approval Date and that if the restricted shares are sold to an individual who owns shares representing more than ten percent of the voting power of all classes of shares of the Company (or any parent or subsidiary of the Company), the purchase price per Share may not be less than 100% of the fair market value per Share on the Approval Date.

(c)        Medium and Time of Payment

The purchase price shall be payable at the time the restricted stock purchase agreement is executed by the eligible person.  Payment shall be made in the lawful currency of the United States of America or, in the discretion of the Board or the Committee, by delivery of a promissory note payable to the Company in such lawful currency.  Upon receipt of payment, the Company shall deliver to the eligible person a certificate or certificates for the Shares purchased.

(d)        Repurchase Option

Each restricted stock purchase agreement shall provide that the Company shall have the option to repurchase the Shares sold under such agreement in the event the purchaser ceases to be a full time employee of the Company prior to the vesting of such Shares, or if any other condition to the vesting of the Shares stated in the restricted stock purchase agreement is not met (the “Repurchase Option”).  The Repurchase Option may be exercised by the Company during such period as specified in the applicable restricted stock purchase agreement.  The price at which the Company may repurchase the Shares upon the exercise of the Repurchase Option shall be the price at which the Shares were sold to the eligible person, or such greater price as provided in the applicable restricted stock purchase agreement approved by the Board or the Committee.  If the purchaser of Shares under a restricted stock purchase agreement has delivered a promissory note as payment of all or part of the purchase price of his or her Shares, the Company may cancel or reduce the principal balance and interest accrued on that promissory note as payment of all or part of the repurchase price upon exercise of the Repurchase Option.

(e)         Vesting of Shares .

Shares sold pursuant to a restricted stock purchase agreement shall vest, and thereby cease to be subject to the Repurchase Option, at the time or times, or upon the happening of the events or circumstances, determined by the Board or the Committee.  Shares may vest at any time or from time to time upon the satisfaction of reasonable conditions to vesting determined by the Board or Committee.  Without limiting the other events and circumstances upon which vesting may be determined, the Board or Committee may make vesting conditioned upon continued employment by the Company.  The terms under which Shares shall vest shall be stated in the restricted stock purchase agreement.  The Board or the Committee may, in its discretion, accelerate (but not delay or postpone) the time or times at which Shares vest under a restricted stock purchase agreement.
 
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2.         ESCROW OF UNVESTED SHARES .

The Company may require that all Shares sold under a restricted stock purchase agreement be held in escrow, on terms satisfactory to the Company, until such Shares have vested and have been paid for in full (including the payment of any amount due on any promissory note delivered by the purchaser and secured by such Shares).

3.          LEGEND ON STOCK CERTIFICATES .

Shares issued under a restricted stock purchase agreement shall include, in addition to any other legends as may be required by law or by the Board or Committee, a legend to the following effect:

THESE SHARES MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

ARTICLE  V
MISCELLANEOUS PROVISIONS

1.         RIGHTS AS A STOCKHOLDER

An optionee or a transferee of an option shall have no rights as a shareholder with respect to any Shares covered by an option until the date of the receipt of payment (including any amounts required by the Company pursuant to Section 10 of Article I) by the Company.  No adjustment shall be made as to any option for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to such date, except as provided in Article III.

2.         MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS AND RESTRICTED STOCK PURCHASE AGREEMENTS

Subject to the terms and conditions and within the limitations of the Plan, the Board or the Committee may modify, extend, renew, or cancel outstanding options granted under the Plan and restricted stock purchase agreements.  Notwithstanding the foregoing, however, no modification of an option or restricted stock purchase agreement shall, without the consent of the optionee or purchaser, impair or diminish any rights or obligations under any option theretofore granted o restricted stock purchase agreement executed under the Plan, except as provided in Section 8 of Article I.  For purposes of the preceding sentence, the right of the Company pursuant to Section 3 of Article II to cancel any outstanding option and to issue in place of such canceled option a substituted option stating a lower option price shall not be construed as impairing or diminishing an optionee’s rights or obligations.
 
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3.         OTHER PROVISIONS

The option agreements and restricted stock purchase agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the option or purchase of Shares, or restrictions required by any applicable securities laws, as the Board or the Committee shall deem advisable.

4.         APPLICATION OF FUNDS

The proceeds received by the Company from the sale of Shares pursuant to the exercise of options or under restricted stock purchase agreements will be used for general corporate purposes.

5.         NO OBLIGATION TO EXERCISE OPTION

The granting of an option shall impose no obligation upon the optionee or a transferee of the option to exercise such option.

6.         FINANCIAL ASSISTANCE

Except as may be prohibited by law, the Company is vested with authority under this Plan to assist any employee to whom an option is granted or to whom Shares are sold pursuant to a restricted stock purchase agreement hereunder (including any director or officer of the Company or any of its subsidiaries who is also an employee) in the payment of the purchase price payable on exercise of that option or under that restricted stock purchase agreement, by lending the amount of such purchase price (including accepting a promissory note executed by the employee as consideration for the sale of the Shares at the time the Shares are issued) to such employee on such terms and at such rates of interest and upon such security (or unsecured) as shall have been authorized by or under authority of the Board or the Committee.
 
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7.          FINANCIAL REPORTS .

The Company shall deliver to each grantee of an option a balance sheet of the Company as at the end of its most recently completed fiscal year, and an income statement of the Company as of the end of such fiscal year.  Such financial statements shall be delivered no less frequently than annually; provided, that such financial statements need not be delivered to any employee whose duties as an employee assure them access to such financial information.
 
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2015 AMENDMENT TO
ONCOCYTE CORPORATION
2010 STOCK OPTION PLAN
 
The first sentence of Section 3(a) of the OncoCyte Corporation 2010 Stock Option Plan is amended to read as follows:

Subject to adjustment under Section 3(c), the aggregate number of shares of Common Stock of the Company (the “Common Stock”) that may be issued pursuant to the Plan is 8,000,000 shares.
 
 


Exhibit 10.3
 
INCENTIVE STOCK OPTION AGREEMENT

OncoCyte Corporation
 
THIS AGREEMENT made and entered into as of ______________, 20__ by and between OncoCyte Corporation, a California corporation (the "Company"), and _____________, an employee (the "Employee") of the Company or of a subsidiary of the Company (hereinafter included within the term "Company") within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"),

W I T N E S S E T H

WHEREAS, the Company has adopted the OncoCyte Corporation 2011 Stock Option Plan, (the "Plan"), administered by the Company's Board of Directors (the "Board") or, in the discretion of the Board, by a committee (the "Committee"), providing for the granting to its employees or other individuals, stock options to purchase the Company's common stock, no par value; and

WHEREAS, the Plan provides for the grant of certain options which are intended to be incentive stock options ("incentive stock options" or "options") within the meaning of Section 422(b) of the Code; and

WHEREAS, the Employee is an officer or key employee/consultant who is in a position to make an important contribution to the long-term performance of the Company;

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

1.        Grant . The Company hereby grants to the Employee an incentive stock option to purchase _________ shares of common stock, no par value (the "Shares"), at the price set forth in Section 2, on the terms and conditions hereinafter stated and subject to any limitations contained in the Plan.

2.         Exercise Price .  The purchase price per Share is ____ dollar and ____ cents ($______) which was the fair market value of a Share as determined by the Board immediately prior to the grant.
 
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3.          Vesting .  Unless otherwise terminated as provided by this Agreement, this option will vest (and thereby become exercisable) as follows: one quarter of the options shall vest upon completion of 12 full months of continuous employment of the optionee by the Company measured from ________, 20___, the date of grant, and the balance of the options shall vest in 36 equal monthly installments commencing on the first anniversary of the date of grant, based upon the completion of each month of continuous employment of the optionee by the Company.  The unvested portion of the Option shall not be exercisable.

4.         Expiration .  The vested portion of the options shall expire on the earliest of (A) ten (10) years from date of grant, (B) ninety days after Employee ceases to be an employee of the Company for any reason other than Employee’s death or Disability (as defined below), or (C) one year after Employee ceases to be an employee of the Company due to death or Disability; provided that if Employee dies during the ninety day period described in clause (B) of this paragraph, the expiration date of the vested portion of the Option shall be one year after the date of Employee’s death.

5.         Adjustments in Shares and Purchase Price.
 
(a)        In the event of any stock split, stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other similar change in capitalization or event affecting the Shares, the Board will adjust, in a manner that the Board determines, the number and class of securities, vesting schedule and exercise price per Share subject to this option.

(b)        Upon the consummation of a merger of the Company in which the shareholders of the Company no longer own a majority of the outstanding equity securities of the Company (or its successor); or any sale of all or substantially all of the assets or capital stock of the Company (other than in a spin-off or similar transaction), or any other acquisition of the business of the Company, as determined by the Board, appropriate provision will be made for the continuation of this option by the Company or the assumption of this option by the surviving or acquiring company, and by substituting on an equitable basis for the Shares then subject to this option either:  (a) the stock or other consideration payable with respect to the outstanding shares of Company common stock in connection with the transaction, (b) shares of stock of the surviving or acquiring corporation, or (c) other securities or other consideration as the Board deems appropriate, provided, that the fair market value of the substituted securities does not materially differ from the fair market value of the Shares subject to this option.  The Board may also accelerate the expiration date of this option, or provide that this option will be terminated in exchange for a cash payment equal to the excess of the fair market value of the Shares subject to this option over the option exercise price, but the termination date of this option may not be accelerated unless the vesting of the option is accelerated so that it becomes exercisable prior to being terminated.
 
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(c)        To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board or Committee, whose determination in that respect shall be final, binding and conclusive.

(d)        The grant of this option shall not affect in any way the right of power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.

6.         Effect of Termination of Employment .  In the event of termination of the Employee's employment for any reason other than his or her death or disability, this option may not be exercised after three months after the date he or she ceases to be an employee of the Company, and may be exercisable only up to the amount vested on the date of termination.

7.         Effect of Death or Disability .  This option shall be exercisable during the Employee's lifetime only by the Employee and shall be nontransferable by the Employee otherwise than by will or the laws of descent and distribution.

(a)        In the event the Employee ceases to be employed by the Company on account of the Employee's disability, this option may not be exercised after one year following cessation of employment due to such disability, and may be exercisable only up to the amount vested under Section 3 on the date of disability.  A disability means that an employee is unable to carry out the responsibilities and functions of the position held by the employee by reason of any medically determinable physical or mental impairment.

(b)        In the event of the Employee's death while in the employ of the Company, or during the three-month period following termination of employment during which the Employee is permitted to exercise this option pursuant to Section 6 or 7, this option may be exercised by the executor or administrator of the Employee's estate or any person who shall have acquired the option from the Employee by his or her will or the applicable law of descent and distribution, during a period of one year after Employee’s death with respect to the number of Shares for which the deceased Employee would have been entitled to exercise at the time of his or her death, including the number of Shares that vested upon his death under Section 3, subject to adjustment under Section 5.  Any such transferee exercising this option must furnish the Company upon request of the Committee (i) written notice of his or her status as transferee, (ii) evidence satisfactory to the Company to establish the validity of the transfer of the option in compliance with any laws of regulations pertaining to said transfer, and (iii) written acceptance of the terms and conditions of the option as prescribed in this Agreement.
 
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8.         How to Exercise Option .  This option may be exercised by the person then entitled to do so as to any Share which may then be purchased by giving written notice of exercise to the Company, specifying the number of full Shares to be purchased and accompanied by full payment of the purchase price thereof and the amount of any income tax the Company is required by law to withhold by reason of such exercise.  The purchase price shall be payable in cash.

9.        No Rights as Shareholder Prior to Exercise .  Neither the Employee nor any person claiming under or through the Employee shall be or have any of the rights or privileges of a stockholder of the Company in respect of any of the Shares issuable upon the exercise of the option until the date of receipt of payment (including any amounts required by income tax withholding requirements) by the Company.

10.      Notices .  Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company at its principal executive office, or at such other address as the Company may hereafter designate in writing.  Any notice to be given to the Employee shall be addressed to the Employee as the address set forth beneath his or her signature hereto, or at any such other address as the Employee may hereafter designate in writing.  Any such notice shall be deemed to have been duly given three (3) days after being addressed as aforesaid and deposited in the United States mail, first class postage prepaid.

11.       Restrictions on Transfer .  Except as otherwise provided herein, the option herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution attachment or similar process upon the rights and privileges conferred hereby.  Any transfer, assignment, pledge or other disposal of said option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or any sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, shall immediately be null and void and shall not vest in any purported assignee or transferee any rights or privileges of the optionee, under this Agreement or otherwise with respect to such options.  Notwithstanding the preceding two sentences, in conjunction with the exercise of an option, and for the purpose of obtaining financing for such exercise, the option holder may arrange for a securities broker/dealer to exercise an option on the option holder’s behalf, to the extent necessary to obtain funds required to pay the exercise price of the option.

12.       Successor and Assigns .  Subject to the limitations on transferability contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto.
 
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13.      Additional Restrictions .  The rights awarded hereby are subject to the requirement that, if at any time the Board or the Committee shall determine, in its discretion, that the listing, registration or qualification of the Shares subject to such rights upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such rights or the issuance or purchase of Shares in connection with the exercise of such rights, then such rights may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been affected or obtained free of any conditions not acceptable to the Board or the Committee.  Furthermore, if the Board or Committee determines that amendment to any stock option (including but not limited to the increase in the exercise price) is necessary or desirable in connection with the registration or qualification of any Shares or other securities under the securities or "blue sky" laws of any state, then the Board or Committee shall have the unilateral right to make such changes without the consent of the Employee.

14.      Notice of Sale or Other Disposition of Shares .  In the event the Employee disposes of any of the Shares that may be acquired hereunder at any time within two years of the date hereof or one year from the date the Shares were acquired, the Employee agrees to notify the Company in writing within ten days of the date of such disposition, of the number of Shares disposed of, the nature of the transaction, and the amount received (if any) upon such disposition.  Employee understands that such a disposition may result in imposition of withholding taxes, and agrees to remit to the Company on request any amounts requested to satisfy any withholding tax liability.

15.       Terms of Employment .  Subject to any employment contract with the Employee, the terms of employment of the Employee shall be determined from time to time by the Company and the Company shall have the right, which is hereby expressly reserved, to terminate the Employee or change the terms of the employment at any time for any reason whatsoever, with or without good cause. The Employee agrees to notify in writing the Corporate Secretary of the Company of the Employee's intention, if any, to terminate Employee's employment within ten days after said intention is formed.

16.      Payment of Taxes .  Whenever Shares are to be issued to the Employee in satisfaction of the rights conferred hereby, the Company shall have the right to require the Employee to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares.
 
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17.      Terms and Conditions of Plan.   This Agreement is subject to, and the Company and the Employee agree to be bound by, all of the terms and conditions of the Plan, as the same shall have been amended from time to time in accordance with the terms thereof, provided that no such amendment shall deprive the Employee, without his or her consent, of any of his or her rights hereunder, except as otherwise provided in this Agreement or in the Plan.  The Shares acquired hereunder may also be subject to restrictions on transfer and/or rights of repurchase that may be contained in the Bylaws of the Company or in separate agreements with Employee.  The Board or the Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Board or the Committee in good faith shall be final and binding upon Employee, the Company and all other interested persons.  No member of the Board or the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

18.      Severability .  In the event that any provision in this Agreement shall be invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on the remaining provisions of this Agreement.

19.       Governing Law .  This Agreement shall be governed by and construed under the laws of the state of California, without regard to conflicts of law provisions.
 
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IN WITNESS HEREOF, the parties hereto have executed this Agreement, as of the day and year first above written.

COMPANY:
 
   
OncoCyte Corporation
 
   
   
 
(Signature)
 
     
By
   
   
Title
   
    
EMPLOYEE:
 
     
     
 
(Signature)
 
     
     
 
(Please Print Name)
 

 
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Exhibit 10.4
 
STOCK OPTION AGREEMENT
 
THIS AGREEMENT made and entered into effective as of _______, 20__, by and between OncoCyte Corporation., a California corporation (the “Company”), and __________, an employee (the “Employee”) of the Company.

W I T N E S S E T H

WHEREAS, the Company has adopted the OncoCyte Corporation 2011 Stock Option Plan, (the "Plan"), administered by the Company's Board of Directors (the "Board") or, in the discretion of the Board, by a committee (the "Committee"), providing for the granting to its employees or other individuals, stock options to purchase the Company's common stock, no par value; and

WHEREAS, the Plan provides for the grant of certain options which are intended to be nonqualified stock options rather than incentive stock options within the meaning of Selection 422(b) of the Code; and

WHEREAS, the Employee is an officer who is in a position to make an important contribution to the long-term performance of the Company;

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

1.        Grant.   The Company hereby grants to the Employee a nonqualified stock option to purchase _______ common shares, no par value (the “Shares”), at the price set forth in Section 2, on the terms and conditions hereinafter stated and subject to any limitations contained in the Plan (the “Option”).

2.        Exercise Price .  The purchase price per Share is ______ dollars and ___ cents ($______) which was the fair market value of a Share as determined by the Board of Directors of the Company immediately prior to the grant.

3.        Vesting .  Unless otherwise terminated as provided by this Agreement, this option will vest (and thereby become exercisable) as follows: one quarter of the options shall vest upon completion of 12 full months of continuous employment of the optionee by the Company measured from ______, 20__, the date of grant, and the balance of the options shall vest in 36 equal monthly installments commencing on the first anniversary of the date of grant, based upon the completion of each month of continuous employment of the optionee by the Company.  The unvested portion of the Option shall not be exercisable.
 
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4.        Expiration .  The vested portion of the options shall expire on the earliest of (A) ten (10) years from date of grant, (B) ninety days after Employee ceases to be an employee of the Company for any reason other than Employee’s death or Disability (as defined below), or (C) one year after Employee ceases to be an employee of the Company due to death or Disability; provided that if Employee dies during the ninety day period described in clause (B) of this paragraph, the expiration date of the vested portion of the Option shall be one year after the date of Employee’s death.

5.        Adjustments in Shares and Purchase Price.
 
(a)         In the event of changes in the outstanding common shares or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the date of grant of this Option, the exercise price and the number of Shares subject to this Option will be equitably adjusted or substituted, as to the number, price or kind of a share of securities or other consideration to the extent necessary to preserve the economic intent of such Award, as determined by the Board or Committee.

(b)        Upon the dissolution or liquidation of the Company, or upon a reorganization, merger, or consolidation of the Company as a result of which the outstanding securities of the class then subject to options hereunder are changed into or exchanged for cash or property or securities not of the Company’s issue, or upon a sale of substantially all the property of the Company to, or the acquisition of stock representing more than eighty percent (80%) of the voting power of the stock of the Company then outstanding by, another corporation or person, this Option shall terminate, unless provision is made in writing in connection with such transaction for the assumption of options theretofore granted under the Plan, or the substitution of such options by any options covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, in which event this Option shall continue in the manner and under the terms so provided.
 
(c)         To the extent that the foregoing adjustments relate to stock or securities of the Company or the exercise price of this Option, such adjustments shall be made by the Board or Committee, whose determination in that respect shall be final, binding and conclusive.

(d)         The grant of this Option shall not affect in any way the right of power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.

6.         Effect of Termination of Employment .  In the event of termination of the Employee’s Continuous Service for any reason other than his or her death or disability, this Option may not be exercised after the date three months following the date of termination of Employees Continuous Service, and may be exercisable only up to the amount vested on the date of termination.  “Continuous Service” means that the Employee’s service with the Company, whether as an employee, consultant, or director, is not interrupted or terminated, as determined in accordance with the Plan.
 
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7.        Effect of Death or Disability .  This Option shall be exercisable during the Employee’s lifetime only by the Employee and shall be nontransferable by the Employee otherwise than by will or the laws of descent and distribution.

(a)        In the event the Employee’s Continuous Service terminates on account of the Employee’s disability, this Option may not be exercised after the earlier of (i) date 12 months following such termination, and (ii) the expiration of the term of this Option, and this Option shall be exercisable only up to the amount vested under Section 3 on the date of disability.  Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code.

(b)         In the event Employee’s Continuous Service terminates due to Employee’s death, or if Employee dies during the three month period following termination of Employee’s Continuous Service during which the Employee is permitted to exercise this Option pursuant to Section 6, this Option may be exercised by the executor or administrator of the Employee’s estate or any person who shall have acquired this Option from the Employee by his or her will or the applicable law of descent and distribution, during a period ending on the earlier of (i) 12 months following the date of death, and (ii) the expiration of the term of this Option, with respect to the number of Shares for which the deceased Employee would have been entitled to exercise at the time of his or her death, including the number of Shares that vested upon his death under Section 3, subject to adjustment under Section 5.  Any such transferee exercising this Option must furnish the Company upon request of the Committee (i) written notice of his or her status as transferee, (ii) evidence satisfactory to the Company to establish the validity of the transfer of this Option in compliance with any laws of regulations pertaining to said transfer, and (iii) written acceptance of the terms and conditions of this Option as prescribed in this Agreement.

8.        How to Exercise Option .  This Option may be exercised by the person then entitled to do so as to any Share which may then be purchased by giving written notice of exercise to the Company, specifying the number of full Shares to be purchased and accompanied by full payment of the purchase price thereof and the amount of any income tax the Company is required by law to withhold by reason of such exercise.  The Option Exercise Price of Shares acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by certified or bank check at the time the Option is exercised or (b) the Option Exercise Price may be paid: (i) by delivery to the Company of other Shares, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the Option Exercise Price (or portion thereof) due for the number of shares being acquired (a " Stock for Stock Exchange "); (ii) a "cashless" exercise program established with a broker pursuant to which the broker exercises or arranges for the coordination of the exercise of the Option with the sale of some or all of the underlying Shares; (iii) any combination of the foregoing methods; or (iv) in any other form of consideration that is legal consideration for the issuance of Shares and that may be acceptable to the Board or Committee. The exercise price of Shares acquired pursuant to an Option that is paid by delivery to the Company of other Shares acquired, directly or indirectly from the Company, shall be paid only by Shares that have been held for more than six months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes).  Notwithstanding the foregoing, during any period for which the Company has any security registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or is required to file reports under Section 15(d) of the Exchange Act, or has filed a registration statement that has not yet become effective under the Securities Act of 1933, as amended, and that it has not withdrawn , if the Employee is a director or officer of the Company, any exercise that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited.
 
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9.         No Rights as Shareholder Prior to Exercise .  Neither the Employee nor any person claiming under or through the Employee shall be or have any of the rights or privileges of a shareholder of the Company in respect of any of the Shares issuable upon the exercise of this Option until the date of receipt of payment (including any amounts required by income tax withholding requirements) by the Company.

10.      Notices .  Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company at its principal executive office, or at such other address as the Company may hereafter designate in writing.  Any notice to be given to the Employee shall be addressed to the Employee as the address set forth beneath his or her signature hereto, or at any such other address as the Employee may hereafter designate in writing.  Any such notice shall be deemed to have been duly given three (3) days after being addressed as aforesaid and deposited in the United States mail, first class postage prepaid.

11.      Restrictions on Transfer .  Except as otherwise provided herein, the Option herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution attachment or similar process upon the rights and privileges conferred hereby.  Any transfer, assignment, pledge or other disposal of said Option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or any sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, shall immediately be null and void and shall not vest in any purported assignee or transferee any rights or privileges of the optionee, under this Agreement or otherwise with respect to such Options.  Notwithstanding the preceding two sentences, in conjunction with the exercise of an Option, and for the purpose of obtaining financing for such exercise, the Option holder may arrange for a securities broker/dealer to exercise an Option on the Option holder’s behalf, to the extent necessary to obtain funds required to pay the exercise price of the Option.
 
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12.      Successor and Assigns .   Subject to the limitations on transferability contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties hereto.
 
13.      Additional Restrictions .  The rights awarded hereby are subject to the requirement that, if at any time the Board or the Committee shall determine, in its discretion, that the listing, registration or qualification of the Shares subject to such rights upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such rights or the issuance or purchase of Shares in connection with the exercise of such rights, then such rights may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been affected or obtained free of any conditions not acceptable to the Board or the Committee.  Furthermore, if the Board or Committee determines that amendment to any stock option (including but not limited to the increase in the exercise price) is necessary or desirable in connection with the registration or qualification of any Shares or other securities under the securities or “blue sky” laws of any state, then the Board or Committee shall have the unilateral right to make such changes without the consent of the Employee.
 
14.      Terms of Employment .  Subject to any employment contract with the Employee, the terms of employment of the Employee shall be determined from time to time by the Company and the Company shall have the right, which is hereby expressly reserved, to terminate the Employee or change the terms of the employment at any time for any reason whatsoever, with or without good cause. The Employee agrees to notify in writing the Corporate Secretary of the Company of the Employee’s intention, if any, to terminate Employee’s employment within ten days after said intention is formed.

15.     Payment of Taxes .  Whenever Shares are to be issued to the Employee in satisfaction of the rights conferred hereby, the Company shall have the right to require the Employee to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares.

16.      Terms and Conditions of Plan.   This Agreement is subject to, and the Company and the Employee agree to be bound by, all of the terms and conditions of the Plan, as the same shall have been amended from time to time in accordance with the terms thereof, provided that no such amendment shall deprive the Employee, without his or her consent, of any of his or her rights hereunder, except as otherwise provided in this Agreement or in the Plan.  The Shares acquired hereunder may also be subject to restrictions on transfer and/or rights of repurchase that may be contained in the Bylaws of the Company or in separate agreements with Employee.  The Board or the Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Board or the Committee in good faith shall be final and binding upon Employee, the Company and all other interested persons.  No member of the Board or the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.
 
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17.      Severability .  In the event that any provision in this Agreement shall be invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on the remaining provisions of this Agreement.

18.      Governing Law .  This Agreement shall be governed by and construed under the laws of the state of California, without regard to conflicts of law provisions.
 
19.       Arbitration .  Any and all claims or controversies between the Company and Employee, including but not limited to (a) those involving the construction or application of any of the terms, provisions, or conditions of this Agreement; (b) all contract or tort claims of any kind; and (c) any claim based on any federal, state, or local law, statute, regulation, or ordinance, including claims for unlawful discrimination or harassment, shall be settled by arbitration in accordance with the then current Employment Dispute Resolution Rules of the American Arbitration Association.  Judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction over the Company and Employee.  The location of the arbitration shall be San Francisco, California.  Unless the Company or a Related Company and Employee mutually agree otherwise, the arbitrator shall be a retired judge selected from a panel provided by the American Arbitration Association, or the Judicial Arbitration and Mediation Service (JAMS).  The Company shall pay the arbitrator’s fees and costs.  Employee shall pay for Employee’s own costs and attorneys' fees, if any.  The Company shall pay for its own costs and attorneys' fees, if any.  However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, the arbitrator shall award reasonable attorneys' fees and costs to the prevailing party consistent with the relevant statute(s).

EMPLOYEE UNDERSTANDS AND AGREES THAT THIS AGREEMENT TO ARBITRATE CONSTITUTES A WAIVER OF HIS RIGHT TO A TRIAL BY JURY OF ANY MATTERS COVERED BY THIS AGREEMENT TO ARBITRATE.
 

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IN WITNESS HEREOF, the parties hereto have executed this Agreement, as of the day and year first above written.

COMPANY:
 
   
OncoCyte Corporation
 
   
   
 
(Signature)
 
     
By
   
   
Title
   
     
EMPLOYEE:
 
     
     
 
(Signature)
 
     
     
 
(Please Print Name)
 

 
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EXHIBIT 10.5
 
EMPLOYMENT AGREEMENT
 
THIS AGREEMENT is made April 1, 2011, by and between OncoCyte Corporation, a California corporation (the "Company"), BioTime, Inc., a California corporation (“BioTime”), and Karen Chapman, Ph.D. ("Employee").
 
W I T N E S S E T H :
 
WHEREAS, the Company desires to employ Employee, and Employee is willing to accept such employment, all on the terms and subject to the conditions hereinafter set forth;
 
NOW, THEREFORE, in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:
 
 
1.
Engagement
 
(a)              Position and Duties . The Company agrees to employ Employee in the position of Director of Bioinformatics.  Employee shall perform the duties and functions as are normally carried out by a Director of a developer of pharmaceutical or medical products of a size comparable to the Company, and as the Board of Directors of the Company (the "Board of Directors") shall from time to time reasonably determine.  Without limiting the generality of the immediately preceding sentence, Employee's duties shall include, but shall not be limited to: (i) leading the Company’s bioinformatics-based lead discovery project, including development of follow-up experimental protocols and direction of appropriate staff in execution of these studies; (ii) assisting in writing and securing research grants; (iii) accomplishing the tasks outlined in awarded grants, as applicable; (iv) assisting with setting up policies, procedures, and controls to comply with good laboratory practices; and (v) other administrative duties as assigned by the Chief Executive Officer, which could be altered or changed from time to time.  Employee shall devote her best efforts, skills, and abilities, on a full-time basis, exclusively to the Company's business pursuant to, and in accordance with, reasonable business policies and procedures, as fixed from time to time by the Board of Directors of the Company.  Employee covenants and agrees that she will faithfully adhere to and fulfill such policies as are established from time to time by the Company’s Management and by the Board of Directors.
 
(b)              Performance of Services for Related Companies .  In addition to the performance of services for the Company, Employee shall, to the extent so required by the Company, also perform services for one or more members of a consolidated group of which BioTime is a part ("Related Company"), provided that such services are consistent with the kind of services Employee performs or may be required to perform for the Company under this Agreement.  If Employee performs any services for any Related Company, Employee shall not be entitled to receive any compensation or remuneration in addition to or in lieu of the compensation and remuneration provided under this Agreement on account of such services for the Related Company.  Employee covenants and agrees that she will faithfully adhere to and fulfill such policies as are established from time to time by the Board of Directors of any Related Company for which she performs services, to the extent that such policies and procedures differ from or are in addition to the policies and procedures adopted by the Board of Directors of the Company.
 
(c)              No Conflicting Obligations .  Employee represents and warrants to the Company that she is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with her obligations under this Agreement or that would prohibit him, contractually or otherwise, from performing her duties as the Director of Bioinformatics of the Company as provided in this Agreement.
 

(d)              No Unauthorized Use of Third Party Intellectual Property .  Employee represents and warrants that she will not use or disclose, in connection with her employment by the Company or any Related Company, any patents, trade secrets, confidential information, or other proprietary information or intellectual property as to which any other person has any right, title or interest, except to the extent that the Company or a Related Company holds a valid license or other written permission for such use from the owner(s) thereof.  Employee represents and warrants to the Company that she has returned all property and confidential information belonging to any prior employer.
 
 
2.
Compensation
 
(a)              Salary .  During the term of this Agreement, the Company shall pay to the Employee an annual salary of one-hundred thirty-five thousand dollars ($135,000) the ("Annual Salary").  Employee's salary shall be paid in equal semi-monthly installments, consistent with the Company's regular salary payment practices.  Employee's salary may be increased from time-to-time by the Company without affecting this Agreement.
 
(b)              Bonus .   Employee shall be eligible for an annual bonus, as may be approved by the Board of Directors in its discretion, based on Employee's performance and achievement of goals or milestones set by the Board of Directors.  Employee agrees that the Board of Directors of the Company may follow the recommendations of the Compensation Committee of the board of directors of the Company’s parent company in determining whether to a award bonus or to establish performance goals or milestones.
 
(c)              Expense Reimbursements . The Company or a Related Company shall reimburse Employee for reasonable commute, travel, and other business expenses incurred by Employee in the performance of her duties hereunder, subject to the Company's (or a Related Company's) policies and procedures in effect from time to time, and provided that Employee submits supporting vouchers
 
(d)              Benefit Plans.  Employee shall be eligible (to the extent she qualifies) to participate in any retirement, pension, life, health, accident and disability insurance, stock option plan or other similar employee benefit plans which may be adopted by the Company (or Related Company) for its executive officers or other employees.  The Company shall pay for all premiums for   any such insurance policies covering Employee and Employee's spouse and children, if any, to the extent such insurance coverage is available under Company employee benefit plans.
 
(e)              Stock Options .  The Company will grant Employee options to purchase 10,000 BioTime common shares, no par value, under BioTime’s Stock Option Plan (the "Option").
 
(i)              The exercise price of the Option will be the last closing price of the Company’s (or Related Company’s) common shares immediately prior to approval of this grant by the Compensation Committee of the Company’s Board of Directors.  The Option will vest (and thereby become exercisable) as follows:  1/48 th of the number of shares of each option grant will vest at the end of each full month of employment.  Vesting will depend on Employee's continued employment with the Company through the applicable vesting date. The unvested portion of the Option shall not be exercisable.   The Option will not be transferable by Employee during Employee’s lifetime, except as provided in the Stock Option Agreement.
 
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(ii)            The vested portion of the Option shall expire on the earliest of (A) seven (7) years from the date of grants, (B) three months after Employee ceases to be an employee of the Company for any reason other than Employee's death or Disability (as defined below), or (C) one year after Employee ceases to be an employee of the Company due to her death or Disability; provided that if Employee dies during the three month period described in clause (B) of this paragraph, the expiration date of the vested portion of the Option shall be one year after the date of her death.
 
(iii)          The Option will be subject to the terms and conditions of the BioTime’s 2002 Stock Option Plan (the "Plan") and a Stock Option Agreement consistent with the Plan.
 
(iv)            The Company will also grant Employee an option to purchase 400,000 of the Company's common shares, no par value, (the "OncoCyte Option").
 
(v)              The exercise price of these Options is 75 cents, the fair market value of the Company's common shares on the effective date of the grant, as determined by the Board of Directors.  The effective date of the grant will be the date on which this Agreement is effective.  The Option will vest (and thereby become exercisable) as follows:  1/48 th of the number of shares will vest at the end of each full month of employment.  Vesting will depend on Employee's continued employment with the Company through the applicable vesting date. The unvested portion of the Option shall not be exercisable.  The Option will not be transferable by Employee during her lifetime, except as provided in the Stock Option Agreement.
 
(vi)            The vested portion of the Option shall expire on the earliest of (A) seven (7) years from the date of grant, (B) three months after Employee ceases to be an employee of the Company for any reason other than Employee's death or Disability (as defined below), or (C) one year after Employee ceases to be an employee of the Company due to her death or Disability; provided that if Employee dies during the three month period described in clause (B) of this paragraph, the expiration date of the vested portion of the Option shall be one year after the date of her death.
 
(vii)         The Option will be subject to the terms and conditions of the Company’s Stock Option Plan (the "Plan") and a Stock Option Agreement consistent with the Plan.
 
(f)              Vacation; Sick Leave .  Employee shall be entitled to 15 business days of vacation/sick leave without reduction in compensation, during each calendar year.  Such vacation/sick leave shall be taken at such time as is consistent with the needs and policies of the Company and its subsidiaries.  All vacation days and sick leave days shall accrue annually based upon days of service.  The Company may, from time to time, adopt policies governing the disposition of unused vacation days and sick leave days remaining at the end of the Company's fiscal year; which policies may govern whether unused vacation days or sick leave days will be paid, lost, or carried over into subsequent fiscal years.
 
3.              Competitive Activities . During the term of Employee's employment with the Company and for one year thereafter, Employee shall not, for himself or any third party, directly or indirectly employ, solicit for employment or recommend for employment any person employed by the Company or any Related Company.  During the term of Employee's employment, she shall not, directly or indirectly as an employee, contractor, officer, director, member, partner, agent, or equity owner, engage in any activity or business that competes or could reasonably be expected to compete with the business of the Company or any Related Company.  Employee acknowledges that there is a substantial likelihood that the activities described in this Section would (a) involve the unauthorized use or disclosure of the Company's or a Related Company's Confidential Information and that use or disclosure would be extremely difficult to detect, and (b) result in substantial competitive harm to the business of the Company or a Related Company.  Employee has accepted the limitations of this Section as a reasonably practicable and unrestrictive means of preventing such use or disclosure of Confidential Information and preventing such competitive harm.
 
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4.
Inventions/Intellectual Property/Proprietary Information
 
(a)             Inventions and Discoveries Belong to the Company . Any and all inventions, discoveries, improvements, or intellectual property relating to or in any way pertaining to or connected with the systems, products, apparatus, or methods employed, manufactured, constructed, or researched by the Company, or any Related Company, which Employee may conceive or make while performing services for the Company, or Related Company, (“Intellectual Property”) shall be the sole and exclusive property of the Company or Related Company.  Employee hereby irrevocably assigns and transfers to Company, or Related Company, all rights, title and interest in and to all Intellectual Property that Employee may now or in the future have under patent, copyright, trade secret, trademark or other law, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration.  The Company will be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks and other similar registrations with respect to such Intellectual Property.
 
(i)              The obligations provided for by this Agreement, except for the requirements as to disclosure in Section 4(b), do not apply to any rights Employee may have acquired in connection with Intellectual Property for which no equipment, supplies, facility, or trade secret information of the Company or Related Company was used and which was developed entirely on the Employee’s own time and (a) which at the time of conception or reduction to practice does not relate directly or indirectly to the business of the Company or Related Company, or to the actual or demonstrable anticipated research or development activities or plans of the Company or Related Company, or (b) which does not result from any work performed by Employee for the Company or Related Company.  All Intellectual Property that (1) results from the use of equipment, supplies, facilities, or trade secret information of the Company or Related Company; (2) relates, at the time of conception or reduction to practice of the invention, to the business of the Company or Related Company, or actual or demonstrably anticipated research or development of the Company or Related Company; or (3) results from any work performed by the Employee for the Company or Related Company shall be assigned and is hereby assigned to the Company or Related Company.  The parties understand and agree that this limitation is intended to be consistent with California Labor Code, Section 2870, a copy of which is attached as Exhibit A.  If Employee wishes to clarify that something created by Employee prior to Employee’s employment by the Company that relates to the actual or proposed business of the Company is not within the scope of this Agreement, Employee has listed it on Exhibit B in a manner that does not violate any third party rights.
 
To the extent allowed by law, the rights assigned by Employee to the Company or Related Company includes all rights of paternity, integrity, disclosure and withdrawal, and any other rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like (collectively “Moral Rights”).  To the extent Employee retains any such Moral Rights under applicable law, Employee hereby ratifies and consents to any action that may be taken with respect to such Moral Rights by or authorized by the Company or Related Company and agrees not to assert any Moral Rights with respect thereto.  Employee shall confirm in writing any such ratifications, consents, and agreements from time to time as requested by the Company or Related Company.
 
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Employee agrees to execute and sign any and all applications, assignments, or other instruments which the Company may deem necessary in order to enable the Company or Related Company, at its expense, to apply for, prosecute, and obtain patents of the United States or foreign countries for the Intellectual Property, or in order to assign or convey to, perfect, maintain or vest in the Company or Related Company the sole and exclusive right, title, and interest in and to said improvements, discoveries, inventions, or patents.  If the Company or Related Company is unable after reasonable efforts to secure Employee’s signature, cooperation or assistance in accordance with the preceding sentence, whether because of Employee’s incapacity or any other reason whatsoever, Employee hereby designates and appoints the Company or Related Company or its designee as Employee’s agent and attorney-in-fact, to act on her behalf, to execute and file documents and to do all other lawfully permitted acts necessary or desirable to perfect, maintain or otherwise protect the Company’s or Related Company’s rights in the Intellectual Property.  Employee acknowledges and agrees that such appointment is coupled with an interest and is irrevocable.
 
(b)             Disclosure of Inventions and Discoveries.   Employee agrees to disclose promptly to the Company or Related Company all improvements, discoveries, or inventions which Employee may make solely, jointly, or commonly with others.  Employee agrees to assign and hereby assigns all right, title and interest in any such improvements, discoveries, inventions, or intellectual property to the Company or Related Company, where the rights are the property of the Company or Related Company.  This paragraph is applicable whether or not the Intellectual Property was made under the circumstances described in paragraph (a) of this Section.
 
Employee agrees to make such disclosures understanding that they will be received in confidence and that, among other things, they are for the purpose of determining whether or not rights to the related invention, discovery, improvement, or intellectual property is the property of the Company or Related Company.
 
(c)             Confidential and Proprietary Information.   During this employment with the Company, Employee will have access to trade secrets and confidential information of the Company and any Related Company.  Confidential Information means all information and ideas, in any form, relating in any manner to matters such as: products; formulas; technology and know-how; inventions; clinical trial plans and data; business plans; marketing plans; the identity, expertise, and compensation of employees and contractors; systems, procedures, and manuals; customers; suppliers; joint venture partners; research collaborators; licensees; and financial information.  Confidential Information also shall include any information of any kind, whether belonging to the Company, a Related Company, or any third party, that the Company or a Related Company has agreed to keep secret or confidential under the terms of any agreement with any third party.  Confidential Information does not include:  (i) information that is or becomes publicly known through lawful means other than unauthorized disclosure by Employee; (ii) information that was rightfully in Employee’s possession prior to this employment with the Company and was not assigned to the Company or Related Company, or was not disclosed to Employee in Employee’s capacity as an employee or other fiduciary of the Company or a Related Company; or (iii) information disclosed to Employee, after the termination of this employment by the Company, without a confidential restriction by a third party who rightfully possesses the information and did not obtain it, either directly or indirectly, from the Company or a Related Company and who is not subject to an obligation to keep such information confidential for the benefit of the Company, a Related Company, or any third party with whom the Company or a Related Company has a contractual relationship.  Employee understands and agrees that all Confidential Information shall be kept confidential by Employee both during and after this employment by the Company.  Employee further agrees that Employee will not, without the prior written approval by the Company, disclose any Confidential Information, or use any Confidential Information in any way, either during the term of this employment with the Company or at any time thereafter, except as required by the Company or a related company in the course of this employment.
 
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5.              Termination of Employment .  Employee understands and agrees that her employment has no specific term.  This Agreement, and the employment relationship, are "at will" and may be terminated by either party with or without cause upon thirty (30) days advance written notice to the other.  Except as otherwise agreed in writing or as otherwise provided in this Agreement, upon termination of Employee's employment, the Company shall have no further obligation to Employee by way of compensation or otherwise as expressly provided in this Agreement.
 
(a)              Separation Benefits .  Upon termination of Employee’s employment with the Company for any reason, Employee will receive the severance benefits set forth below, but Employee will not be entitled to any other compensation, award, or damages with respect to her employment or termination of employment.
 
(i)              Termination for Cause, Death, Disability, or Resignation .  In the event of Employee's termination for Cause, or termination as a result of her death or Disability, or her resignation, Employee will be entitled to receive payment for all unpaid salary, accrued but unpaid bonus, if any, and vacation accrued as of the date of her termination of employment.  Employee will not be entitled to any cash severance benefits or additional vesting of any Company stock options or other equity or cash awards.
 
(ii)              Termination Without Cause .  In the event of Employee’s termination without Cause, she will be entitled to (A) the benefits set forth in paragraph (a)(i) of this Section, and (B) payment in an amount equal to three months' base salary which may be paid in a lump sum or, at the election of the Company, in installments consistent with the payment of Employee 's salary while employed by the Company, subject to such payroll deductions and withholdings as are required by law.
 
(b)              Change of Control .  In the event the Company (or any successor in interest to the Company that has assumed the Company's obligation under this Agreement) terminates Employee’s employment without Cause within twelve (12) months following a Change in Control, Employee will be entitled to (A) the benefits set forth in paragraph (a)(i) of this Section, and (B) the benefits set forth in paragraph (a)(ii) of this Section.
 
(c)              Release .   Any other provision of this Agreement notwithstanding, paragraphs (a)(ii) and (a)(iii) of this Section shall not apply unless the Employee (i) has executed a general release of all claims (in a form prescribed by the Company) and (ii) has returned all property of the Company and any Related Companies in the Employee's possession.
 
(d)              Definitions .   For purposes of this Section, the following definitions shall apply:
 
(i)              "Affiliated Group" means (A) a Person and one or more other Persons in control of, controlled by, or under common control with such Person; and (B) two or more Persons who, by written agreement among them, act in concert to acquire Voting Securities entitling them to elect a majority of the directors of the Company.
 
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(ii)              "Cause" means: (A) the failure to properly perform Employee 's job responsibilities, as determined reasonably and in good faith by the Board of Directors; (B) commission of any act of fraud, gross misconduct or dishonesty with respect to the Company or any Related Company; (C) conviction of, or plea of guilty or "no contest" to any felony, or a crime involving moral turpitude; (D) breach of any provision of this Agreement or any provision of any proprietary information and inventions agreement with the Company or any Related Company; (E) failure to follow the lawful directions of the Chief Executive Officer of the Company or any Related Company; (F) chronic alcohol or drug abuse; (G) obtaining, in connection with any transaction in which the Company, Related Companies or the Company’s affiliates is a party, a material undisclosed financial benefit for herself or for any member of her immediate family or for any corporation, partnership, limited liability company, or trust in which she or any member of her immediate family owns a material financial interest; or (H) harassing or discriminating against, or participating or assisting in the harassment of or discrimination against, any employee of the Company (or a Related Company or an affiliate of the Company) based upon gender, race, religion, ethnicity, or nationality.
 
(iii)              "Change of Control" means (A) the acquisition of Voting Securities of the Company by a Person or an Affiliated Group entitling the holder thereof to elect a majority of the directors of the Company; provided, that an increase in the amount of Voting Securities held by a Person or Affiliated Group who on the date of this Agreement owned beneficially owned (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations   thereunder) more than 10% of the   Voting Securities shall not   constitute a Change of Control; and provided, further, that an acquisition of Voting Securities by one or more Persons acting as an underwriter in connection with a sale or distribution of such Voting Securities shall not constitute a Change of Control under this clause (A); (B) the sale of all or substantially all of the assets of the Company; or (C) a merger or consolidation of the Company with or into another corporation or entity in which the stockholders of the Company immediately before such merger or consolidation do not own, in the aggregate, Voting Securities of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity) entitling them, in the aggregate (and without regard to whether they constitute an Affiliated Group) to elect a majority of the directors or persons holding similar powers of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity); provided, however, that in no event shall any transaction described in clauses (A), (B) or (C) be a Change of Control if all of the Persons acquiring Voting Securities or assets of the Company or merging or consolidating with the Company are one or more Related Companies.
 
(iv)              "Disability" shall mean Employee's inability to perform the essential functions of her job responsibilities for a period of one hundred eighty (180) days in the aggregate in any twelve (12) month period.
 
(v)              "Person" means any natural person or any corporation, partnership, limited liability company, trust, unincorporated business association, or other entity.
 
(vi)              "Voting Securities" means shares of capital stock or other equity securities entitling the holder thereof to regularly vote for the election of directors (or for person performing a similar function if the issuer is not a corporation), but does not include the power to vote upon the happening of some condition or event which has not yet occurred.
 
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6.              Turnover of Property and Documents on Termination . Employee agrees that on or before termination of her employment, she will return to the Company and all Related Companies all equipment and other property belonging to the Company and Related Companies, and all originals and copies of Confidential Information (in any and all media and formats, and including any document or other item containing Confidential Information) in Employee's possession or control, and all of the following (in any and all media and formats, and whether or not constituting or containing Confidential Information) in Employee's possession or control:  (a) lists and sources of customers; (b) proposals or drafts of proposals for any research grant, research or development project or program, marketing plan, licensing arrangement, or other arrangement with any third party; (c) reports, job or laboratory notes, specifications, and drawings pertaining to the  research, development, products, patents, and technology of the Company and any Related Companies; and (d) any and all inventions or intellectual property developed by Employee during the course of employment.
 
7.              Arbitration .  Except for injunctive proceedings against unauthorized disclosure of confidential information, any and all claims or controversies between the Company or any Related Company and Employee, including but not limited to (a) those involving the construction or application of any of the terms, provisions, or conditions of this Agreement; (b) all contract or tort claims of any kind; and (c) any claim based on any federal, state, or local law, statute, regulation, or ordinance, including claims for unlawful discrimination or harassment, shall be settled by arbitration in accordance with the then current Employment Dispute Resolution Rules of the American Arbitration Association.  Judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof.  The location of the arbitration shall be San Francisco, California.  Unless the parties mutually agree otherwise, the arbitrator shall be a retired judge selected from a panel provided by the American Arbitration Association, or the Judicial Arbitration and Mediation Service (JAMS).  The Company shall pay the arbitrator’s fees and costs.  Each party shall pay for its own costs and attorneys' fees, if any.  However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, the arbitrator may award reasonable attorneys' fees and costs to the prevailing party.

EMPLOYEE UNDERSTANDS AND AGREES THAT THIS AGREEMENT TO ARBITRATE CONSTITUTES A WAIVER OF her RIGHT TO A TRIAL BY JURY OF ANY MATTERS COVERED BY THIS AGREEMENT TO ARBITRATE.
 
8.              Severability . In the event that any of the provisions of this Agreement shall be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement.  In the event that any provision relating to the time period of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period such court deems reasonable and enforceable, then the time period of restriction deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum time period.
 
9.              Agreement Read and Understood . Employee acknowledges that she has carefully read the terms of this Agreement, that she has had an opportunity to consult with an attorney or other representative of her own choosing regarding this Agreement, that she understands the terms of this Agreement, and that she is entering this agreement of her own free will.
 
10.          Complete Agreement, Modification .  This Agreement is the complete agreement between the parties on the subjects contained herein and supersedes all previous correspondence, promises, representations, and agreements, if any, either written or oral.  No provision of this Agreement may be modified, amended, or waived except by a written document signed both by the Company and Employee.
 
8

11.           Governing Law .  This Agreement shall be construed and enforced according to the laws of the State of California.
 
12.          Assignability .  This Agreement, and the rights and obligations of the parties under this Agreement, may not be assigned by Employee.  The Company may assign any of its rights and obligations under this Agreement to any successor or surviving corporation, limited liability company, or other entity resulting from a merger, consolidation, sale of assets, sale of stock, sale of membership interests, or other reorganization, upon condition that the assignee shall assume, either expressly or by operation of law, all of the Company's obligations under this Agreement.
 
13.          Survival .  This Section 13 and the covenants and agreements contained in Sections 4 and 6 of this Agreement shall survive termination of this Agreement and Employee's employment.
 
14.          Notices .  Any notices or other communication required or permitted to be given under this Agreement shall be in writing and shall be mailed by certified mail, return receipt requested, or sent by next business day air courier service, or personally delivered to the party to whom it is to be given at the address of such party set forth on the signature page of this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 14).
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
 
EMPLOYEE:
   
       
/s/ Karen Chapman
   
Karen Chapman, Ph.D.
   
Address:
308 Ashton Ln
 
 
Mill Valley, California 94941
 
 
COMPANY: 
   
           
OncoCyte Corporation 
   
           
 
By:
/s/ Joseph Wagner
   
   
Joseph Wagner, Ph.D.
   
           
 
Title:
CEO
     
           
   
Address:
1301 Harbor Bay Parkway, Suite100
 
     
Alameda, California 94502
 
 
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BIOTIME:  
   
           
BioTime, Inc.
     
           
 
By:
/s/ Robert W. Peabody
   
   
Robert W. Peabody
   
           
 
Title:
Sr. Vice President and Chief Operating Officer
   
           
   
Address:
1301 Harbor Bay Parkway, Suite100
 
     
Alameda, California 94502
 
 
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EXHIBIT A
 
California Labor Code Section 2870.
 
Application of provision providing that employee shall assign or offer to assign rights in invention to employer.
 
 (a)           Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of her or her rights in an invention to her or her employer shall not apply to an invention that the employee developed entirely on her or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
 
(i)                Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or
 
(ii)               Result from any work performed by the employee for her employer.

(b)            To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
 
11

EXHIBIT B
 
PRIOR MATTERS
 
None

 
12


EXHIBIT 10.6
 
EMPLOYMENT AGREEMENT
 
THIS AGREEMENT is made June 15, 2015, by and between OncoCyte Corporation, a California corporation (the “Company”), and William Annett (“Executive”).
 
WITNESSETH:
 
WHEREAS, the Company desires to employ Executive, and Executive is willing to accept such employment, all on the terms and subject to the conditions hereinafter set forth:

NOW, THEREFORE, in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follow:

 
1.
Employment.  The Company hereby agrees to employ Executive and Executive hereby agrees to be employed by the Company on the terms and conditions set forth in this Agreement, beginning on  June 16, 2015 (the “Start Date”) and ending on upon the termination of Executive’s employment (such period, the “Term”).  The parties acknowledge and agree that Executive’s employment relationship is at-will.  Subject to the obligations set out in this Agreement, either Executive or the Company may terminate the employment relationship at any time, with or without Cause (as defined below).

2.
Position and Duties.

 
a.
Position.  During the Term, Executive shall serve as the Company’s Chief Executive Officer and shall continue to serve as a member of the Board of Directors of the Company (the “Board”) .

 
b.
Duties .  Executive shall have the powers, authorities, and duties of management customarily vested in the office of chief executive officer of a developer of pharmaceutical or medical products of a size comparable to the Company, subject to the legal directives of the Board in exercising its general oversight function.  Executive shall report solely to the Board.  During his employment, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive shall devote his full working time and efforts to the business and affairs of the Company.  Notwithstanding the foregoing, the Executive may serve on other boards of directors, with the approval of the Board or engage in religious, charitable or other community activities as long as such services and activities are disclosed to the Board and do not interfere with the Executive’s performance of his or her duties to the Company.
 

 
c.
Performance of Services for Related Companies.  In addition to the performance of services for the Company, Executive shall, to the extent so required by the Company, also perform services for one or more members of a consolidated group of which the Company is a part (“Related Company”), provided that such services are consistent with the kind of services Executive performs or may be required to perform for the Company under this Agreement.  If Executive performs any services for any Related Company, Executive shall not be entitled to receive any compensation or remuneration in addition to or in lieu of the compensation and remuneration provided under this Agreement on account of such services for the Related Company.

 
d.
No Conflicting Obligations.   Executive represents and warrants to the Company that he is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with his obligations under this Agreement or that would prohibit him, contractually or otherwise, from performing his duties as the Chief Executive Officer of the Company as provided in this Agreement.
 
 
e.
No Unauthorized Use of Third Party Intellectual Property.  Executive represents and warrants that he will not use or disclose, in connection with his employment by the Company or any Related Company, any patents, trade secrets, confidential information, or other proprietary information or intellectual property as to which any person has any right, title or interest, except to the extent that the Company or Related Company holds a valid license or other written permission for such use from the owner(s) thereof.  Executive represents and warrants to the Company that he has returned all property and confidential information belonging to any prior employer.
 
3.
Compensation

 
a.
Salary.  During the Term, the Company shall pay to the Executive an annual salary of three hundred twenty thousand dollars ($320,000) (the “Base Salary”).  Executive’s Base Salary shall be paid in equal semi-monthly installments, consistent with the Company’s regular salary payment practices.  Base Salary shall be reviewed on an annual basis commencing in January 2016, and shall be subject to adjustment based upon mutual agreement; provided, however,  that in the event the Company becomes a public entity during the Term,  the Compensation Committee of the Board shall adjust Executive’s Base Salary upwards (but not downwards) in accordance with market for CEOs at comparable public companies.
 

 
b.
Annual Bonus.   Executive shall be eligible to earn an annual cash incentive bonus award determined by the Board in respect of each fiscal year during Executive’s employment (the “Annual Bonus”), with a target bonus equal to no less than thirty five percent (35%) of Base Salary (the “Target Bonus”) for achievement of the specified performance goals at target levels for the applicable calendar year.  The actual Annual Bonus payable shall be based upon the level of achievement of objectively determinable Company and individual performance goals for the applicable calendar year, as determined by the Board in consultation with Executive.  Such performance goals shall be determined and memorialized in writing no later than January 31 of each calendar year.  If the specified performance goals for the applicable calendar year are achieved at maximum levels, the actual Annual Bonus payable shall be up to 150% of the Annual Base Salary, as determined by the Board, in its sole discretion.  The Annual Bonus shall be paid to Executive at the same time as annual bonuses are generally payable to other senior executives of the Company, but not later than two and one-half (2½) months after the last day of the Company’s fiscal year in which the Annual Bonus was earned.

 
c.
Expense Reimbursements.   The Company or a Related Company shall reimburse Executive for reasonable commute, travel, and other business expenses incurred by Executive in the performance of his duties hereunder, subject to the Company’s (or a Related Company’s) policies and procedures in effect from time to time, and provided that Executive submits supporting vouchers.
 
 
d.
Benefit Plans.   Executive shall be eligible (to the extent he qualifies) to participate in any retirement, pension, life, health, accident and disability insurance, stock option plan or other similar employee benefit plans which may be adopted by the Company (or Related Company) for its executive officers or other employees.  The Company shall pay for its share of the premium cost in accordance with established Company policy for any such insurance policies covering Executive and Executive’s spouse and children, if any, to the extent such coverage is available under Company employee benefit plans.  Employee will pay his pro-rata share of the premium cost in accordance with established Company policy.
 
 
e.
Stock Options.   As soon as practicable on or after the Start Date, the Company will grant Executive an option to purchase 1,200,000 of the Company’s common shares, no par value, (the “Option”).
 

 
(i)
The exercise price of the Option will be the fair market value of the Company’s common shares on the date of the grant, as determined by the Board of Directors.  The Option will vest (and thereby become exercisable) as follows: one quarter of the options shall vest upon completion of 12 full months of continuous employment of the Executive by the Company measured from the Start Date, and the balance of the options shall vest in 36 equal monthly installments commencing on the first anniversary of the Start Date, based upon the completion of each month of continuous employment of the Executive by the Company. The unvested portion of the Option shall not be exercisable.  The Option will not be transferable by the Executive during his lifetime, except as provided in the Stock Option Agreement.

 
(ii)
The vested portion of the Option shall expire on the earliest of (A) ten (10) years from the date of the grant, (B) three months after Executive ceases to provide continuous service to the Company as an employee or consultant for any reason other than Executive’s death or Disability (as defined below), or (C) one year after Executive ceases to be a service provider to the Company due to his death or Disability; provided that if Executive dies during the three month period described in clause (B) of this paragraph, the expiration date of the vested portion of the Option shall be one year after the date of his death.
 
 
(iii)
The Option will be subject to the terms and conditions of the Company’s Stock Option Plan (the “Plan”) and a Stock Option Agreement consistent with the Plan.  The grant of the Option shall be subject to shareholder approval of the most recent amendment of the Plan.

 
(iv)
On an annual basis, the Board shall determine whether to grant Executive additional options under the Plan.  If granted, such additional options shall be subject to terms and conditions determined by the Board; provided, however, that additional options shall vest monthly over forty-eight months starting at the grant date.

 
(v)
As of the Start Date, Executive shall be granted a one-time option to purchase 10,000 fully vested shares in consideration of his prior service to the Company as a member of the Board.
 

 
f.
Personal Time Off (PTO) .  Executive shall be entitled to four weeks of PTO without reduction in compensation during each calendar year.  Such PTO shall be taken at such time as is consistent with the needs and policies of the Company and its Related Companies.  All PTO days shall accrue annually based upon days of service.

 
4.
Restrictive Covenants.   During the term of Executive’s employment with the Company and for one year thereafter, Executive shall not, for himself or any third party, directly or indirectly, employ or solicit for employment or recommend for employment any person employed by the Company or any Related Company.  During the term of Executive’s employment, he shall not, directly or indirectly as an employee, contractor, officer, director, member, partner, agent, or equity owner, engage in any activity or business that competes or could reasonably be expected to compete with the business of the Company of any Related Company.

 
5.
Inventions/Intellectual Property/Proprietary Information
 
 
a.
Inventions and Discoveries Belong to the Company.  Any and all inventions, discoveries, improvements or intellectual property which Executive may conceive or make during the period of employment relating to or in any way pertaining to or connected with the systems, products, apparatus, or methods employed, manufactured, constructed or researched by the Company (or any Related Company) shall be the sole and exclusive property of the Company (or a Related Company).  The obligations provided for by this Agreement, except for the requirements as to disclosure in Section, do not apply to any rights Executive may have acquired in connection with an invention, discovery, improvement, or intellectual property for which no equipment, supplies, facility, or trade secret information of the Company or a Related Company was used and which was developed entirely on the Executive’s own time and (a) which at the time of conception or reduction to practice does not related directly or indirectly to the business of the Company or a Related Company, or to the actual or demonstrable anticipated research or development activities or plans of the Company or any Related Company, or (b) which does not result from any work performed by Executive for the Company or any Related Company.  The parties understand and agree that this limitation is intended to be consistent with California Labor Code, Section 2870, a copy of which is attached as Exhibit A.  If Executive wishes to clarify that something created by him prior to his employment by the Company that relates to the actual or proposed business of the Company or any Related Company is not within the scope of this Agreement, he has listed it on Exhibit B in a manner that does not violate any third party rights.  To the extent allowed by law, the rights assigned by Executive to the Company and the Related Companies includes all rights or paternity, integrity, disclosure and withdrawal and nay other rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like (collectively “Moral Rights”).  To the extent Executive retains any such Moral Rights under applicable law, he here by ratifies and consents to any action that may be taken with respect to such Moral Right by or authorized by the Company or a Related Company and agrees not to assert any Moral Rights with respect thereto.  Executive shall confirm in writing any such ratification, consents and agreement from time to time as requested by the Company or Related Company.
 

 
b.
Disclosure of Inventions and Discoveries.  Executive agrees to disclose promptly to the Company or a Related Company all improvements, discoveries, or inventions which Executive may make solely, jointly, or commonly with others, and to assign as appropriate such improvements, discoveries, inventions or intellectual property to the Company or a Related Company, where the rights are the property of the Company or a Related Company.  Executive agrees to execute and sign any and all applications, assignments, or other instruments which the Company or a Related Company may deem necessary in order to enable the Company or a Related Company, at its expense, to apply for, prosecute, and obtain patents of the United States or foreign countries for the improvements, discoveries, inventions or intellectual property, or in order to assign or convey to or vest in the Company or a Related Company the sole and exclusive right, title, and interest in and to said improvements, discoveries, inventions, or patents.  Executive hereby irrevocably designates and appoints the Company or a Related Company designated by the Company as Executive’s agent and attorney-in-fact, coupled with an interest and with full power of substitution, to act for and in Executive’s behalf to execute and file any document and to do all other lawfully permitted acts to further the purposes of this paragraph with the same legal force and effect as if executed by Executive.  This paragraph is applicable whether or not the invention, discovery, improvement or intellectual property was made under the circumstances described in paragraph (a) of this Section.  Executive agrees to make such disclosures understanding that they will be received in confidence and that, among other things, they are for the purpose of determining whether or not rights to the related invention, discovery, improvement, or intellectual property is the property of the Company or a Related Company.

 
c.
Confidential and Proprietary Information.  During his employment, Executive will have access to trade secrets and confidential information of the Company and any Related Company.  Confidential Information means all information and ideas, in any form, relating in any manner to matters such as:  products; formulas; technology and know-how; inventions; clinical trial plans and data; business plans; marketing plans’ the identity, expertise, and compensation of employees and contractors; systems, procedures, and manuals; customers; suppliers; joint venture partners; research collaborators; licensees; and financial information.  Confidential Information also shall include any information of any kind, whether belonging to the Company or a Related Company, or any third party, which the Company or a Related Company has agreed to keep secret or confidential under the terms of any agreement with any third party.  Confidential Information does not include:  (i) information that is or becomes publicly known through lawful means other than unauthorized disclosure by Executive, (ii) information that was rightfully in Executive’s possession prior to his employment with the Company and was not assigned to the Company or a Related Company or was not disclosed to Executive in his capacity as a director or other fiduciary of the Company or a Related Company; or (iii) information disclosed to Executive, after the termination of his employment by the Company, without a confidential restriction by a third party who rightfully possesses the information and did not obtain it, either directly or indirectly, from the Company or a Related Company, and who is not subject to an obligation to keep such information confidential for the benefit of the Company, a Related Company, or any third party with whom the Company or a Related Company had as contractual relationship.  Executive understand and agrees that all Confidential Information shall be kept confidential by Executive both during and after his employment by the Company.  Executive further agrees that he will not, without prior written approval by the Company, disclose any Confidential Information, or use any Confidential Information in any way, either during the term of his employment or at any time thereafter, except as required by the Company or a Related Company in the course of his employment.
 

 
6.
Termination of Employment,  This Agreement, and the employment relationships, are “at will” and may be terminated by either party with or without cause at any time.  Except as otherwise agreed in writing or as otherwise provided in this Agreement, upon termination of Executive’s employment, the Company shall have no further obligation to Executive by way of compensation.

 
a.
Separation Benefits.  Upon termination of Executive’s employment with the Company for any reason, Executive will receive the severance benefits set forth below, but Executive will not be entitled to any other compensation, award, or damages with respect to his employment or termination of employment.

 
(i)
Termination for Cause, Death, Disability, or Resignation.  In the event of Executive’s termination for Cause, or termination as a result of his death or Disability, or his resignation other than for Good Reason, Executive will be entitled to receive payment for all unpaid salary, accrued by unpaid bonus, if any, and vacation accrued as of the date of his termination of employment (the “Accrued Benefits”).  Executive will not be entitled to any cash severance benefits or additional vesting of any Company stock options or other equity or cash awards.
 

 
(ii)
Termination by Company without Cause or by Executive for Good Reason .    If Executive’s employment is terminated without Cause or if Executive resigns from such employment for Good Reason, Executive will be entitled to the Accrued Benefits, plus (within thirty (30) days after termination): (A) an amount of Base Salary equal to the amount that Executive would otherwise have earned during the six month period following termination (the “Severance Period”), payable in a lump sum;  (C) pro-rated Target Bonus for the fiscal year in which the termination occurs, payable on the date Annual Bonuses would otherwise be payable to executives; (C) if Executive timely elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for himself and his eligible dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse (or pay directly) COBRA premiums for such coverage (at the coverage levels in effect immediately prior to  termination) until the earlier of the end of the Severance Period or the date Executive receives receive substantially equivalent health insurance coverage in connection with new employment; (D) all outstanding equity grants held by Executive shall automatically vest as to the number of unvested shares that would otherwise have vested during the Severance Period;  and (E) with respect to any outstanding vested but unexercised option grants, the post-termination exercise period shall be extended to the earlier of the date twelve (12) months after termination or the expiration date of the option.

 
(iii)
Change of Control.  In the event the Company (or any successor in interest to the Company that has assumed the Company’s obligation under this Agreement) terminates Executive’s employment without Cause or Executive resigns for Good Reason within twelve (12) months following a Change of Control, Executive will be entitled to the benefits set forth in paragraph (a)(ii) of this Section; provided, however, that the Severance Period shall be twelve (12) months.
 

 
b.
Release.  Any other provision of this Agreement notwithstanding, paragraphs (a)(ii) and (a)(iii) of this Section shall not apply unless the Executive (i) has executed a general release of all claims (in a form prescribed by the Company) and (ii) has returned all property of the Company and any Related Companies in the Executive’s possession.

 
c.
No Duty to Mitigate .  Executive shall in no event be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment

 
d.
Definitions.  For the purposes of this Section, the following definitions shall apply:
 
 
(i)
“Affiliated Group” means (A) a Person and one or more other Persons in control of, controlled by, or under common control with such Person; and (B) two or more Persons who, by written agreement among them, act in concert to acquire Voting Securities entitling them to elect a majority of the directors of the Company.

 
(ii)
“Cause” means: (A) the willful failure by Executive to perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental impairment), unless any such failure is corrected within thirty (30) days if such cure will fully repair any failure, following written notice by the Board or its delegate that specifically identifies the manner in which the Executive has substantially not performed his duties or (B) an act of gross misconduct by Executive with regard to the Company that is materially injurious to the Company.  No act, or failure to act, by Executive shall be "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the best interest of the Company.
 

 
(iii)
“Change of Control” means (A) the acquisition of Voting Securities of the Company by a Person or an Affiliated Group entitling the holder thereof to elect a majority of the directors of the Company; provided, that an increase in the amount of Voting Securities held by a Person or Affiliated Group who on the date of this Agreement owned or beneficially owned (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations thereunder) more than 10% of the Voting Securities by one or more Persons acting as an underwriter in connection with a sale or distribution of such Voting Securities shall not constitute a Change of Control under this clause (A); (B) the sale of all or substantially all of the assets of the Company; or (C) a merger or consolidation of the Company with or into another corporation or entity in which the stockholders of the Company immediately before such merger or consolidation do not own, in the aggregate, Voting Securities of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity) entitling them, in the aggregate (and without regard to whether they constitute an Affiliated Group) to elect a majority of the directors or persons holding similar powers of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity); provided, however, that in no event shall any transaction described in clauses (A), (B) or (C) be a Change of Control if all of the Persons acquiring Voting Securities or assets of the Company or merging or consolidating with the Company are one or more Related Companies.

 
(iv)
“Disability” shall mean Executive’s inability to perform the essential function of his job responsibilities for a period of one hundred eighty (180) days in the aggregate in any twelve (12) month period.

 
(v)
“Good Reason”  means the occurrence of one or more of the following events, without Executive’s express written consent: (A) a material change to or reduction in Executive’s duties, position or responsibilities under this Agreement; (B) a ten percent (10%) or greater reduction in Executive’s Base Salary as in effect immediately prior to such reduction, provided that such reduction is not made in proportion to an across-the-aboard reduction for all senior executives of the Company; (C) a material change in the working conditions of Executive including, without limitation, relocation of Executive’s principal workplace over fifty miles from the Company’s existing workplace, without the consent of Executive; (D) the failure of the Company to obtain the assumption of this Agreement by any successor company or (E) the Company’s material breach of this Agreement.   Prior to resignation for Good Reason, Executive shall provide the Company with written notice of the acts or omissions constituting the grounds for Good Reason within ninety (90) days of the occurrence and Company shall have a cure period of thirty (30) days following the date the Company receives such notice during which such condition must be cured.  The effective date for such a resignation for Good Reason (in the absence of cure) will be the earlier of the following dates:  (x) the date of expiration of the Company’s cure period or (y) the date that the Company advises Executive in writing that it does not intend to cure.  For the purposes of delivery of notice under subsection (A), a material change or reduction that occurs incrementally over a period of time (not to exceed twelve (12) months) shall be deemed to have occurred when such change or reduction, in the aggregate, becomes material.
 

 
(vi)
“Person” means any natural person or any corporation, partnership, limited liability company, trust, unincorporated business association, or other entity.

 
(vii)
“Voting Securities” means shares of capital stock or other equity securities entitling the holder thereof to regularly vote for the election of directors (or for person performing a similar function if the issuer is not a corporation), but does not include the power to vote upon the happening of some condition or event which has not yet occurred.

 
7.
Compliance with Section 409A of the Internal Revenue Code .

 
a.
Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s “separation from service” within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.

 
b.
The parties intend that this Agreement will be administered in accordance with Section 409A of the Code.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code.  The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.
 

 
8.
Golden Parachute Payments .  In the event that any payment received by Executive pursuant to this agreement or otherwise would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (a “Parachute Payment”), and but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Section 4999 Excise Tax”), then the Company will make best efforts to obtain shareholder approval for such payment in accordance with Section 280G(b)(5) and its regulations, if applicable.  If shareholder approval of the Parachute Payment is not solicited, then Executive may elect (prior to the date the Parachute Payment would be triggered) to have such Parachute Payment equal to a reduced amount.  Such reduced amount shall be calculated as either (i) the largest portion of the Parachute Payment that would result in no portion of the Parachute Payment being subject to the Excise Tax or (ii) the largest portion, up to and including the total, of the Parachute Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive's receipt, on an after-tax basis, of the greater amount of the Parachute Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Parachute Payment equals the reduced amount, the reduction shall occur in the following order:  reduction of cash payments; cancellation of accelerated vesting of stock awards, if applicable; reduction of employee benefits.    The accounting firm engaged by the Company (or its successor) for general tax purposes shall perform the foregoing calculations.  The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.  The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to Executive and to the Company within fifteen (15) calendar days prior to the date on which Executive's right to a Payment is triggered (if requested at that time by Executive or  the Company) or such other time as requested.  Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon Executive and the Company.

 
9.
Turnover of Property and Documents on Termination.  Executive agrees that on or before termination of his employment, he will return to the Company and all Related Companies all equipment and other property belonging to the Company and Related Companies, and all originals and copies or Confidential Information (in any and all media and formats, and including any document or other item containing Confidential Information) in Executive’s possession or control, and all of the following (in any and all media and formats, and whether or not constituting or containing Confidential Information) in Executive’s possession or control: (a) lists and sources of customers; (b) proposals or drafts of proposals for any research grant, research or development project or program, marketing plan, licensing arrangement, or other arrangement with any third party; (c) reports, job or laboratory notes, specifications, and drawings pertaining to the research, development, products, patents, and technology of the Company and any Related Companies; and (d) any and all inventions or intellectual property developed by Executive during the course of employment.
 

 
10.
Governing Law; Dispute Resolution .  This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California.  Each party consents to the jurisdiction and venue of the state or federal courts in San Francisco County, California, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement.  If any action is necessary to enforce the terms of this Agreement, the substantially prevailing party will be entitled to reasonable attorneys’ fees, costs and expenses in addition to any other relief to which such prevailing party may be entitled.

 
11.
Severability.  In the event that any of the provisions of this Agreement shall be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement.  In the event that any provision relating to the time period of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period such court deems reasonable and enforceable, then the time period of restriction deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum time period.

 
12.
Agreement Read and Understood.  Executive acknowledges that he has carefully read the terms of this Agreement, that he has had an opportunity to consult with an attorney or other representative of his own choosing regarding this Agreement, that he understand the terms of this Agreement, and that he is entering this agreement of his own free will.
 
 
13.
Complete Agreement, Modification.  This Agreement is the complete agreement between the parties on the subjects contained herein and supersedes all previous correspondence, promises, representations, and agreements, if any, either written or oral.  No provision of this Agreement may be modified, amended, or waived except by a written document signed by both the Company and Executive.
 

 
14.
Assignability.  This Agreement, and the rights and obligations of the parties under this Agreement, may not be assigned by Executive.  The Company may assign any of its rights and obligations under this Agreement to any successor or surviving corporation, limited liability company, or other entity resulting from a merger, consolidation, sale of assets, sale of stock, sale of membership interests, or other reorganization, upon condition that the assignee shall assume, either expressly or by operation of law, all of the Company’s obligations under this Agreement.
 
 
15.
Survival.  This Section 15 and the covenants and agreements contained in Sections 4 and 5 of this Agreement shall survive termination of this Agreement and Executive’s employment.
 
 
16.
Notices.  Any notices or other communication required or permitted to be given under this Agreement shall be in writing and shall be mailed by certified mail, return receipt requested, or sent by next business day air courier service, or personally delivered to the party to whom it is to be given at the address of such party set forth on the signature page of this Agreement (or to such address as the party shall have furnished in writing in accordance with the provisions of this Section 16).

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above.
 
EXECUTIVE:

/s/ William Annett
   
William Annett
   
       
Address:
4140 39th Ave.
 
 
Oakland, CA  94619
 

COMPANY:
   
         
OncoCyte Corporation
   
         
By:
 /s/ Robert W. Peabody
   
 
Robert W. Peabody
   
         
Title:
 
Sr. Vice President and Chief Financial Officer
 
         
Address:
 
1301 Harbor Bay Parkway, Suite 100
 
   
Alameda, CA  94502
 
 

EXHIBIT A

California Labor Code Section 2870.

Application of provision providing that employee shall assign or offer to assign rights in invention to employer.

 
(a)
Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

 
(i)
Related at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer: or

 
(ii)
Result from any work performed by the employee for his employer.
 
 
(b)
To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
 

EXHIBIT B

PRIOR MATTERS

None
 
 


EXHIBIT 10.7
 
EMPLOYMENT AGREEMENT
 
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of August 01, 2015 by and between OncoCyte Corporation (“OncoCyte”), a California corporation, and Kristine Mechem ("Executive").
 
 
1.
Engagement; Position and Duties.
 
(a)              OncoCyte agrees to employ Executive in the position described on Exhibit A (which Exhibit A is a part of this Agreement) effective as of the date of this Agreement. Executive shall perform the duties and functions described on Exhibit A and such other duties as the executive(s) to whom Executive reports or the Board of Directors of OncoCyte may from time to time determine.  Executive shall devote Executive’s best efforts, skills, and abilities, on a full‑time basis, exclusively to the business of OncoCyte and its Related Companies pursuant to, and in accordance with, business policies and procedures, as fixed from time to time by the Board of Directors (the “Policies”).  Executive covenants and agrees that Executive will faithfully adhere to and fulfill the Policies, including any changes to the Policies that may be made in the future.  Executive may be provided with a copy of OncoCyte’s employee manual (the “Manual”) which contains the Policies. OncoCyte may change its Policies from time to time, in which case Executive will be notified of the changes in writing by a memorandum, a letter, or an update or revision of OncoCyte’s employee manual.
 
(b)              Performance of Services for Related Companies .  In addition to the performance of services for OncoCyte, Executive shall, to the extent so required by OncoCyte, also perform services for one or more members of a consolidated group of which OncoCyte is a part ("Related Company"), provided that such services are consistent with the kind of services Executive performs or may be required to perform for OncoCyte under this Agreement.  If Executive performs any services for any Related Company, Executive shall not be entitled to receive any compensation or remuneration in addition to or in lieu of the compensation and remuneration provided under this Agreement on account of such services for the Related Company.  The Policies will govern Executive’s employment by OncoCyte and any Related Companies for which Executive is asked to provide Services. In addition, Executive covenants and agrees that Executive will faithfully adhere to and fulfill such additional policies as may established from time to time by the board of directors of any Related Company for which Executive performs services, to the extent that such policies and procedures differ from or are in addition to the Policies adopted by OncoCyte.
 
(c)              No Conflicting Obligations .  Executive represents and warrants to OncoCyte and each Related Company that Executive is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with Executive’s obligations under this Agreement or that would prohibit Executive, contractually or otherwise, from performing Executive’s duties as under this Agreement and the Policies.
 
(d)              No Unauthorized Use of Third Party Intellectual Property .  Executive represents and warrants to OncoCyte and each Related Company that Executive will not use or disclose, in connection with Executive’s employment by OncoCyte or any Related Company, any patents, trade secrets, confidential information, or other proprietary information or intellectual property as to which any other person has any right, title or interest, except to the extent that OncoCyte or a Related Company holds a valid license or other written permission for such use from the owner(s) thereof.  Executive represents and warrants to OncoCyte and each Related Company that Executive has returned all property and confidential information belonging to any prior employer.
 

 
2.
Compensation
 
(a)              Salary .  During the term of this Agreement, OncoCyte shall pay to the Executive the salary shown on Exhibit A.  Executive’s salary shall be paid in equal semi-monthly installments, consistent with OncoCyte’s regular salary payment practices.  Executive’s salary may be increased from time-to-time by OncoCyte, in OncoCyte’s sole and absolute discretion, without affecting this Agreement.
 
Bonus Executive shall be eligible to earn an annual cash incentive bonus award determined by the Board in respect of each calendar year during Executive’s employment (the “Annual Bonus”), with a target bonus equal to no less than thirty percent (30%) of Base Salary (the “Target Bonus”) for achievement of the specified performance goals at target levels for the applicable calendar year.  The actual Annual Bonus payable shall be based upon the level of achievement of objectively determinable Company and individual performance goals for the applicable calendar year, as determined by the Board in consultation with Executive.  Such performance goals shall be determined and memorialized in writing no later than January 31 of each calendar year.
 
Executive agrees that the Board of Directors of OncoCyte may follow the recommendations of the Compensation Committee of the board of directors of OncoCyte’s parent company in determining whether to a award bonus or to establish performance goals or milestones.  Executive also agrees that the Board of Directors and OncoCyte are not obligated to adopt any bonus plan, to maintain in effect any bonus plan that may now be in effect or that may be adopted during the term of Executive’s employment, or to pay Executive a bonus unless a bonus is earned under the terms and conditions of any bonus plan adopted by OncoCyte
 
(b)              Expense Reimbursements . OncoCyte or a Related Company shall reimburse Executive for reasonable travel and other business expenses (but not expenses of commuting to work) incurred by Executive in the performance of Executive’s duties under this Agreement, subject to the Policies and procedures in effect from time to time, and provided that Executive submits supporting vouchers.
 
(c)              Benefit Plans.  Executive may be eligible (to the extent Executive qualifies) to participate in certain retirement, pension, life, health, accident and disability insurance, stock option plan or other similar Executive benefit plans which may be adopted by OncoCyte (or a Related Company) for its Executives. OncoCyte and the Related Companies have the right, at any time and without any amendment of this Agreement, and without prior notice to or consent from Executive, to adopt, amend, change, or terminate any such benefit plans that may now be in effect or that may be adopted in the future, in each case without any further financial obligation to Executive.  Any benefits to which Executive may be entitled under any benefit plan shall be governed by the terms and conditions of the applicable benefit plan, and any related plan documents, as in effect from time to time.  If Executive receives any grant of stock options or restricted stock under any stock option plan or stock purchase plan of OncoCyte or any Related Company, the terms and conditions of the stock options or restricted stock, and Executive’s rights with respect to the stock options or restricted stock, shall be governed by (i) the terms of the applicable stock option or stock purchase plan, as the same may be amended from time to time, and (ii) the terms and conditions of any stock option agreement or stock purchase agreement and related agreements that Executive may sign or be required to sign with respect to the stock options or restricted stock.
 
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(d)              Vacation; Sick Leave .  Executive shall be entitled to the number of days of vacation and sick leave (without reduction in compensation) during each calendar year shown on Exhibit A or as may be provided by the Policies.  Executive’s vacation shall be taken at such time as is consistent with the needs and Policies of OncoCyte and its Related Companies.  All vacation days and sick leave days shall accrue annually based upon days of service.  Executive’s right to leave from work due to illness is subject to the Policies and the provisions of this Agreement governing termination due to disability, sickness or illness.  The Policies governing the disposition of unused vacation days and sick leave days remaining at the end of OncoCyte's fiscal year shall govern whether unused vacation days or sick leave days will be paid, lost, or carried over into subsequent fiscal years.
 
3.              Competitive Activities . During the term of Executive's employment, and for one year thereafter, Executive shall not, for Executive or any third party, directly or indirectly employ, solicit for employment or recommend for employment any person employed by OncoCyte or any Related Company.  During the term of Executive's employment, Executive shall not, directly or indirectly as an Executive, contractor, officer, director, member, partner, agent, or equity owner, engage in any activity or business that competes or could reasonably be expected to compete with the business of OncoCyte or any Related Company.  Executive acknowledges that there is a substantial likelihood that the activities described in this Section would (a) involve the unauthorized use or disclosure of OncoCyte's or a Related Company's Confidential Information and that use or disclosure would be extremely difficult to detect, and (b) result in substantial competitive harm to the business of OncoCyte or a Related Company.  Executive has accepted the limitations of this Section as a reasonably practicable and unrestrictive means of preventing such use or disclosure of Confidential Information and preventing such competitive harm.
 
 
4.
Inventions/Intellectual Property/Confidential Information
 
(a)              As used in this Agreement, “Intellectual Property” means any and all inventions, discoveries, formulas, improvements, writings, designs, or other intellectual property.  Any and all Intellectual Property relating to or in any way pertaining to or connected with the systems, products, apparatus, or methods employed, manufactured, constructed, or researched by OncoCyte, or any Related Company, which Executive may conceive or make while performing services for OncoCyte or a Related Company shall be the sole and exclusive property of OncoCyte or the applicable Related Company.  Executive hereby irrevocably assigns and transfers to OncoCyte, or a Related Company, all rights, title and interest in and to all Intellectual Property that Executive may now or in the future have under patent, copyright, trade secret, trademark or other law, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration.  OncoCyte and the Related Companies will be entitled to obtain and hold in their own name all copyrights, patents, trade secrets, trademarks and other similar registrations with respect to such Intellectual Property.
 
(b)              Moral Rights.   To the extent allowed by law, the rights to Intellectual Property assigned by Executive to OncoCyte or any Related Company includes all rights of paternity, integrity, disclosure and withdrawal, and any other rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like (collectively “Moral Rights”).  To the extent Executive retains any such Moral Rights under applicable law, Executive hereby ratifies and consents to any action that may be taken with respect to such Moral Rights by or authorized by OncoCyte or a Related Company and agrees not to assert any Moral Rights with respect thereto.  Executive shall confirm in writing any such ratifications, consents, and agreements from time to time as requested by OncoCyte or Related Company.
 
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(c)              Execution of Documents; Power of Attorney.   Executive agrees to execute and sign any and all applications, assignments, or other instruments which OncoCyte or a Related Company may deem necessary in order to enable OncoCyte or a Related Company, at its expense, to apply for, prosecute, and obtain patents of the United States or foreign countries for the Intellectual Property, or in order to assign or convey to, perfect, maintain or vest in OncoCyte or a Related Company the sole and exclusive right, title, and interest in and to the Intellectual Property.  If OncoCyte or a Related Company is unable after reasonable efforts to secure Executive’s signature, cooperation or assistance in accordance with the preceding sentence, whether because of Executive’s incapacity or any other reason whatsoever, Executive hereby designates and appoints OncoCyte or any Related Company or its designee as Executive’s agent and attorney-in-fact, to act on Executive’s behalf, to execute and file documents and to do all other lawfully permitted acts necessary or desirable to perfect, maintain or otherwise protect OncoCyte’s or a Related Company’s rights in the Intellectual Property.  Executive acknowledges and agrees that such appointment is coupled with an interest and is irrevocable.
 
(d)              Disclosure of Intellectual Property .   Executive agrees to disclose promptly to OncoCyte or a Related Company all Intellectual Property which Executive may create or conceive solely, jointly, or commonly with others.  This paragraph is applicable whether or not the Intellectual Property was made under the circumstances described in paragraph (a) of this Section.  Executive agrees to make such disclosures understanding that they will be received in confidence and that, among other things, they are for the purpose of determining whether or not rights to the related Intellectual Property is the property of OncoCyte or a Related Company.
 
(e)              Limitations.   The obligations provided for by this Section 4, except for the requirements as to disclosure in paragraph 4(d), do not apply to any rights Executive may have acquired in connection with Intellectual Property for which no equipment, supplies, facility, or trade secret information of OncoCyte or a Related Company was used and which was developed entirely on the Executive’s own time and (i) which at the time of conception or reduction to practice does not relate directly or indirectly to the business of OncoCyte or a Related Company, or to the actual or demonstrable anticipated research or development activities or plans of OncoCyte or a Related Company, or (ii) which does not result from any work performed by Executive for OncoCyte or a Related Company.  All Intellectual Property that (1) results from the use of equipment, supplies, facilities, or trade secret information of OncoCyte or a Related Company; (2) relates, at the time of conception or reduction to practice of the invention, to the business of OncoCyte or a Related Company, or actual or demonstrably anticipated research or development of OncoCyte or a Related Company; or (3) results from any work performed by Executive for OncoCyte or a Related Company shall be assigned and is hereby assigned to OncoCyte or the applicable Related Company.  The parties understand and agree that this limitation is intended to be consistent with California Labor Code, Section 2870, a copy of which is attached as Exhibit A.  If Executive wishes to clarify that something created by Executive prior to Executive’s employment by OncoCyte or a Related Company that relates to the actual or proposed business of OncoCyte or a Related Company is not within the scope of this Agreement, Executive has listed it on Exhibit B in a manner that does not violate any third party rights.
 
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(f)              Confidential and Proprietary Information .   During Executive’s employment, Executive will have access to trade secrets and confidential information of OncoCyte and one or more Related Companies.  Confidential Information means all information and ideas, in any form, relating in any manner to matters such as: products; formulas; technology and know-how; inventions; clinical trial plans and data; business plans; marketing plans; the identity, expertise, and compensation of Executives and contractors; systems, procedures, and manuals; customers; suppliers; joint venture partners; research collaborators; licensees; and financial information.  Confidential Information also shall include any information of any kind, whether belonging to OncoCyte, a Related Company, or any third party, that OncoCyte or a Related Company has agreed to keep secret or confidential under the terms of any agreement with any third party.  Confidential Information does not include:  (i) information that is or becomes publicly known through lawful means other than unauthorized disclosure by Executive; (ii) information that was rightfully in Executive's possession prior to Executive’s employment with OncoCyte and was not assigned to OncoCyte or a Related Company or was not disclosed to Executive in Executive’s capacity as a director or other fiduciary of OncoCyte or a Related Company; or (iii) information disclosed to Executive, after the termination of Executive’s employment by OncoCyte, without a confidential restriction by a third party who rightfully possesses the information and did not obtain it, either directly or indirectly, from OncoCyte or a Related Company, and who is not subject to an obligation to keep such information confidential for the benefit of OncoCyte, a Related Company, or any third party with whom OncoCyte or a Related Company has a contractual relationship.  Executive understands and agrees that all Confidential Information shall be kept confidential by Executive both during and after Executive’s employment by OncoCyte or any Related Company.  Executive further agrees that Executive will not, without the prior written approval by OncoCyte or a Related Company, disclose any Confidential Information, or use any Confidential Information in any way, either during the term of Executive’s employment or at any time thereafter, except as required by OncoCyte or a Related Company in the course of Executive’s employment.
 
5.              Termination of Employment .  Executive understands and agrees that Executive’s employment has no specific term.  This Agreement, and the employment relationship, are "at will" and may be terminated by Executive or by OncoCyte (and the employment of Executive by any Related Company may be terminated by the Related Company) with or without cause at any time by notice given orally or in writing.  Except as otherwise agreed in writing or as otherwise provided in this Agreement, upon termination of Executive's employment, OncoCyte and the Related Companies shall have no further obligation to Executive by way of compensation or otherwise as expressly provided in this Agreement or in any separate employment agreement that might then exist between Executive and a Related Company.
 
(a)              Payments Due Upon Termination of Employment .  Upon termination of Executive's employment with OncoCyte and all Related Companies at any time and for any reason, Executive will be entitled to receive only the severance benefits set forth below, but Executive will not be entitled to any other compensation, award, or damages with respect to Executive’s employment or termination of employment.
 
(i)              Termination for Cause, Death, Disability, or Resignation .  In the event of Executive's termination for Cause, or termination as a result of death, Disability, or resignation, Executive will be entitled to receive payment for all accrued but unpaid salary, accrued but unpaid bonus, if any, and vacation accrued as of the date of termination of Executive’s   employment.  Executive will not be entitled to any cash severance benefits or additional vesting of any stock options or other equity or cash awards.
 
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(ii)            Termination Without Cause .  In the event that they employment of the Executive is terminated by OncoCyte without “cause” as defined in this Agreement, Executive shall receive payment for all accrued but unpaid salary, accrued but unpaid bonus, if any, and vacation accrued as of the date of termination of Executive’s employment, and as severance compensation (A) three months of base salary if Executive’s employment is terminated within the first 12 months of employment, or (B) six months of base salary if Executive’s employment is terminated after 12 months of employment.  The severance compensation described in clauses (A) and (B) of the immediately preceding sentence may be paid in a lump sum, or at the election of OncoCyte, in installments consistent with the payment of Executive’s salary while employed by OncoCyte, subject to such payroll deductions and withholdings as are required by law.  This paragraph shall not apply to (x) termination of Executive’s employment by a Related Company if Executive remains employed by OncoCyte, or (y) termination of Executive’s employment by OncoCyte if Executive remains employed by a Related Company.
 
(b)              Release .   Any other provision of this Agreement notwithstanding, paragraphs (a)(ii) and (a)(iii) of this Section shall not apply unless the Executive (i) has executed a general release of all claims against OncoCyte or its successor in interest and the Related Companies and (ii) has returned all property in the Executive's possession belonging to OncoCyte or its successor in interest and any Related Companies.
 
(c)              Definitions .   For purposes of this Section, the following definitions shall apply:
 
(i)              "Cause" means: (A) the failure to properly perform Executive's job responsibilities, as determined reasonably and in good faith by the Board of Directors; (B) commission of any act of fraud, gross misconduct or dishonesty with respect to OncoCyte or any Related Company; (C) conviction of, or plea of guilty or "no contest" to, any felony, or a crime involving moral turpitude; (D) breach of any provision of this Agreement or any provision of any proprietary information and inventions agreement with OncoCyte or any Related Company; (E) failure to follow the lawful directions of the Board of Directors of OncoCyte or any Related Company; (F) chronic alcohol or drug abuse; (G) obtaining, in connection with any transaction in which OncoCyte, any Related Company, or any of OncoCyte’ affiliates is a party, a material undisclosed financial benefit for Executive or for any member of Executive’s immediate family or for any corporation, partnership, limited liability company, or trust in which Executive or any member of Executive’s immediate family owns a material financial interest; or (H) harassing or discriminating against, or participating or assisting in the harassment of or discrimination against, any employee of OncoCyte (or a Related Company or an affiliate of OncoCyte) based upon gender, race, religion, ethnicity, or nationality.
 
(ii)              "Disability" shall mean Executive's inability to perform the essential functions of Executive’s job responsibilities for a period of one hundred eighty (180) days in the aggregate in any twelve (12) month period.
 
6.              Turnover of Property and Documents on Termination .  Executive agrees that on or before termination of Executive’s employment, Executive will return to OncoCyte and all Related Companies all equipment and other property belonging to OncoCyte and the Related Companies, and all originals and copies of Confidential Information (in any and all media and formats, and including any document or other item containing Confidential Information) in Executive's possession or control, and all of the following (in any and all media and formats, and whether or not constituting or containing Confidential Information) in Executive's possession or control:  (a) lists and sources of customers; (b) proposals or drafts of proposals for any research grant, research or development project or program, marketing plan, licensing arrangement, or other arrangement with any third party; (c) reports, job or laboratory notes, specifications, and drawings pertaining to the research, development, products, patents, and technology of OncoCyte and any Related Companies; (d) any and all Intellectual Property developed by Executive during the course of employment; and (e) the Manual and memoranda related to the Policies.
 
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7.              Arbitration .  Except for injunctive proceedings against unauthorized disclosure of Confidential Information, any and all claims or controversies between OncoCyte or any Related Company and Executive, including but not limited to (a) those involving the construction or application of any of the terms, provisions, or conditions of this Agreement or the Policies; (b) all contract or tort claims of any kind; and (c) any claim based on any federal, state, or local law, statute, regulation, or ordinance, including claims for unlawful discrimination or harassment, shall be settled by arbitration in accordance with the then current Employment Dispute Resolution Rules of the American Arbitration Association.  Judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction over the Company and Executive.  The location of the arbitration shall be San Francisco, California.  Unless OncoCyte or a Related Company and Executive mutually agree otherwise, the arbitrator shall be a retired judge selected from a panel provided by the American Arbitration Association, or the Judicial Arbitration and Mediation Service (JAMS).  OncoCyte, or a Related Company if the Related Company is a party to the arbitration proceeding, shall pay the arbitrator’s fees and costs.  Executive shall pay for Executive’s own costs and attorneys' fees, if any.  OncoCyte and any Related Company that is a party to an arbitration proceeding shall pay for its own costs and attorneys' fees, if any.  However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, the arbitrator may award reasonable attorneys' fees and costs to the prevailing party.

EXECUTIVE UNDERSTANDS AND AGREES THAT THIS AGREEMENT TO ARBITRATE CONSTITUTES A WAIVER OF EXECUTIVE’S RIGHT TO A TRIAL BY JURY OF ANY MATTERS COVERED BY THIS AGREEMENT TO ARBITRATE.
 
8.              Severability . In the event that any of the provisions of this Agreement or the Policies shall be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement or the Policies.  In the event that any provision relating to a time period of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period such court deems reasonable and enforceable, then the time period of restriction deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum time period.
 
9.              Agreement Read and Understood . Executive acknowledges that Executive has carefully read the terms of this Agreement, that Executive has had an opportunity to consult with an attorney or other representative of Executive’s own choosing regarding this Agreement, that Executive understands the terms of this Agreement, and that Executive is entering this agreement of Executive’s own free will.
 
10.           Complete Agreement, Modification .  This Agreement is the complete agreement between Executive and OncoCyte on the subjects contained in this Agreement.  This Agreement supersedes and replaces all previous correspondence, promises, representations, and agreements, if any, either written or oral with respect to Executive’s employment by OncoCyte or any Related Company and any matter covered by this Agreement.  No provision of this Agreement may be modified, amended, or waived except by a written document signed both by OncoCyte and Executive.
 
11.           Governing Law .  This Agreement shall be construed and enforced according to the laws of the State of California.
 
7

12.           Assignability .  This Agreement, and the rights and obligations of Executive and OncoCyte under this Agreement, may not be assigned by Executive.  OncoCyte may assign any of its rights and obligations under this Agreement to any successor or surviving corporation, limited liability company, or other entity resulting from a merger, consolidation, sale of assets, sale of stock, sale of membership interests, or other reorganization, upon condition that the assignee shall assume, either expressly or by operation of law, all of OncoCyte's obligations under this Agreement.
 
13.           Survival .  This Section 13 and the covenants and agreements contained in Sections 4 and 6 of this Agreement shall survive termination of this Agreement and Executive's employment.
 
14.           Notices .  Any notices or other communication required or permitted to be given under this Agreement shall be in writing and shall be mailed by certified mail, return receipt requested, or sent by next business day air courier service, or personally delivered to the party to whom it is to be given at the address of such party set forth on the signature page of this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 14).
 
IN WITNESS WHEREOF, Executive and OncoCyte have executed this Agreement on the day and year first above written.
 
EXECUTIVE:
   
       
/s/ Kristine Mechem
 
(Signature)
   
       
Kristine Mechem
   
(Please Print Name)
   
       
Address:
  
2011 Asilomar Drive  
 
  
Oakland, CA 94611  
       
Date:
  
August 4, 2015  
 
ONCOCYTE:
     
         
OncoCyte Corporation
   
         
 
By:
  
/s/ William Annett  
         
 
Title:
  
Chief Executive Officer  
         
 
Address:
1300 Harbor Bay Parkway, Suite 100 
   
 
Alameda, California 94502 
 
8

EXHIBIT A

Job Title:                                                          Vice President of Marketing

Positon Description:
The VP Marketing is responsible for directing OncoCyte’s overall Marketing and Strategic Planning programs to ensure revenue growth and optimize portfolio management and company profitability.

Responsibilities:
· Conduct market opportunity assessments to optimize pipeline management and product launches
· Oversee all market research (payer, HCP, patient) to inform commercialization plans and portfolio management
· Design, implement and manage new product launches and pipeline portfolio management
· Develop and implement product launch plans for primary and secondary products
· Direct overall OncoCyte brand development
· Develop, recommend and execute all product positioning, pricing, promotion, channel and reimbursement strategies to ensure  successful product launches and sustainable revenue streams
· Design and conduct regular strategic and tactical planning processes at the corporate, R&D and brand levels
 
Annual Salary:
$200,000.00
 
PTO:
15 days (120.00 hours)

Immediately eligible to participate in 401(k) program effective date of hire.  Fully eligible to participate in company benefits as of August 1, 2015.

200,000 shares OncoCyte Corporation Incentive Stock Options under the 2011 Equity Incentive Plan.
 
9

EXHIBIT B
California Labor Code Section 2870.
 
Application of provision providing that employee shall assign or offer to assign rights in invention to employer.
 
(a)             Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
 
(i)              Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or

(ii)              Result from any work performed by the employee for his employer.

(b)              To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
 
10

EXHIBIT C

PRIOR MATTERS

None
 
 
11


Exhibit 10.8
 
REGISTRATION RIGHTS AGREEMENT
 
This Registration Rights Agreement (“Agreement”) is entered into as of October 15, 2009 by and between OncoCyte Corporation, a California corporation (the “Company”) and the undersigned.

NOW, THEREFORE, the parties agree as follows:

1.       Certain Definitions. As used in this Agreement the following terms shall have the following respective meanings:

(a)      “Act” shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

(b)      “Commission” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act.

(c)      “Holder” shall mean each person who originally purchased Registrable Securities from the Company pursuant to a Stock Purchase Agreement and his/its transferees as permitted by Section 6.

(d)      The terms “register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Act, and the declaration or ordering of the effectiveness of such registration statement.

(e)      “Registrable Securities” means the Shares. Any securities that are (i) distributed as a dividend or otherwise with respect to Registrable Securities, (ii) issuable upon the exercise or conversion of Registrable Securities, or (iii) issued or issuable in exchange for or through conversion of Registrable Securities pursuant to a recapitalization, reorganization, merger, consolidation or other transaction shall also constitute Registrable Securities.

(f)       “Shares” means up to 6,000,000 common shares, no par value, of the Company issued by the Company pursuant to the Stock Purchase Agreement.

(g)      “Stock Purchase Agreement” means a Stock Purchase Agreement pursuant to which the Company agreed to issue and sell up to an aggregate of 6,000,000 Shares to the undersigned.

2.       Registration Rights.

(a)      Filing of Registration Statement With Respect to Shares. The Company agrees, at its expense, to file a registration statement with the Commission to register the Shares under the Act, and to take such other actions as may be necessary to allow the Shares to be freely tradable, without restrictions under the Act. Such registration statement shall be filed following a written request for registration from any Holder(s) of not less than 25% of the Shares not earlier than one year after the Company completes an initial public offering of its common shares registered under the Act (an “IPO”). The Company will use commercially reasonable efforts to cause the registration statement to become effective as promptly as practicable after filing. The Company will make all filings required under applicable state securities or “blue sky” laws so that the Registrable Securities being registered shall be registered or qualified for sale under the securities or blue sky laws of New York, California, and such jurisdictions as shall be reasonably appropriate for distribution of the Shares covered by the registration statement. The registration statement shall be a “shelf” registration pursuant to Rule 415 (or similar rule that may be adopted by the Securities and Exchange Commission) and shall provide that each Holder’s plan of distribution is to offer and sell Shares from time to time at market prices or prices related to market prices; provided, that a registration statement may be amended to provide for an underwritten public offering of the Shares included in the registration statement if the Holders submit to the Company a written notice to such effect with a copy of the applicable underwriting documents and such other relevant information concerning the offering as the Company may request. The Company shall use commercially reasonable efforts to keep each such registration statement effective until the earlier of (i) completion of the distribution or distributions being made pursuant thereto, and (ii) such time as the Holders are eligible to sell their Shares under Rule 144 under the Act without application of the manner of sale and volume limitations under Rule 144. The Company shall utilize Form S-3 if it qualifies for such use. The Company will furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act and such other related documents as the Holders may reasonably request in order to effect the sale of their Shares.
 

(b)      “Piggy-Back Registration” of Shares. If, at any time after the completion of an IPO, the Company proposes to register any of its securities under the Act (otherwise than pursuant to (i) this Agreement, (ii) a registration statement pertaining to subscription rights distributed to Company shareholders, and (iii) a registration on a Form S-8 or any other form if such form cannot be used for registration of the Registrable Securities pursuant to its terms), and the Shares shall not then be eligible for sale by the Holder(s) under Rule 144 under the Act, the Company shall, as promptly as practicable, give written notice to the Holders. The Company shall include in such registration statement the Shares proposed to be sold by the Holders. Notwithstanding the foregoing, if the offering of the Company’s securities is to be made through underwriters, the Company shall not be required to include Shares if and to the extent that the managing underwriter reasonably believes in good faith that such inclusion would materially adversely affect such offering, unless the Holders agree to postpone their sales until 10 days after the distribution is completed. The provisions of Section 2(e) shall apply to any such registration statement if the offering is made through underwriters.

(c)      Costs of Registration. The Company shall pay the cost of the registration statements filed pursuant to this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including counsel’s fees and expenses in connection therewith), printing expenses, messenger and delivery expenses, internal expenses of the Company, listing fees and expenses, and fees and expenses of the Company’s counsel, independent accountants and other persons retained or employed by the Company. Holders shall pay any underwriters discounts applicable to the Registrable Securities.

(d)      Other Securities. Any registration statement filed pursuant to this Agreement may include other securities of the Company which are held by other persons who, by virtue of agreements with the Company or permission given, are entitled to include their securities in such registration.

(e)      Underwriting. If Holders wish to include Shares in a registration under Section 2(b), or if Holders holding not less than 50% of the Shares intend to distribute Shares by means of an underwriting to be registered under Section 2(a), they shall so advise the Company prior to the effective date of the registration statement filed by the Company, and the Company shall include such information in a written notice to all Holders. All Holders shall be entitled to participate in such underwriting, and the right of any Holder to registration pursuant to this Agreement then shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Shares in the underwriting to the extent provided herein.

The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Holders and reasonably acceptable to the Company, in the case of a registration under Section 2(a), or selected by the Company is its sole discretion, in the case of a registration under Section 2(b). Notwithstanding any other provision of this Agreement, if the managing underwriter advises the Holders and the Company in writing that marketing factors require a limitation of the number of shares to be underwritten, then, the number of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders and any other holders of securities having rights to include their securities in the registration, at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the managing underwriter’s marketing limitation shall be included in such registration.

If any Holder or any other holder of securities eligible for inclusion in the registration disapproves of the terms of the underwriting, such person may elect to withdraw from the underwriting and registration by written notice to the Company and the managing underwriter. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from the registration; provided, however, that, if by the withdrawal of such Registrable Securities or other securities a greater number of Registrable Securities held by other Holders or other securities held by persons having rights to participate in such registration may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders and other persons who have included Registrable Securities or other securities in the registration the right to include additional Registrable Securities or other securities in the same proportion used in determining the underwriter limitation.
 

Notwithstanding any other provision of this Agreement, if the registration is one under Section 2(b), and the managing underwriter determines that marketing factors require a limitation of the amount of securities to be underwritten, the Company may exclude Registrable Securities and other securities held by other holders of registration rights without any exclusion of securities offered by Company. In the event of any exclusion of securities held by holders of registration rights, the amount of securities that may be included in the registration and underwriting shall be allocated among all Holders of Registrable Securities and other holders of securities entitled to include securities in such registration in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities that the Company has agreed to register held by each such person.

(f)       Waiver. Notwithstanding any other provision of this Agreement the rights of the Holders under Section 2(b) may be waived by a majority-in-interest of the Holders (based upon their holdings of Registrable Securities, with or without notice to the Holders generally).

(g)      Limitation on Company Liability. The Company shall have no obligation to make any cash settlement or payment to any Holder, or to issue any additional Shares or other securities to any Holder, in the event that the Company is unable to effect or maintain in effect the registration of any Registrable Securities under the Act or any state securities law despite the Company’s commercially reasonable efforts so to do.

3.       Indemnification.

(a)         The Company will indemnify, defend and hold harmless each Holder, each of its officers, directors and partners, and each person who controls such Holder within the meaning of the Act, and each underwriter, if any, and each person who controls any underwriter within the meaning of the Act from and against all expenses, claims, losses, damages and liabilities (or actions commenced or threatened in respect thereof), including any of the foregoing incurred in settlement of any litigation commenced or threatened (other than a settlement effected without the consent of the Company, which consent will not unreasonably be withheld), to the extent such expenses, claims, losses, damages and liabilities (or actions commenced or threatened in respect thereof) arise out of or are based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or prospectus, or any amendment or supplement thereto, offering Registrable Securities, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (ii) any violation, by the Company, of any rule or regulation promulgated under the Act and applicable to the Company and relating to any registration of Registrable Securities by the Company under the Act. The Company will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each such person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter or controlling person specifically for use in connection with the registration or offering of Registrable Securities.

(b)      Each Holder will, if Registrable Securities held by such Holder are included in a registration under the Act or under any state securities law, indemnify, defend and hold harmless the Company, each of its directors and officers, and each independent accountant of the Company, each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of the Act, and each other such Holder, and each of the officers, directors and partners and each person who controls such other Holder within the meaning of the Act, from and against all claims, losses, damages and liabilities (or actions commenced or threatened in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or prospectus, or any amendment or supplement offering Registrable Securities, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (ii) any violation, by such Holder, of any rule or regulation promulgated under the Act applicable to such Holder and relating to action or inaction required of such Holder in connection with any registration of Registrable Securities. Such Holder will reimburse the Company, such other Holders, such directors, officers, partners, persons, accounting firms, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or prospectus in reliance upon and in conformity with written information furnished to the Company or any underwriter by such Holder specifically for use therein; provided, however, that the obligations of such Holders under this Section 3(b) shall be limited to an amount equal to the net proceeds to each such Holder from the sale of Registrable Securities pursuant to such registration.
 

(c)      Each party entitled to indemnification under this Section 3 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at the Indemnified Party’s own expense. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 3 except to the extent such failure is prejudicial to the ability of the Indemnifying Party to defend such action, but such failure shall not relieve the Indemnifying Party of any liability that the Indemnifying Party may have to any Indemnified Party otherwise than under this Section 3. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.

4.       Information by Holder. Each Holder of Registrable Securities included in any registration shall furnish to the Company and to each underwriter, upon the Company’s request, such information regarding such Holder and the distribution proposed by such Holder as shall be required in connection with any registration of Registrable Securities.

5.       Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to:

(a)         Use commercially reasonable efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) at such times as the Company is subject to the reporting requirements under Section 13 of the Exchange Act;

(b)         So long as a Holder owns any Registrable Securities, furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company under the Exchange Act as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.

6.       Transfer of Registration Rights. The rights to cause the Company to register securities under this Agreement may be assigned: (a) to an “affiliate” (defined as an entity that controls, is controlled by, or under common control with the transferor); (b) to one or more of its general partners, limited partners, or members if the transferor is a partnership or limited liability company; or (c) to any other transferee or assignee of an aggregate of twenty-five percent (25%) or more of the transferor’s Registrable Securities; provided, that as a condition to any transfer of such rights the transferor must give the Company written notice at the time or within a reasonable time after said transfer, stating its desire to transfer such rights, the name and address of the transferee or assignee, and identifying the securities with respect to which such registration rights are being assigned; provided, that nothing in this Section shall be construed in any way to limit any restriction or condition on transfer of any Registrable Securities imposed by any other agreement between a Holder and the Company, the Act, any rule or regulation promulgated under the Act, or any state securities or blue sky law or any rule or regulation thereunder.

7.       Computation of Certain Percentages. Where any provision of this Agreement provides for the exercise, waive, or amendment of any rights upon the action of Holders of a specified percentage of Registrable Securities, such percentage shall be determined based upon the aggregate number of Registrable Securities issued and outstanding.
 

8.       Miscellaneous.

(a)      Governing Law. This Agreement shall be governed in all respects by the laws of the State of California, as applied to contracts entered into in California between California residents and to be performed entirely within California.

(b)      Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

(c)      Entire Agreement; Amendment. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated orally, but only by a written instrument signed by the Company and Holders of a majority of the Registrable Securities which have not been resold to the public.

(d)      Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or otherwise delivered by hand, by messenger or next business day air freight services, addressed (i) if to a Holder at such Holder’s address set forth on the signature page hereto, or at such other address as such Holder shall have furnished to the Company in writing, or (ii) if to the Company, at 1301 Harbor Bay Parkway, Suite 100, Alameda, California 94502; attention: Chief Financial Officer, or at such other address as the Company shall have furnished to the Holders in writing.

(e)      Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of or acquiescence in any such breach or default or any similar breach or default thereafter occurring. A waiver of any single breach or default shall not be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character of any breach or default under this Agreement, or any waiver of any provisions or conditions of this Agreement, must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any party, shall be cumulative and not alternative.

(f)       Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

(g)      Titles and Subtitles. The titles of the sections and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

(h)      Counterparts. This Agreement may be executed in any number of counterparts (including by separate counterpart signature pages), each of which shall be an original, but all of which together shall constitute one instrument. Any counterpart of this Agreement may be signed by electronic or facsimile, and such electronic or facsimile signature shall be deemed an original signature.
 


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
 
THE COMPANY:

ONCOCYTE CORPORATION

By
/s/ Robert Peabody
 
Robert Peabody,
Senior Vice President and
Chief Operating Officer
 
By
/s/ Judith Segall
 
      Judith Segall, Secretary

HOLDER:
 
/s/ George Karfunkel
 
George Karfunkel

Address for Notice:  59 Maiden Lane
New York, NY 10038
FAX: (718) 921-8340
 
 


Exhibit 10.9
 
AMENDEMENT OF REGISTRATION RIGHTS AGREEMENT

This Amendment of Registration Rights Agreement (“Agreement”) is entered into as of August 23, 2011 by and between OncoCyte Corporation, a California corporation (the “Company”), and the undersigned Holders.

WHERAS, the Company has previously entered into a Registration Rights Agreement, during September 2009 (the “Agreement”) pursuant to which the Company has agreed to register for sale under the Act up to 6,000,000 shares of common stock of the Company issued to certain Holders; and

WHEREAS, the Company and Holders have entered into a Stock Purchase Agreement, of even date, under which the Company is issuing and selling to holders an additional 10,000,000 shares of Company common stock:

NOW, THEREFORE, the parties agree that the Agreement is amended as follows:

1.             Certain Definitions .

(a)           The definition of Shares is amended to read as follows:

Shares ” means up to 16,000,000 shares of common stock, no par value, of the Company issued by the Company pursuant to a Stock Purchase Agreement.

(b)           The definition of Stock Purchase Agreement is amended to read as follows:

 “ Stock Purchase Agreement ” means (i) a Stock Purchase Agreement, dated September 2009, pursuant to which the Company agreed to issue and sell up to an aggregate of 6,000,000 Shares to certain Holders, (ii) a Stock Purchase Agreement, of even date, pursuant to which the Company agreed to issue and sell up to an aggregate of 3,000,000 Shares to George Karfunkel; and (iii) a Stock Purchase Agreement, dated August 2011, pursuant to which the Company agreed to issue and sell up to an aggregate of 7,000,000 Shares to BioTime, Inc.

2.             Other Provisions . Except as amended by the foregoing amendments, the terms of the Agreement shall remain in full force and effect. Capitalized terms not otherwise defined herein have the meaning ascribed in the Agreement.

3.             Agreement to be Bound . By executing this Amendment, BioTime, Inc. agrees to be bound by the terms of the Agreement, as amended hereby.
 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

THE COMPANY:

ONCOCYTE CORPORATION
 
     
By
/s/Robert W. Peabody
 
 
Robert Peabody,
 
 
Senior Vice President and
 
 
Chief Operating Officer
 

HOLDERS:

/s/George Karfunkel
 
George Karfunkel
 

Address for Notice: 1671 52 nd Street
Brooklyn, NY 11204

BioTime, Inc.

By
/s/Robert W. Peabody
 
 
Robert Peabody,
 
 
Senior Vice President and
 
 
Chief Operating Officer
 

Address for Notice: 1301 Harbor Bay Parkway, Suite 100
Alameda, California 94502
Attention: Robert W. Peabody, Chief Financial Officer
 
 
2


Exhibit 10.10
 
SECOND   AMENDEMENT OF REGISTRATION RIGHTS AGREEMENT

This Second Amendment of Registration Rights Agreement (“Agreement”) is entered into as of May 8, 2015 by and between OncoCyte Corporation, a California corporation (the “Company”), and the undersigned Holders.

WHERAS, the Company has previously entered into a Registration Rights Agreement, during September 2009 (the “Agreement”) pursuant to which the Company has agreed to register for sale under the Act up to 6,000,000 shares of common stock of the Company issued to certain Holders, and a Stock Purchase Agreement, of even date, under which the Company is issuing and selling to holders an additional 10,000,000 shares of Company common stock;

WHEREAS, the Company and Holders have entered into and certain Stock Subscription Agreements, of like tenor, pursuant to which the Company agreed to issue and sell up to an additional 9,090,910 shares of Company common stock;

NOW, THEREFORE, the parties agree that the Agreement is amended as follows:

1.             Certain Definitions .

(a)           The definition of Shares is amended to read as follows:

Shares ” means up to 25,090,910 shares of common stock, no par value, of the Company issued by the Company pursuant to the Stock Purchase Agreement.

(b)           The definition of Stock Purchase Agreement is amended to read as follows:

 “ Stock Purchase Agreement ” means, collectively, (i) a Stock Purchase Agreement, dated September 2009, pursuant to which the Company agreed to issue and sell up to an aggregate of 6,000,000 Shares to certain Holders, (ii) a Stock Purchase Agreement, dated August 2011, pursuant to which the Company agreed to issue and sell up to an aggregate of 3,000,000 Shares to George Karfunkel; (iii) a Stock Purchase Agreement, dated August 2011, pursuant to which the Company agreed to issue and sell up to an aggregate of 7,000,000 Shares to BioTime, Inc.; and (iv) Stock Subscription Agreements, of like tenor, executed by the Company as of May 8, 2015, pursuant to which the Company agreed to issue and sell up to an aggregate of 9,090,910 Shares to the shareholders of the Company.

2.              Other Provisions . Except as amended by the foregoing amendments, the terms of the Agreement shall remain in full force and effect. Capitalized terms not otherwise defined herein have the meaning ascribed in the Agreement.

3.              Agreement to be Bound . By executing this Amendment, BioTime, Inc. agrees to be bound by the terms of the Agreement, as amended hereby.
 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

THE COMPANY:

ONCOCYTE CORPORATION

By
/s/ Robert W. Peabody
 
 
Robert Peabody,
 
 
Chief Financial Officer
 

HOLDERS:

/s/George Karfunkel
 
George Karfunkel
 

Address for Notice: 1671 52 nd Street
Brooklyn, NY 11204

/s/ Bernard Karfunkel
 
Bernard Karfunkel
 

Address for Notice: 1671 52 nd Street
Brooklyn, NY 11204

BioTime, Inc.

By
/s/Robert W. Peabody
 
 
Robert Peabody,
 
 
Chief Financial Officer
 

Address for Notice: 1301 Harbor Bay Parkway, Suite 100
Alameda, California 94502
Attention: Robert W. Peabody, Chief Financial Officer
 
 
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Exhibit 10.11
 
STOCK SUBSCRIPTION AGREEMENT

ONCOCYTE CORPORATION
 
READ THIS AGREEMENT CAREFULLY BEFORE YOU INVEST

The shares of common stock, no par value (“Shares”) have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws and may not be offered for sale, sold, transferred, pledged or hypothecated to any person in the absence of an effective registration statement covering such Shares (or an exemption from such registration) and an opinion of counsel satisfactory to OncoCyte Corporation to the effect that such transfer or exercise complies with applicable securities laws.
 

SUBSCRIPTION AGREEMENT

This Agreement is entered into by George Karfunkel (“Subscriber”) and OncoCyte Corporation, a California corporation (the “Company).

1.               Subscription Offer .

(a)              Primary Subscription. The Company is offering to each registered holder (each a “Shareholder”) of shares of Company common stock, no par value (“Shares”), other than BioTime, Inc. the opportunity to subscribe to and purchase their respective pro rata percentage (“Allocation”) of a total of 3,000,000 Shares (the “Primary Subscription Shares”) at a price of $1.10 per Share (the “Subscription Price”).  A Shareholder’s Allocation shall be the total number of Primary Subscription Shares multiplied by the percentage determined by dividing (A) the total number of Shares owned of record by the Shareholder immediately before the Subscription Offer, by (B) the total number of Shares owned by all Shareholders other than BioTime in the aggregate immediately before the Subscription Offer.

Subscriber
 
Pro Rata Percentage
 
Shares in Allocation
George Karfunkel
 
33.3333333333333 %
 
1,000,000
 
(b)              BioTime Subscription .  The Company will also offer to BioTime the opportunity to subscribe to and purchase   6,000,000 Shares (the “BioTime Allocation”) at the Subscription Price.   As of April 15, 2015, the total indebtedness of the Company to BioTime exceeded $6,600,000. BioTime may purchase 3,000,000 Shares of the BioTime Allocation pursuant to the Subscription Offer by cancelling $3,300,000 of the indebtedness of the Company, and, in addition, the Company may deliver to BioTime a convertible promissory note with respect to an additional $3,300,000 of indebtedness (the “Note”).  The Note will bear interest at the rate of 1% per annum, will contain customary default provisions, and will be convertible by BioTime into 3,000,000 Shares at the Subscription Price, subject to customary anti-dilution adjustments, on the Maturity Date. The Maturity Date will be the earlier of the date 18 months from the Expiration Date (defined below or any extension thereof) or the date six months after the date on which the Company completes a firm commitment underwritten initial public offering of Shares registered under the Securities Act of 1933, as amended.  If the Shareholders other than BioTime do not, in the aggregate, purchase 3,000,000 Shares in the Subscription Offer on or before the Expiration Date, BioTime may, in lieu of accepting the Note, convert into Shares at the Subscription Price the $3,300,000 of the Company indebtedness that would otherwise have been evidenced by the Note.

(c)              Expiration of Subscription Offer.   The Company’s offer to sell to the Shareholders their respective Allocations of Shares is referred to as the “Subscription Offer.”  The Subscription Offer shall expire on the Expiration Date and may not be accepted by a Shareholder after that date.  The Expiration Date is 5:00 p.m. California time on April 29, 2015.
 
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(d)              Assignment of Rights .  Prior to the Expiration Date, any Shareholder may assign, in whole or in part, to another Shareholder the assigning Shareholder’s rights to purchase their Allocation of Shares in the Subscription Offer.  A Shareholder who so assigns their rights shall notify the Company in writing of such assignment on or before the Expiration Date.

2.               Subscription For Shares .

(a)              Subscription Procedure. Subscriber may irrevocably subscribe to, and thereby irrevocable agree to purchase, on the terms and conditions of this Agreement, all or a portion of the Subscriber’s Allocation in the Subscription Offer by (a) entering the number of Shares to be purchased and the total Subscription Price for such Shares in the table on the Signature Page of this Agreement, (b) signing and dating this Agreement, and (c) delivering this Agreement, completed and signed as provided in clause (a) and (b), along with payment in full of the Subscription Price for the number of Shares to be purchased, to the Company as provided in this Agreement not later than the Expiration Date.

(b)              Subscription Irrevocable .  This Agreement will become an irrevocable obligation of Subscriber to purchase the number of Shares shown on the Signature Page, at the Subscription Price per Share, when a copy of this Agreement, signed by Subscriber, is countersigned by the Company.

(c)              Payment.   Subscriber shall pay the Subscription Price of the Shares by check for good funds payable to the order of the Company or by wire transfer to such account of the Company as the Company may specify.  If this Agreement is rejected or not accepted for any reason by the Company, all sums paid by the Subscriber will be promptly returned, without interest or deduction.

(d)              Purchase of Shares by BioTime.   If the Shareholders fail to purchase their entire Allocations of Shares in the Subscription Offer, then BioTime may, within sixty (60) days after the Expiration Date, purchase for cash or through the cancellation of Company indebtedness, at the Subscription Price, any or all of the Shares not so purchased by the other Shareholders.

(e)              Offer of Shares to New Investors.   Any of the Primary Subscription Shares not purchased by Shareholders and any Shares not purchased by BioTime, in the Subscription Offer may be offered and sold by the Company to new investors at such prices and on such terms as the Company may determine.

3.               Registration Rights .  If the Subscriber purchases Shares in the Subscription Offer, the Company will enter into an amendment to the September 2009 Registration Rights Agreement pursuant to which the Company will agree to register the Shares purchased by the Subscriber in the Subscription Offer for sale under the Securities Act of 1933, as amended (the “Securities Act”).
 
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4.               Investment Representations.   Subscriber represents and warrants to the Company that:

(a)              Due Diligence . Subscriber has made such investigation of the Company as Subscriber deemed appropriate for determining to acquire (and thereby make an investment in) the Shares.  In making such investigation, Subscriber has had access to such financial and other information concerning the Company as Subscriber requested.  Subscriber acknowledges and understands that the Company is an early stage venture engaged in research and development, without only limited history of operations, and has received only limited capital.  Subscriber acknowledges receipt of the Articles of Incorporation and Bylaws of the Company, and such copies of the minutes of the proceedings of the Board of Directors of the Company as Subscriber may have requested from the Company.  Subscriber has had a reasonable opportunity to ask questions of and receive answers from the executive officers of the Company concerning the Company, and to obtain such additional information concerning the Company as may have been possessed or obtainable by the Company without unreasonable effort or expense. All such questions have been answered to Subscriber’s satisfaction.

(b)              Unregistered Offer and Sale. Subscriber understands that the Shares are being offered and sold without registration under the Securities Act, or qualification under the California Corporate Securities Law of 1968, or under the laws of any other states, in reliance upon the exemptions from such registration and qualification requirements for non-public offerings.  Subscriber acknowledges and understands that the availability of the aforesaid exemptions depends in part upon the accuracy of certain of the representations, declarations and warranties made by Subscriber, and the information provided by Subscriber, in this Agreement,  Subscriber is making such representations, declarations and warranties, and is providing such information, with the intent that the same may be relied upon by the Company and its officers and directors in determining Subscriber’s suitability to acquire the Shares.  Subscriber understands and acknowledges that no federal, state or other agency has reviewed or endorsed the offering of the Shares or made any finding or determination as to the fairness of the offering or completeness of the information provided to Subscriber by the Company.

(c)              Restrictions on Transfer . Subscriber understands that the Shares may not be offered, sold, or transferred in any manner unless subsequently registered under the Securities Act, or unless there is an exemption from such registration available for such offer, sale or transfer.  Subscriber agrees that Subscriber will not sell, offer for sale, or transfer any of the Shares unless those Shares have been registered under the Securities Act, or unless there is an exemption from such registration and an opinion of counsel reasonably acceptable to the Company has been rendered stating that such offer, sale, or transfer will not violate any United States federal or state securities laws.  Subscriber acknowledges that (i) the certificates evidencing the Shares will contain a legend to the effect that transfer is prohibited except pursuant to registration under the Securities Act, or pursuant to an available exemption from registration under the Securities Act, and (ii) The Company will refuse to register the transfer, and will issue instructions to any transfer agent and registrar of the Shares to refuse to register the transfer, of any Shares not made pursuant to registration under the Securities Act or pursuant to an available exemption from registration under the Securities Act.
 
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(d)              Knowledge and Experience. Subscriber has such knowledge and experience in financial and business matters to enable Subscriber to utilize the information provided or otherwise made available to Subscriber by the Company to evaluate the merits and risks of an investment in the Shares and to make an informed investment decision.

(e)              Investment Intent.  Subscriber is acquiring the Shares solely for Subscriber’s own account and for investment purposes, and not with a view to, or for sale in connection with, any distribution of the Shares other than pursuant to an effective registration statement under the Securities Act or unless there is an exemption from such registration available for such offer, sale or transfer, such as SEC Rule 144.

(f)               Forward Looking Statements.  Information provided to Subscriber by the Company include matters that may be considered “forward looking” statements within the meaning of Section 27(a) of the Securities Act and Section 21(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements Subscriber acknowledges and agrees are not guarantees of future performance and involve a number of risks and uncertainties, and with respect to which the Company makes no representations or warranties.  Subscriber understands that the level of disclosure provided by the Company is less than that which would be provided in a securities offering registered under the Securities Act in reliance on the sophistication and investment experience of Subscriber.

(g)              No Assurance of Return on Investment .  It has never been represented, guaranteed or warranted to Subscriber by the Company or BioTime or any officer, director, employee, or agent of the Company or BioTime, that Subscriber will realize any specific value, sale price, or profit as a result of acquiring the Shares.

(h)              Nonpublic Information.  Subscriber understands that (1) this Agreement and other information provided to Subscriber by the Company contains confidential financial information about the Company and BioTime, Inc. that has not yet been publicly disclosed by the Company or BioTime, and therefore may be deemed material non-public information, (2) the Company is providing Subscriber the confidential information solely to satisfy its disclosure obligations under the Securities Act in connection with the offer and sale of the Shares to Subscriber pursuant to this Agreement, and (3) until such time as BioTime files a Form 8-K or other report under the Exchange Act with the Securities and Exchange Commission, Subscriber shall not (A) disclose to any other person any of the information contained in this Agreement or otherwise provided to Subscriber concerning the Company that has not previously been disclosed in a report filed by BioTime under the Exchange Act, or (B) purchase or sell any common shares of BioTime.
 
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(i)                Authority; Enforceability .  The Subscriber has the power and authority to execute and deliver, and to perform all of Subscriber’s obligations under, this Agreement.  This Agreement has been duly executed and delivered by Subscriber.  This Agreement is the valid and binding agreements of the Subscriber, enforceable in accordance with their respective terms, except to the extent limited by any bankruptcy, insolvency, or similar law affecting the rights of creditors generally.

(j)                No Conflict .  The execution and delivery of this Agreement and consummation of the transactions contemplated under this Agreement, including the purchase of the Shares, by the Subscriber do not and will not violate any provisions of (i)any rule, regulation, statute, or law applicable to the Subscriber, (ii)the terms of any order, writ, or decree of any court or judicial or regulatory authority or body by which the Subscriber is bound, or (iii) if the Subscriber is not a natural person, the certificate of incorporation, bylaws, or similar charter or governing documents of the Subscriber.

5.               Accredited Investor Qualification .  Subscriber represents that Subscriber qualifies as an “accredited investor” under Regulation D, promulgated under the Securities Act, in the following manner.  (Please check or initial all that apply to verify that you qualify as an “accredited investor.”)

☒ (a) Subscriber is a natural person whose net worth, or joint net worth with spouse, at the date of purchase exceeds $1,000,000 (not including the value of Subscriber’s principal residence and excluding mortgage debt secured by Subscriber’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by Subscriber within 60 days prior to the date of this Agreement shall not be excluded from the determination of Subscriber’s net worth unless such mortgage debt was incurred to acquire the residence).

☐ (b) Subscriber is a natural person whose individual gross income (excluding that of spouse) exceeded $200,000 in each of the past two calendar years, and who reasonably expects individual gross income exceeding $200,000 in the current calendar year.

☐ (c) Subscriber is a natural person whose joint gross income with spouse exceeded $300,000 in each of the past two calendar years, and who reasonably expects joint gross income with spouse exceeding $300,000 in the current calendar year.

☐ (d) Subscriber is a tax-exempt organization described in Section 501(c) (3) of the Internal Revenue Code, or a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring Shares, with total assets in excess of $5,000,000.

☐ (e) Subscriber is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring Shares, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Shares.
 
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6.               Miscellaneous .

(a)              This Agreement shall be governed by, interpreted, construed and enforced in accordance with the laws of the State of California, as such laws are applied to contracts by and among residents of California, and which are to be performed wholly within California.

(b)              The representations and warranties set forth herein shall survive the sale of Shares to Subscriber.

(c)              Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

(d)              Any notice, demand or other communication that any party hereto may be required, or may elect, to give shall be sufficiently given if (i) deposited, postage prepaid, in the United States mail addressed to such address as may be specified under this Agreement, (ii) delivered personally at such address, (iii) delivered to such address by air courier delivery service, or (iv) delivered by electronic mail (email) to such electronic mail address as may be specified under this Agreement.  The address for notice to the Company is: OncoCyte Corporation, 1301 Harbor Bay Parkway, Suite 100, Alameda, California 94502; Attention: Robert W. Peabody, Chief Financial Officer; email; rpeabody@biotimemail.com.  The address for notice of Subscriber is shown in Section 7.  Either party may change its address for notice by giving the other party notice of a new address in the manner provided in this Agreement.  Any notice sent by mail shall be deemed given three days after being deposited in the United States mail, postage paid, and addressed as provided in this Agreement.

(e)              This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. Counterparts sent by electronic mail, facsimile, or other electronic means, including signatures thereon, shall be deemed originals.

(f)               Except as otherwise provided herein, the Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns.  If the undersigned is more than one person, the obligation of the undersigned shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors.

(g)              This Agreement contains the entire agreement of the parties, and there are no representations, covenants or other agreements except for those stated or referred to herein.

(h)              This Agreement is not transferable or assignable by the undersigned except as may be provided herein.
 
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7.               Subscriber Information .

 
(a)
Address:
1671 52 nd Street, Brooklyn, NY 11204
 
 
(b)
email:
   
 
 
(c)
Telephone:
(   )
 
 
(d)
Social Security Number:
   
   
or Taxpayer Identification Number:
   
 
 
(e)
State of Residence or Principal Place of Business:
New York
 
SUBSCRIBER SIGNATURE

IN WITNESS WHEREOF, the undersigned has entered into this Agreement and hereby agrees to purchase Shares for the price stated above and upon the terms and conditions set forth herein.  The undersigned hereby agrees to all of the terms of the Registration Rights Agreement and agrees to be bound by the terms and conditions thereof.

Dated:  April __, 2015
 
Primary Subscription:

Number of Shares
 
Total Subscription Price in Primary Subscription
 
1,000,000
x $1.10 =
$     1,100,000
 
 
 
/s/ George Karfunkel
 
 
George Karfunkel
 
 
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ACCEPTANCE BY COMPANY

The Company hereby agrees to sell to the Subscriber the Shares referenced above in reliance upon all the representations, warranties, terms and conditions contained in this Agreement.

IN WITNESS WHEREOF, the undersigned, on behalf of the Company, has executed this acceptance as of the date set forth below.

Dated:  May 8, 2015
ONCOCYTE CORPORATION
     
 
By:
  /s/ Joseph Wagner
   
  Joseph Wagner
     
 
Title: President
 
 
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Exhibit 10.12
 
STOCK SUBSCRIPTION AGREEMENT

ONCOCYTE CORPORATION

READ THIS AGREEMENT CAREFULLY BEFORE YOU INVEST

The shares of common stock, no par value (“Shares”) have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws and may not be offered for sale, sold, transferred, pledged or hypothecated to any person in the absence of an effective registration statement covering such Shares (or an exemption from such registration) and an opinion of counsel satisfactory to OncoCyte Corporation to the effect that such transfer or exercise complies with applicable securities laws.
 

SUBSCRIPTION AGREEMENT

This Agreement is entered into by Bernard Karfunkel (“Subscriber”) and OncoCyte Corporation, a California corporation (the “Company”).

1.             Subscription Offer .
 
(a)              Primary Subscription. The Company is offering to each registered holder (each a “Shareholder”) of shares of Company common stock, no par value (“Shares”), other than BioTime, Inc. the opportunity to subscribe to and purchase their respective pro rata percentage (“Allocation”) of a total of 3,000,000 Shares (the “Primary Subscription Shares”) at a price of $1.10 per Share (the “Subscription Price”).  A Shareholder’s Allocation shall be the total number of Primary Subscription Shares multiplied by the percentage determined by dividing (A) the total number of Shares owned of record by the Shareholder immediately before the Subscription Offer, by (B) the total number of Shares owned by all Shareholders other than BioTime in the aggregate immediately before the Subscription Offer.

Subscriber
 
Pro Rata Percentage
 
Shares in Allocation
Bernard Karfunkel
 
66.6666666666667%
 
2,000,000

(b)              BioTime Subscription .  The Company will also offer to BioTime the opportunity to subscribe to and purchase   6,000,000 Shares (the “BioTime Allocation”) at the Subscription Price.   As of April 15, 2015, the total indebtedness of the Company to BioTime exceeded $6,600,000. BioTime may purchase 3,000,000 Shares of the BioTime Allocation pursuant to the Subscription Offer by cancelling $3,300,000 of the indebtedness of the Company, and, in addition, the Company may deliver to BioTime a convertible promissory note with respect to an additional $3,300,000 of indebtedness (the “Note”).  The Note will bear interest at the rate of 1% per annum, will contain customary default provisions, and will be convertible by BioTime into 3,000,000 Shares at the Subscription Price, subject to customary anti-dilution adjustments, on the Maturity Date. The Maturity Date will be the earlier of the date 18 months from the Expiration Date (defined below or any extension thereof) or the date six months after the date on which the Company completes a firm commitment underwritten initial public offering of Shares registered under the Securities Act of 1933, as amended.  If the Shareholders other than BioTime do not, in the aggregate, purchase 3,000,000 Shares in the Subscription Offer on or before the Expiration Date, BioTime may, in lieu of accepting the Note, convert into Shares at the Subscription Price the $3,300,000 of the Company indebtedness that would otherwise have been evidenced by the Note.

(c)              Expiration of Subscription Offer.   The Company’s offer to sell to the Shareholders their respective Allocations of Shares is referred to as the “Subscription Offer.”  The Subscription Offer shall expire on the Expiration Date and may not be accepted by a Shareholder after that date.  The Expiration Date is 5:00 p.m. California time on April 29, 2015.
 
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(d)              Assignment of Rights .  Prior to the Expiration Date, any Shareholder may assign, in whole or in part, to another Shareholder the assigning Shareholder’s rights to purchase their Allocation of Shares in the Subscription Offer.  A Shareholder who so assigns their rights shall notify the Company in writing of such assignment on or before the Expiration Date.

2.             Subscription For Shares .

(a)              Subscription Procedure. Subscriber may irrevocably subscribe to, and thereby irrevocable agree to purchase, on the terms and conditions of this Agreement, all or a portion of the Subscriber’s Allocation in the Subscription Offer by (a) entering the number of Shares to be purchased and the total Subscription Price for such Shares in the table on the Signature Page of this Agreement, (b) signing and dating this Agreement, and (c) delivering this Agreement, completed and signed as provided in clause (a) and (b), along with payment in full of the Subscription Price for the number of Shares to be purchased, to the Company as provided in this Agreement not later than the Expiration Date.

(b)              Subscription Irrevocable .  This Agreement will become an irrevocable obligation of Subscriber to purchase the number of Shares shown on the Signature Page, at the Subscription Price per Share, when a copy of this Agreement, signed by Subscriber, is countersigned by the Company.

(c)              Payment.   Subscriber shall pay the Subscription Price of the Shares by check for good funds payable to the order of the Company or by wire transfer to such account of the Company as the Company may specify.  If this Agreement is rejected or not accepted for any reason by the Company, all sums paid by the Subscriber will be promptly returned, without interest or deduction.

(d)              Purchase of Shares by BioTime.   If the Shareholders fail to purchase their entire Allocations of Shares in the Subscription Offer, then BioTime may, within sixty (60) days after the Expiration Date, purchase for cash or through the cancellation of Company indebtedness, at the Subscription Price, any or all of the Shares not so purchased by the other Shareholders.

(e)              Offer of Shares to New Investors.   Any of the Primary Subscription Shares not purchased by Shareholders and any Shares not purchased by BioTime, in the Subscription Offer may be offered and sold by the Company to new investors at such prices and on such terms as the Company may determine.

3.             Registration Rights .  If the Subscriber purchases Shares in the Subscription Offer, the Company will enter into an amendment to the September 2009 Registration Rights Agreement pursuant to which the Company will agree to register the Shares purchased by the Subscriber in the Subscription Offer for sale under the Securities Act of 1933, as amended (the “Securities Act”).
 
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4.             Investment Representations.   Subscriber represents and warrants to the Company that:

(a)              Due Diligence . Subscriber has made such investigation of the Company as Subscriber deemed appropriate for determining to acquire (and thereby make an investment in) the Shares.  In making such investigation, Subscriber has had access to such financial and other information concerning the Company as Subscriber requested.  Subscriber acknowledges and understands that the Company is an early stage venture engaged in research and development, without only limited history of operations, and has received only limited capital.  Subscriber acknowledges receipt of the Articles of Incorporation and Bylaws of the Company, and such copies of the minutes of the proceedings of the Board of Directors of the Company as Subscriber may have requested from the Company.  Subscriber has had a reasonable opportunity to ask questions of and receive answers from the executive officers of the Company concerning the Company, and to obtain such additional information concerning the Company as may have been possessed or obtainable by the Company without unreasonable effort or expense. All such questions have been answered to Subscriber’s satisfaction.

(b)              Unregistered Offer and Sale. Subscriber understands that the Shares are being offered and sold without registration under the Securities Act, or qualification under the California Corporate Securities Law of 1968, or under the laws of any other states, in reliance upon the exemptions from such registration and qualification requirements for non-public offerings.  Subscriber acknowledges and understands that the availability of the aforesaid exemptions depends in part upon the accuracy of certain of the representations, declarations and warranties made by Subscriber, and the information provided by Subscriber, in this Agreement,  Subscriber is making such representations, declarations and warranties, and is providing such information, with the intent that the same may be relied upon by the Company and its officers and directors in determining Subscriber’s suitability to acquire the Shares.  Subscriber understands and acknowledges that no federal, state or other agency has reviewed or endorsed the offering of the Shares or made any finding or determination as to the fairness of the offering or completeness of the information provided to Subscriber by the Company.

(c)              Restrictions on Transfer . Subscriber understands that the Shares may not be offered, sold, or transferred in any manner unless subsequently registered under the Securities Act, or unless there is an exemption from such registration available for such offer, sale or transfer.  Subscriber agrees that Subscriber will not sell, offer for sale, or transfer any of the Shares unless those Shares have been registered under the Securities Act, or unless there is an exemption from such registration and an opinion of counsel reasonably acceptable to the Company has been rendered stating that such offer, sale, or transfer will not violate any United States federal or state securities laws.  Subscriber acknowledges that (i) the certificates evidencing the Shares will contain a legend to the effect that transfer is prohibited except pursuant to registration under the Securities Act, or pursuant to an available exemption from registration under the Securities Act, and (ii) The Company will refuse to register the transfer, and will issue instructions to any transfer agent and registrar of the Shares to refuse to register the transfer, of any Shares not made pursuant to registration under the Securities Act or pursuant to an available exemption from registration under the Securities Act.
 
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(d)              Knowledge and Experience. Subscriber has such knowledge and experience in financial and business matters to enable Subscriber to utilize the information provided or otherwise made available to Subscriber by the Company to evaluate the merits and risks of an investment in the Shares and to make an informed investment decision.

(e)              Investment Intent.  Subscriber is acquiring the Shares solely for Subscriber’s own account and for investment purposes, and not with a view to, or for sale in connection with, any distribution of the Shares other than pursuant to an effective registration statement under the Securities Act or unless there is an exemption from such registration available for such offer, sale or transfer, such as SEC Rule 144.

(f)              Forward Looking Statements.  Information provided to Subscriber by the Company include matters that may be considered “forward looking” statements within the meaning of Section 27(a) of the Securities Act and Section 21(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements Subscriber acknowledges and agrees are not guarantees of future performance and involve a number of risks and uncertainties, and with respect to which the Company makes no representations or warranties.  Subscriber understands that the level of disclosure provided by the Company is less than that which would be provided in a securities offering registered under the Securities Act in reliance on the sophistication and investment experience of Subscriber.

(g)              No Assurance of Return on Investment .  It has never been represented, guaranteed or warranted to Subscriber by the Company or BioTime or any officer, director, employee, or agent of the Company or BioTime, that Subscriber will realize any specific value, sale price, or profit as a result of acquiring the Shares.

(h)              Nonpublic Information.  Subscriber understands that (1) this Agreement and other information provided to Subscriber by the Company contains confidential financial information about the Company and BioTime, Inc. that has not yet been publicly disclosed by the Company or BioTime, and therefore may be deemed material non-public information, (2) the Company is providing Subscriber the confidential information solely to satisfy its disclosure obligations under the Securities Act in connection with the offer and sale of the Shares to Subscriber pursuant to this Agreement, and (3) until such time as BioTime files a Form 8-K or other report under the Exchange Act with the Securities and Exchange Commission, Subscriber shall not (A) disclose to any other person any of the information contained in this Agreement or otherwise provided to Subscriber concerning the Company that has not previously been disclosed in a report filed by BioTime under the Exchange Act, or (B) purchase or sell any common shares of BioTime.

(i)                 Authority; Enforceability .  The Subscriber has the power and authority to execute and deliver, and to perform all of Subscriber’s obligations under, this Agreement.  This Agreement has been duly executed and delivered by Subscriber.  This Agreement is the valid and binding agreements of the Subscriber, enforceable in accordance with their respective terms, except to the extent limited by any bankruptcy, insolvency, or similar law affecting the rights of creditors generally.
 
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(j)               No Conflict .  The execution and delivery of this Agreement and consummation of the transactions contemplated under this Agreement, including the purchase of the Shares, by the Subscriber do not and will not violate any provisions of (i) any rule, regulation, statute, or law applicable to the Subscriber, (ii) the terms of any order, writ, or decree of any court or judicial or regulatory authority or body by which the Subscriber is bound, or (iii) if the Subscriber is not a natural person, the certificate of incorporation, bylaws, or similar charter or governing documents of the Subscriber.

5.              Accredited Investor Qualification .  Subscriber represents that Subscriber qualifies as an “accredited investor” under Regulation D, promulgated under the Securities Act, in the following manner.  (Please check or initial all that apply to verify that you qualify as an “accredited investor.”)

☒(a) Subscriber is a natural person whose net worth, or joint net worth with spouse, at the date of purchase exceeds $1,000,000 (not including the value of Subscriber’s principal residence and excluding mortgage debt secured by Subscriber’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by Subscriber within 60 days prior to the date of this Agreement shall not be excluded from the determination of Subscriber’s net worth unless such mortgage debt was incurred to acquire the residence).

☐(b) Subscriber is a natural person whose individual gross income (excluding that of spouse) exceeded $200,000 in each of the past two calendar years, and who reasonably expects individual gross income exceeding $200,000 in the current calendar year.

☐(c) Subscriber is a natural person whose joint gross income with spouse exceeded $300,000 in each of the past two calendar years, and who reasonably expects joint gross income with spouse exceeding $300,000 in the current calendar year.

☐(d) Subscriber is a tax-exempt organization described in Section 501(c) (3) of the Internal Revenue Code, or a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring Shares, with total assets in excess of $5,000,000.

☐(e) Subscriber is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring Shares, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Shares.
 
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6.             Miscellaneous .

(a)              This Agreement shall be governed by, interpreted, construed and enforced in accordance with the laws of the State of California, as such laws are applied to contracts by and among residents of California, and which are to be performed wholly within California.

(b)              The representations and warranties set forth herein shall survive the sale of Shares to Subscriber.

(c)              Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

(d)              Any notice, demand or other communication that any party hereto may be required, or may elect, to give shall be sufficiently given if (i) deposited, postage prepaid, in the United States mail addressed to such address as may be specified under this Agreement, (ii) delivered personally at such address, (iii) delivered to such address by air courier delivery service, or (iv) delivered by electronic mail (email) to such electronic mail address as may be specified under this Agreement.  The address for notice to the Company is: OncoCyte Corporation, 1301 Harbor Bay Parkway, Suite 100, Alameda, California 94502; Attention: Robert W. Peabody, Chief Financial Officer; email; rpeabody@biotimemail.com.  The address for notice of Subscriber is shown in Section 7.  Either party may change its address for notice by giving the other party notice of a new address in the manner provided in this Agreement.  Any notice sent by mail shall be deemed given three days after being deposited in the United States mail, postage paid, and addressed as provided in this Agreement.

(e)              This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. Counterparts sent by electronic mail, facsimile, or other electronic means, including signatures thereon, shall be deemed originals.

(f)              Except as otherwise provided herein, the Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns.  If the undersigned is more than one person, the obligation of the undersigned shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors.

(g)              This Agreement contains the entire agreement of the parties, and there are no representations, covenants or other agreements except for those stated or referred to herein.

(h)              This Agreement is not transferable or assignable by the undersigned except as may be provided herein.
 
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7.             Subscriber Information .
 
 
(a)
Address:
1671 52 nd Street, Brooklyn, NY 11204
 
 
(b)
email:
 
 
 
(c)
Telephone:
  (   )
 
 
(d)
Social Security Number:
  
   
or Taxpayer Identification Number:
  
 
 
(e)
State of Residence or Principal Place of Business:
New York
 
SUBSCRIBER SIGNATURE

IN WITNESS WHEREOF, the undersigned has entered into this Agreement and hereby agrees to purchase Shares for the price stated above and upon the terms and conditions set forth herein.  The undersigned hereby agrees to all of the terms of the Registration Rights Agreement and agrees to be bound by the terms and conditions thereof.

Dated:  April __, 2015

Primary Subscription:

Number of Shares
 
Total Subscription Price in Primary Subscription
         
2,000,000
x $1.10 =
$
2,200,000
 
         
     
/s/ Bernard Karfunkel
 
     
Bernard Karfunkel
 
 
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ACCEPTANCE BY COMPANY
 
The Company hereby agrees to sell to the Subscriber the Shares referenced above in reliance upon all the representations, warranties, terms and conditions contained in this Agreement.

IN WITNESS WHEREOF, the undersigned, on behalf of the Company, has executed this acceptance as of the date set forth below.

Dated:  May 8, 2015
ONCOCYTE CORPORATION  
       
 
By:
/s/ Joseph Wagner
 
     
Joseph Wagner
 
 
 
Title:
President
 
 
 
8


Exhibit 10.13
 
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.  THIS NOTE IS SUBJECT TO RESTRICTION ON TRANSFER AND RESALE AND MAY NOT BE RESOLD OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR QUALIFICATION OR EXEMPTION THEREFROM.

CONVERTIBLE   PROMISSORY NOTE

$3,300,000
May 8, 2015

FOR VALUE RECEIVED, OncoCyte Corporation, a California corporation ( Borrower ), promises to pay to BioTime, Inc., a California corporation ( Lender ), the principal sum of Three Million Three Hundred Thousand Dollars ($3,300,000) and to pay interest on the principal remaining unpaid from time to time from the date of this Convertible Promissory Note ( Note ) until the date of payment in full or conversion into Conversion Shares (as provided below), payable as set forth below.
 
1.                    Terms and Conditions of Payment

(a)                   Interest .  Interest shall accrue and be payable at the rate of 1% per annum.  Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.

(b)                   Payment .  All unpaid accrued interest in arrears shall be due and payable on January 2 of each year until the Maturity Date when the entire unpaid principal balance of this Note, plus all unpaid accrued interest shall be due and payable in full. The Maturity Date shall be November 30, 2016 or such earlier date on which payment in full may become due under Section 5.

(c)                   Date of Payment.   If the date on which a payment of principal or interest on this Note is due is a day other than a Business Day, then payment of such principal or interest need not be made on such date but may be made on the next succeeding Business Day.  A Business Day shall be a day other than a Saturday, Sunday, or other day on which banks in San Francisco, California are permitted or required to be closed.

(d)                  Application of Payments.   All payments shall be applied first to costs of collection, next to late charges or other sums owing Lender, next to accrued interest, and then to principal, or in such other order or proportion as Lender, in Lender’s sole discretion, may determine.
 

(e)                   Currency.   All payments shall be made in United States Dollars.
 
(f)                    Default Interest Rate; Late Payment Charge.   In the event that any principal or interest is not paid within five (5) days from on the date on which the same is due and payable, such payment shall continue as an obligation of the Borrower, and interest from the due date on the entire unpaid balance of this Note shall accrue at the lesser of (i) fifteen percent (15%) per annum, or (ii) the highest interest rate permitted under applicable law (the Default Rate ), until all past due amounts are paid in full.  From and after the Maturity Date or upon acceleration of this Note, the entire unpaid principal balance of this Note with all unpaid interest accrued thereon, and any and all other fees and charges then due at such maturity, shall bear interest at the Default Rate.

2.                    Prepayment .  Borrower may not prepay principal in whole or in part without the prior written consent of Lender, which consent Lender may grant or withhold in its sole and absolute discretion.
 
3.                    Conversion Rights.   Subject to and upon compliance with the provisions of this Section 3, this Note shall be convertible, in whole or in part, at the election of the holder, at any time and from time to time prior to the payment in full of the principal balance and interest accrued thereon, into fully paid and nonassessable Conversion Shares at the Conversion Price then in effect.  Upon the conversion of this Note or any part hereof, any accrued but unpaid interest with respect to the principal amount of this Note so converted shall likewise be converted into Conversion Shares. Lender or any other holder of this Note may convert this Note into Conversion Shares at any time on or after the first to occur of (i) November 8, 2016, (ii) the date that is six months after the first closing date on which Borrower completes a firm commitment underwritten initial public offering of its common stock or other capital stock registered under the Securities Act of 1933, as amended, and (iii) the occurrence of an Event of Default.

(a)                   Conversion Shares .  As used in this Note, the term Conversion Shares means shares of the common stock, no par value, of Borrower; provided that if Borrower shall effect a reclassification of its common stock (or any subsequent class or series of Conversion Shares), then, and in each such event, the class and series of shares constituting Conversion Shares shall be changed to reflect such reclassification such that upon conversion of the Note the holder shall receive the amount of securities of the class that such holder would have received had such conversion of the Note taken place and shares been issued immediately before such reclassification.

(b)                   Conversion Price .  The “ Conversion Price ” at which Conversion Shares shall initially be issuable upon conversion of this Note shall be $1.10 per share, subject to the adjustments set forth in Section 3(f).

(c)                   Number of Shares Issuable Upon Conversion .  This Note, or the portion hereof being converted, shall be converted into the number of Conversion Shares determined by dividing (i) the amount of principal and interest being converted by (ii) the Conversion Price in effect on the Conversion Date.
 
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(d)                  Mechanics of Conversion .  The holder of this Note may exercise the conversion right by surrendering this Note to the Secretary of the Borrower or any transfer agent of the Borrower, accompanied by written notice specifying the principal amount of this Note to be converted; provided, that all interest accrued on the amount of principal to be converted shall likewise be converted into Conversion Shares.  Conversion shall be deemed to have been effected on the later of the date when delivery of notice of an election to convert and this Note is made, or such later date, if any, specified in such notice. The date on which conversion is deemed to have been effected is referred to herein as the " Conversion Date ."  Subject to the provisions of Section 3(f)(iii)), as promptly as practicable after the Conversion Date, the Borrower shall issue and deliver to or upon the written order of such holder a certificate or certificates for the number of Conversion Shares to which such holder is entitled and a check or cash with respect to any fractional interest in any Conversion Share as provided in Section 3(e).  Subject to the provisions of Section 3(f)(iii), the person in whose name the certificate or certificates for Conversion Shares are to be issued shall be deemed to have become a holder of record of such Conversion Shares on the Conversion Date.  Upon conversion of only a portion of the principal amount of this Note, the Borrower shall issue and deliver to or upon the written order of the holder of this Note so surrendered for conversion, at the expense of the Borrower, a new Note of like tenor evidencing the unconverted portion of this Note so surrendered.

(e)                  Fractional Shares .  No fractional Conversion Share or scrip shall be issued upon conversion of this Note.  If more than one Note of like tenor shall be surrendered for conversion at any one time by the same holder, the number of Conversion Shares issuable upon conversion thereof shall be computed on the basis of the aggregate amount of principal and accrued interest payable under the Notes so surrendered.  Instead of any fractional Conversion Share which would otherwise be issuable upon conversion of this Note, the Borrower shall pay a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest at the then Current Market Price.

(f)                   Conversion Price Adjustments .  The Conversion Price shall be subject to adjustment from time to time as follows:

(i)                Conversion Shares Dividends, Subdivisions, Reclassifications or Combinations .  If the Borrower shall (A) declare a dividend or make a distribution on its Conversion Shares in Conversion Shares, (B) subdivide or reclassify the outstanding Conversion Shares into a greater number of shares, or (C) combine or reclassify the outstanding Conversion Shares into a smaller number of shares, the Conversion Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of this Note surrendered for conversion after such date shall be entitled to receive the number of Conversion Shares which the holder would have owned or been entitled to receive after the event described in (A), (B), or (C) had this Note (or the portion of this Note surrendered for conversion if the holder elects to convert only a portion of this Note) been converted immediately prior to such event.  Successive adjustments in the Conversion Price shall be made whenever any event specified above shall occur.
 
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(ii)                Rounding of Calculations; Minimum Adjustment .  All calculations under this Section 3(f) shall be made to the nearest cent or to the nearest one hundredth (1/100th) of a share, as the case may be.  Any provision of this Section 3 to the contrary notwithstanding, no adjustment in the Conversion Price shall be made if the amount of such adjustment would be less than one cent ($.01), but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one cent ($.01) or more.  Notwithstanding the foregoing, the Board of Directors of Borrower may elect at any time to make an adjustment otherwise required under this Section 3(f) of less than one cent ($.01).

(iii)              Timing of Issuance of Additional Conversion Shares Upon Certain Adjustments .  In any case in which the provisions of this Section 3(f) require that an adjustment shall become effective immediately after a record date for an event, the Borrower may defer until the occurrence of such event (A) issuing on account of the conversion of this Note after such record date and before the occurrence of such event the additional Conversion Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Conversion Shares issuable upon such conversion before giving effect to such adjustment, and (B) paying to such holder any amount of cash in lieu of a fractional Conversion Share pursuant to Section 3(e); provided that the Borrower upon request shall deliver to the holder of this Note a due bill or other appropriate instrument evidencing the holder's right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

(g)                 Current Market Price .  The “ Current Market Price ” per Conversion Share for any date shall be determined by the Board of Directors as follows:

(i)                 If the Conversion Shares are listed on a national securities exchange or if prices of Conversion Shares are quoted on the OTC Bulletin Board, the Current Market Price shall be the average of the last reported sale price of the Conversion Shares on such exchange or the OTC Bulletin Board for the last twenty (20) consecutive trading days prior to such date; or

(ii)               If the Conversion Shares are not so listed or quoted, the Current Market Price shall be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of Borrower, irrespective of any accounting treatment.

(h)                 Statement Regarding Adjustments .  Whenever the Conversion Price shall be adjusted as provided in Section 3(f), the Borrower shall forthwith file, at the principal office of the Borrower, a statement showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment, and the Borrower shall also cause a copy of such statement to be sent to the holder of this Note at the address of the holder reflected in the records of Borrower.  Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of Section 3(i).
 
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(i)                   Notice to Holders .  In the event the Borrower shall propose to take any action of the type described in Section 3(f) that would result in an adjustment in the Conversion Price or a Sale Event described in Section 3(m), the Borrower shall give notice to the holder of this Note, in the manner set forth in Section 3(h), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place.  Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon conversion of this Note.  In the case of any action which would require the fixing of a record date, such notice shall be given at least ten (10) days prior to the date so fixed, and in case of all other action, such notice shall be given at least fifteen (15) days prior to the taking of such proposed action.  Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

(j)                   Costs .  The Borrower shall pay all documentary, stamp, transfer or other transaction taxes, if any, attributable to the issuance or delivery of Conversion Shares upon conversion of this Note; provided that the Borrower shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of this Note.

(k)                 Reservation of Shares .  So long as any amount of principal or accrued interest on this Note remains unpaid, the Borrower shall reserve at all times free from preemptive rights, out of its authorized but unissued Conversion Shares, solely for the purpose of effecting the conversion of this Note, sufficient Conversion Shares to provide for the conversion of the outstanding principal balance of this Note plus accrued interest; and if at any time the number of authorized but unissued Conversion Shares shall not be sufficient to effect the conversion of this Note, in addition to such other remedies as shall be available to the holder of this Note, the Borrower will take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued Conversion Shares to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to, as applicable, the Certificate of Incorporation of Borrower.

(l)                   Valid Issuance .  All Conversion Shares which may be issued upon conversion of this Note will upon issuance by the Borrower be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof, and the Borrower shall take no action which will cause a contrary result.
 
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(m)                Preservation of Conversion Rights Upon Merger, Consolidation, etc .  In case of any consolidation of Borrower with or merger of Borrower into another corporation or in case of any sale, transfer, license, or lease of all or substantially all the assets of Borrower to another corporation or other business entity (each such event a “Sale Event”), Borrower or such successor, purchaser or acquirer, as the case may be, shall execute an agreement that each holder of this Note shall have the right thereafter upon tender of this Note (or such portion thereof as the holder may designate) for conversion at the Conversion Price in effect immediately prior to such Sale Event, to receive the kind and amount of shares and other securities and property (including cash) which the holder would have owned or have been entitled to upon the happening of such Sale Event had this Note (or such portion thereof as the holder has designate for conversion) been converted immediately prior to such Sale Event (such shares and other securities and property (including cash) being referred to as the “Sale Consideration”); provided, however, that the Sale Consideration shall not include any dividends, interest or other income on or from such shares or other securities and property paid, payable, or accruing from the date of such Sale Event to the Conversion Date.  Each agreement pertaining to a Sale Event shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this paragraph.  The provisions of this paragraph shall similarly apply to each successive Sale Event.

(n)                  If Borrower shall issue rights, options or warrants to all holders of its outstanding common stock, without any charge to such holders, entitling them to subscribe for or purchase shares of common stock or other securities of Borrower (a “Rights Distribution”), or shall otherwise offer the holders of its common stock the opportunity to purchase additional shares of common stock or other securities of Borrower on a pro rata basis (a “Pro Rata Offer”), Borrower shall concurrently issue to the holder of this Note the number of rights, options or warrants that the holder would have received had this Note been converted into Conversion Shares immediately prior to the record date for the Rights Distribution, or in the case of a Pro Rata Offer, Borrower shall offer to sell to the holder of this Note, at the Pro Rata Offer subscription price, the number of shares of common stock or other securities that the holder would have been entitled to purchase had this Note been converted into Conversion Shares immediately prior to the Pro Rata Offer or the record date therefor.
 
4.                     Transfer of Note

(a)                   Borrower shall keep and maintain a register or registers in which Borrower shall register this Note and the transfer of this Note.  Any Person in whose name this Note is registered, or who has the right to have this Note so registered, shall have all of the rights of Lender.  All payments of principal, interest, and any other amount due or that becomes due under this Note, shall be paid to Lender by check mailed to Lender at Lender’s address of record or shall be paid by wire transfer of funds to such account as Lender may designate.  Lender may change the address or account for payment or Lender’s address for notice by delivery of written notice to Borrower at its principal executive office. Borrower may deem and treat the person or persons in whose name this Note shall be registered upon the books and records of Borrower as the absolute owner of this Note (regardless of whether this Note shall be past due, and notwithstanding any notation of ownership, endorsement, or other writing on this Note), for the purpose of receiving payment of or on account of principal, interest, and any other amount due or payable under this Note, and for all other purposes; and Borrower shall not be affected by any notice to the contrary unless such notice of transfer is given pursuant to this Note.  All such payments shall be valid and effectual to satisfy and discharge the liability on this Note to the extent of all sums so paid.
 
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(b)                  This Note may not be sold, pledged, hypothecated, negotiated, assigned, or otherwise transferred except pursuant to an effective registration statement under the Securities Act of 1933, as amended, and pursuant to effective registration or qualification under applicable state securities or “blue sky” laws, unless an exemption from such registration and qualification is available.  Borrower will make a stop transfer notation in the register maintained pursuant this Section with respect to such restrictions on transfer.  In connection with the issuance of any new Note or Notes that are presented for registration of transfer, Borrower will take the steps described in this paragraph.  Borrower may require, as a condition to registration of transfer, that the transferor or transferee deliver to Borrower an opinion of counsel, in form and substance acceptable to Borrower, to the effect that such transfer is exempt from the registration and qualification provisions of the Securities Act of 1933, as amended, and applicable state securities or “blue sky” laws.

(c)                  The transfer of this Note shall be registered by Borrower on the books and records of the Borrower subject to the terms, conditions, and restrictions of transfer set forth in this Note, but without payment of any charge other than a sum sufficient to reimburse Borrower for any tax or other governmental charge incident thereto.  Such registration of transfer shall be effected only upon compliance with all of the provisions of this Section 4, and upon surrender of this Note for transfer.  Upon any such registration of transfer, a new Note or Notes of the same aggregate principal amount will be issued to the transferee in exchange for this Note.  All Notes presented for registration of transfer, if so required by Borrower, shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to Borrower, duly executed by the registered holder or by his duly authorized attorney or agent.
 
5.                    Default

(a)                   Upon the occurrence of an Event of Default, at Lender’s option, all unpaid principal and accrued interest, and all other amounts payable to Lender under this Note shall become immediately due and payable without presentment, demand, notice of non-payment, protest, or notice of non-payment, provided that no notice or demand shall be required if the Event of Default is a proceeding under any Debtor Relief Law. “Debtor Relief Law ” means the Bankruptcy Code of the United States of America, as amended, or any other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief law affecting the rights of creditors generally.
 
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(b)                   For purposes of this Note, the following are Events of Default :  (a) the failure of Borrower to pay when due any interest, principal, or other amount payable under this Note, if such failure to pay continues for a period of fifteen (15) days; (b) Borrower becoming the subject of any order for relief in a proceeding under any Debtor Relief Law; (c) Borrower making an assignment for the benefit of creditors other than Lender; (d) Borrower applying for or consenting to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator, or similar officer for it or for all or any part of its property or assets; (e) the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator, or similar officer for Borrower, or for all or any part of the property or assets of Borrower, without the application or consent of Borrower if such appointment continues undischarged or unstayed for sixty (60) calendar days; (f) Borrower  instituting or consenting to any proceeding under any Debtor Relief Law with respect to Borrower, or all or any part of its property or assets, or the institution of any similar case or proceeding without the consent of Borrower, if such case or proceeding continues undismissed or unstayed for sixty (60) calendar days; (g) the dissolution or liquidation of Borrower, or the winding-up of the business or affairs of Borrower; (h) the taking of any action by Borrower to initiate any of the actions described in clauses (b) through (g) of this paragraph; (i) the issuance or levy of any judgment, writ, warrant of attachment or execution or similar process against all or any material part of the property or assets of Borrower if such process is not released, vacated or fully bonded within sixty (60) calendar days after its issue or levy; or (j) any material breach or default by Borrower under any loan agreement, promissory note, or other instrument evidencing indebtedness payable to a third party.
 
6.                    Miscellaneous

(a)                   Borrower and all guarantors and endorsers of this Note severally waive  (1) presentment, demand, protest, notice of dishonor, and all other notices, except as expressly provided in this Note; (2) any release or discharge arising from any extension of time, discharge of a prior party, and (3) any other cause of release or discharge other than actual payment in full of all indebtedness evidenced by or arising under this Note.

(b)                   The Lender shall not be deemed, by any act or omission, to have waived any of its rights or remedies under this Note unless such waiver is in writing and signed by Lender and then only to the extent specifically set forth in such writing.  A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event.  No delay or omission of Lender to exercise any right, whether before or after an Event of Default, shall impair any such right or shall be construed to be a waiver of any right or default, and the acceptance of any past-due amount at any time by the Lender shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable.

(c)                   Lender may accept, indorse, present for payment, and negotiate checks marked “payment in full” or with words of similar effect without waiving Lender’s right to collect from Borrower the full amount owed by Borrower.
 
(d)                   Upon any Event of Default, the Lender may exercise all rights and remedies provided for in this Note and by law, including, but not limited to, the right to immediate payment in full of this Note.
 
8

(e)                   The rights and remedies of the Lender as provided in this Note and in law or equity shall be cumulative and concurrent, and may be pursued singularly, successively, or together at the sole discretion of the Lender, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or a release of any such right or remedy.

(f)                     The terms, covenants, and conditions contained in this Note shall be binding upon the heirs, executors, administrators, successors, and assigns of Borrower and shall inure to the benefit of the heirs, executors, administrators, successors and assigns of Lender.

(g)                   If any provisions of this Note would require Borrower to pay interest on the indebtedness evidenced by or arising under this Note at a rate exceeding the highest rate allowable by applicable law, Borrower shall instead pay interest under this Note at the highest rate permitted by applicable law.

(h)                   This Note shall be construed under and governed by the laws of the State of California without regard to conflicts of law.

(i)                    Borrower agrees to pay all reasonable attorneys' fees incurred by Lenders in connection with enforcement of any of Lenders’ rights and remedies under this Note, whether or not any proceeding is commenced to enforce or protect such rights and remedies.  In the event of any lawsuit or other action to enforce any right or remedy of Lenders under this Note, or to resolve any dispute arising from or in connection with this Note, the prevailing party shall be entitled to recover its costs and expenses of such lawsuit or proceeding, including without limitation, reasonable attorneys' fees.

BORROWER :

OncoCyte Corporation
 
     
By:
/s/ Joseph Wagner
 
 
Joseph Wagner
 
     
Title:  President
 
 
 
9


Exhibit 10.14
 
AGREEMENT

This AGREEMENT (this “Agreement”) is made as of June 26, 2015 (the “Effective Date”) by and among George Karfunkel, Bernard Karfunkel (together with George Karfunkel, the “Investors”) and OncoCyte Corporation, a California corporation (“OncoCyte” and together with the Investors, individually each a “Party” and collectively, the “Parties”).

RECITALS

A.           The Investors purchased shares of common stock, no par value (“Shares”), of OncoCyte (the “Investment”) pursuant to a subscription agreement dated as of May 8, 2015 (the “Subscription Agreement”) as part of a rights offering.

B.           OncoCyte may wish to conduct another rights offering on or before June 30, 2016 and the Investors are willing to commit to participate in such potential rights offering on the terms set forth herein.

C.           In connection with the Investors' commitment to participate in the potential rights offering, the parties have agreed to certain other terms and conditions, as set forth herein.

NOW, THEREFORE, for the consideration set forth herein and other good and valuable consideration, the Parties herein agree as follows:

1.            Commitment to Participate in Potential Rights Offering. In the event OncoCyte conducts a rights offering on or before June 30, 2016 at a pre-money valuation of OncoCyte of at least $40,000,000.00, if so requested by OncoCyte, the Investors shall enter into a Purchase Agreement with OncoCyte pursuant to which the Investors shall purchase from OncoCyte newly issued Shares on the terms and conditions offered to shareholders in the rights offering with an aggregate purchase price equal to the lesser of (a) the percentage of the total amount of capital which the Company seeks to raise in such rights offering (including the amount of capital which the Company seeks to raise from third party investors in any concurrent offering) equal to the Investors' aggregate pro rata share of the Shares on the record date for such rights offering, determined on a fully diluted basis, and (b) $3,000,000.00, or such lesser amount requested by OncoCyte.

2.            Contingent Issuance of Additional Shares. In the event that shares of common stock of OncoCyte are not publicly traded on any stock exchange or over-the-counter market by January 15, 2016, then promptly following such date, OncoCyte will issue warrants to purchase 1,750,000 Shares to George Karfunkel and wan-ants to purchase 1,250,000 Shares to Bernard Karfunkel, at an exercise price of $.01 per Share (collectively, the “Warrants”). If issued, the Warrants will expire on December 31, 2016.

3.            Non-Compete.

(a)           The Investors agree that, for a period of one year beginning on the date hereof, neither of them shall invest or engage, directly or indirectly, whether as a partner, equity holder, lender, principal, agent, affiliate, consultant or otherwise, in any business anywhere in the world that develops products for the diagnosis and treatment of cancer or otherwise competes with OncoCyte in any way; provided , however , that the passive ownership of less than 5% of the outstanding stock of any publicly-traded corporation will not be deemed, solely by reason thereof, to be in violation of this Section 3.

(b)           If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 3 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability will have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement will be enforceable as so modified after the expiration of the time within which the judgment may be appealed.
 


(c)           The Investors expressly acknowledge that a breach of any of the terms and conditions contained in this Section 3 will cause OncoCyte irreparable and continuing harm for which there is no adequate remedy at law, and OncoCyte is therefore entitled to seek injunctive relief and specific performance without the requirement of posting bond or other undertaking. OncoCyte's right to seek injunctive relief and specific performance shall in no way limit its right to seek any other legal remedies or other relief available to it. The Investors hereby acknowledge and agree that the covenants and agreements set forth in this Section 3 are a material inducement to OncoCyte to enter into this Agreement and to perform its obligations hereunder, and that OncoCyte would not have entered into this Agreement without such covenants and agreements being made a part of this Agreement.

4.            Full and Complete Release of Claims.

(a)           Each Investor, for himself and on behalf of his past, present and future affiliates, heirs, executors, representatives, attorneys, insurers, administrators, agents, successors and assigns and each of their respective past, present and future shareholders, members, managers, officers, directors, employees, heirs, executors, representatives, attorneys, insurers, administrators, agents, predecessors, successors and assigns (collectively, the “Releasors”), hereby irrevocably, fully and forever releases and discharges OncoCyte and its past, present and future parents, subsidiaries, affiliates, predecessors, representatives, attorneys, insurers, administrators, agents, successors and assigns and each of their respective past, present and future shareholders, members, managers, officers, directors, employees, representatives, attorneys, insurers, administrators, agents, predecessors, successors, and assigns (collectively, the “Releasees”), from any and all rights, charges, claims, complaints, demands, damages, debts, losses, obligations, liabilities, costs, expenses, damages, suits, actions, rights of action and causes of action, of any kind or character whatsoever, based on any legal theory whatsoever, including any arising under tort, contract, successor liability, federal, state, local, statutory or common law, whether known or unknown, concealed or hidden, suspected or unsuspected, developed or undeveloped, existing or contingent (collectively, “Claims”) that any one or more of the Releasors has or may have against any of the Releasees as of the date hereof arising under or related to the Subscription Agreement or the Investment (the “Released Claims”); provided, however, that nothing in this Section 4 shall release, waive or in any way limit any of the Releasors' Claims against the Releasees arising under this Agreement. The Investors represent and warrant to OncoCyte they are the sole owners of the Released Claims and they have not assigned, pledged, encumbered or in any manner transferred or conveyed all or any portion of the Released Claims, (ii) they have been given an opportunity to consult with, and have been represented by and have consulted with, legal counsel of their own choice in connection with the negotiating, drafting, and execution of this release, and have relied upon the advice of such legal counsel in negotiating, drafting, and executing the same and (iii) they have the capacity to enter into this Agreement. The Investors hereby acknowledge and agree that the release set forth in this Section 4 is a material inducement to OncoCyte to enter into this Agreement and to perform its obligations hereunder, and that OncoCyte would not have entered into this Agreement without such release being made a part of this Agreement.
 


(b)           Each Investor acknowledges that it is aware that it or one of the Releasors may hereafter discover facts different from, or in addition to, those which it now knows or believes to be true concerning the Released Claims. Notwithstanding any such different or additional facts, this release shall fully discharge each of the Releasees from any and all Released Claims. The Investors, for themselves and on behalf of the Releasors stipulate and agree that they will have expressly waived the provisions, rights and benefits of California Civil Code §1542, which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

All Releasors providing releases of unknown Claims expressly waive any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to California Civil Code §1542.

5.            Confidentiality. From and after the Effective Date, the terms of this Agreement, together with the information exchanged by the Parties during negotiation hereof, shall be confidential, and shall not be disclosed by either Party to any other persons, entities or organizations, except (a) to the extent such terms were known by or have been available to the public as of the Effective Date; (b) to the extent such terms become available to the public other than by breach of this Agreement; (c) to the extent required by an order of a court having jurisdiction or under subpoena from a court of law or an appropriate government agency (in which event, the Party receiving any such order or subpoena shall give written notice to the other Party no less than five days prior to responding); (d) in order for such Party to obtain legal, accounting or tax services; (e) in order to enforce this Agreement; or (f) as may be required by such Party to comply with applicable law, rule or regulation of any governmental authority or self-regulatory organization, including, without limitation, the disclosure rules of the Securities and Exchange Commission or the New York Stock Exchange.

6.            Governing Law. This Agreement shall be governed by the laws of the State of New York, without giving effect to the conflicts of law principles thereof.

7.            Entire Agreement. This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior or contemporaneous oral or written agreements, negotiations and discussions with respect to the subject matter hereof. This Agreement may not be altered, modified or amended, unless by agreement in writing executed by the Patties, nor any of its provisions waived, unless in writing by the Party granting such waiver. No failure, delay or forbearance of any Party in insisting upon or enforcing any provisions of this Agreement, or in exercising any rights or remedies under this Agreement, shall be construed as a waiver or relinquishment of any such provisions, rights or remedies, all of which shall remain in full force and effect.

8.            Representation by Counsel. Each Party represents and warrants that it has been represented by legal counsel with respect to the negotiation of the terms of this Agreement, that it has been advised by legal counsel as to its rights and obligations under this Agreement and that it and its legal counsel have participated in the review and drafting of this Agreement. Each Party has had the opportunity to draft, review and edit this Agreement. Accordingly, no presumption for or against any Party arising out of drafting all or any part of this Agreement will be applied in any action relating to or arising from this Agreement.
 


9.            Miscellaneous. The section headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall constitute an original document and all of which together constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement.

IN WITNESS WHEREOF , the Parties do hereby execute this Agreement as of the Effective Date.

 
/s/ George Karfunkel
 
 
GEORGE KARFUNKE
 
       
 
/s/ Bernard Karfunkel
 
 
BERNARD KARFUNKEL
 
       
 
ONCOCYTE
 
       
 
By:
/s/ William Annett
 
 
Name: William Annett
 
 
Title: Chief Executive Officer
 

 


Exhibit 10.15
 
Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

SPONSORED RESEARCH AGREEMENT

This SPONSORED RESEARCH AGREEMENT (the "Agreement") is made as of the 13th day of September , 2013 (the "Effective Date " ) by and between THE WISTAR INSTITUTE OF ANATOMY AND BIOLOGY, a Pennsylvania nonprofit corporation located at 3601 Spruce Street, Philadelphia, PA 19104 ("Wistar"), and ONCOCYTE CORPORATION, a corporation organized under the laws of California , with a principal place of business located at 1301 Harbor Bay Parkway , Alameda, CA 94502 ("Sponsor") .

RECITALS

A.             Dr. Louise C. Showe, a member of the scientific staff of Wistar, has perfo1med research in the field of molecular diagnostics for lung cancer.

B.              Sponsor is interested in such research and desires to support such research in accordance with the terms and conditions of this Agreement.

C.            The research and development program contemplated by this Agreement is of mutual interest to the patties and furthers the educational, scholarship and research objectives of Wistar as a nonprofit, tax-exempt research institution.

NOW, THEREFORE , in consideration of the premises and mutual covenants contained herein , and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1 - DEFINITIONS

The following terms , as used herein , shall have the following meanings:

1.1          " Confidential Information " means: (i) the Inventions , (ii) any information or material in tangible form that is marked as confidential or proprietary by the furnishing patty at the time it is delivered to the receiving patty , and (iii) information that is furnished orally if the furnishing patty identifies such info1mation as confidential or proprietary when it is disclosed and conforms such designation in writing within thi1ty (30) days after such disclosure.

1.2          " Invention(s) " means and includes all technical information, trade secrets , developments , discoveries , software , know-how, methods, techniques, formulae, data, processes and other proprietary ideas, whether or not patentable or copyrightable, that are related to the Sponsored Research and are first conceived, discovered , developed or reduced to practice in the perfo1mance of the Sponsored Research by the Principal Investigator or anyone working under her / his direction.

Wistar / OncoCyte Sponsored Research Agreement
Page 1 of 16
 


1.3          " Option to License " means the right granted to Sponsor to negotiate and secure a license to one or more Inventions developed under this Agreement along with any Wistar Background Technology, as provided under Section 5.2.

1.4          " Principal Investigator " means the individual designated in accordance with Section 2.2 hereof.

1.5           " Sponsored Research " means the research relating to the development of new molecular diagnostics for lung cancer performed in the laboratory of the Principal Investigator as more fully described on Schedule I attached he r eto and made a part of this Agreement. The Sponsored Research may be modified from time to time by the parties as mutually agreed to in writing.

1.6          " Wistar Background Technology " means any technical information , trade secrets, developments, discoveries, software , know-how, methods, techniques , formulae, data, processes and other proprietary ideas related to molecular diagnostics for lung cancer, whether or not patentable or copyrightable , owned by Wistar, necessary to practice any Invention and made, identified, compiled and / or discovered by Dr . Louise C. Showe or laboratory personnel working directly under her supervision.

ARTICLE 2 - SPONSORED RESEARCH

2.1           Statement of Work. Wistar undertakes to conduct the Sponsored Research with funds made available by Sponsor. Wistar shall furnish the appropriate personnel, materials , services , facilities and equipment for the performance of the Sponsored Research . Wistar is under no obligation to fund any of the Sponsored Research.

2.2         Participation of Principal Investigator .

(i)            Dr . Louise C . Showe shall serve as Principal Investigator for the Sponsored Research and shall be responsible for the administration and supervision of the Sponsored Research.

(ii)           If the services of the Principal Investigator become unavailable to Wistar for any reason , Wistar shall be entitled to designate another member of its scientific staff who is agreeable to both parties to serve as the Principal Investigator of the Sponsored Research. If a substitute Principal Investigator has not been designated within sixty (60) days after the original Principal Investigator ceases her/his services under this Agreement, either party may terminate this Agreement upon written notice thereof to the other party.

2.3            Reporting. Wistar agrees to keep Sponsor fully informed of the performance of the Sponsored Research. Wistar shall also deliver to Sponsor, monthly progress reports summarizing, in reasonable detail , the research performed during the preceding calendar month, and all significant findings and developments. Such reports shall be delivered no later than fifteen (15) days after each calendar month .

Wistar / OncoCyte Sponsored Research Agreement
Page 2 of 16
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

2.4            Equipment . Title to any equipment, instruments, laboratory animals or any other materials purchased, built or manufactured by Wistar or the Principal Investigator prior to or in the performance of the Sponsored Research shall vest in Wistar and any such equipment, instruments, laboratory animals or materials shall be and remain the property of Wistar following expiration or termination of the Sponsored Research.

ARTICLE 3 - PERIOD OF PERFORMANCE

3 . 1            Term . The initial term of this Agreement shall begin as of the Effective Date and shall end upon completion of the Sponsored Research or on the second anniversary hereof, whichever is soone r , subject to early termination pursuant to Sections 2.2(ii) or 8.1 hereof. This Agreement may be extended or renewed only by written agreement of both parties .

ARTICLE 4 - FUNDING

4.1            Funding . Sponsor shall pay Wistar the amount of [**] dollars ($[**]) for the initial term of the Sponsored Research as follows:

(i)            [**] dollars ($[**]) shall be paid upon execution of this Agreement; and

(ii)           [**] dollars ($[**]) shall be paid upon the first anniversary of this Agreement.

4.2            Payments . Payments shall be made by check made payable to "The Wistar Institute of Anatomy and Biology," and mailed to The Wistar Institute, 3601 Spruce Street , Philadelphia, PA 19104, Attn: Director, Grants & Contracts Administration.

4.3            Record Keeping . Wistar shall keep accurate records and books of account relating to the Sponsored Research, which are to be available during Wistar's regular business hours to authorized representatives of Sponsor upon reasonable prior written notice to Wistar.

ARTICLE 5 - INVENTIONS, LICENSES

5.1            Inventions . Wistar shall promptly provide to Sponsor a complete written disclosure of each and every Invention reasonably considered patentable including any Wistar Background Technology necessary to practice the Invention.

5.2            Option to License .

(i)            Within [**] days of receipt of the disclosure of an Invention, Sponsor will notify Wistar in writing   whether Sponsor desires to obtain an Option to License the Invention and any Wistar Background Technology. If Sponsor does not notify Wistar of its desire to obtain an Option to License such Invention within such time frame , Sponsor will have no further rights in such disclosed Invention.

Wistar / OncoCyte Sponsored Research Agreement
Page 3 of 16
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

(ii)           Sponsor shall pay Wistar an option fee of [**] dollars ($[**]) upon notification to Wistar that it desires to obtain an Option to License an Invention (the "Option Fee"). Such Option Fee shall be due and payable on the date of Sponsor's written election to obtain an Option to License and shall be made by check made payable to "The Wistar Institute of Anatomy and Biology," and mailed to The Wistar Institute, 3601 Spruce Street, Philadelphia, PA 19104, Attn: Director, Finance. Such Option Fee shall be creditable against any future license consideration for such Invention.

(iii)          The Option to License shall commence upon the date of Wistar's receipt of the Option Fee and shall expire [**] days after the end of the initial term of the Sponsored Research (the "Option Period").

5.3            Negotiation of License Agreement .

(i)            Until the expiration of the Option Period, Sponsor shall have the exclusive right to negotiate with Wistar to obtain a worldwide , exclusive, royalty bearing license, with right to sublicense, to the Inventions for which Sponsor has obtained an Option to License. Prior to the expiration of the Option Period, Sponsor shall identify in writing to Wistar each of the Inventions included in the Option to License for which Sponsor intends to secure a license (the "Selected Inventions"). Promptly after Sponsor provides such notice, the patties shall meet and commence good faith negotiations regarding the draft license terms listed on Schedule II attached hereto for Selected Inventions and any related Patents (as defined below), which terms are for discussion purposes only and not intended to bind or obligate either party. Such negotiations shall proceed during a negotiation period of up to [**] days after the date the parties commence negotiations (the "Negotiation Period"). Sponsor will have no further rights to any Invention it has not so identified prior to expiration of the Option Period .

(ii)           If Sponsor declines to secure an Option to License with respect to a particular Invention, or if Sponsor has secured an Option to License but, following good faith negotiations, Sponsor and Wistar are unable to execute a license within the Negotiation Period for a particular Invention, Wistar shall be free to license such Invention to any party upon such terms as Wistar deems appropriate, without any further obligation to Sponsor .

5.4           No Transfer of Rights. No other rights or licenses are granted under this Agreement by either party to the other either expressly or by implication, except those specifically set forth herein.

5.5            Retained Rights of U.S . Government . Any option or license granted to Sponsor herein shall be subject to the rights of the United States government reserved under Public Laws 96-517, 97-256 and 98-620 , codified at 35 U.S.C. § 200-212, and any regulations issued thereunder.

Wistar / OncoCyte Sponsored Research Agreement
Page 4 of 16
 


ARTICLE 6 -PATENTS

6.1             Prosecution of Patents.

(i)            Wistar shall be responsible for and shall control the preparation, prosecution and maintenance of all patents and patent applications related to an Invention (the "Patent(s)"), except for any patent or patent application that Sponsor has elected to file, prosecute or maintain under the te1ms specified in Section 6.1 (v) hereof.

(ii)           If Sponsor has elected to obtain an Option to License an Invention by notice to Wistar as provided in Section 5.2(i) hereof, the parties agree to mutually determine whether to file a patent application(s) on the Invention and the countries in which such applications will be prosecuted and maintained . Sponsor shall reimburse Wistar for all documented expenses (including legal fees, filing and maintenance fees or other governmental charges) incurred in connection with the filing, prosecution and maintenance of the Patents claiming such Invention (the " Patent Expenses"). Sponsor ' s obligation to pay the Patent Expenses will terminate at the expiration of the Option to License with respect to all Inventions included within the Option to License that Sponsor declines to negotiate a license for , as provided in Section 5.3(ii) . With respect to the Inventions for which Sponsor elects to negotiate a license under the terms of Section 5 . 3, such obligations shall continue unless the negotiation period provided in Section 5 . 3(i) expires without Wistar and Sponsor entering into the desired license agreement, in which case Sponsor's obligation to pay for any Patent Expenses incurred after such date shall immediately terminate.

(iii)          Wistar shall retain all right, title and interest in and to the Inventions and any Patents , copyrights and other protections related thereto, regardless of which party prepares, prosecutes or maintains the Patents, copyrights or other protections related to the Inventions, subject to any express license granted to Sponsor under Section 5.3 hereof.

(iv)         If Sponsor declines to pay for the Patent Expenses in any jurisdiction for any Patents subject to an Option to License , Wistar may do so at its costs and expense but such Patents shall then be excluded from Sponsor's Option to License.

(v)           If Wistar elects not to file, prosecute or maintain any Patent included in the Option to License and as to which Sponsor has requested Wistar to file one or more patent applications, Wistar shall notify Sponsor at least sixty (60) days prior to taking, or not taking, any action which would result in the abandonment, withdrawal, or lapse of such patent or patent application or patent rights associated with an Invention. Sponsor shall then have the right to file, prosecute or maintain the Patent at its own expense.

(vi)         The filing and prosecution of copyright, trademark and other intellectual property protections related to the Inventions shall be subject to the provisions of this Section.

Wistar / OncoCyte Sponsored Research Agreement
Page 5 of 16
 


(vii)         Each party shall cooperate with the other party to execute all lawful papers and instruments and to make all rightful oaths and declarations as may be necessary in the preparation and prosecution of all Patents and other filings.

ARTICLE 7 - CONFIDENTIALITY AND PUBLICATION

7.1            Confidentiality .

(i)           The parties shall maintain in confidence and shall not disclose to any third party any Confidential Intonation of the other party received pursuant to this Agreement , without the prior written consent of the furnishing party. The foregoing obligation shall not apply to:

(a)           information that is known to the receiving pa1ty or independently developed by the receiving party prior to the time of disclosure, in each case, to the extent evidenced by the written records of the receiving party;

(b)           information disclosed to the receiving party by a third party that has a right to make such disclosure;

(c)           information that becomes patented, published or otherwise part of the public domain as a result of acts by the furnishing party or a third party obtaining such information as a matter of right; or

(d)           information that is required to be disclosed by order of the U . S . Food and Drug Administration , Securities and Exchange Commission , or similar authority or a court of competent jurisdiction.

(ii)           Sponsor will take all reasonable steps to protect the Confidential Information of Wistar with the same degree of care Sponsor uses to protect its own confidential or proprietary information. Without limiting the foregoing, Sponsor shall ensure that all of its employees having access to the Confidential Information of Wistar are obligated in w1iting to abide by Sponsor ' s obligations her e under.

(iii)          Wistar shall not be obligated to accept any Confidential Information of Sponsor. Notwithstanding any of the foregoing, Wistar assumes no institutional liability or responsibility for maintaining the confidentiality of any Confidential Information of Sponsor that Sponsor furnishes to any employee of Wistar other than (a) the Principal Investigator or those under her/his direct supervision or (b) members of its Business Development, Legal & External Affairs and Grants and Contracts departments . If Sponsor desires to furnish any such Confidential Information of Sponsor to any other Wistar employee, Sponsor may request such individual sign a confidentiality agreement.

Wistar / OncoCyte Sponsored Research Agreement
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7.2           Publication .

(i)            Sponsor acknowledges that the basic objective of research and development activities at Wistar is the generation of new knowledge and its expeditious dissemination. To further that objective, Wistar retains the right, at its discretion, to demonstrate, publish or publicize a description of the results of the Sponsored Research or any Inventions, subject to the provisions of this Section 7.2 .

(ii)           Shou l d Wistar desire to disclose publicly, in writing or by oral presentation, the results of the Sponsored Research or any Invention for which a patent application has not been filed , Wistar shall notify Sponsor in writing of its intention at least sixty ( 60) days before such d i sclosure . Sponsor may request Wistar, no later than sixty (60) days following the receipt of Wistar's notice, to file a patent application, copyright or other filing related to such Invention. All such filings shall be subject to the provisions of Section 6.1 of this Agreement. Upon receipt of such request, Wistar shall arrange for a short delay in publication, not to exceed thirty (30) days, to permit filing of a patent or other application by Wistar, or if Wistar declines to file such application, to permit Sponsor to make such a filing.

(iii)          Wistar reserves the right to demonstrate, publish or publicize the results of the Sponsored Research or any Invention that is not patentable (as determined by the parties) so long as such disclosure does not contain any Confidential Info1mation of Sponsor. If such disclosure contains any Confidential Information of Sponsor, the parties agree to negotiate in good faith to determine whether the proposed disclosure can be modified or withheld, consistent with the objectives of each party .

7.3            Use of Wistar's Name . Sponsor shall not directly or indirectly use Wistar's name, or the name of any trustee, manager, officer or employee thereof, without Wistar's prior written consent, except that Sponsor may include an accurate description of the terms of this Agreement to the extent required under federal or state securities or other disclosure laws, including the rules of any national securities exchange.

7.4            Injunctive Relief . Because damages at law may be an inadequate remedy for breach of any of the covenants, promises and agreements contained in this Article 7 hereof, either party may be entitled to injunctive relief in any state or federal court located within the Eastern District of Pennsylvania, including specific perfo1mance or an order enjoining the breaching party from any threatened or actual breach of such covenants, promises or agreements. Sponsor hereby waives any objection it may have to the personal jurisdiction or venue of any such court with respect to any such action. The rights set forth in this Section 7.4 shall be in addition to any other rights which Wistar may have at law or in equity.

Wistar / OncoCyte Sponsored Research Agreement
Page 7 of 16
 


ARTICLE 8 - TERMINATION

8.1            Termination .

(i)            In addition to the termination right set forth in Section 2.2(ii) hereof , either party may terminate this Agreement effecti v e upon w1itten notice to the other party, if the other party breaches the te1ms of this Agreement, including the payment schedule in Section 4.1, and fails to cure such breach within thirty (30) days after receiving notice thereof.

(ii)           Wistar may terminate this Agreement if Sponsor becomes insolvent or voluntary or involuntary proceedings by or against Sponsor are instituted in bankruptcy or under any insolvency law , or a receiver or custodian is appointed for Sponsor, or proceedings are instituted by or against Sponsor for corporate reorganization or the dissolution of Sponsor , which proceedings, if involuntary, shall not have been dismissed within sixty (60) days after the date of filing, or Sponsor makes an assignment for the benefit of creditors , or substantially all of the assets of the Sponsor are seized or attached and not released within sixty (60) days thereafter.

(iii)          In addition, either party may terminate this Agreement for any reason upon thirty (30) days prior written notice to the other party .

8.2            Effect of Termination. In the event of termination of this Agreement prior to its stated term whether for breach or for any other reason whatsoever , Wistar shall be entitled to retain from the payments made by Sponsor prior to te1mination , an amount of such payment equal to Wistar's reasonable costs of the work completed prior to such termination, plus all costs of noncancellable commitments incurred prior to the receipt of or issuance by Wistar of the notice of termination. In the event of termination, Wistar shall submit a final report of all costs incurred and all funds received under this Agreement within sixty (60) days after the effective termination date.

8.3            Survival . Termination of this Agreement shall not affect the rights and obligations of the parties accrued p1ior to termination hereof. The provisions of Sections 2.4 , 8 . 2, 8 . 3 , 10.1, 10.4, 10.5, 10. 7 , 10.10 and 10 . 11 and Articles 5 , 6 , 7 and 9 shall survive termination or expiration of this Agreement.

ARTICLE 9 - LIMITATION ON LIABILITY, NO WARRANTIES, INDEMNIFICATION

9.1            Limitation on Liability. WISTAR SHALL NOT BE LIABLE TO SPONSOR , ITS SUCCESSORS, ASSIGNS , OR ANY THIRD PARTY FOR ANY LOSS OF PROFITS, LOSS OF BUSINESS, INTERRUPTION OF BUSINESS, NOR FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND INCURRED BY SPONSOR OR ANY OTHER PERSON WHETHER UNDER THIS AGREEMENT OR OTHERWISE, EVEN IF WISTAR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS .

Wistar / OncoCyte Sponsored Research Agreement
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9.2            No Warranties . THE RESULTS OF THE SPONSORED RESEARCH AND ANY INVENTIONS ARE PROVIDED ON AN "AS IS" BASIS AND WIST AR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDUCT , COMPLETION, SUCCESS OR PARTICULAR RESULTS OF THE SPONSORED RESEARCH OR THE CONDITION OF ANY INVENTIONS, ANY MATERIALS DERIVED THEREFROM OR ANY PATENTS . BY WAY OF EXAMPLE BUT NOT OF LIMITATION, WISTAR MAKES NO REPRESENTATIONS OR WARRANTIES OF COMMERCIAL UTILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, OR THAT THE USE OF THE RESULTS OF THE SPONSORED RESEARCH, ANY MATERIALS DERIVED THEREFROM OR ANY INVENTIONS WILL NOT INFRINGE ANY PATENT, COPYRIGHT OR TRADEMARK OR OTHER PROPRIETARY OR PROPERTY RIGHTS OF OTHERS. WISTAR EXPRESSLY DISCLAIMS ANY WARRANTY THAT THE RESULTS OF THE SPONSORED RESEARCH AND ANY INVENTIONS ARE FREE FROM THE RIGHTFUL CLAIMS OF ANY THIRD PARTY. WISTAR SHALL NOT BE LIABLE TO SPONSOR, ITS SUCCESSORS, ASSIGNS OR ANY THIRD PARTY WITH RESPECT TO ANY CLAIM ON ACCOUNT OF, OR ARISING FROM, THE USE OF THE RESULTS OF THE SPONSORED RESEARCH OR ANY INVENTIONS SUPPLIED HEREUNDER OR THE MANUFACTURE, USE OR SALE OF PRODUCTS OR ANY OTHER MATERIAL OR ITEM DERIVED THEREFROM.

9.3            Indemnification. Sponsor will indemnify and hold ha1mless Wistar, the Principal Investigator, and any of Wistar's trustees, managers, officers, agents and employees (hereinafter referred to collectively as the " Indemnified Persons"), from and against any and all liability, loss, damage, action, claim or expense (including attorney's fees) suffered or incurred by the Indemnified Persons due to claims by a person not a party to this Agreement (the "Indemnified Losses") which result from or arise out of (a) this Agreement , the options granted hereunder or any licenses granted pursuant thereto, and (b) the successful enforcement by the Indemnified Persons of its rights under this Section 9 . 3. This indemnification obligations shall apply regardless of the negligence of the Indemnified Persons.

(i)             Procedures . The Indemnified Persons shall promptly notify Sponsor of any claim or action giving rise to any Indemnified Losses subject to the provisions of Section 9.3. Sponsor s hall have the right to defend any such claim or action, at its cost and expense. Sponsor shall not settle or compromise any such claim or action in a manner that imposes any restrictions or obligations on the Indemnified Persons without the Indemnified Persons prior written consent. If Sponsor fails or declines to assume the defense of any such claim or action within thi1iy (30) days after notice thereof, Wistar may assume the defense of such claim or action for the account of and at the risk of Sponsor, and any Indemnified Losses related thereto shall be conclusively deemed Indemnified Losses of Sponsor. Sponsor shall pay promptly to the Indemnified Persons any Indemnified Losses to which the foregoing indemnity related, as incurred. The indemnification rights of the Indemnified Persons contained herein are in addition to all other rights which such Indemnified Persons may have at law or in equity or otherwise.

Wistar / OncoCyte Sponsored Research Agreement
Page 9 of 16
 


ARTICLE 10 - ADDITIONAL PROVISIONS

10.1         Arbitration .

(i)            Except as provided in Section 7.4 hereof, all disputes arising between the parties under this Agreement shall be settled by arbitration conducted in the English language in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The parties will cooperate with each other in causing the arbitration to be held in as efficient and expeditious a manner as practicable . Any arbitration proceeding instituted under this Agreement shall be brought in Philadelphia, Pennsylvania .

(ii)          Any award rendered by the arbitrators shall be final and binding upon the parties hereto . Judgment upon the award may be entered in any court of record of competent jurisdiction. Each party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be equally shared unless the arbitrators assess as part of their award all or any part of the arbitration expenses of one party (including reasonable attorney's fees) against the other party.

(iii)          Sponsor consents to the jurisdiction of any such proceeding and waives any objection that it may have to personal jurisdiction or the laying of venue of any such proceeding.

10.2         Assignment. No rights hereunder may be assigned by Sponsor, directly or by merger or other operation of law, without the express written consent of Wistar , except that Sponsor may assign this Agreement in whole or in part (i) to any of its affiliates, (ii) as a result of any merger or consolidation of Sponsor with any other business entity, or (iii) as a sale of Sponsor's assets associated with its research and development activities that include the scope of the Sponsored Research ; provided that Sponsor immediately notify Wistar of any such pe1mitted assignment. Any prohibited assignment of this Agreement of the rights hereunder shall be null and void. No assignment shall relieve Sponsor of responsibility for the performance of any accrued obligations which it has prior to such assignment. This Agreement shall inure to the benefit of permitted assigns of Sponsor.

10.3         No Waiver . A waiver by either party of a breach or violation of any provision of this Agreement will not constitute or be construed as a waiver of any subsequent breach or violation of that provision or as a waiver of any breach or violation of any other provision of this Agreement.

10.4         Independent Contractor.   Nothing herein shall be deemed to establish a relationship of principal and agent between Wistar and Sponsor, nor any of their agents or employees for any purpose whatsoever. This Agreement shall not be construed as constituting Wistar and Sponsor as partners , or as creating any other form of legal association or arrangement which would impose liability upon one party for the act or failure to act of the other party .

Wistar / OncoCyte Sponsored Research Agreement
Page 10 of 16
 


10.5         Notices . Any notice under this Agreement shall be sufficiently given if sent in writing by prepaid first class, certified or registered mail, return receipt requested , addressed a s follows:

If to Wistar :

The Wistar Institute
3601 Spruce Street
Philadelphia , PA 19104
Attn : Office of Business Development

with copy to Dr. Louise C. Showe and V . P., Legal & External Affairs at the same
address.

If to Sponsor:

OncoCyte Corporation
1301 Harbor Bay Parkway
Alameda , CA 94502
Attn: Dr. Joseph Wagner

10.6         Entire Agreement. This Agreement embodies the entire understanding between the parties relating to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral. This Agreement may not be varied except by a written document signed by duly authorized representatives of both parties.

10.7         Severability . If any of the provisions of this Agreement are determined to be invalid or unenforceable in any jurisdiction, such determination shall not render invalid or unenforceable the remaining provisions hereof or affect the validity or enforceability of any of the terms of this Agreement in any other jurisdiction .

10.8         Headings . The headings and captions used in this Agreement are for convenience of referen c e only and shall not affect its construction or interpretation.

10.9         No Third Party Benefits . Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto or their permitted assigns , any benefits, rights or remedies .

10.10       Governing Law . This Agreement shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to conflict of law prov 1 s1ons.

10.11       Independent Research . This Agreement shall not be construed to limit the freedom of individuals participating in the Sponsored Research to engage in any other research .

Wistar / OncoCyte Sponsored Research Agreement
Page 11 of 16
 


10.12       Nondiscrimination . Wistar and Sponsor shall not discriminate against any employee or applicant for employment because of race, color, sex, sexual or affectional preference, age, religion, national or ethnic origin, or handicap.

10.13       Force Majeure . Neither party shall be liable for any failure to perf01m as required by this Agreement to the extent such failure to perform is due to circumstances reasonably beyond such party's control, including, without limitation , labor disturbances or labor disputes of any kind, accidents, failure of any governmental required for full performance, civil disorders or commotions, terrorism , acts of God, energy or other conservation measures imposed by law or regulation, explosions, failure of utilities, mechanical breakdowns , material shortages, disease, or other such occurrences.

IN WITNESS WHEREOF, the duly authorized representatives of the patties hereby execute this Agreement as of the Effective Date.

THE WISTAR INSTITUTE OF ANATOMY
 
ONCOCYTE CORPORATION
AND BIOLOGY
       
             
By:
/s/Russell E. Kaufman
 
By:
/s/Joseph Wagner
 
 
Russell E. Kaufman, M.D.
   
Joseph Wagner, P.D.
 
 
President and CEO
   
CEO
 
             
Date:
September 30, 2013
 
Date:
 
 
             
 
AGREED TO AND ACCEPTED:
       
             
 
By:
/s/ Louise C. Showe
       
   
Louise C. Showe, Ph.D.
       
             
 
Date:
September 30, 2013
       

Wistar / OncoCyte Sponsored Research Agreement
Page 12 of 16
 


SPONSORED RESEARCH AGREEMENT

Schedule I

1.    Wistar will pursue the development of gene and miRNA signatures from stabilized whole blood samples for the diagnosis of early stage NSCLC in at risk patients who may include heavy smokers and ex-smokers, individuals exposed to radon or asbestos and individuals with indeterminate lung nodules found by a variety of imaging methods.

2.    Samples will be collected from patients diagnosed with lung cancer, control subjects that will include patients with non-malignant smoking associated lung disease, patients with lung nodules biopsied and found to be benign and patients with lung nodules followed over time that are judged to be benign.

3.    In   addition to the collection of whole blood samples, for RNA studies Wistar will collect plasma and serum samples from the same patients at the time of the blood draw for the development of additional assays for detection of lung cancer signatures.

4.    When possible, Wistar will also collect stabilized whole blood and plasma samples from cancer patients and patients with high risk nodules after lung resection to assess changes in the various predictive platforms being developed.

Wistar / OncoCyte Sponsored Research Agreement
Page 13 of 16
 


SPONSORED RESEARCH AGREEMENT
Schedule II Term Sheet
For Discussion Purposes Only

ONCOCYTE CORPORATION ( " LICENSEE")

LICENSED PATENT(S)
 
The patent applications listed in the license, all patents issuing from such applications , continuations , additions, div i sions, renewals, extensions, reexaminations and reissues that claim the benefit of such applications or patents , and all foreign counterparts of any of the foregoing.
     
LICENSED PRODUCT(S)
 
All products the manufacture ,   use ,   sale or other disposition of which (i) is subject to a VALID CLAIM of the LICENSED PATENTS, or which , in whole or in part, are identified, discovered or developed by use or practice of the LICENSED PA TENTS, which use or practice wou l d infringe a VALID CLAIM of the LICENSED PATENTS but for the l icense granted, or (ii) uses, incorporates or could not have been developed or manufactured but for the use of any Wistar biological material or technical information that is not covered by the LICENSED PATENTS .
     
VALID CLAIM
 
A claim of (i) a patent application included in the LICENSED PA TENTS that has been neither abandoned nor pending for more than seven (7) years, or (ii) an issued LICENSED PATENT that has not been withdrawn, canceled or disclaimed or held invalid by a court or governmental authority of competent jurisdiction in an unappealed or unappealable decision no longer subject to discretionary review (for example, by way of writ of certiorari) or other review.
     
GRANT OF LICENSE
 
Exclusive , wor l dwide, royalty-bearing license to make, have made, use, import and sell LICENSED PRODUCTS and to practice under and use the LICENSED PATENTS in connection therewith, subject to the RESERVED RIGHTS.
 

Wistar / OncoCyte Sponsored Research Agreement
Page 14 of 16
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

RESERVED RIGHTS
 
WISTAR reserves the right to (i) use and practice under the LICENSED PATENTS for research purposes, (ii) grant to any non- profit academic or research institution the right to use and practice under the LICENSED PATENTS for non-commercial research and education purposes , and ( i ii) grant to any third party the right to use and practice under the LICENSED PATENTS in any field not included in the license . Except as expressly provided in the license or other written agreement between the parties, LICENSEE shall have no right or license in or to any research conducted pur s uant to (i), (ii) or (iii) above or any results thereof including, without limitation , any inventions or discoveries.
     
ROYALTIES
 
LICENSEE shall pay to WISTAR a running royalty of [**] percent ([**]%) on net sales of all LICENSED PRODUCTS sold in each year.
 
In the event it becomes necessary ,   as determined by LICENSEE in its reasonable discretion, for LICENSEE to obtain a license under intellectual property rights of a third party in order for LICENSEE to commerc i ally manufacture, use , sell, market or distribute the LICENSED PRODUCTS and LICENSEE must pay such third party a royalty for such license , upon LICENSEE's notice of such to WISTAR, the royalty rate will be reduced by [**] for each percentage point owed to third parties for any applicable LICENSED PRODUCTS. Notwithstanding the foregoing, in no event shall the royalties due to WISTAR be reduced below [**] percent ([**]%) of the net sales of all LICENSED PRODUCTS so l d by LICENSEE in each year.
     
MILESTONE PAYMENTS
 
LICENSEE shall pay to WISTAR a milestone payment of [**] dollars ($[**]) at the time of initial receipt by LICENSEE of regulatory approval for a LICENSED PRODUCT.
     
PATENT PROSECUTION
 
WISTAR shall maintain ownership of and manage the prosecution of all LICENSED PATENTS . LICENSEE shall reimburse WISTAR for its costs in connection with the preparation, filing, prosecution, grant, issuance and maintenance of the LICENSED PATENTS.
     
OTHER TERMS
 
The license will contain other customary terms and provisions acceptable to WISTAR and LICENSEE and their respective counsels, including but not limited to, disclaimer of warranties, indemnification of WISTAR by LICENSEE , confident i ality, infringement , i nsurance, breach and cure, termination and the like.
 

Wistar / OncoCyte Sponsored Research Agreement
Page 15 of 16
 


Wistar / OncoCyte Sponsored Research Agreement
Page 16 of 16
 



Exhibit 10.16
 
First Amendment
to the
Sponsored Research Agreement

Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

This FIRST AMENDMENT TO THE SPONSORED RESEARCH AGREEMENT (the "First Amendment") is made as of the date of the last signature below (the "First Amendment Effective Date"), by and between THE WISTAR INSTITUTE OF ANATOMY AND BIOLOGY, a Pennsylvania nonprofit corporation located at 3601 Spruce Street, Philadelphia, PA 19104 ("Wistar"), and ONCOCYTE CORPORATION, a corporation organized under the laws of California, with a principal place of business located at 1301 Harbor Bay Parkway, Alameda, CA 94502 ("Sponsor"). Wistar and Sponsor shall be referred to herein individually as a "Party" and collectively as the "Parties."

WHEREAS, Wistar and Sponsor entered into a sponsored research agreement on September 18, 2013 to fund Dr. Louise C. Showe's research relating to the development of new molecular diagnostics for lung cancer (the "SRA");

WHEREAS, Sponsor has paid to Wistar [**] under the SRA as of the First Amendment Effective Date;

WHEREAS, the Parties executed a first exclusive option agreement on February 20, 2015 to negotiate mutually agreeable terms and conditions of an exclusive, worldwide license to practice Wistar's and the University of Pennsylvania's ("Penn") joint ownership interest in the Wistar Background Technology (the "First Option");

WHEREAS, the Parties executed a second exclusive option agreement on May 15, 2015 to negotiate mutually agreeable terms and conditions of an exclusive, worldwide license to practice Wistar's ownership interest in its wholly-owned Selected Inventions (the "Second Option") (the First Option and Second Option shall be collectively referred to herein as the "Options"); and

WHEREAS, concurrent with the negotiation and contract finalization of the license agreement(s) per the Options, the Parties wish to extend the term, amend the Sponsored Research scope of work, increase the budget, and modify the payment schedule of the SRA as specified below.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the Parties hereto agree as follows:

1.             All capitalized terms not expressly defined herein shall have the same meanings assigned to them in the SRA.

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 1 of 8
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

2.             Section 1.2 (Invention(s)) of the SRA shall be deleted in its entirety and replaced with the following:

"Invention(s)" means and includes all technical information, trade secrets, developments, discoveries, software, methods, techniques, formulae, Data, processes and other proprietary ideas, whether or not patentable or copyrightable, that are (i) directly related to molecular diagnostics for lung cancer, including, but not limited to confirmatory, companion and recurrence diagnostics for any type of lung cancer with detection through whole blood, fractionated blood, plasma, serum and/or other biological samples(s); and (ii) first conceived, discovered, developed or reduced to practice in the performance of the Sponsored Research by the Principal Investigator or anyone working under his/her direction. For the purposes of this Agreement, the term "Data" means any information generated under the Sponsored Research using microarray and/or [**] technology.

3.             The words "Schedule I" in Section 1.5 of the SRA shall be replaced with the words "Schedules I and III'' to account for the expanded scope of work and additional budget.

4.             The SRA shall be amended to include the attached Schedule III.

5.             Section 1.3 (Option to License) of the SRA shall be deleted in its entirety and replaced with the following:

" Option to License " means the right granted to Sponsor to negotiate and secure an exclusive, worldwide, sublicensable license to one or more Inventions generated by the Principal Investigator, or persons working under the Principal Investigator's direct supervision, in the performance of the Sponsored Research or as a result of the analysis of Data generated under this Agreement.

6.             Section 2.2 (Participation of Principal Investigator) of the SRA shall be amended to include the following subsection:

(iii)           Wistar and the Principal Investigator acknowledge that there is a collaborative aspect to the Sponsored Research and that the Data will be mutually shared between the parties for the performance of the Sponsored Research. The parties anticipate that meetings between the Principal Investigator and The Sponsor Team (as defined below) shall happen at Wistar based on a reasonable and mutually agreed upon schedule. As used herein, the term "The Sponsor Team" shall mean employees and consultants of Sponsor and other inventors having a duty to assign intellectual property rights in Inventions to Sponsor. In addition to the reporting requirements set forth in Section 2.3 below, the Principal Investigator and The Sponsor Team shall agree to participate in regular meetings, by telephone or as otherwise agreed upon by the parties, to discuss the progress of the Sponsored Research. In connection with such meetings, the parties shall provide one another with any Data, including with respect to the development of assays, raw Data and biomarkers being collected and used in the Sponsored Research. The parties agree to cooperate with one another to assist with the mutual understanding of and ability to utilize the results of the Sponsored Research.

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 2 of 8
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

7.             Section 2.3 (Reporting) of the SRA shall be deleted in its entirety and replaced with the following:

Reporting . Wistar agrees to keep Sponsor fully informed of the performance of the Sponsored Research. Wistar shall also deliver to Sponsor no later than fifteen (15) days after the end of each calendar month, any Data and a monthly progress report summarizing, in reasonable detail, the research performed during the preceding calendar month, and all significant findings and developments.

8.             Article 2 (Sponsored Research) of the SRA shall be amended to include the following section:

2.5             Data . Both parties shall have the right to use the Data for any reasonable purpose subject to the terms and conditions of this Agreement. Each party shall need to obtain a license from the other party to use the Data of the other party if such use would infringe any copyright or any claim of a patent application or issued patent owned by the other party.

9.             Section 3.1 (Term) of the SRA shall be deleted in its entirety and replaced with the following:

Term . The initial term of this Agreement shall begin as of the Effective Date and shall end upon completion of the Sponsored Research or on July 16, 2016, whichever is sooner, subject to early termination pursuant to Sections 2.2(ii) or 8.1 hereof. This Agreement may be extended or renewed only by written agreement of both parties.

10.           Section 4.1 (Funding) of the SRA shall be deleted in its entirety and replaced with the following:

Funding . Sponsor shall pay Wistar the amount of [**] dollars ($ [**] )for the initial term of the Sponsored Research as follows:

(i)             [**] dollars ($ [**] ) shall be paid upon execution of this Agreement (received by Wistar on October 22, 2013);

(ii)            [**] dollars ($ [**] ) shall be paid upon the first anniversary of this Agreement (received by Wistar on October 24, 2014);

(iii)           [**] dollars ($ [**] ) shall be paid upon execution of the First Amendment;

(iv)          [**] dollars ($ [**] ) shall be paid upon completion of Aim 1 as outlined in Schedule III;

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 3 of 8
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

(v)            [**] shall be paid upon completion of Aim 2 as outlined in Schedule III or within thirty (30) days of the end of the term of the Agreement, whichever occurs first; and

(vi)           an additional [**]in estimated supply costs shall be paid upon Sponsor's election for the Principal Investigator to proceed with Aim 3 as outlined in Schedule III.

11.             Section 8.3 (Survival) of the SRA shall be deleted in its entirety and replaced with the following:

Survival . Termination of this Agreement shall not affect the rights and obligations of the parties accrued prior to termination hereof. The provisions of Sections 2.4, 2.5, 8.2, 8.3, 10.1, 10.4, 10.5, 10.7, 10.10 and 10.11 and Articles 5, 6, 7 and 9 shall

survive termination or expiration of this Agreement.

12.           Section 9.2 (No Warranties) of the SRA shall be deleted in its entirety and replaced with the following:

No Warranties . THE RESULTS OF THE SPONSORED RESEARCH, DATA AND ANY INVENTIONS ARE PROVIDED ON AN "AS IS" BASIS. WISTAR MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE RESULTS OF THE SPONSORED RESEARCH, DATA AND ANY INVENTIONS WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS. WISTAR SHALL NOT BE LIABLE TO SPONSOR, ITS SUCCESSORS, ASSIGNS OR ANY THIRD PARTY WITH RESPECT TO ANY CLAIM ON ACCOUNT OF, OR ARISING FROM, THE USE OF THE RESULTS OF THE SPONSORED RESEARCH, DATA OR ANY INVENTIONS SUPPLIED HEREUNDER OR THE MANUFACTURE, USE OR SALE OF PRODUCTS OR ANY OTHER MATERIAL OR ITEM DERIVED THEREFROM.

13.           Except as expressly amended or modified herein, any and all other terms and conditions of the SRA will remain unchanged.

14.            Governing Law . This First Amendment shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to conflict of law provisions.

15.            Entire Agreement . This First Amendment, the SRA and the Options embodies the entire understanding between the Parties relating to the subject matter thereof and supersedes all prior understandings and agreements, whether written or oral.

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 4 of 8
 


IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereby execute this First Amendment as of the dates below.

THE WISTAR INSTITUTE OF ANATOMY
   
ONCOCYTE CORPORATION
 
AND BIOLOGY
         
             
/s/Heather A. Steinman
 
By:
/s/William Annett
 
Heather A. Steinman, Ph.D., M.B.A.
   
William Annett
 
Vice President, Business Development
   
CEO
 
Executive Director, Technology Transfer
         
             
Date:
                                                        
   
Date:
8/6/2015
         

AGREED TO AND ACCEPTED BY:

/s/Louise C. Showe
 
Louise C. Showe, Ph.D.
 
Professor
 
     
Date:
                                                           
 

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 5 of 8
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

SPONSORED RESEARCH AGREEMENT

Schedule III

SCOPE OF WORK

TRANSITIONING MRNA AND MIRNA SIGNATURES TO THE [**] PLATFORM

AIM l

miRNA expression will be analyzed first:

The miRNAs will be investigated first using the [**] panel from [**]. The sample set investigated will be compose of [**] samples ([**] nodule and [**] malignant). This is probably an adequate number for this purpose based on some preliminary studies. An additional [**] reactions will be used to standardize and optimize miRNA detection and platform reproducibility. Our previous [**] tests were done using [**] RNA to match the input of our studies on [**] microarrays and [**] miRNA platforms that we were comparing. [**] suggests [**] as an upper limit for mRNA expression although evidently Oncocyte has used [**] from [**] samples without problems. This will ultimately depend on the expression levels of the genes/miRNAs being tested and their relative expression levels. We will run samples in [**] at an input of [**] of total RNA. In tandem with the miRNA loading tests I will carry out a similar loading assessment for mRNAs using the [**]. We will select the panel with the most overlap with our selected gene panel. Although we will have to test this again with the custom mRNA probe set it will at least give us an idea whether the optimum loading for the miRNAs is not too [**] for the gene expression.

We will initially purchase reagents for the [**] miRNA controls to determine the optimized concentration of RNA to be tested and an additional [**] for a pilot study of [**] nodule and [**] cancers to be run at the optimized concentration we determine on the [**]. The quality of the pilot data will be assessed before and loading adjusted if necessary before proceeding to run the rest of the [**] sample set. Since these are too few samples for classification, this test will essentially only determine whether the concentrations decided on in the RNA loading test is ok with a diverse set of samples.

We expect that we can quality control all the RNA samples to be tested in one week, assay and analyze the [**] controls in 1 week, run and analyze the[**] sample pilot in an additional 1-2 weeks with the final [**] samples being run in the 4th week. The data from all [**] samples will be analyzed using primarily [**] algorithm (also with several additional methods) with a) [**] cross-validation without feature selection and b) using [**] samples for training and [**] samples for independent testing with [**] selection for a [**] classifier development, but we will not limit ourselves to these approaches. We have described the analysis in part in the preliminary results that I sent.
*Cost of reagents for entire study $[**]/sample/[**] samples ([**]+[**] controls+ [**] redo's*) = $[**] (*=[**]% potential repeats)

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 6 of 8
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

AIM 2

mRNA expression:
The initial mRNA panel has been projected to be less than [**] genes, selected from an analysis of the microarray dataset focused on nodules versus malignant. This panel of [**] will also contain at least [**] housekeeping/reference genes for normalization selected from the microarray data. In the event that some of the important probes do not work, we may need to redesign and synthesize replacement probes. Initially this will be done by using the option to add in up to [**] probes to the [**]. We have examined the cost of the [**] for the maximum numbers of [**] probe limit for this option as suggested. While the [**] platform gives us some leeway to add and replace probes as needed, the savings are not substantial as we still have a substantial cost from [**] for probe design and master kits. The elements platform may be easy to implement for small numbers of probes but we feel it is not without risk for the number of probes in the developmental stage and we prefer that[**] takes that risk and the responsibility of providing guaranteed probes. In addition since we will not be able to use the [**] platform for the [**] studies we suggest we also do this analysis using the [**] custom probes.

A set of [**] nodules and [**] cancers will be assayed at the RNA optimum found for the miRNAs and mRNAs described above in order to determine whether any of the new probes are being saturated. [**] genes will be selected with expression levels that span the levels of expression of the diagnostic genes based on microarray data and avoiding genes with exceptional high expression levels. Probe functionality will be assessed in the first batch of samples run and monitored thereafter. The data from the [**] samples will be analyzed to estimate the classification performance using [**] cross-validation. Since the custom sets need to be ordered in groups of

[**], [**] or [**], I am budgeting for [**] samples this will allow me to include additional controls and I will still have the flexibility to order by groups of [**] or [**] if felt necessary.

The process of analysis is summarized in the preliminary results sent previously. The classification accuracy will be assessed for mRNAs and miRNAs both separately and also combined as we have described.

COSTS:
[**]: The cost for [**] samples with [**] targets designed by [**] @ $[**]/ [**] samples X [**] =[**] samples = $[**] + master kits= $[**]= $[**] +IDT for [**] genes ([**] oligos per gene, [**] ng synthesis HPLC purified)= $[**] totals =$ [**]   (added cost of technicians time not included here and flexibility of running controls or the [**]% repeats is not included this would be in increments of [**] for the [**] added costs (-$[**]) as the calculated cost is only for the [**] samples without any allowance for testing etc. and we cannot use these probes for the [**]

Premade from [**]: [**] custom targets for [**] assays = $[**]. This cost rises if order in [**] lots but I need the flexibility at this point to get things done in the best and fastest way possible. It also does not include the potential probe swapping that we will need to do before the final [**] panel is selected. I am budgeting $[**] for [**] orders and the option for an additional [**] probes to be added which will include testing and trouble shooting and in the end I will run more than [**] experimental samples if possible.


Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
Page 7 of 8
 


Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [[**]].

AIM 3

[**] Experiments:
This part of the project will proceed depending on the pilot results. This can be decided with the interested parties as we have not discussed specific accuracies. We expect that AUC's similar to or better than those in Table 2 should be a go forward sign. Because the pilot study is still relatively small we will carry out a [**] to assess the numbers of samples needed to reach an acceptable A UC.

We feel it will be necessary to carry out reproducibility and loading studies for the [**] platform using the optimum concentration of RNA from our first analysis in triplicate and assess the performance in the [**] panel as compared to the individual panels and

Based on the mRNA and miRNA results on the [**] samples, we will develop our [**] panel of gene and miRNA probes. We have projected prices for a panel of [**] gene and [**] miRNAs to be tested on [**] samples. The projected cost of the [**] panel for [**] samples is $[**] ([**] per sample). These are only the supply costs. The potential costs are estimates and are included for your information but may change.

BUDGET (excluding costs associated with AIM 3):

Total Cost for AIM 1 and AIM2 (including indirect rate @[**]%): $[**]

Wistar/OncoCyte First Amendment to the Sponsored Research Agreement
Wistar Reference No. Showe31July13AMD 1
 
 
Page 8 of 8

Exhibit 10.17
 
STOCK SUBSCRIPTION AGREEMENT

ONCOCYTE CORPORATION

READ THIS AGREEMENT CAREFULLY BEFORE YOU INVEST

The shares of common stock, no par value (“Shares”) have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws and may not be offered for sale, sold, transferred, pledged or hypothecated to any person in the absence of an effective registration statement covering such Shares (or an exemption from such registration) and an opinion of counsel satisfactory to OncoCyte Corporation to the effect that such transfer or exercise complies with applicable securities laws.
 

SUBSCRIPTION AGREEMENT

This Agreement is entered into by BioTime, Inc. (“Subscriber”) and OncoCyte Corporation, a California corporation (the “Company).

1.              Subscription Offer .

(a)              Subscription Allocation. The Company is offering to each registered holder (each a “Shareholder”) of shares of Company common stock, no par value (“Shares”) the opportunity to subscribe to and purchase their respective pro rata percentage (“Allocation”) of a total of 7,370,609 Shares (the “Subscription Shares”) at a price of $1.54 per Share (the “Subscription Price”).  A Shareholder’s Allocation shall be the total number of Subscription Shares multiplied by the percentage determined by dividing (A) the total number of Shares owned of record by the Shareholder immediately before the Subscription Offer, by (B) the total number of Shares owned by all Shareholders in the aggregate immediately before the Subscription Offer.

Subscriber
 
Pro Rata Percentage
 
Shares in Allocation
BioTime, Inc.
 
73.56%
 
5,421,714

(b)              Expiration of Subscription Offer.   The Company’s offer to sell to the Shareholders their respective Allocations of Shares is referred to as the “Subscription Offer.”  The Subscription Offer shall expire on the Expiration Date and may not be accepted by a Shareholder after that date.  The Expiration Date is 5:00 p.m. California time on October 12, 2015.

(c)              Assignment of Rights .  Prior to the Expiration Date, any Shareholder may assign, in whole or in part, to another Shareholder the assigning Shareholder’s rights to purchase their Allocation of Shares in the Subscription Offer.  A Shareholder who so assigns their rights shall notify the Company in writing of such assignment on or before the Expiration Date.

2.              Subscription For Shares .

(a)              Subscription Procedure. Subscriber may irrevocably subscribe to, and thereby irrevocable agree to purchase, on the terms and conditions of this Agreement, all or a portion of the Subscriber’s Allocation in the Subscription Offer by (a) entering the number of Shares to be purchased and the total Subscription Price for such Shares in the table on the Signature Page of this Agreement, (b) signing and dating this Agreement, and (c) delivering this Agreement, completed and signed as provided in clause (a) and (b), along with payment in full of the Subscription Price for the number of Shares to be purchased, to the Company as provided in this Agreement not later than the Expiration Date.
 
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(b)              Subscription Irrevocable .  This Agreement will become an irrevocable obligation of Subscriber to purchase the number of Shares shown on the Signature Page, at the Subscription Price per Share, when a copy of this Agreement, signed by Subscriber, is countersigned by the Company.

(c)              Payment.   Subscriber shall pay the Subscription Price of the Shares by check for good funds payable to the order of the Company or by wire transfer to such account of the Company as the Company may specify.  If this Agreement is rejected or not accepted for any reason by the Company, all sums paid by the Subscriber will be promptly returned, without interest or deduction.

(d)              Acceptance of Subscriptions .  The Company may accept subscriptions in the Subscription Offer at any time on or after receipt until the Expiration Date.

3.              Registration Rights .  If the Subscriber purchases Shares in the Subscription Offer, the Company will enter into an amendment to the September 2009 Registration Rights Agreement pursuant to which the Company will agree to register the Shares purchased by the Subscriber in the Subscription Offer for sale under the Securities Act of 1933, as amended (the “Securities Act”).

4.              Investment Representations.   Subscriber represents and warrants to the Company that:

(a)              Due Diligence . Subscriber has made such investigation of the Company as Subscriber deemed appropriate for determining to acquire (and thereby make an investment in) the Shares.  In making such investigation, Subscriber has had access to such financial and other information concerning the Company as Subscriber requested.  Subscriber acknowledges and understands that the Company is an early stage venture engaged in research and development, without only limited history of operations, and has received only limited capital.  Subscriber acknowledges receipt of the Articles of Incorporation and Bylaws of the Company, and such copies of the minutes of the proceedings of the Board of Directors of the Company as Subscriber may have requested from the Company.  Subscriber has had a reasonable opportunity to ask questions of and receive answers from the executive officers of the Company concerning the Company, and to obtain such additional information concerning the Company as may have been possessed or obtainable by the Company without unreasonable effort or expense. All such questions have been answered to Subscriber’s satisfaction.

(b)              Unregistered Offer and Sale. Subscriber understands that the Shares are being offered and sold without registration under the Securities Act, or qualification under the California Corporate Securities Law of 1968, or under the laws of any other states, in reliance upon the exemptions from such registration and qualification requirements for non-public offerings.  Subscriber acknowledges and understands that the availability of the aforesaid exemptions depends in part upon the accuracy of certain of the representations, declarations and warranties made by Subscriber, and the information provided by Subscriber, in this Agreement,  Subscriber is making such representations, declarations and warranties, and is providing such information, with the intent that the same may be relied upon by the Company and its officers and directors in determining Subscriber’s suitability to acquire the Shares.  Subscriber understands and acknowledges that no federal, state or other agency has reviewed or endorsed the offering of the Shares or made any finding or determination as to the fairness of the offering or completeness of the information provided to Subscriber by the Company.
 
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(c)              Restrictions on Transfer . Subscriber understands that the Shares may not be offered, sold, or transferred in any manner unless subsequently registered under the Securities Act, or unless there is an exemption from such registration available for such offer, sale or transfer.  Subscriber agrees that Subscriber will not sell, offer for sale, or transfer any of the Shares unless those Shares have been registered under the Securities Act, or unless there is an exemption from such registration and an opinion of counsel reasonably acceptable to the Company has been rendered stating that such offer, sale, or transfer will not violate any United States federal or state securities laws.  Subscriber acknowledges that (i) the certificates evidencing the Shares will contain a legend to the effect that transfer is prohibited except pursuant to registration under the Securities Act, or pursuant to an available exemption from registration under the Securities Act, and (ii) The Company will refuse to register the transfer, and will issue instructions to any transfer agent and registrar of the Shares to refuse to register the transfer, of any Shares not made pursuant to registration under the Securities Act or pursuant to an available exemption from registration under the Securities Act.

(d)              Knowledge and Experience. Subscriber has such knowledge and experience in financial and business matters to enable Subscriber to utilize the information provided or otherwise made available to Subscriber by the Company to evaluate the merits and risks of an investment in the Shares and to make an informed investment decision.

(e)              Investment Intent.  Subscriber is acquiring the Shares solely for Subscriber’s own account and for investment purposes, and not with a view to, or for sale in connection with, any distribution of the Shares other than pursuant to an effective registration statement under the Securities Act or unless there is an exemption from such registration available for such offer, sale or transfer, such as SEC Rule 144.

(f)              Forward Looking Statements.  Information provided to Subscriber by the Company include matters that may be considered “forward looking” statements within the meaning of Section 27(a) of the Securities Act and Section 21(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements Subscriber acknowledges and agrees are not guarantees of future performance and involve a number of risks and uncertainties, and with respect to which the Company makes no representations or warranties.  Subscriber understands that the level of disclosure provided by the Company is less than that which would be provided in a securities offering registered under the Securities Act in reliance on the sophistication and investment experience of Subscriber.

(g)              No Assurance of Return on Investment .  It has never been represented, guaranteed or warranted to Subscriber by the Company or BioTime or any officer, director, employee, or agent of the Company or BioTime, that Subscriber will realize any specific value, sale price, or profit as a result of acquiring the Shares.
 
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(h)             Nonpublic Information.  Subscriber understands that (1) this Agreement and other information provided to Subscriber by the Company contains confidential financial information about the Company and BioTime, Inc. that has not yet been publicly disclosed by the Company or BioTime, and therefore may be deemed material non-public information, (2) the Company is providing Subscriber the confidential information solely to satisfy its disclosure obligations under the Securities Act in connection with the offer and sale of the Shares to Subscriber pursuant to this Agreement, and (3) until such time as BioTime files a Form 8-K or other report under the Exchange Act with the Securities and Exchange Commission, Subscriber shall not (A) disclose to any other person any of the information contained in this Agreement or otherwise provided to Subscriber concerning the Company that has not previously been disclosed in a report filed by BioTime under the Exchange Act, or (B) purchase or sell any common shares of BioTime.

(i)               Authority; Enforceability .  The Subscriber has the power and authority to execute and deliver, and to perform all of Subscriber’s obligations under, this Agreement.  This Agreement has been duly executed and delivered by Subscriber.  This Agreement is the valid and binding agreements of the Subscriber, enforceable in accordance with their respective terms, except to the extent limited by any bankruptcy, insolvency, or similar law affecting the rights of creditors generally.

(j)               No Conflict .  The execution and delivery of this Agreement and consummation of the transactions contemplated under this Agreement, including the purchase of the Shares, by the Subscriber do not and will not violate any provisions of (i) any rule, regulation, statute, or law applicable to the Subscriber, (ii) the terms of any order, writ, or decree of any court or judicial or regulatory authority or body by which the Subscriber is bound, or (iii) if the Subscriber is not a natural person, the certificate of incorporation, bylaws, or similar charter or governing documents of the Subscriber.

5.              Accredited Investor Qualification .  Subscriber represents that Subscriber qualifies as an “accredited investor” under Regulation D, promulgated under the Securities Act, in the following manner.  (Please check or initial all that apply to verify that you qualify as an “accredited investor.”)

☐(a) Subscriber is a natural person whose net worth, or joint net worth with spouse, at the date of purchase exceeds $1,000,000 (not including the value of Subscriber’s principal residence and excluding mortgage debt secured by Subscriber’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by Subscriber within 60 days prior to the date of this Agreement shall not be excluded from the determination of Subscriber’s net worth unless such mortgage debt was incurred to acquire the residence).
 
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☐(b) Subscriber is a natural person whose individual gross income (excluding that of spouse) exceeded $200,000 in each of the past two calendar years, and who reasonably expects individual gross income exceeding $200,000 in the current calendar year.

☐(c) Subscriber is a natural person whose joint gross income with spouse exceeded $300,000 in each of the past two calendar years, and who reasonably expects joint gross income with spouse exceeding $300,000 in the current calendar year.

(d) Subscriber is a tax-exempt organization described in Section 501(c) (3) of the Internal Revenue Code, or a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring Shares, with total assets in excess of $5,000,000.

☐(e) Subscriber is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring Shares, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Shares.

6.              Miscellaneous .

(a)              This Agreement shall be governed by, interpreted, construed and enforced in accordance with the laws of the State of California, as such laws are applied to contracts by and among residents of California, and which are to be performed wholly within California.

(b)              The representations and warranties set forth herein shall survive the sale of Shares to Subscriber.

(c)              Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

(d)              Any notice, demand or other communication that any party hereto may be required, or may elect, to give shall be sufficiently given if (i) deposited, postage prepaid, in the United States mail addressed to such address as may be specified under this Agreement, (ii) delivered personally at such address, (iii) delivered to such address by air courier delivery service, or (iv) delivered by electronic mail (email) to such electronic mail address as may be specified under this Agreement.  The address for notice to the Company is: OncoCyte Corporation, 1301 Harbor Bay Parkway, Suite 100, Alameda, California 94502; Attention: Robert W. Peabody, Chief Financial Officer; email; rpeabody@biotimemail.com.  The address for notice of Subscriber is shown in Section 7.  Either party may change its address for notice by giving the other party notice of a new address in the manner provided in this Agreement.  Any notice sent by mail shall be deemed given three days after being deposited in the United States mail, postage paid, and addressed as provided in this Agreement.
 
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(e)              This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. Counterparts sent by electronic mail, facsimile, or other electronic means, including signatures thereon, shall be deemed originals.

(f)              Except as otherwise provided herein, the Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns.  If the undersigned is more than one person, the obligation of the undersigned shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors.

(g)             This Agreement contains the entire agreement of the parties, and there are no representations, covenants or other agreements except for those stated or referred to herein.

(h)             This Agreement is not transferable or assignable by the undersigned except as may be provided herein.

7.              Subscriber Information .

 
(a)
Address:
1301 Harbor Bay Parkway
     
Alameda, California 94502
 
 
(b)
email:
rpeabody@biotimemail.com
 
 
(c)
Telephone:
(510) 921-5300
 
 
(d)
Social Security Number:
 
   
or Taxpayer Identification Number:
 
 
 
(e)
State of Residence or Principal Place of Business:
California
 
6

SUBSCRIBER SIGNATURE

IN WITNESS WHEREOF, the undersigned has entered into this Agreement and hereby agrees to purchase Shares for the price stated above and upon the terms and conditions set forth herein.  The undersigned hereby agrees to all of the terms of the Registration Rights Agreement and agrees to be bound by the terms and conditions thereof.

Dated:  September 29, 2015

Subscription:

Number of Shares
 
Total Subscription Price of Subscription
 
       
5,421,714
x $1.54 =
$ 8,349,439.56
 

   
BioTime, Inc.
 
       
 
By:
/s/ Robert W. Peabody
 
 
 
Title:
Sr. Vice President
 
 
7

ACCEPTANCE BY COMPANY

The Company hereby agrees to sell to the Subscriber the Shares referenced above in reliance upon all the representations, warranties, terms and conditions contained in this Agreement.

IN WITNESS WHEREOF, the undersigned, on behalf of the Company, has executed this acceptance as of the date set forth below.

Dated:
September 29, 2015
 
ONCOCYTE CORPORATION
 
           
     
By:
/s/ William Annett
 
 
     
Title:
CEO
 
 
 
8


Exhibit 10.18
 
Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].
 
Second Amendment
to the
Sponsored  Research Agreement
 
This SECOND AMENDMENT TO THE SPONSORED   RESEARCH AGREEMENT (the "Second Amendment") is made as of the date of the last signature below (the "Second Amendment Effective Date"), by and between THE WISTAR INSTITUTE OF ANATOMY AND BIOLOGY, a Pennsylvania nonprofit corporation located at 3601 Spruce Street, Philadelphia, PA 19104 ("Wistar"), and ONCOCYTE CORPORATION, a corporation organized under the laws of California, with a principal place of business located at 1301 Harbor Bay Parkway, Alameda, CA 94502 ("Sponsor"). Wistar and Sponsor shall be referred to herein individually as a "Party" and collectively as the "Parties."
 
WHEREAS, Wistar and Sponsor entered into a sponsored research agreement on September 18, 2013 to fund Dr. Louise C. Showe's research relating to the development of new molecular diagnostics for lung cancer (the "SRA");
 
WHEREAS, Sponsor has paid to Wistar two hundred fifty thousand dollars (**) under the SRA as of the First Amendment Effective Date;
 
WHEREAS, the Parties executed a first exclusive option agreement on February 20, 20 I 5 to negotiate mutually agreeable terms and conditions of an exclusive, worldwide license to practice Wistar's and the University of Pennsylvania's ("Penn") joint ownership interest in the Wistar Background Technology (the "First Option");
 
WHEREAS, the Parties executed a second exclusive option agreement on May 15, 2015 to negotiate mutually agreeable terms and conditions of an exclusive, worldwide license to practice Wistar's ownership interest in its wholly-owned Selected Inventions (the "Second Option") (the First Option and Second Option shall be collectively refered to herein as the "Options"); and
 
WHEREAS, the Parties executed a first amendment to the SRA to expand the scope of research and budget ("First Amendment"); and
 
WHEREAS, concurrent with the negotiation and contract finalization of the license agreement(s) per the Options, the Parties wish to further expand the Sponsored Research scope of work, increase the budget, and modify the payment schedule of the SRA as specified below.
 
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the Parties hereto agree as follows:
 
1.          All capitalized terms not expressly defined herein shall have the same meanings assigned to them in the SRA.
 
Wistar/OncoCyte Second Amendment to the Sponsored Research Agreement
 
Page 1 of 4

Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].
 
2.          The words "Schedule I" in Section 1 . 5 of the SRA shall be replaced with the words "Schedules I, III and IV" to account for the expanded scope of work and additional budget.
 
3.          The SRA shall be amended to include the attached Schedule IV.
 
4.          Aim 1 of the First Amendment has been completed. Aim 2 is being modified under this Second Amendment to the SRA . Aim 3 of the First Amendment has been deleted.
 
5.          Section 4 . 1 (Funding) of the SRA shall be deleted in its entirety and replaced with the following:
 
Funding . Sponsor has already paid Wistar [**] in accordance with (i) and (ii) below. Sponsor shall pay Wistar the additional amount of [**] in accordance with (iii) through (vi) below:
 
(i)              [**] shall be paid upon execution of this Agreement (received by Wistar on October 22, 2013);
 
(ii)             [**] shall be paid upon the first anniversary of this Agreement (received by Wistar on October 24, 2014);
 
(iii)            [**] shall be paid upon execution of the First Amendment (invoiced by Wistar on October 5, 201 5);
 
(iv)            [**] shall be paid upon execution of the Second Amendment;
 
(v)            [**] shall be paid upon completion of Aim I as outlined in Schedule III (invoiced by Wistar on October 12, 2015);
 
(vi)            an additional [**] shall be paid upon completion of Aim 4 as outlined in Schedule IV. Completion is defined as c ompleting the analysis described in Aim 4 (Schedule IV)   and transmission of data to OncoCyte.
 
6.          Except as expressly amended or modified herein, any and all other terms and conditions of the SRA will remain unchanged .
 
7.          Entire Agreement . This Second Amendment, the amended SRA and the Options embodies the entire understanding between the Parties relating to the subject matter thereof and supersedes all prior understandings and agreements, whether written or oral.

Wistar/OncoCyte Second Amendment to the Sponsored Research Agreement
 
Page 2 of 4

IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereby execute this First Amendment as of the dates below .
 
THE WISTAR INSTITUTE OF ANATOMY AND BIOLOGY   ONCOCYTE CORPORATION  
               
By:
/s/Heather A. Steinman    
By :
/s/ William Annett
   
Heather A. Steinman, Ph.D., M.B . A.     William Annett  
Vice President, Business Development    
CEO OncoCyte
 
  Executive Director, Technology Transfer          
        Date: October 18, 2015  
Date:
October 15, 2015      
 
AGREED TO AND ACCEPTED BY:
 
By:
/s/Louise C. Showe
 
 
 
L o uise C. S h owe, Ph.D.
 
 
Professor
 
 
 
 
 
Date:
October 15, 2015
 
 
Wistar/OncoCyte Second Amendment to the Sponsored Research Agreement
 
Page 3 of 4

Certain information has been omitted under a request for confidential treatment, and the omitted information has been filed with the Commission. Confidential portions are marked [**].

SPONSORED RESEARCH AGREEMENT
 
Schedule IV

Budget to cover expanded scope of work of Aim 2 based on 10/7/2015 conference  call
 
A: Additional full-time support (100% effort) of entry level technician salary= [**]
 
B : Direct cost of [**] probe set the cost is –[**]
 
[**]
Total Cost:
 
[**]  100% effort technician
[**]
[**] overhead
 
[**]
 
Aim 4: Immunology Panel
 
[**]

Can ini tiate ex p e ri men t ri g ht away.
 
Additional cost:
 
[**] materials cost * [**] indirect rate= [**]
 
 
Wistar/OncoCyte Second Amendment to the Sponsored Research Agreement
 
Page 4 of 4


Exhibit 99.1

Preliminary and Subject to Completion, dated November 23, 2015

PRELIMINARY INFORMATION STATEMENT

ONCOCYTE CORPORATION
Common Stock, no par value

This information statement is being furnished in connection with the distribution of shares of common stock, no par value, of OncoCyte Corporation (“OncoCyte”) to holders of common shares, no par value, of BioTime, Inc. (the “Distribution”).

OncoCyte is currently a __% owned subsidiary of BioTime and is engaged in the business of developing laboratory tests for the diagnosis of cancer. Following the Distribution, we will continue to be a majority owned subsidiary of BioTime but our common stock will be publicly traded and we will continue to build our own management team.

You will receive one share of OncoCyte common stock for every __ BioTime common shares you hold as of the close of business on __________ __, 2015, the “record date” of the Distribution. If you sell your BioTime common shares after the record date and before the date of the Distribution, you also will be selling your right to receive shares of OncoCyte common stock in the Distribution. The Distribution will be made in book-entry form. We expect the Distribution to occur on __________, 2015. In this information statement we sometimes refer to the shares of OncoCyte common stock to be distributed to BioTime shareholders in the Distribution as “Distribution Shares.”

No shareholder approval of the Distribution by BioTime shareholders is required or sought and you are not being asked for a proxy to vote on the Distribution, and you are requested not to send us or BioTime a proxy.

BioTime shareholders will not be required to pay for the Distribution Shares they receive in the Distribution or to surrender or exchange BioTime common shares in order to receive their Distribution Shares or to take any other action in connection with the Distribution.

There is no current trading market for OncoCyte common stock. However, we plan to apply to list OncoCyte common stock on the NYSE MKT under the symbol __. If our listing application is not approved, w e plan to arrange for the trading of our common stock on the OTC Bulletin Board no later than the completion of the Distribution.

In reviewing this information statement, you should carefully consider the matters described under “Risk Factors” for a discussion of certain factors that should be considered by recipients of our common stock. The Distribution will not qualify as a tax free reorganization for U.S. federal income tax purposes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is November ____, 2015.
 
 

TABLE OF CONTENTS
 
 
Page
Information Statement Summary
4
   
Questions and Answers About OncoCyte and the Distribution
8
   
Risk Factors
12
   
The Distribution
27
   
Market for Our Common Equity
 30
   
Dividend Policy
30
   
Capitalization
30
   
Summary and Selected Financial Data
31
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
   
Business
40
   
Management
65
   
Executive Compensation
72
   
Security Ownership by Certain Beneficial Owners and Management
77
   
Certain Federal Income Tax Considerations
81
   
Shares Eligible For Future Sale
84
   
Description of Securities
86
   
Index to Audited Financial Statements
F-1
   
Report of Independent Registered Public Accounting Firm
F-2
   
Index to Unaudited Condensed Interim Financial Statements
F-23
 
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This information statement is being furnished solely to provide information to BioTime shareholders who will receive shares of our common stock in the Distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of BioTime. This information statement describes our business, our relationship with BioTime and how the Distribution affects BioTime and its shareholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the Distribution. You should be aware of certain risks relating to the Distribution, our business, and ownership of our common stock, which are described under the heading “Risk Factors.”

You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations and practices.

You should rely only on the information contained in this information statement. We have not, and BioTime has not, authorized any other person to provide you with information different from, or in addition to, that contained in this information statement. The information contained in this information statement is accurate only as of its date, regardless of the time of the delivery of Distribution Shares.

The Distribution will be made only in jurisdictions where permitted by law. Neither we nor BioTime have done anything that would permit the delivery of this information statement in any jurisdiction where that action for purposes of the Distribution would be prohibited by law. You are required to inform yourselves about and to observe any restrictions relating to Distribution and the delivery of this information statement.

Industry and Market Data

This information statement contains market data and industry forecasts that were obtained from industry publications, third party market research and publicly available information. These publications generally state that the information contained therein has been obtained from sources believed to be reliable. While we believe that the information from these publications is reliable, we have not independently verified such information.

This information statement also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this information statement from our own research as well as from industry and general publications, surveys and studies conducted by third parties, some of which may not be publicly available. Such data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.

REVERSE STOCK SPLIT

On November 18, 2015, OncoCyte effected a 1-for-2 reverse stock split of its common stock. All references to common stock, warrants, contingently issuable common stock warrants, and options to purchase common stock, and all per share data and related information, including the price at which shares of common stock have been sold or may be issued, have been retroactively adjusted, where applicable, in this Information Statement to reflect the reverse stock split of OncoCyte common stock as if it had occurred at the beginning of the earliest period presented.
 
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INFORMATION STATEMENT SUMMARY

This summary provides an overview of selected information contained elsewhere in this information statement or in our registration statement on Form 10 in their entirety, including the information discussed under “Risk Factors” and our financial statements and the related notes thereto included elsewhere in this information statement.

OncoCyte Corporation

Unless otherwise indicated herein, the terms “we,” “our,” or “us,” refer to OncoCyte Corporation.
 
Overview

Our mission is to develop highly accurate, easy to administer, non-invasive liquid biopsy diagnostic tests in areas of high unmet need in oncology. Our initial focus will be confirmatory diagnostics that are used in conjunction with imaging to confirm initial diagnoses. In addition, we will be developing screening diagnostics as potential replacements for screening imaging procedures that do not meet the needs of patients, health care providers or payers. For some indications, we will also be pursuing the probability of recurrence of a specific cancer through the development of prognostics; or companion diagnostics that help a physician determine which therapy is the optimal treatment for the patient.

Our initial liquid biopsy diagnostic tests will be confirmatory diagnostics and are being developed to reduce false positive results associated with current diagnostic techniques. These new diagnostic tests are intended to:

 
·
Improve health outcomes through early diagnoses and better prognostic capabilities;

·
Reduce the cost of care through the avoidance of more costly diagnostic procedures, including invasive biopsy and cystoscopic procedures; and

·
Improve the quality of life for cancer patients by reducing the anxiety associated with non-definitive diagnoses.

We are currently working on diagnostic tests for three types of cancer: lung cancer, breast cancer, and bladder cancer. Additionally we have early stage diagnostic research programs for other solid tumor cancers in our research and development pipeline.

Business Strategy

From our inception in late 2009 through March 2011, we focused our efforts on the development of embryonic stem cell-derived cancer therapies. In April 2011, we initiated development of molecular cancer diagnostics utilizing a discovery platform that focuses on identifying genetic markers broadly expressed in numerous types of cancer. The shift in focus from stem cell-derived cancer therapies to molecular cancer diagnostic was driven by a development focus on a unique scientific approach, the growing need for better cancer diagnostic protocols and a window of opportunity created by guidelines for lung and breast cancer screening. The diagnostic markers we have discovered thus far could address unmet needs in cancer diagnostic indications that have a strong potential to generate short- to mid-term revenues, resulting in a risk-balanced diagnostic test development strategy.

Our current development strategy for cancer diagnostic tests is to evaluate and validate specific diagnostics using methods of detecting proteins, messenger RNA (“mRNA”) or  micro RNA (“miRNA”) approach based on unmet medical need, market size and ease of use. We believe that this approach allows us to have a broader look into the genetic markers that differentially express in cancer. Our development strategy will be matched to our market planning strategy to determine which:

·
Diagnostic tests to prioritize in our development program;

·
Diagnostic tests we should market ourselves;

·
Diagnostic tests we should co-market through an alliance with one or more other companies; and

·
Diagnostic tests we should out-license to third parties for development and/or commercialization.

While diagnostics will be our primary focus, proof of concept and early stage clinical results therapeutics may emerge from our work, including with our proprietary biomarkers such as Collagen Type X (“COLX”). If such data does emerge we may seek to license out the development of potential therapeutic products to biopharmaceutical companies focused on therapeutic development and commercialization.
 
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Additional Information

OncoCyte Corporation is a majority-owned subsidiary of BioTime, Inc. We were incorporated in 2009 in the state of California as a subsidiary of BioTime. Our principal executive offices are located at 1301 Harbor Bay Parkway, Alameda, California 94502. Our telephone number is (510) 521-3390.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

·
Reduced disclosure about our executive compensation arrangements;
 
·
No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;
 
·
Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and
 
·
Reduced disclosure of financial information in this registration statement, including two years of audited financial information and two years of selected financial information.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company
 
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Summary of the Distribution

The following is a summary of the terms of the Distribution. See “The Distribution” for a more detailed description of the matters described below.

Distributing company
 
BioTime, Inc.
     
Company whose shares are to be distributed
 
OncoCyte Corporation
     
Distribution ratio
 
Each holder of BioTime common shares will receive a dividend of one share of OncoCyte common stock for every ___ BioTime common shares held on the record date.
     
Securities to be distributed
 
Approximately ____ shares of OncoCyte common stock, which will constitute approximately __% of the OncoCyte common stock outstanding immediately after the Distribution. The number of shares that BioTime will distribute to its shareholders will be reduced to the extent that cash payments are made in lieu of the issuance of fractional shares of OncoCyte common stock and to the extent cash payments are made in lieu of OncoCyte common stock to holders of BioTime common shares who reside in certain states or countries where the Distribution has not been registered or qualified or is not lawful, as described below. Also, the shares of OncoCyte common stock distributed to OncoCyte on account of the 619,706 BioTime common shares that OncoCyte owns will revert to the status of authorized but unissued shares upon receipt by OncoCyte and will no longer be outstanding. See “Description of Capital Stock—Common Stock.”
     
Proposed OTC Bulletin Board Symbol
   
     
Fractional shares
 
BioTime will not distribute any fractional shares of OncoCyte common stock to its shareholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata to each BioTime shareholder (other than OncoCyte) who otherwise would have been entitled to receive a fractional share in the Distribution. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
     
Record date
 
The record date is the close of business on __________ __, 2015. Only holders of BioTime common shares as of the close of business on the record date will be entitled to receive OncoCyte common stock in the Distribution.
     
Distribution Date
 
The Distribution Date will be on or about __________, 2015.
 
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Relationship between OncoCyte and BioTime after the Distribution
 
After the Distribution, BioTime will continue to own approximately __ shares of OncoCyte common stock, which will represent approximately __% of the OncoCyte common stock outstanding after the Distribution. Accordingly, OncoCyte will remain a majority-owned subsidiary of BioTime immediately after the Distribution. BioTime will continue to provide OncoCyte with use of office and laboratory facilities and equipment; laboratory and office supplies; utility services to the extent the same are provided to the shared office and laboratory facilities; information technology support; human resources; technology licensing (including technology licensed from third parties) and other limited services consistent with past practices under an existing Shared Facilities Agreement. The companies may also enter into other agreements providing for the allocation of tax benefits, employee matters and liabilities arising from periods prior to the Distribution, and other aspects of the relationship between the two companies and other BioTime subsidiaries.

Management of OncoCyte
 
OncoCyte has a board of directors (the “Board of Directors”) consisting of seven directors, two of whom qualify as “independent” directors under the rules of the NYSE MKT, and five of whom do not qualify as “independent” because they are officers of OncoCyte or BioTime or are non-independent directors of BioTime. OncoCyte will have its own executive officers, although its Chief Financial Officer will also serve as Chief Financial Officer of BioTime. See “Management.”
     
Dividend policy
 
We do not plan on paying any cash dividends on our common stock in the immediate future. Instead, we will retain any income we may earn to finance our business operations. All decisions regarding the declaration and payment of dividends will be evaluated from time to time in light of our financial condition, earnings, growth prospects, other uses of cash, funding requirements, applicable law and other factors our Board of Directors deems relevant. See the section entitled “Dividend Policy.”
     
Risk factors
 
You should carefully consider the matters discussed under the section entitled “Risk Factors.”
     
Amendment or Cancellation of the Distribution
 
BioTime may, in its sole discretion: (a) terminate the Distribution prior to delivery of the Distribution Shares to BioTime shareholders; (b) change the Distribution Date for the Distribution to a later date; (c) change the record date prior to the Distribution of the Distribution Shares to BioTime shareholders; or (d) amend or modify the terms of the Distribution. If BioTime determines to terminate the Distribution, changes the Distribution Date or the record date, or amends or modifies the terms of the Distribution, BioTime and OncoCyte will issue a press release and each will file a Current Report on Form 8-K and OncoCyte will provide a supplement to this Information Statement disclosing the applicable changes.
 
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QUESTIONS AND ANSWERS ABOUT ONCOCYTE AND THE DISTRIBUTION

Q:                  Why am I receiving this information statement?

A:                   BioTime is delivering this information statement to you because you were a holder of BioTime common shares on the record date for the Distribution.

Q:                  What is the Distribution?

A:                   The Distribution is the distribution of one share of OncoCyte common stock for every __ common shares of BioTime that were outstanding on the record date. No action is required for you to participate in the Distribution. After the Distribution, BioTime shareholders will own in the aggregate, directly rather than indirectly through their ownership of BioTime common shares, approximately __% of the shares of OncoCyte common stock that will be outstanding immediately upon the completion of the Distribution, while BioTime will continue to own approximately __% of the outstanding OncoCyte shares. Certain current minority shareholders of OncoCyte will own the balance of the OncoCyte shares, and will acquire additional OncoCyte shares through the Distribution to the extent that they own BioTime common shares on the record date.

Q:                  What will I receive in the Distribution?

A:                   In the Distribution, BioTime shareholders will receive one share of OncoCyte common stock for every __ BioTime common shares they own as of the record date for the Distribution. No fractional shares will be issued. Those BioTime shareholders who would otherwise be entitled to receive fractional shares will receive cash in lieu of fractional shares. For example, a BioTime shareholder who holds ___ BioTime common shares as of the record date will, after the Distribution, (i) continue to hold ___ BioTime common shares and (ii) receive __ shares of OncoCyte common stock and cash in lieu of fractional shares. Immediately after the Distribution, BioTime shareholders will still own their BioTime common shares and they will still own an interest in BioTime’s current businesses, but they will own that interest as two separate stock investments rather than as a single investment.

Q:                  What is OncoCyte?

A:                   We are an existing majority-owned subsidiary of BioTime engaged in the business of developing laboratory tests for the diagnosis of cancer.

Q:                  Why is BioTime distributing OncoCyte stock to BioTime shareholders?

A:                  BioTime believes that creating a separate scientific and management team for OncoCyte and fostering public ownership of OncoCyte common stock will better enable OncoCyte to focus on maximizing opportunities for its cancer diagnosis business, to hire and retain scientists and managers in the future, and to access the capital markets to obtain the financing that OncoCyte will need in the long run to fund its research and product development programs, to establish a clinical testing laboratory for its diagnostic tests, and to commercialize its diagnostic tests. Both BioTime and OncoCyte believe that the Distribution will present the opportunity for enhanced performance of both BioTime and OncoCyte, and BioTime believes that the Distribution will also enhance the value of the OncoCyte common stock that BioTime continues to own, thus providing additional value to BioTime shareholders.
 
BioTime’s board of directors has determined that the Distribution is in the best interests of BioTime and its shareholders. The following potential benefits were considered by BioTime’s board of directors in making the determination to effect the Distribution:

·
allowing each company to separately pursue the business strategies that best suit its long-term interests;

·
creating separate companies that have different financial characteristics, which may appeal to different investor bases and allow for clarity on valuation of the respective businesses;

·
creating opportunities to more efficiently finance ongoing operations, including product development and clinical trials of new diagnostic products, establishing a clinical laboratory, and commercializing products;
 
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·
creating opportunities to more efficiently finance acquisitions;

·
allowing each company to establish an expense structure appropriate for its business and size; and

·
creating effective management and employee incentives tied to each company’s performance.

For a further explanation of the reasons for the Distribution and more information about our business, see “The Distribution—Reasons for the Distribution” and “Business.”

Q:                  What is the record date for the Distribution?

A:                   The record date is __________ __, 2015, and the determination of BioTime shares ownership for the purposes of the Distribution will be determined as of 5:00 p.m., New York City Time, on that date.

Q:                 When will the Distribution occur?

A:                    Shares of OncoCyte common stock will be distributed on or about __________, 2015.

Q:                  Can BioTime decide to cancel or delay the Distribution?

A:                  Yes. The Distribution is conditioned upon satisfaction or waiver of certain conditions. See “The Distribution—Distribution Conditions and Termination.” BioTime also has the right to postpone or terminate the Distribution even if all of these conditions are met, if at any time BioTime’s board of directors determines, in its sole discretion that completing the Distribution would not be in the best interest of BioTime and its shareholders.

Q:                  What will happen to the listing of BioTime common shares?

A:                   Nothing. BioTime common shares will continue to be traded on the NYSE MKT and TASE under the symbol BTX.

Q:                  Will the Distribution affect the market price of my BioTime common shares?

A:                   The immediate impact of the Distribution on the market price of BioTime common shares cannot be determined. On the one hand, the establishment of an independent market value for OncoCyte common stock could enhance the value of the OncoCyte stock that BioTime will continue to own after the Distribution. On the other hand, the price of BioTime common shares could decline in view of the fact that BioTime will own a smaller portion of OncoCyte. Accordingly, the combined trading prices of BioTime common shares and OncoCyte common stock after Distribution Date may be less than or greater than the trading price of BioTime common shares prior to the Distribution. Until the market has fully analyzed the relative values of BioTime and OncoCyte after the Distribution, and a trading market for OncoCyte common stock is established, the price of both BioTime common shares and OncoCyte common stock may fluctuate significantly.

Q:                  What does a BioTime shareholder need to do now?

A:                   BioTime shareholders do not need to take any action to participate in the Distribution. The approval of the BioTime shareholders is not required or sought to effect the Distribution and BioTime shareholders have no appraisal rights in connection with the Distribution. BioTime is not seeking a proxy from any shareholders and you are requested not to send BioTime or us a proxy. BioTime shareholders will not be required to pay anything for the shares of OncoCyte common stock distributed in the Distribution or to surrender any BioTime common shares. BioTime shareholders should not send their BioTime share certificates to BioTime, OncoCyte or the distribution agent and transfer agent. BioTime shareholders will automatically receive their shares of OncoCyte common stock when the Distribution is effected and will receive cash for any fractional shares. After the Distribution, the certificates and book-entry interests representing your BioTime common shares will continue to represent interests in the BioTime businesses following the Distribution, excluding only the portion of OncoCyte distributed to BioTime shareholders. The book-entry interests representing OncoCyte common stock that BioTime shareholders receive in the Distribution will represent an equity interest in OncoCyte.
 
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Q:                  Are there risks to owning OncoCyte common stock?

A:                   Yes. Our business is subject to both general and specific risks relating to our operations. In addition, there will be market risks associated with the ownership of OncoCyte common stock. See “Risk Factors.”

Q:                  What are the U.S. federal income tax consequences of the Distribution to BioTime shareholders?

A:                  We expect that, if the Distribution occurs during 2015, BioTime will not have overall accumulated earnings and profits or current earnings and profits (each determined for U.S. federal income tax purposes) for 2015 after giving effect to any gain realized by BioTime as result of the Distribution. If BioTime does not have either (a) overall accumulated earnings and profits or (b) current earnings and profits for the taxable year that includes the Distribution, then:

 
·
if the fair market value of the shares of OncoCyte common stock received does not exceed the BioTime shareholder’s basis in the shareholder’s BioTime shares, the shareholder would recognize no taxable gain as a result of the Distribution, and would be deemed to have received a return of capital that would reduce the shareholder’s basis in the shareholder’s BioTime shares by the fair market value of the shares of common stock received; and

 
·
if the fair market value of the shares of common stock distributed to a BioTime shareholder exceeds the BioTime shareholder’s basis in the shareholder’s BioTime shares, then the excess would be taxable as gain from the sale or exchange of property that may be taxed as a long-term or short-term capital gain depending upon the shareholder’s holding period in the BioTime shares.

If BioTime has overall accumulated earnings and profits or current earnings and profits for the taxable year that includes the Distribution (each as determined for U.S. federal income tax purposes), including any earnings and profits resulting from the Distribution, then:

·
the Distribution would be taxed as a dividend to a BioTime shareholder to the extent of the lesser of the shareholder’s allocable share of BioTime’s earnings and profits and the fair market value of the shares of OncoCyte common stock received by the shareholder in the Distribution; and

·
if the fair market value of the shares of OncoCyte common stock received by a BioTime shareholder exceeds the shareholder’s allocable share of BioTime's earnings and profits, the excess would be a return of capital that will reduce the shareholder’s basis in the shareholder’s BioTime shares by that excess and, to the extent it exceeds the BioTime shareholder’s basis in the shareholder’s BioTime shares, would be taxable as gain from the sale or exchange of property that may be taxed as a long-term or short-term capital gain depending upon the shareholder’s holding period in the BioTime shares.

Additional matters concerning the U.S. federal income tax consequences of the Distribution are summarized in the section of this information statement entitled “Tax Matters-Material U.S. Federal Income Tax Consequences of the Distribution.” You should consult your own tax advisor as to the particular consequences of the Distribution to you.

Q:                 What if I want to sell my BioTime common shares or my OncoCyte common stock?

A:                  You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor. BioTime and OncoCyte do not make any recommendations on the purchase, retention, or sale of BioTime common shares or OncoCyte common stock. If you do decide to sell any shares, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your BioTime stock or your OncoCyte stock after it is distributed, or both.
 
Q:                 Where will I be able to trade shares of my OncoCyte common stock?

A:                  Currently there is no public market for OncoCyte common stock. We plan to apply to list OncoCyte common stock on the NYSE MKT under the symbol ______. If our listing application is not approved, w e plan to arrange to have OncoCyte common stock traded on the OTC Bulletin Board.   Trading in shares of OncoCyte common stock may begin on a “when-issued” basis on or shortly before the record date and before the Distribution Date, and “regular way” trading will begin on the first trading day following the Distribution Date. If trading does begin on a “when-issued” basis, you may purchase or sell OncoCyte common stock after that time, but your transaction will not settle until after the Distribution Date. On the first trading day following the Distribution Date, “when-issued” trading in respect of OncoCyte common stock will end and “regular way” trading will begin. We cannot predict the trading prices for OncoCyte common stock before or after the Distribution Date.
 
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Q:                 Where can BioTime shareholders get more information?

A:                  Before the Distribution, if you have any questions relating to the Distribution, you should contact:

BioTime, Inc.
1301 Harbor Bay Parkway, Suite 100
Alameda, CA 94502
Attention: __________________
Telephone: (510) 521-3390

After the Distribution, if you have any questions relating to OncoCyte common stock, you should contact:

OncoCyte Corporation

1301 Harbor Bay Parkway, Suite 100
Alameda, CA 94502
Attention: __________________
Telephone: (510) _____________

Q:                 Who will be the distribution agent, transfer agent and registrar for OncoCyte common stock?

A:                  The distribution agent, transfer agent and registrar for OncoCyte common stock will be American Stock Transfer & Trust Company, LLC.
 
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RISK FACTORS

Our business is subject to various risks, including those described below. You should consider the following risk factors, together with all of the other information included in this information statement, which could materially adversely affect our proposed operations, our business prospects, and financial condition, and the value of an investment in our business. There may be other factors that are not mentioned here or of which we are not presently aware that could also affect our business operations and prospects.

Risks Related to Our Business Operations

We are a development stage company and have incurred operating losses since inception and we do not know if we will attain profitability

Since our inception in September 2009, we have incurred operating losses and negative cash flow and we expect to continue to incur losses and negative cash flow in the future. Our net losses for the nine months ended September 30, 2015 and the years ended December 31, 2014 and 2013 were approximately $5.2 million, $5.0 million, and $3.5 million, respectively, and we had an accumulated deficit of approximately $20.6 million, $15.4 million and $10.4 million as of September 30, 2015, and December 31, 2014 and 2013, respectively. Since inception, we have financed our operations through the sale of our common stock to our current shareholders, loans from BioTime and BioTime affiliates, and sale of BioTime common shares that we hold as available-for-sale securities. Although BioTime may continue to provide administrative support to us on a reimbursable basis, there is no assurance that BioTime will provide future financing. There is no assurance that we will be able to obtain any additional financing that we may need after the completion of the Distribution, or that any such financing that may become available will be on terms that are favorable to us and our shareholders. Ultimately, our ability to generate sufficient operating revenue to earn a profit depends upon our success in developing and marketing or licensing our diagnostic tests and technology.

We will spend a substantial amount of our capital on research and development but we might not succeed in developing diagnostic tests and technologies that are useful in medicine

·
We are attempting to develop new medical diagnostic tests and technologies. The main focus of our business is on diagnostic tests for cancer. Our diagnostic tests are being developed through the use of blood and urine samples obtained in prospective and retrospective clinical trials involving humans, but none of our diagnostic tests have been used in medicine to diagnose cancer. Our technologies many not prove to be sufficiently efficacious to use in the diagnosis of cancer.

·
Some of our research could also have applications in new cancer therapeutics. None of our experimental therapeutic technologies have been applied in human medicine and have only been used in laboratory studies in vitro .

·
The experimentation we are doing is costly, time consuming, and uncertain as to its results. We incurred research and development expenses amounting to approximately $3.1 million, $4.0 million, and $2.9 million during the nine months ended September 30, 2015, and years ended December 31, 2014 and 2013, respectively. Since 2011, most of our research has been devoted to the development of our lead diagnostic tests to detect lung cancer, breast cancer, and bladder cancer.

·
If we are successful in developing a new technology or diagnostic test, refinement of the new technology or diagnostic test and definition of the practical applications and limitations of the technology or diagnostic test may take years and require the expenditure of large sums of money.

We do not currently have any diagnostic tests on the market and have not yet generated any revenues from operations

·
We need to successfully develop and market or license the diagnostic tests that we are developing in order to earn revenues in sufficient amounts to meet our operating expenses.
 
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·
Without diagnostic test sales or licensing fee revenues, we will not be able to operate at a profit, and we will not be able to cover our operating expenses without raising additional capital.

·
Should we be able to successfully develop and market our diagnostic tests we may not be able to receive reimbursement for them from payers, such as health insurance companies, health maintenance organizations and Medicare, or any reimbursement that we receive may be lower than we anticipate.

Sales of any diagnostic tests that we may develop could be adversely impacted by the reluctance of physicians to adopt the use of our tests and the availability of competing diagnostic tests

·
Physicians and hospitals may be reluctant to try a new diagnostic test due to the high degree of risk associated with the application of new technologies and diagnostic test in the field of human medicine, especially if the new test differs from the current standard of care for detecting cancer in patients.

·
Competing tests for the initial diagnosis, reoccurrence diagnosis and optimal treatment of cancer are being manufactured and marketed by established companies and by other smaller biotechnology companies.

·
Currently there are two diagnostic tests for lung cancer and multiple diagnostic tests for bladder cancer on the market. There is one diagnostic product for breast cancer that has been approved in Europe. In order to compete with other diagnostic tests, particularly any that sell at lower prices, our diagnostic tests will have to provide medically significant advantages or be more cost effective.

·
There also is a risk that our competitors may succeed in developing safer, more accurate or more cost effective diagnostic tests that could render our diagnostic tests and technologies obsolete or noncompetitive

It is likely that we will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses

·
We plan to continue to incur substantial research and development expenses and we anticipate that we will be incurring significant sales and marketing costs as we develop and commercialize our diagnostic test candidates. We may need to raise additional capital to pay operating expenses until we are able to generate sufficient revenues from diagnostic test sales, royalties, and license fees, and we may need to sell additional equity or debt securities to meet those capital needs.

·
Sales of additional equity securities by us could result in the dilution of the interests of our shareholders.

We need to obtain a license to certain technology in order to complete the development of our diagnostic test for lung cancer

The research and development of our lung cancer diagnostic test has been conducted primarily by The Wistar Institute of Anatomy and Biology (“Wistar”) pursuant to a Sponsored Research Agreement, as amended (the “SRA”) with us, and Wistar owns core intellectual property rights relating to that lung cancer diagnostic test. Under the SRAs, we have an option to license from Wistar the data, methods, techniques, processes, and other technical information (“Wistar Inventions”) related to molecular diagnostics for lung cancer developed or discovered by the principal investigator or anyone working under her direction in the performance of the sponsored research. We have exercised our options to license certain Wistar Inventions and we and Wistar are negotiating the terms of definitive license agreements with Wistar. However, there is no assurance that we will reach agreement with Wistar on the terms of any definitive license agreements, or that the terms of any license agreements that we may enter into will be favorable to us from a commercial point of view. If we fail to reach agreement with Wistar for licenses to use any Wistar Inventions, we may not be able to complete the development of our lung cancer diagnostic test. Consequently, we may need to commence, at our expense, new research and development work without the right to use the Wistar Inventions, or, if feasible, license technology from a third party.
 
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If we fail to meet our obligations under license agreements, we may lose our rights to key technologies on which our business depends

Our business will depend on several critical technologies that we plan to license from Wistar for our lung cancer diagnostic test. We expect that the license agreements will impose obligations on us, including payment obligations and obligations to pursue development and commercialization of diagnostic tests under the licensed patents or technology. If Wistar believes that we have failed to meet our obligations under a license agreement, Wistar could seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation our ability to carry out the development and commercialization of potential diagnostic tests, and our ability to raise any capital that we might then need, could be significantly and negatively affected. If our license rights were restricted or ultimately lost, we would not be able to continue to use the licensed technology in our business.

We do not yet have a certified diagnostic laboratory for use in conducting cancer diagnostic tests

We need to lease a facility, construct and equip a diagnostic laboratory, hire a staff to operate the laboratory, and obtain federal and state certification or licensing of the laboratory for use in conducting cancer diagnostic tests. We do not know how long it will take to locate and lease a suitable facility and to build and obtain the required certifications and licenses for the laboratory. Once a suitable facility is located and leased, we will need to expend a substantial part of our cash on hand and management resources to complete construction, equipping, and staffing of the laboratory.

We have limited marketing and sales resources and no distribution resources for the commercialization of any diagnostic tests that we might successfully develop

If we are successful in developing marketable diagnostic tests, we will need to build our own marketing and sales capability, which would require the investment of significant financial and management resources to recruit, train, and manage a sales force.

Our business could be adversely affected if we lose the services of the key personnel upon whom we depend

Our diagnostics program is directed primarily by our Vice President of Research, Dr. Karen Chapman. Our commercial activities are directed primarily by our Chief Executive Officer William Annett and our Vice President of Marketing, Dr. Kristine C. Mechem. The loss of Dr. Chapman, Mr. Annett, or Dr. Mechem could have a material adverse effect on our business.

Our business and operations could suffer in the event of system failures

Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such events could cause interruption of our operations. For example, the loss of data for our diagnostic test candidates could result in delays in our regulatory filings and development efforts and significantly increase our costs. To the extent that any disruption or security breach was to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our diagnostic test candidates could be delayed.

Failure of our internal control over financial reporting could harm our business and financial results

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Our growth and entry into new diagnostic tests, technologies and markets will place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.
 
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We will initially rely in part on financial systems maintained by BioTime and upon services provided by BioTime personnel. BioTime will allocate certain expenses among itself, us, and BioTime’s other subsidiaries, which creates a risk that the allocations may not accurately reflect the benefit of an expenditure or use of financial or other resources by us, BioTime as our parent company, and the BioTime subsidiaries among which the allocations are made.

Risks Related to Our Industry

We will face certain risks arising from regulatory, legal, and economic factors that affect our business and the business of other companies engaged in the development and marketing of diagnostic tests for human diseases. Because we are a small company without revenues and with limited capital resources, we may be less able to bear the financial impact of these risks than larger companies that have substantial income and available capital.

We will need to obtain regulatory approval of our diagnostic test candidates and laboratory facilities

We will need to receive certification for our diagnostic laboratory under the Clinical Laboratory Improvements Amendment (“CLIA”), and we will need to obtain United States Food and Drug Administration (“FDA”) and other regulatory approvals for any in vitro diagnostics (“IVDs”) that we may develop, in order to market those diagnostic tests. The need to obtain regulatory approval to market a new diagnostic test means that:

·
The diagnostic tests that we may develop cannot be sold until the Centers for Medicare and Medicaid Services (the “CMS”) or the FDA, and corresponding foreign regulatory authorities approve the laboratory tests or the IVDs for medical use.

·
We will have to obtain a CLIA certificate of registration license for our laboratory for the manufacture and use of diagnostic tests and as part of the submission, our laboratory will be inspected.

·
In addition to meeting federal regulatory requirements, each state has its own laboratory certification and inspection requirements for a CLIA laboratory that must be met in order to sell diagnostic tests in the state.

·
We will have to conduct expensive and time consuming clinical trials of new diagnostic tests. The full cost of conducting and completing clinical trials necessary to obtain FDA approval of IVD tests or CLIA certification of a new laboratory diagnostic test or for gaining reimbursement from health insurance companies, health maintenance organizations, Medicare, and other third party payers cannot be presently determined but could exceed our current financial resources.

·
Data obtained from preclinical and clinical studies is susceptible to varying interpretations that could delay, limit or prevent regulatory agency approvals. Delays or denials of the regulatory approvals may be encountered as a result of changes in regulatory agency policy, regulations, or laws.

·
A diagnostic test that is approved may be subject to restrictions on use.

·
The FDA can withdraw approval of an FDA regulated product if problems arise

·
CLIA licensed laboratories can lose their licenses if problems arise during a periodic inspection.
 
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The FDA may impose additional regulations for laboratory developed tests such as the ones we are developing

The FDA issued two draft guidance documents that set forth a proposed risk-based regulatory framework that would apply varying levels of FDA oversight to laboratory developed tests (“LDTs”) such as those we are developing. If the FDA implements new regulatory measures:

·
We may be required to obtain pre-market clearance or approval before selling our diagnostic tests;

·
As a result of required FDA pre-market review, our tests may not be cleared or approved on a timely basis, if at all;

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FDA labeling requirements may limit our claims about our diagnostic tests, which may have a negative effect on orders from physicians;

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The regulatory approval process may involve, among other things, successfully completing additional clinical trials and making a 510(k) submission, or filing a pre-market approval application with the FDA; and,

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If regulatory actions affect any of the reagents we obtain from suppliers and use in conducting our tests, our business could be adversely affected in the form of increased costs of testing or delays, limits or prohibitions on the purchase of reagents necessary to perform our testing.

If the FDA regulates LDTs and requires that we seek pre-market approval, there is no assurance that we will be able to comply with FDA requirements.

It may take two years or more to conduct the clinical studies and trials necessary to obtain pre-market approval from the FDA. Even if our clinical trials are completed as planned, we cannot be certain that the results will support our test claims or that the FDA will agree with our conclusions regarding our test results. Success in early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior clinical trials and studies. If we are required to conduct pre-market clinical trials, delays in the commencement or completion of clinical testing could significantly increase our test development costs and delay commercialization. Many of the factors that may cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to delay or denial of regulatory clearance or approval. The clinical trial process may fail to demonstrate that our tests are effective for the proposed indicated uses, which could cause us to abandon a test candidate and may delay development of other tests.

Clinical trial failures can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future diagnostic tests

Clinical trial failures or delays can occur at any stage of the trials, and may be directly or indirectly caused by a variety of factors, including but not limited to:

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Delays in securing clinical investigators or trial sites for our clinical trials;

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Delays in obtaining Institutional Review Board and other regulatory approvals to commence a clinical trial;

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Slower than anticipated rates of patient recruitment and enrollment, or failing to reach the targeted number of patients due to competition for patients from other trials;

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Limited or no availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third party payers for the use of our diagnostic test candidates in our clinical trials;

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Negative or inconclusive results from clinical trials;

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Approval and introduction of new diagnostic or changes in standards of practice or regulatory guidance that render our clinical trial endpoints or the targeting of our proposed indications obsolete;
 
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Inability to monitor patients adequately during or after treatment or problems with investigator or patient compliance with the trial protocols;

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Inability to replicate in large controlled studies safety and efficacy data obtained from a limited number of patients in uncontrolled trials; and

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Inability or unwillingness of medical investigators to follow our clinical protocols.

We will depend on Medicare and a limited number of private payers for a significant portion of our revenues, and our revenues could decline if these payers fail to provide timely and adequate payment for our diagnostic tests

We expect that a substantial portion of the patients for whom we will perform diagnostic tests will have Medicare as their primary medical insurance. Even if our planned tests are otherwise successful, reimbursement for the Medicare-covered portions of our planned tests might not, without Medicare reimbursement, produce sufficient revenues to enable us to reach profitability and achieve our other commercial objectives.

Medicare and other third-party payers may change their coverage policies or cancel future contracts with us at any time; review and adjust the rate of reimbursement; or stop paying for our tests altogether, which would reduce our total revenues. Payers have increased their efforts to control the cost, utilization, and delivery of health care services, and have undertaken measures to reduce payment rates for and decrease utilization of clinical laboratory testing. Because of the cost-trimming trends, any third-party payers that will cover and provide reimbursement for our diagnostic tests may suspend, revoke or discontinue coverage at any time, or may reduce the reimbursement rates payable to us. Any such action could have a negative impact on our revenues, which may have a material adverse effect on our financial condition, results of operations and cash flows.

Changes in healthcare laws and policies may have a material adverse effect on our financial condition, results of operations and cash flows

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively “ACA”) substantially changed the way health care is financed by both governmental and private insurers. Among the ACA’s key changes, the ACA reduced payment rates under the Medicare Clinical Laboratory Fee Schedule and established an Independent Payment Advisory Board to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate. Such provisions may negatively impact payment rates for our diagnostic tests.

The Protecting Access to Medicare Act of 2014 (“PAMA”) significantly altered the payment methodology under the Clinical Laboratory Fee Schedule that determines Medicare coverage for laboratory tests. Under PAMA, clinical laboratories are required to report test payment data for each Medicare-covered clinical diagnostic laboratory test and beginning in 2017, the Medicare payment rate for each clinical diagnostic laboratory test will be equal to the weighted median amount for the test from the most recent data collection period.

Congress has proposed on several occasions to impose a 20% coinsurance payment requirement on patients for clinical laboratory tests reimbursed under the Medicare Clinical Laboratory Fee Schedule, which would require us to bill patients for these amounts. In the event that Congress were to ever enact such legislation, the cost of billing and collecting for our tests could often exceed the amount actually received from the patient.

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On September 25, 2015, CMS released preliminary determinations for the calendar year 2016 for the Medicare Clinical Laboratory Fee Schedule for some test codes, including some for oncology diagnostics, as had been anticipated. These preliminary determinations were based on a cross walk approach rather than a gap-fill approach. A cross walk approach matches a new code for a diagnostic against existing codes to determine the appropriate payment rate; while a gap-fill approach looks at local pricing patterns, including charges for the tests and any discounts on charges and payments determined by other payers. At this point it is not clear what methodology CMS may use in their determinations for future diagnostics.

Beginning January 1, 2017, Medicare payment for any new advanced diagnostic test will be based on the list price or charge. After the test is commercially available for two quarters, the laboratory will be required to report payment and volume information and that data will be used to set payment for the test for the following year.

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If data shows that the list price was greater than 130% of the payment using established methodology (a weighted median), CMS will recoup the difference from the laboratory through a payment claw back.

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Payment will be updated annually based on the weighted median of commercial payer reimbursement.

We cannot predict whether future health care initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us. The expansion of government’s role in the U.S. health care industry as a result of the ACA, and changes to the reimbursement amounts paid by Medicare and other payers for diagnostic tests may have a materially adverse effect on our business, financial condition, results of operations and cash flows.

Because of certain Medicare billing policies, we may not receive complete reimbursement for tests provided to Medicare patients

Medicare has coverage policies that can be national or regional in scope. Coverage means that the test or assay is approved as a benefit for Medicare beneficiaries. If there is no coverage, neither the supplier nor any other party, such as a diagnostic laboratory, may receive reimbursement from Medicare for the service. Regional policies are directed by Medicare’s regional Medicare Administrative Contractors (“MACs”). Reimbursement for our diagnostic testing may be negatively impacted by California MAC’s policies.

Long payment cycles of Medicare, Medicaid and/or other third-party payors, or other payment delays, could hurt our cash flows and increase our need for working capital

Medicare and Medicaid have complex billing and documentation requirements that we will have to satisfy in order to receive payment. Failure to comply with these requirements and other laws applicable to billing may result in, among other things, non-payment, refunds, exclusion from government healthcare programs, and civil or criminal liabilities, any of which may have a material adverse effect on our revenues and earnings. Similarly, the failure of private health insurers or other private third-party payers to properly process our payment claims in a timely manner could delay our receipt of payment for our diagnostic tests and services, which may have a material adverse effect on our cash flows.

Private health insurance company policies may deny coverage or limit the amount they will reimburse us for the performance of our diagnostic tests

Patients who are not covered by Medicare will generally rely on health insurance provided by private health insurance companies. If we are considered a “non-contracted provider” by a third-party payer, that payer may not reimburse patients for diagnostic tests performed by us or doctors within the payer’s network of covered physicians may not use our services to perform diagnostic tests for their patients. As a result we may need to enter into contracts with health insurance companies or other private payers to provide diagnostic tests to their insured patients at specified rates of reimbursement which may be lower than the rates we might otherwise collect.
 
We may be required to comply with federal and state laws governing the privacy of health information, and any failure to comply with these laws could result in material criminal and civil penalties

The Health Insurance Portability and Accountability Act (“HIPAA”) sets forth security regulations that establish administrative, physical and technical standards for maintaining the confidentiality, integrity and availability of Protected Health Information in electronic form. We also may be required to comply with state laws that are more stringent than HIPAA or that provide individuals with greater rights with respect to the privacy or security of, and access to, their health care records. The Health Information Technology for Economic and Clinical Health Act (“HITECH”) established certain health information security breach notification obligations that require covered entities to notify each individual whose “protected health information” is breached.
 
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We may incur significant compliance costs related to HIPAA and HITECH privacy regulations and varying state privacy regulations and varying state privacy and security laws. Given the complexity of HIPAA and HITECH and their overlap with state privacy and security laws, and the fact that these laws are rapidly evolving and are subject to changing and potentially conflicting interpretation, our ability to comply with the HIPAA, HITECH and state privacy requirements is uncertain and the costs of compliance are significant. The costs of complying with any changes to the HIPAA, HITECH and state privacy restrictions may have a negative impact on our operations. Noncompliance could subject us to criminal penalties, civil sanctions and significant monetary penalties as well as reputational damage.

We are subject to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws

We are subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. These health care laws and regulations include the following:

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The federal Anti-Kickback Statute;

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The federal physician self-referral prohibition, commonly known as the Stark Law;

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The federal false claims and civil monetary penalties laws;

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The federal Physician Payment Sunshine Act requirements under the ACA; and

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State law equivalents of each of the federal laws enumerated above.

Any action brought against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of these laws and regulations, we may be subject to any applicable penalty associated with the violation, including, among others, administrative, civil and criminal penalties, damages and fines, and/or exclusion from participation in Medicare, Medicaid programs, including the California Medical Assistance Program (Medi-Cal—the California Medicaid program) or other state or federal health care programs. Additionally, we could be required to refund payments received by us, and we could be required to curtail or cease our operations.

Risks Related to Intellectual Property

If we are unable to obtain and enforce patents and to protect our trade secrets, others could use our technology to compete with us, which could limit opportunities for us to generate revenues by licensing our technology and selling diagnostic tests


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Our success will depend in part on our ability to obtain and enforce patents and maintain trade secrets in the United States and in other countries. If we are unsuccessful in obtaining and enforcing patents, our competitors could use our technology and create diagnostic tests that compete with our diagnostic tests, without paying license fees or royalties to us.

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The preparation, filing, and prosecution of patent applications can be costly and time consuming. Our limited financial resources may not permit us to pursue patent protection of all of our technology and diagnostic tests throughout the world.
 
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Even if we are able to obtain issued patents covering our technology or diagnostic tests, we may have to incur substantial legal fees and other expenses to enforce our patent rights in order to protect our technology and diagnostic tests from infringing uses. We may not have the financial resources to finance the litigation required to preserve our patent and trade secret rights.

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The Supreme Court decisions in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and Association for Molecular Pathology v. Myriad Genetics may adversely impact our ability to obtain patent protection for some or all of our diagnostic tests, which use certain gene markers to indicate the presence of certain cancers. The claims in the contested patents that were the subject of the Supreme Court decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. were directed to measuring the serum level of a drug metabolite and adjusting the dosing regimen of the drug based on the metabolite level. The Supreme Court said that a patent claim that merely claimed a mathematical correlation between the blood levels of a drug metabolite and the best dosage of the drug was not patentable subject matter because it did no more than recite a correlation that occurs in nature. In Association for Molecular Pathology v. Myriad Genetics, the Supreme Court ruled that the discovery of the precise location and sequence of certain genes, mutations of which can dramatically increase the risk of breast and ovarian cancer, was not patentable. Knowledge of the gene location and sequences was used to determine the genes’ typical nucleotide sequence, which, in turn, enabled the development of medical tests useful for detecting mutations in these genes in a particular patient to assess the patient’s cancer risk. But the mere discovery of an important and useful gene did not render the genes patentable as a new composition of matter. The holdings in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and Association for Molecular Pathology v. Myriad Genetics may limit our ability to obtain patent protection on diagnostic methods that merely recite a correlation between a naturally occurring event and a diagnostic outcome associated with that event.

There is no certainty that our pending or future patent applications will result in the issuance of patents

We have filed patent applications for technology that we have developed, and we may obtain licenses for patent applications covering genes that we or our partners have discovered, that we believe will be useful in producing new diagnostic tests. We may also file additional new patent applications in the future seeking patent protection for new technology or diagnostics tests or products that we develop ourselves or jointly with others. However, there is no assurance that any of our licensed patent applications, or any patent applications that we have filed or that we may file in the future in the United States or abroad, will result in the issuance of patents.

The process of applying for and obtaining patents can be expensive and slow

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The preparation and filing of patent applications, and the maintenance of patents that are issued, may require substantial time and money.

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A patent interference proceeding may be instituted with the U.S. Patent and Trademark Office (the “USPTO”) when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of the interference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested legal proceedings, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect to any of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us

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A derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from the work of another inventor.

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Post Grant Review under the new America Invents Act will make available opposition-like proceedings in the United States. As with the USPTO interference proceedings, Post Grant Review proceedings will be very expensive to contest and can result in significant delays in obtaining patent protection or can result in a denial of a patent application.
 
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Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries. As with USPTO interference proceedings, these foreign proceedings can be very expensive to contest and can result in significant delays in obtaining a patent or can result in a denial of a patent application.
 
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Our patents may not protect our diagnostic tests from competition

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We might not be able to obtain any patents beyond the bladder cancer marker patent that has been issued by the USPTO, and any patents that we do obtain might not be comprehensive enough to provide us with meaningful patent protection.

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There will always be a risk that our competitors might be able to successfully challenge the validity or enforceability of any patent issued to us.

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In addition to interference proceedings, the USPTO can reexamine issued patents at the request of a third party. Our patents may be subject to inter partes review (replacing the reexamination proceeding), a proceeding in which a third party can challenge the validity of one of our patents to have the patent invalidated. This means that patents owned or licensed by us may be subject to reexamination and may be lost if the outcome of the reexamination is unfavorable to us.

We may be subject to patent infringement claims that could be costly to defend, which may limit our ability to use disputed technologies, and which could prevent us from pursuing research and development or commercialization of some of our diagnostic tests, require us to pay licensing fees to have freedom to operate and/or result in monetary damages or other liability for us

The success of our business depends significantly on our ability to operate without infringing patents and other proprietary rights of others. If the technology that we use infringes a patent held by others, we could be sued for monetary damages by the patent holder or its licensee, or we could be prevented from continuing research, development, and commercialization of diagnostic tests that rely on that technology, unless we are able to obtain a license to use the patent. The cost and availability of a license to a patent cannot be predicted, and the likelihood of obtaining a license at an acceptable cost would be lower if the patent holder or any of its licensees is using the patent to develop or market a diagnostic tests with which our diagnostic test would compete. If we could not obtain a necessary license, we would need to develop or obtain rights to alternative technologies, which could prove costly and could cause delays in diagnostic test development, or we could be forced to discontinue the development or marketing of any diagnostic tests that were developed using the technology covered by the patent.

Risks Related to Our Relationship with BioTime

We are a subsidiary of BioTime, and accordingly our business is substantially controlled by BioTime

Prior to the Distribution, BioTime owned approximately 76% of our issued and outstanding shares of common stock, and after the Distribution will continue to own approximately ____% of our outstanding shares of common stock. This means that BioTime will have the voting power, through its ownership of shares of our common stock, to elect our entire Board of Directors and to control our management.

BioTime could cause corporate actions to be taken even if the interests of BioTime conflict with the interests of our other shareholders. This concentration of voting power could have the effect of deterring or preventing a change in control that might be beneficial to our other shareholders.

As the majority shareholder, BioTime will have the voting power to approve or disapprove any matter of corporate transaction presented to our shareholders for approval, including but not limited to:

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Any amendment of our articles of incorporation or bylaws;
 
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Any merger or consolidation of us with another company;

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Any recapitalization or reorganization of our capital stock;

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Any sale of assets or purchase of assets; or

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A corporate dissolution or a plan of liquidation of our business.

We will initially rely upon BioTime for certain services and resources

Although we plan to have our own research facilities in the near future, our own scientific personnel, and many critical management personnel, we will initially rely on BioTime to provide certain management and administrative services, including patent prosecution, certain legal services, accounting, financial management, and controls over financial accounting and reporting. We have entered into a Shared Facilities and Services Agreement (“Shared Facilities Agreement”) with BioTime under which we have agreed to bear costs allocated to us by BioTime for the use of BioTime human resources and for services and materials provided for our benefit by BioTime. We will pay BioTime 105% of its costs of providing personnel and services to us, and for any use of its facilities by us, including an allocation of general overhead based on that use. We may also share the services of some research personnel with BioTime.

If BioTime’s human resources and facilities are not sufficient to serve both BioTime’s needs and ours, we will have to hire additional personnel of our own, either on a full-time or part-time basis, as employees or as consultants, and the cost of doing so could be greater than the costs that would be allocated to us by BioTime. Also, any new personnel that we may need to hire may not be as familiar with our business or operations as BioTime’s personnel, which means that we would incur the expense and inefficiencies related to training new employees or consultants.

A majority of our directors are officers or directors of BioTime or its other subsidiaries

Four of the seven members of our Board of Directors are also officers or directors of BioTime or a BioTime subsidiary. This commonality of directors means that we will not have a Board of Directors making business decisions on our behalf independent from BioTime. Even those of our directors who do not serve on the BioTime Board of Directors will be elected to our Board of Directors by BioTime, and they may be removed from our Board of Directors by BioTime, as the majority shareholder.

Conflicts of interest may arise from our relationship with BioTime

Our relationship with BioTime could give rise to certain conflicts of interest that could have an impact on our research and development programs, business opportunities, and operations generally.

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Even if we utilize different technologies than BioTime or its other subsidiaries, we could find ourselves in competition with them for research scientists, financing and other resources, licensing, manufacturing, and distribution arrangements, and for customers if we and BioTime or another BioTime subsidiary both bring diagnostic tests to market.

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Because we are a subsidiary of BioTime, BioTime could prevent us from engaging in research and development programs, investments, business ventures, or agreements to develop, license, or acquire diagnostic tests or technologies that would or might compete with those owned, licensed, or under development by BioTime or any of its other subsidiaries.
 
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BioTime and its other subsidiaries will engage for their own accounts in research and product development programs, investments, and business ventures, and we will not be entitled to participate or to receive an interest in those programs, investments, or business ventures. BioTime and its other subsidiaries will not be obligated to present any particular research and development, investment, or business opportunity to us, even if the opportunity would be within the scope of our research and development plans or programs, business objectives, or investment policies. These opportunities may include, for example, opportunities to acquire businesses or assets, including but not limited to patents and other intellectual property that could be used by us or by BioTime or by any of BioTime’s other subsidiaries. Our respective boards of directors will have to determine which company should pursue those opportunities, taking into account relevant facts and circumstances at the time, such as the financial and other resources of the companies available to acquire and utilize the opportunity, and the best “fit” between the opportunity and the business and research and development programs of the companies. However, since BioTime will have the ultimate power to elect the members of our Board of Directors, BioTime may have the ultimate say in decision making with respect to the allocation of opportunities.
 
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If we enter into any patent or technology license or sublicense, or any other agreement with BioTime or with another BioTime subsidiary, the BioTime companies that are parties to the agreement may have a conflict of interest in determining how and when they should enforce their rights under the agreement if the other BioTime company that is a party were to default or otherwise fail to perform any of its obligations under the agreement.

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One of our significant assets as of November 23, 2015 is 619,706 BioTime common shares that we acquired from BioTime in exchange for shares of our common stock. We expect to sell the BioTime common shares from time to time, or to pledge those shares as collateral for loans, to raise capital to finance our operations. Because a sale of those shares could have a depressing effect on the market value of BioTime common shares, BioTime will have a continuing interest in the number of shares we sell, the prices at which we sell the shares, and time and manner in which the shares are sold. Further, we may need to sell or find it desirable to sell BioTime common shares at the same time as BioTime, or other BioTime subsidiaries that hold BioTime common shares, also desire to sell some of their BioTime common shares. Concurrent sales of BioTime common shares by us, BioTime, or other BioTime subsidiaries could have a depressing effect on the market price of the BioTime common shares, lowering the price at which we and they are able to sell BioTime common shares and resulting in lower net proceeds from the sales. We plan to coordinate any future sales of our BioTime common shares with BioTime and its other subsidiaries in order to provide an orderly and controlled process for raising capital through the sale of BioTime shares. This will include an agreement as to the number of shares to be sold, the time period or “market window” for selling shares, the use of a common securities broker-dealer, and a fair allocation of net sales based on average sales prices during any trading day on which we and they sell BioTime shares.

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Each conflict of interest will be resolved by our respective boards of directors in keeping with their fiduciary duties and such policies as they may implement from time to time. However, the terms and conditions of patent and technology licenses and other agreements between us and BioTime or other BioTime subsidiaries will not be negotiated on an arm’s-length basis due to BioTime’s ownership of a controlling interest in us and due to the commonality of directors serving on our respective boards of directors.

Risks Related to Our Dependence on Third Parties

There is a limited number of manufacturers of molecular diagnostic equipment and related chemical reagents necessary for the provision of our diagnostic tests

In order to develop molecular diagnostics and to provision our diagnostic tests, we will need to acquire certain analytic equipment. There are only a few manufacturers of the equipment we will need and the chemical reagents that are required for use with a particular manufacturer’s equipment will be available only from that equipment manufacturer. If the manufacturer of the equipment we acquire discontinues operation or if we experience supply or quality issues with their equipment or reagents, it may become necessary for us to acquire different analytic equipment, which would require additional experiments to ensure reproducibility of our test results using the new equipment. As a result, we may be unable to provide our diagnostic tests for a period of time.

If we fail to enter into and maintain successful strategic alliances for diagnostic tests that we elect to co-develop, co-market, or out-license, we may have to reduce or delay our diagnostic test development or increase our expenditures

In order to facilitate the development, manufacture and commercialization of our diagnostic tests we may enter into strategic alliances with pharmaceutical companies or other industry participants to advance our programs and enable us to maintain our financial and operational capacity. We will face significant competition in seeking appropriate alliances. We may not be able to negotiate alliances on acceptable terms, if at all. If we fail to create and maintain suitable alliances, we may have to limit the size or scope of, or delay, one or more of our product development or research programs, or we will have to increase our expenditures and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms.
 
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If we are able to enter into development and marketing arrangements with pharmaceutical or medical device companies for our diagnostic tests, we may license product development, manufacturing, and marketing rights to the pharmaceutical or medical device company or to a joint venture company formed with the pharmaceutical or medical device company. Under such arrangements we might receive only a royalty on sales of the diagnostic tests developed or an equity interest in a joint venture company that develops the diagnostic test. As a result, our revenues from the sale of those diagnostic tests may be substantially less than the amount of revenues and gross profits that we might receive if we were to develop, manufacture, and market the diagnostic tests ourselves.

We may become dependent on possible future collaborations to develop and commercialize many of our diagnostic test candidates and to provide the manufacturing, regulatory compliance, sales, marketing and distribution capabilities required for the success of our business

We may enter into various kinds of collaborative research and development, manufacturing, and diagnostic test marketing agreements to develop and commercialize our diagnostic tests. Any future milestone payments and cost reimbursements from collaboration agreements could provide an important source of financing for our research and development programs, thereby facilitating the application of our technology to the development and commercialization of our diagnostic tests, but there are risks associated with entering into collaboration arrangements.

There is a risk that we could become dependent upon one or more collaborative arrangements for diagnostic test development or manufacturing or as a source of revenues from the sale of any diagnostic tests that may be developed by us alone or through one of the collaborative arrangements. A collaborative arrangement upon which we might depend might be terminated by our collaboration partner or they might determine not to actively pursue the development or commercialization of our diagnostic tests. A collaboration partner also may not be precluded from independently pursuing competing diagnostic tests or technologies.

There is a risk that a collaboration partner might fail to perform its obligations under the collaborative arrangements or may be slow in performing its obligations. In addition, a collaboration partner may experience financial difficulties at any time that could prevent it from having available funds to contribute to the collaboration. If a collaboration partner fails to conduct its diagnostic test development, manufacturing, commercialization, regulatory compliance, sales and marketing or distribution activities successfully and in a timely manner, or if it terminates or materially modifies its agreements with us, the development and commercialization of one or more diagnostic test candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue diagnostic test development, manufacturing, and commercialization on our own.

Risks Pertaining to Our Common Stock

Ownership of our common stock will entail certain risks associated with the absence of a previous trading market for our common stock, volatility of prices for our shares, and the fact that we do not pay dividends.

There is presently no public market for our common stock and there is no assurance that a market will develop and be sustained

There is presently no public market for our common stock or any other OncoCyte securities. There can be no assurance that an active market for our common stock will materialize or, if a market does develop, that it will be sustained.
 
Additional shares of our common stock will become eligible for public sale, and sales of those shares could create downward pressure on the trading price of our common stock

After the Distribution, BioTime will continue to hold approximately ______ shares of OncoCyte common stock and two other OncoCyte shareholders will own a total of ____ shares of OncoCyte common stock that were outstanding prior to the Distribution. Under Securities and Exchange Commission Rule 144, those shares will become eligible to be publicly sold in compliance with the provisions of Rule 144 after the shares have been beneficially owned for at least one year, or for at least six months if the shares are sold after we have been subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for a period of 90 days and have filed all reports required under the Exchange Act, other than form 8-K. Based on the date of issue, we expect that ____ shares will become eligible for sale under Rule 144 during _____, 2016.
 
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We have agreed to register for sale under the Securities Act _________ shares of common stock that we sold to certain investors, including BioTime, without registration under the Securities Act. We have agreed to file a registration statement covering those shares promptly after the date on which we first become eligible to register those securities on Form S-3. Under the rules for the use of Form S-3, 12 calendar months after the date of this Information Statement we will first become eligible to register securities on Form S-3.

Sales of OncoCyte common stock under Rule 144 or through an effective registration statement under the Securities Act could create downward pressure on the trading price of our common stock.

Because we are engaged in the development of medical diagnostic tests, the price of our stock may rise and fall rapidly

The market price of our common stock, like that of the shares of many biotechnology companies, may be highly volatile. The price of our common stock may rise or fall rapidly as a result of a number of factors, including:

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Sales or potential sales of substantial amounts of our common stock;

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Results of preclinical testing or clinical trials of our diagnostic test candidates or those of our competitors;

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Announcements about us or about our competitors, including clinical trial results, regulatory approvals, new diagnostic test introductions and commercial results;

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The cost of our development programs;

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The success of competitive diagnostic tests or technologies;

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Litigation and other developments relating to our issued patents or patent applications or other proprietary rights or those of our competitors;

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Conditions in the diagnostic, pharmaceutical or biotechnology industries;

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Actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

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Variations in our financial results or those of companies that are perceived to be similar to us, including the failure of our earnings to meet analysts’ expectations;

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General economic, industry and market conditions; and

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Changes in payer coverage and or reimbursement.

Many of these factors are beyond our control. The stock markets in general, and the market for pharmaceutical and biotechnological companies in particular, have been experiencing extreme price and volume fluctuations which have affected the market price of the equity securities without regard to the operating performance of the issuing companies. Broad market fluctuations, as well as industry factors and general economic and political conditions, may adversely affect the market price of our common stock.
 
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Because we do not pay dividends, our stock may not be a suitable investment for anyone who needs to earn dividend income

We do not pay cash dividends on our common stock. For the foreseeable future we anticipate that any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders. This means that our stock may not be a suitable investment for anyone who needs to earn income from their investments.

Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on the market price of our shares

If a trading market for our common stock develops, the market will depend, in part, on the research and reports that securities analysts publish about our business and our common stock. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of those shares. If securities analysts do cover our shares, they could issue reports or recommendations that are unfavorable to the price of our shares, and they could downgrade a previously favorable report or recommendation, and in either case our share price could decline as a result of the report. If one or more of these analysts ceases to cover our shares or fails to publish regular reports on our business, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

You may experience dilution of your ownership interests if we issue additional shares of common stock or preferred stock

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue an aggregate of 55,000,000 shares of capital stock consisting of 50,00,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. Upon completion of the Distribution, we expect that there will be approximately 25,422,000 shares of common stock outstanding, 1,500,000 shares of common stock that may become issuable upon issuance of contingently issuable warrants at $0.02 per share, (see Note 6 to the Unaudited Interim Condensed Financial Statements), and 2,235,000 shares of common stock reserved for issuance upon the exercise of options under our employee stock option plan. No shares of preferred stock are presently outstanding.

We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees or consultants, or in connection with future acquisitions of licenses to technology or rights to acquire diagnostic tests in connection with future business acquisitions, or for other business purposes. The future issuance of any such additional common stock or other securities may create downward pressure on the trading price of our common stock.

We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock.

Unless our common stock is approved for listing on a national securities exchange it will be subject to the so-called “penny stock” rules that impose restrictive sales practice requirements

If we are unable to obtain approval from a national securities exchange to list our common stock, those shares could become subject to the so-called “penny stock” rules if the shares have a market value of less than $5.00 per share. The SEC has adopted regulations that define a penny stock to include any stock that has a market price of less than $5.00 per share, subject to certain exceptions, including an exception for stock traded on a national securities exchange. The SEC regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. An accredited investor generally is a person whose individual annual income exceeded $200,000, or whose joint annual income with a spouse exceeded $300,000 during the past two years and who expects their annual income to exceed the applicable level during the current year, or a person with net worth in excess of $1.0 million, not including the value of the investor’s principal residence and excluding mortgage debt secured by the investor’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by the investor within 60 days prior to the date of the transaction shall not be excluded from the determination of the investor’s net worth unless the mortgage debt was incurred to acquire the residence. For transactions covered by this rule, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. This means that if we are unable to list our common stock on a national securities exchange, the ability of shareholders to sell their OncoCyte common stock in the secondary market could be adversely affected.
 
26

If a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating to the penny stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the customer’s account and information on the limited market in penny stocks.

We are an “emerging growth company,” and may elect to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors

We are an “emerging growth company,” as defined in the JOBS Act, and we may to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; (ii) the fifth anniversary of the completion of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

We will incur costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives

As a public reporting company, we will incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will entail significant legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept low policy limits and coverage.

 
THE DISTRIBUTION

General

BioTime presently operates a substantial portion of its stem cell and regenerative medicine business through subsidiaries, some of which are wholly-owned, and some, like OncoCyte, are majority-owned by BioTime but have minority shareholders. BioTime currently owns 76.4% of the outstanding shares of OncoCyte common stock, and the remaining 23.6% of the OncoCyte shares outstanding are owned by three other shareholders. OncoCyte also has its own stock option plan under which it has granted options to purchase common stock to certain officers, directors, employees and consultants, some of whom are also officers, directors, employees or consultants of BioTime.
 
27

On __________ __, 2015, the BioTime board of directors formally approved the Distribution and on _________, 2015 the BioTime board of directors declared a dividend payable to each holder of record at the close of business on __________ 2015 of one share of OncoCyte common stock for every __ BioTime common shares held.

Reasons for the Distribution

After considering how to:

·
best provide management and employee incentives tied to OncoCyte’s growth and financial performance in order to facilitate the hiring and retention of high quality managers, research scientists, and other employees;

·
best position OncoCyte to finance its future capital needs for its operations;

·
best position OncoCyte to finance business and technology acquisitions; and

·
maximize value for BioTime shareholders,

In order to finance OncoCyte’s ongoing working capital needs, including for research and development and general administrative expenses, BioTime has had to contribute capital to OncoCyte. The source of that equity capital has been the sale of BioTime common shares. While OncoCyte has relied on and benefitted from such financing, the sale of BioTime common shares has diluted BioTime shareholders’ overall interests in BioTime and its other operating subsidiaries. The Distribution will give OncoCyte direct access to capital markets, so that OncoCyte may no longer need to rely on BioTime to obtain necessary financing to fund its operations. After the Distribution, OncoCyte’s financing activities in the capital markets may be dilutive to shareholders of OncoCyte who do not participate in the financing, but any dilutive effect on the shareholders of BioTime will be confined to any dilution of BioTime’s equity interest in OncoCyte, and will not dilute BioTime shareholders’ equity interest in other aspects of BioTime’s business.

In addition to providing OncoCyte access to the capital markets to obtain the financing, BioTime believes that creating a separate management team for OncoCyte and fostering public ownership of OncoCyte common stock will better enable OncoCyte to focus on maximizing opportunities for its cancer diagnosis business, to establish a clinical testing laboratory for its diagnostic tests, and to commercialize its diagnostic tests. The Distribution will facilitate deeper understanding by investors of the different businesses of BioTime and OncoCyte, allowing investors to more transparently value the merits, performance, and future prospects of each company, which could increase overall shareholder value.

The Distribution will also provide enhanced liquidity to holders of BioTime common shares, who after the Distribution will hold two separate publicly traded securities that they may seek to retain or monetize. Investors will have a more targeted investment opportunity by having equity in two separate companies with different investment and business characteristics, including opportunities for growth, capital structure, business model, and financial returns. BioTime also believes that the Distribution may also enhance the value of the OncoCyte common stock that BioTime continues to own, thus providing additional value to BioTime shareholders. Neither BioTime nor OncoCyte can assure that, following the Distribution, any of these benefits will be realized to the extent anticipated or at all.

BioTime’s board of directors also considered a number of other factors in evaluating the Distribution, including:

·
the one-time and on-going expenditures and financial costs of the Distribution to both BioTime and OncoCyte;

·
the possibility that the Distribution may affect the financial strength of BioTime or its subsidiaries;

·
the potential tax consequences to BioTime, BioTime shareholders and OncoCyte; and

·
the risk that the combined trading prices of OncoCyte common stock and BioTime common shares after the Distribution may be lower than the trading price of BioTime’s common shares before the Distribution.

BioTime’s board of directors concluded, however, that the potential benefits of the Distribution outweigh these factors and that the Distribution is appropriate and advisable for BioTime and its shareholders at this time.
 
28

Manner of Effecting the Distribution

The general terms and conditions relating to the Distribution are set forth in a separation and distribution agreement between OncoCyte and BioTime. The Distribution will be made on the Distribution Date, which is expected to be __________, 2015. As a result of the Distribution, each BioTime shareholder will receive one share of OncoCyte common stock for every __ BioTime common shares that the shareholder owns. No fractional shares will be issued. Those BioTime shareholders who would otherwise be entitled to receive fractional shares will receive cash in lieu of fractional shares. In order to be entitled to receive OncoCyte shares in the Distribution, BioTime shareholders must be shareholders at the close of business of the NYSE MKT on the record date, which is __________ __, 2015. The distribution of the shares of OncoCyte common stock will be made in book-entry form. Each Distribution Share that is distributed will be validly issued, fully paid and nonassessable and free of preemptive rights. See “Description of Securities.”

BioTime shareholders will not be required to pay for the Distribution Shares of OncoCyte that they receive in the Distribution and will not need to surrender or exchange BioTime common share certificates in order to receive their OncoCyte stock, or to take any other action in connection with the Distribution. No vote of BioTime shareholders is required or sought in connection with the Distribution and BioTime shareholders have no appraisal rights in connection with the Distribution.

As of November 16, 2015 OncoCyte owned 619,706 BioTime common shares. Any OncoCyte common stock distributed to OncoCyte with respect to the BioTime common shares that it owns will automatically revert to the status of authorized but unissued shares and will not be outstanding. However, OncoCyte will continue to own the same number of BioTime common shares.

Cash in lieu of fractional shares

The distribution agent will not deliver any fractional shares of OncoCyte common stock in connection with the Distribution. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices, and distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each holder of BioTime common shares who would otherwise be entitled to receive a fractional share in the Distribution. Those cash payments will be made to the holders in the same accounts in which the underlying shares are held. If a BioTime shareholder physically holds BioTime stock certificates, that shareholder’s check for any cash that he or she may be entitled to receive instead of fractional shares will be included together with the account statement in the mailing that the distribution agent expects to send out on or after the Distribution Date.

BioTime, OncoCyte and the distribution agent cannot guarantee any minimum sale price for the fractional shares of OncoCyte common stock. Neither BioTime nor OncoCyte will pay any interest on the proceeds from the sale of fractional shares.

Distribution to residents of certain states and countries

BioTime and OncoCyte do not plan to register or qualify the Distribution under the securities laws of certain states and foreign countries. In the event that BioTime, OncoCyte, or the distribution agent determine that shares of OncoCyte common stock cannot be lawfully distributed to any BioTime shareholder residing in certain states or foreign countries (“Excluded Jurisdictions”), the distribution agent will sell those OncoCyte shares in the open market at prevailing market prices and distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each holder of BioTime common shares who resides in the Excluded Jurisdictions and who would otherwise be entitled to receive shares of OncoCyte common stock in the Distribution. Those cash payments will be made to the holders in the same accounts in which the underlying shares are held. If a BioTime shareholder residing in an Excluded Jurisdiction physically holds BioTime stock certificates, that shareholder’s check for any cash that he or she may be entitled to receive instead of OncoCyte common stock will be mailed to the shareholder by the distribution agent after the Distribution Date.

BioTime, OncoCyte, and the distribution agent cannot guarantee any minimum sale price for the shares of OncoCyte common stock for the account of residents of Excluded Jurisdictions. Neither BioTime nor OncoCyte will pay any interest on the proceeds from the sale of shares for the accounts of shareholders residing in Excluded Jurisdictions.
 
29

Distribution Conditions and Termination

We expect that the Distribution will be effective on the Distribution Date, __________, 2015, provided that, among other things:

·
the SEC has declared effective our Form 10, of which this information statement is a part, under the Exchange Act;

·
OncoCyte and BioTime have received all material licenses, permits, estoppels, consents, approvals, authorizations, qualifications and orders of governmental authorities and third parties as are necessary for consummation of the Distribution; and

·
no action, proceeding or investigation shall have been instituted or threatened before any court or administrative body to restrain, enjoin or otherwise prevent the consummation of the Distribution, and no restraining order or injunction issued by any court of competent jurisdiction.

The fulfillment of the foregoing conditions will not create any obligation on BioTime’s part to effect the Distribution, and the board of directors of BioTime has reserved the right to amend, modify or abandon the Distribution at any time prior to the Distribution Date. The board of directors of BioTime may also waive any of these conditions.

In addition, BioTime has the right not to complete the Distribution if, at any time, the BioTime board of directors determines, in its sole discretion, that the Distribution is not in the best interests of BioTime and its shareholders. If BioTime determines to terminate the Distribution, changes the Distribution Date or the record date, or amends or modifies the terms of the Distribution, BioTime and OncoCyte will issue a press release and each will file a Current Report on Form 8-K and OncoCyte will provide a supplement to this Information Statement disclosing the applicable changes.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to BioTime shareholders who will receive shares of OncoCyte common stock in the Distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any securities. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither OncoCyte nor BioTime undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations.

 
MARKET FOR OUR COMMON EQUITY

There is presently no market for our common stock and there is no assurance that a market will developed or be sustained. We plan to apply to list OncoCyte common stock on the NYSE MKT under the symbol __. If our listing application is not approved, w e plan to arrange for the trading of our common stock on the OTC Bulletin Board no later than the completion of the Distribution. If our common stock initially trades on the OTC Bulletin Board, we intend to apply to list our common stock on a national securities exchange if and when we are able to meet the applicable listing standards of an exchange, but there is no assurance that any listing application that we may file will be approved by the exchange.

 
DIVIDEND POLICY

We have never declared any cash dividends on our common stock. For the foreseeable future we anticipate that any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders.
 
30

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2015 and December 31, 2014. You should read this table in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Securities” and our financial statements and related notes included elsewhere in this information statement (in thousands).

   
September 30,
2015
(unaudited)
   
December 31,
2014
 
         
Cash and cash equivalents
 
$
9,410
   
$
257
 
Preferred stock, no par value, 5,000 shares authorized; none issued and outstanding
 
$
-
     
-
 
Common stock, no par value, 50,000 shares authorized; 23,914 and 18,200 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
   
30,979
     
15,147
 
Accumulated other comprehensive loss on available-for-sale securities
   
(1,442
)
   
(822
)
Accumulated deficit
   
(20,595
)
   
(15,399
)
Total stockholders’ equity (deficit)
   
8,942
     
(1,074
)
                 
Total capitalization
 
$
8,942
   
$
(1,074
)

 
SUMMARY AND SELECTED FINANCIAL DATA

The following table summarizes the relevant financial data for our business and should be read in conjunction with the sections entitled “Risk Factors,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial statements and related notes, all included elsewhere in this information statement (in thousands).

   
Nine Months Ended September 30,
(unaudited)
   
Year Ended December 31,
 
   
2015
   
2014
   
2014
   
2013
 
OPERATING EXPENSES
               
Research and development
 
$
3,098
   
$
2,837
   
$
3,962
   
$
2,943
 
General and administrative
   
2,081
     
638
     
1,011
     
552
 
Total operating expenses
   
5,179
     
3,475
     
4,973
     
3,495
 
                                 
Loss from operations
   
(5,179
)
   
(3,475
)
   
(4,973
)
   
(3,495
)
                                 
OTHER EXPENSES, NET
                               
Interest expense, net
   
16
     
2
     
2
     
-
 
Other expense, net
   
1
     
2
     
11
     
-
 
Total other expense, net
   
17
     
4
     
13
     
-
 
                                 
NET LOSS
 
$
(5,196
)
 
$
(3,479
)
 
$
(4,986
)
 
$
(3,495
)
                                 
Basic and diluted net loss per common share
 
$
(0.26
)
 
$
(0.19
)
 
$
(0.27
)
 
$
(0.19
)
                                 
Weighted average common shares outstanding used to compute net loss per common share, basic and diluted
   
19,803
     
18,200
     
18,200
     
18,200
 
 
31

   
September 30,
2015
(unaudited)
 
December 31, 2014
Balance Sheet Data:
       
Cash and cash equivalents
 
$
9,410
   
$
257
 
Available-for-sale securities, at fair value
   
2,598
     
3,280
 
Intangible assets, net
   
1,290
     
1,472
 
Total assets
   
14,298
     
6,356
 
Total liabilities
   
5,356
     
7,430
 
Total stockholders’ equity (deficit)
 
$
8,942
   
$
(1,074
)

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our unaudited interim condensed financial statements for the nine months ended September 30, 2015 and 2014, and our audited financial statements for the years ended December 31, 2014 and 2013, and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in “Risk Factors.”

Emerging Growth Company Status

The Jumpstart our Business Startups Act of 2012 (“JOBS Act”) permits an "emerging growth company" such as OncoCyte to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we will comply with newly adopted or revised accounting standards when they become applicable to public companies because our financial statements will be consolidated with those of BioTime, which is not an emerging growth company under the JOBS Act and is therefore not permitted to delay the adoption of new or revised accounting standards that become applicable to public companies. This election under the JOBS Act to not delay the adoption of new or revised accounting standards is irrevocable.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We were incorporated during September 2009. Our operations have included planning and launching research and diagnostic test development programs in house and with partners, pursuing patents, and conducting clinical trials.

The inherent uncertainties of developing new diagnostic tests for medical use make it impossible to predict the amount of time and expense that will be required to complete the development and commence commercialization of new diagnostic tests. There is no assurance that we will be successful in developing new technology or diagnostic tests, or that any technology or diagnostic tests that we may develop will be proven safe and effective in diagnosis of cancer in humans, or will be successfully commercialized.

We believe we have sufficient capital to carry out our current research and development plan at least through September 30, 2016. We may need to obtain additional financing in order to continue our operations after this date. Our determination as to when we will seek new financing and the amount of financing that we will need will be based on our evaluation of the progress we make in our research and development program, any changes to or the expansion of the scope and focus of our research, and our projection of future costs. See “Liquidity and Capital Resources” for a discussion of our available capital resources, our potential need for future financing, and possible sources of capital.
 
32

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in our financial statements and related notes. Our significant accounting policies are described in Note 2 to our financial statements included elsewhere in this information statement. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. On an ongoing basis, we evaluate our estimates that are subject to significant judgment including those related to the allocation of direct and indirect expenses, useful lives associated with long-lived assets, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, convertible debt, conversion features, warrants or other equity instruments. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe the assumptions and estimates associated with the following have the greatest potential impact on our financial statements.

Related party transactions - Shared Facilities and Services Agreement

As more fully described in Note 4 to our financial statements, to the extent we do not employ our own human resources for operations, our parent company, BioTime, or BioTime commonly controlled and consolidated subsidiaries provide certain employees for administrative or operational services, as necessary, for our benefit, under the Shared Facilities Agreement. Accordingly, BioTime allocates expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that particular employees devote to our affairs. Other expenses such as legal, accounting, marketing, travel, and entertainment expenses are allocated to us to the extent that those expenses are incurred by or on behalf of OncoCyte. BioTime also allocates certain overhead expenses such as insurance, internet and telephone expenses based on a percentage determined by management. These allocations are made based upon activity-based allocation drivers such as time spent, percentage of square feet of office or laboratory space used, and percentage of personnel devoted to our operations or management. Management evaluates the appropriateness of the percentage allocations on a quarterly basis and believes that this basis for allocation is reasonable.

Stock-based compensation

We recognize compensation expense related to employee option grants and restricted stock units, if any, in accordance with FASB ASC 718, Compensation – Stock Compensation (“ASC 718”).

We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value, net of estimated forfeitures, over the requisite service period. We use the Black-Scholes option pricing model for estimating the fair value of options granted under our stock option plan. The fair value of restricted stock units, if any, is determined based on the value of the underlying common stock. We have elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period.

Compensation expense for non-employee stock-based awards is recognized in accordance with ASC 718 and FASB ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Stock option awards issued to non-employees, consisting principally of BioTime or BioTime commonly controlled and consolidated subsidiaries’ employees performing services for us, are accounted for at fair value using the Black-Scholes option pricing model. We believe that the fair value of the stock options is more reliably measured than the fair value of services received. We record compensation expense based on the then-current fair values of the stock options at each financial reporting date. Compensation recorded during the service period is adjusted in subsequent periods for changes in the stock options' fair value until the earlier of the date at which the non-employee’s performance is complete or a performance commitment is reached, which is generally when the stock option award vests. Compensation expense for non-employee grants is recorded on a straight-line basis in the statements of operations.
 
33

The Black-Scholes option pricing model requires us to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected volatility, the risk-free interest rate and the dividend yield.

The fair value of the shares of our common stock underlying the stock options has historically been determined by our Board of Directors. Because there has been no public market for our common stock, our Board of Directors has determined the fair value of our common stock at the time of the grant of options by considering a number of objective and subjective factors including contemporaneous sales of our common stock to investors, valuation of comparable companies, operating and financial performance and general and industry-specific economic outlook, among other factors. The fair value our common stock will be determined by our Board of Directors until such time as our common stock is listed on an established stock exchange or national market system. We determined the fair value in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled Valuation of Privately Held Company Equity Securities Issued As Compensation .

The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. We estimate the expected term of options granted based upon the “simplified method” provided under Staff Accounting Bulletin, Topic 14 (“SAB Topic 14”).

Because our common stock has no publicly traded history, we estimate the expected volatility of the awards from the historical volatility of selected public companies within the biotechnology industry with comparable characteristics to us, including similarity in size, lines of business, market capitalization, revenue and financial leverage. We determined the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options. We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock option grants.

The risk-free interest rate assumption is based upon observed interest rates on the United States government securities appropriate for the expected term of our stock options.

The dividend yield assumption is based on our history and expectation of dividend payouts. We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.

The assumptions that were used to calculate the grant date fair value of our employee and non-employee stock option grants for the years ended December 31, 2014 and 2013 were as follows.
   
2014 (1)
 
2013
 
Expected life (in years)
  -     4.13    
Risk-free interest rates
  - %   1.28
%
 
Volatility
  -
%
  70.68
%
 
Dividend yield
  -
%
  0.00
%
 
 

(1) No stock options were granted in 2014.

The assumptions that were used to calculate the grant date fair value of our employee and non-employee stock option grants for the nine months ended September 30, 2015 and 2014 were as follows.

   
2015
 
2014 (1)
 
Expected life (in years)
  6.89     -    
Risk-free interest rates
  1.81
%
  -
%
 
Volatility
  74.25
%
  -
%
 
Dividend yield
  0.00
%
  -
%
 
 

(1) No stock options were granted in 2014.

Stock-based compensation expense is recognized based on awards that are ultimately expected to vest, and as a result, the amount has been reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on our historical experience and future expectations.
 
34

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we had made different assumptions, our stock-based compensation expense for all periods presented may have been significantly different.

Accounting for BioTime Shares

We account for the BioTime shares we hold as available-for-sale equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities , as the shares have a readily determinable fair value quoted on the NYSE MKT and are held principally for future working capital purposes, as necessary. These shares are measured at fair value and reported as current assets on the balance sheet based on the closing trading price of the security as of the date being presented. Unrealized holding gains and losses due to changes to the fair value of these shares are excluded from the statements of operations and reported in equity as part of other comprehensive income or loss, net of income taxes, until realized. Realized gains and losses for shares sold are reclassified out of accumulated other comprehensive income or loss and included in equity, as an increase or decrease to common stock equity consistent with, and pursuant to, ASC 805-50, transactions between entities under common control.

Fair Value Measurements

We account for fair value measurements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”). ASC 820 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. For the periods presented, we had no financial assets or liabilities recorded at fair value on a recurring basis, except for cash equivalents consistent of money market funds and the available-for-sale securities of BioTime common stock held by us described above. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input.

The carrying amounts of cash equivalents, prepaid expenses and other current assets, amounts due to BioTime and other affiliates, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.
 
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The fair value of our contingently issuable common stock warrants is estimated using a Black-Scholes valuation model, using Level 3 inputs, then adjusted for the probability of actually issuing those warrants to arrive at the probability-adjusted fair value. Since the contingently issuable warrants are equity classified and considered issued for accounting purposes as of June 30, 2015, no further remeasurement of the fair value of the warrants was necessary in subsequent periods for financial statement reporting purposes, regardless of changes in the probability of issuance or if the warrants are actually issued.

We have elected not to measure the related party convertible promissory note payable (disclosed in Note 5 to our unaudited interim condensed financial statements) at fair value, with the changes in fair value recognized in the statements of operations each period in accordance with ASC 815-15, Derivatives and Hedging – Embedded Derivatives . The debt conversion feature can only be physically settled by delivery of our common stock for converted principal and interest. The debt conversion feature does not meet the definition of an embedded derivative requiring bifurcation under the provisions of ASC 815-10 since, among other factors, we are not permitted to cash settle, and BioTime cannot demand a cash settlement, in the event of a conversion and there is no net settlement available outside the debt agreement since the shares of our common stock underlying the conversion are not readily convertible into cash. The debt instrument does not fall within any of the three categories of liabilities defined in the scope of ASC 480-10, Distinguishing Liabilities from Equity . Accordingly, we account for the convertible debt instrument in accordance with ASC 470-20, Debt with Conversion and Other Options . On the date the convertible debt was issued, the conversion price was equal to the fair value of our common stock underlying the conversion and no beneficial conversion feature was present based on the guidance of ASC 470-20.

The issuance date fair value of the related party convertible debt is determined using a hybrid instrument valuation model by applying a market valuation method for the debt instrument using a risk-adjusted interest rate similar to “CC” and “D” rated junk bonds and, a Black-Sholes option pricing model for the conversion feature. The debt instrument and the conversion feature issuance date fair values are determined using Level 3 inputs since both the risk adjustment made to the interest rate for the debt and the principal assumptions made in the option pricing model for the conversion feature are specific to OncoCyte and considered to be significant unobservable key inputs.

Due to the proximity of the May 8, 2015 issuance date and the September 30, 2015 balance sheet presented in this information statement, the carrying value of the related party convertible debt approximates its fair value as of September 30, 2015.

Long-lived intangible assets

Long-lived intangible assets, primarily consisting of acquired patents, patent applications, and licenses to use certain patents are stated at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful lives of the assets over a period of 10 years.

Impairment of long-lived assets

We assess the impairment of long-lived assets, which consist primarily of long-lived intangible assets, furniture and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. To date, there have been no such impairment losses.

Income taxes

We have filed a standalone U.S. federal income tax return since our inception. For California purposes, our activity for 2013 and 2014 has been included in BioTime’s California Combined tax return. The provision for income taxes has been determined as if we had filed separate tax returns for the periods presented. Accordingly, our effective tax rate in future years could vary from our historical effective tax rates depending on our future legal structure and related tax elections. The historical deferred tax assets, including the operating losses and credit carryforwards generated by us, will remain with us. We account for income taxes in accordance with GAAP, which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. Our judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowance may be increased or decreased, which may have a material impact on our statements of operations.
 
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The guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. We will recognize accrued interest and penalties, if any, related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of the financial statements periods presented herein. We are not aware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation for the periods presented herein. We are currently unaware of any tax issues under review.

Research and development expenses

Research and development expenses consist of personnel costs and related benefits, including stock-based compensation, and expenses for outside consultants. These expenses include both direct and allocated or indirect overhead costs. Research and development costs are expensed as incurred.

General and administrative expenses

Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, including direct and allocated costs from BioTime; professional and consulting fees; direct and indirect allocated overhead.

Results of Operations

Comparison of Nine Months Ended September 30, 2015 and 2014

The following tables show our operating expenses for the nine months ended September 30, 2015 and 2014 (in thousands).
 
   
Nine Months Ended
September 30,
         
   
2015
 
2014
 
$ Increase
 
% Increase
 
Research and development expenses
 
$
3,098
   
$
2,837
   
$
+261
     
+9.2
%
 
General and administrative expenses
   
2,081
     
638
     
+1,443
     
+226.2
 

Research and development expenses

Research and development expenses for the nine months ended September 30, 2015 increased to $3.1 million from $2.8 million for the same period in 2014. Research and development expenses for the nine months ended September 30, 2015 reflect the following expense increases: consulting fees and outside research and service costs primarily related to regulatory and clinical trials of our diagnostic tests increased by $474,000. This was in part offset by a $214,000 decrease in and patent, license, and trademark related fees.

We expect to continue to incur a significant amount of research and development expenses.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2015 increased to $2.1 million from $638,000 for the same nine month period in 2014. General and administrative expenses for the nine months ended September 30, 2015 reflect the following expense increases: $512,000 of stock based compensation expenses to employees and consultants allocated to general and administrative expenses largely attributed to an increase in staffing, including newly hired executives; $216,000 of accounting and audit related expenses; $185,000 of general consulting expenses; $110,000 of salaries and payroll related expenses allocated to general and administrative expenses; $97,000 of legal expenses; $92,000 of investor and public relations related expenses; and $91,000 of recruiting expenses.
 
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Comparison of the Year Ended December 31, 2014 and Year Ended December 31, 2013

The following tables show our operating expenses for the year ended December 31, 2014 and 2013 (in thousands).
 
   
Year Ended
December 31,
             
   
2014
   
2013
   
$ Increase
   
% Increase
 
Research and development expenses
 
$
3,962
     
$
2,943
     
$
+1,019
       
+35
%
 
General and administrative expenses
   
1,011
       
552
       
+459
       
+83
%
 

The following table shows the approximate amounts and percentages of our total research and development expenses of $4.0 million and $2.9 million allocated to our primary research and development projects during the years ended December 31, 2014 and 2013, respectively (in thousands).
   
Amount (1)
   
Percent
 
Program
 
2014
   
2013
   
2014
   
2013
 
                         
General
 
$
1,621
     
$
2,852
       
40.9
%
 
   
96.9
%
 
Bladder Cancer Confirmatory Diagnostic
 
$
1,143
     
$
27
       
28.9
%
 
   
0.9
%
 
Breast Cancer Confirmatory Diagnostic
 
$
1,057
     
$
49
       
26.7
%
 
   
1.7
%
 
Lung Cancer Confirmatory Diagnostic
 
$
76
     
$
-
       
1.9
%
 
   
-
%
 
COLX
 
$
65
     
$
15
       
1.6
%
 
   
0.5
%
 
Total
 
$
3,962
     
$
2,943
     
$
100.0
%    
$
100.0
%  
 

 
(1) Amount also includes certain general research and development expenses, such as laboratory supplies, laboratory expenses, rent allocated, and insurance allocated to research and development expenses, incurred directly by BioTime on behalf of OncoCyte and allocated to OncoCyte under the Shared Facilities Agreement.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2014 increased to $1.0 million from $552,000 for the same period in 2013. General and administrative expenses for the year ended December 31, 2014 reflect the following expense increases: $173,000 of salaries and payroll related expenses allocated to general and administrative expenses and $229,000 in salaries and related expenses for accounting services and building maintenance allocated from BioTime based on fixed rates evaluated on a quarterly basis by BioTime management and salaries for other services allocated based on monthly timesheets.

Income taxes

As of September 30, 2015, we had net operating loss carryforwards of approximately $18.1 million for U.S. federal income tax purposes, which expire through 2035. As of December 31, 2014, we had net operating loss carryforwards of approximately $13.9 million for U.S. federal income tax purposes, which expire through 2034. Due to our losses incurred for all periods presented, we did not record any provision or benefit for income taxes. OncoCyte’s federal research and development credit carryforwards as of September 30, 2015 will expire through 2035.

During 2014, OncoCyte sold 406,756 BioTime common shares in open market transactions which resulted in a taxable gain of approximately $1.3 million. This taxable gain was fully offset by current operating losses, thus resulting in no income taxes due from the sale. During the first nine months of 2015, OncoCyte sold 13,356 BioTime common shares in open market transactions which resulted in a taxable gain of approximately $44,000. This taxable gain is expected to be fully offset by current operating losses, thus resulting in no income taxes due from the sale.

At September 30, 2015 and December 31, 2014, OncoCyte has recorded a deferred tax liability of $0.9 million and $1.1 million, respectively, resulting from the difference in the tax basis of BioTime shares held by OncoCyte as compared to the basis of such shares reported on OncoCyte’s balance sheet.
 
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A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. OncoCyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

Liquidity and Capital Resources

At September 30, 2015, we had $9.4 million of cash and cash equivalents and held BioTime available-for-sale securities valued at $2.6 million. It is likely that we will need to obtain additional debt or equity capital in order to finance our operations. If equity or debt financing is necessary, we cannot assure that such financing will be available on favorable terms, if at all. Since inception, we have financed our operations through the sale of our common stock to our current shareholders, loans from BioTime and BioTime affiliated entities, and the sale of BioTime available-for-sale securities. The amount of revenue that may be earned through the licensing and sale of our diagnostic tests and technology, if any revenue is earned at all, the timing of the receipt of diagnostic test sales revenues, license fees, and royalty payments, if any at all, and the future availability and terms of equity or debt financing, are uncertain.

Based on cash and other liquid assets currently on hand and projected rates of expenditure we believe that we will be able to fund our ongoing operations through December 31, 2016, including costs related to research and development, general and administrative, commercial planning and market development, and development and licensing of a CLIA certified laboratory. If results of the development efforts in the lung or bladder diagnostic products are successful to the point where we believe that a commercial product can be launched successfully then additional capital of up to $5.0 million may be required during 2016 for building out a sales and marketing team and launching the product. Dependent on results of any product commercialization and ongoing sales, additional capital might be required in 2017 or beyond to develop and launch other products, for working capital, and for other expenses.
 
The unavailability or inadequacy of financing or revenues to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our planned operations. Sales of additional equity securities could result in the dilution of the interests of our shareholders.

Cash used in operations

During the nine months ended September 30, 2015 and the year ended December 31, 2014, our total research and development expenditures were $3.1 million and $4.0 million, respectively, and our general and administrative expenditures were $2.1 million and $1.0 million, respectively. Net loss for the nine months ended September 30, 2015 and the year ended December 31, 2014 amounted to $5.2 million and $5.0 million, respectively. Net cash used in operating activities during these periods amounted to $2.5 million and $1.2 million, respectively, primarily due to the net loss generated during the periods offset by changes in working capital.

Cash flows provided by investing activities

During the nine months ended September 30, 2015 and the year ended December 31, 2014, net cash provided by investing activities were $33,000 and $1.3 million principally from the sales of 13,356 and 406,756 BioTime common shares in the open market for $44,000 and $1.3 million in cash proceeds, respectively.

Cash provided by financing activities

During the nine months ended September 30, 2015 we received $3.3 million in cash from the sale of 1,500,000 shares of our common stock to two existing shareholders and $8.3 million in cash from the sale of 2,710,857 shares of our common stock to BioTime.

Contractual obligations

We had no contractual obligations as of September 30, 2015, with the exception of a Shared Facilities Agreement with BioTime under which we reimburse BioTime for a portion of the rent and other expenses of leasing our office and laboratory facility in Alameda, California, and for BioTime’s cost of providing us with the use of laboratory and office equipment and supplies, utilities, and personnel. BioTime’s lease expires on February 29, 2016. We are presently being allocated from BioTime, 10% of certain general and administrative overhead expenses and 25% of certain general research and development expenses, which include BioTime’s insurance, general office and laboratory supplies, shipping and postage, internet and telephone expenses, certain office equipment repair and maintenance expenses, and base monthly rent and other costs arising under the lease of the laboratory and office facility that we share with BioTime. Our share of the base rent expense recognized by BioTime for the office and laboratory facility during the nine months ended September 30, 2015 was approximately $13,000 per month. Salaries and related expenses for accounting services and building maintenance are allocated based on a fixed percentage evaluated by BioTime management on a quarterly basis and adjusted based on the level of activity in each quarter. Salaries for any other services are allocated based on monthly timesheets.
 
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Off-Balance Sheet Arrangements

As of September 30, 2015 and as of December 31, 2014, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

We are not presently exposed in a significant degree to foreign exchange currency risks because we are not conducting international business at this time, and we do not engage in foreign currency hedging activities. If we engage in international transactions, we will need to translate foreign currencies into U.S. dollars for reporting purposes, and currency fluctuations could have an impact on our financial results.

Credit Risk

We place some of our cash in U.S. banks and invest most of our cash in money market funds. Deposits with banks may temporarily exceed the amount of insurance provided on such deposits. We will monitor the cash balances in the accounts and adjust the cash balances as appropriate, but if the amount of a deposit at any time exceeds the federally insured amount at a bank, the uninsured portion of the deposit could be lost, in whole or in part, if the bank were to fail. Our investments in money market funds are not insured or guaranteed by the United States government or any of its agencies.

Interest Rate Risk

We invest most of our cash in money market funds. The primary objective of our investments will be to preserve principal and liquidity while earning a return on our invested capital, without incurring significant risks. Our future investment income is not guaranteed and may fall short of expectations due to changes in prevailing interest rates, or we may suffer losses in principal if the net asset value of a money market fund falls below $1 per share.

 
BUSINESS

Overview

Our mission is to develop highly accurate, simple to administer non-invasive liquid biopsy diagnostic tests in areas of high unmet need in oncology. Our initial focus will be confirmatory diagnostics that are used in conjunction with imaging to confirm initial diagnoses. In addition, we will be developing screening diagnostics as potential replacements for screening imaging procedures that do not meet the needs of patients, health care providers or payers. For some indications, we will also be pursuing the development of prognostics that predict the probability of recurrence of a specific cancer, or companion diagnostics that help a physician determine which therapy is the optimal treatment for the patients.

Our initial liquid biopsy diagnostic tests will be confirmatory diagnostics and are being developed to reduce false positives associated with the current diagnostic protocols. These new diagnostic tests are intended to:

·
Improve health outcomes through early diagnoses and better prognostic capabilities;

·
Reduce the cost of care through the avoidance of more costly diagnostic procedures, including invasive biopsy and cystoscopic procedures; and

·
Improve the quality of life for cancer patients by reducing the anxiety associated with non-definitive diagnoses.
 
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We are currently working on diagnostic tests for three types of cancer: lung cancer, breast cancer, and bladder cancer. Additionally we have early stage diagnostic research programs for other solid tumor cancers in our research and development pipeline.

Diagnostic Tests

Our research has demonstrated that many of the same genes associated with the normal growth of embryonic stem cells are abnormally reactivated by cancer cells. Under this premise, we have established a proprietary gene expression dataset using mRNA and miRNA microarray technology. Our dataset contains expression levels of over 47,000 genes from over 600 unique samples, representing both normal and cancerous tissues and cell lines, including multiple human embryonic stem cell lines. This broad, bioinformatics-based approach has allowed us to identify numerous genes abnormally activated in cancer or tumor cells. Many of these genes have not been previously associated with cancer. Moreover, expression of a large subset of these genes is found across numerous cancer types, such as cancers of the lung, breast, bladder, colon, and ovaries, suggesting that these genes may control fundamental processes during cancer growth and progression. This gene expression data presents numerous diagnostic test opportunities, such as tests designed to:

· Screen patient for the presence of cancer;

· Confirm an indeterminate result from a screening procedure for cancer such as mammogram Breast Imaging Reporting and Data System (“BI-RADS”) 3 or 4 – defined as nodules that are probably not cancerous or have suspicious abnormality; Low Dose Computed Tomography (“LDCT”) scan positive result, or indeterminate cytology;

· Determine which treatment courses have highest chances for producing a favorable response in individual patients; and

· Monitor for recurrence of a patient’s cancer

Our scientists subsequently determined that the patterns of the proteins produced from a subset of these genes could be detected in the blood or urine of cancer patients, but not in the blood or urine of healthy people. The technology that we are using is called liquid biopsy where instead of taking a sample from tumor tissue, liquid biopsies examine the DNA shed by tumors or cancer cells in the blood or urine.

The percentage of times that the test correctly identified people as cancer-free, which defines the test's specificity, was higher than that of commonly used tests or procedures, such as, cytology, LDCT screening, mammograms and MRIs. This finding, combined with initial evidence that prospective screening diagnostic tests utilizing blood or urine may be useful for diagnosing a broad range of cancer types, led us to prioritize the development of diagnostic tests to detect the presence of various human cancers.

Based on substantial unmet needs, large markets, and data generated thus far from patient serum or urine screening, we are focusing our efforts on biomarkers associated with lung, breast and bladder cancers, and especially on detectable amounts of several cancer-associated biomarkers in patients with early-stage disease. The apparent high correlation of certain combinations of biomarkers in lung, breast and bladder cancer has identified these three diseases as promising initial targets.

The relative ease of administering a liquid biopsy diagnostic and cost savings due to the elimination of more costly and invasive biopsy procedures, we believe will make liquid biopsy diagnostic tests useful as routine tests that could be performed in men and women of any age and at any desired frequency to detect lung, breast and bladder cancer. If successfully developed, our tests will initially reduce diagnosis uncertainty and eliminate unnecessary down-stream procedures resulting from indeterminate LDCT, cytology or mammogram tests.

We intend to initially develop and market a lung cancer diagnostic test in the United States before seeking regulatory approvals required to market the diagnostic test in other countries. The test developed will be a blood screening test for cancer markers, which will be regulated under CLIA as an LDT. We may also pursue IVD filings through the FDA or through the European Directive on IVDs.
 
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We plan to start the process to   establish a laboratory in early 2016 , including ordering the equipment and hiring the personnel , for which we will apply for CLIA registration and certification.

Types of Diagnostic Use

Once we have completed development of a liquid biopsy diagnostic test, we may commence marketing that diagnostic test for one or more specific kinds of use which relate to the kind of diagnostic evaluation that a physician is performing for a patient. Our diagnostics may take one or more of four different types of use depending on the type of cancer and the performance of the diagnostic. These intended uses include:

· Confirmatory diagnostics – confirmatory diagnostics are used in conjunction with a current standard of care screening procedure. For example, our lung confirmatory diagnostic would be used in conjunction with LDCT to confirm a suspicious result by yielding a secondary suspicious versus benign result. In the case of the benign results, patients would not need additional invasive procedures to determine the presence of cancer. In the case of the suspicious results, additional procedures would be highly warranted;

· Screening diagnostics – screening diagnostics would replace or be used as an alternative to existing screening procedures. A screener diagnostic for breast cancer could be used as an alternative to MRIs for women with a family history of breast cancer, BRCA mutations or dense breast tissue. This test could become part of a routine annual or other periodic physical examination;

· Recurrence diagnostics also known as prognostics – are used for patients who had previously been diagnosed with cancer but are currently in remission. In the case of our bladder diagnostic, the test could be used in lieu of a painful, costly cystoscopy to confirm whether the cancer has returned. This test could become part of the follow-up of bladder cancer patients; and

· Companion diagnostics – used by physicians to help determine an optimal therapy for a specific patient. An example of this would be HER2+ and Herceptin.

Oncology Diagnostic Tests   Progress to Date

We first announced the development of our confirmatory and screening diagnostics during December 2011 and have achieved several key advances since then, including:

· Evaluated over 50 potential cancer biomarkers discovered by OncoCyte and BioTime using antibody-based ELISA technology in blood serum samples from a proprietary sample bank derived from over 600 donors, including patients with cancers of the breast, colon, and pancreas, as well as healthy volunteers;

· Selected seven of the newly discovered serum markers demonstrated to be significantly elevated in cancer patients as compared to healthy controls;

· Initiated plans for the commercial development and manufacture of monoclonal antibodies to these markers for potential inclusion in diagnostic   test kits;

· Completed experiments characterizing COL10A1, one of the seven priority cancer biomarkers discovered using OncoCyte’s proprietary cancer microarray dataset, and publication of a manuscript summarizing this work in the peer-reviewed journal Future Oncology , which demonstrates the localization of the marker in breast cancer but not in healthy breast tissue;

· Extended sponsor research agreement with Wistar continuing the development of a lung confirmatory diagnostic;

· Presented of preliminary findings at American Thoracic Society in May 2015 showing a ROC score of 0.88 for their mRNA and miRNA classifier;
 
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· Initiated a first and second clinical study collecting urine samples from patients undergoing cystoscopies to support development of confirmatory and recurrence diagnostics for bladder cancer;

· Presented preliminary findings at American Association for Cancer Research in April 2015 showing a ROC score of 0.91;

· Initiated a clinical study in 2014 collecting blood samples from patients undergoing mammography for the detection of breast cancer;

· Developed a preliminary classifier diagnostic based on number of mRNA biomarkers; and

· Have submitted 13 U.S. patents pending and 38 international patents issued or pending, with claims covering use of various cancer markers in the diagnosis and/or prognosis of various cancers.

The Development Pathway

Our liquid biopsy diagnostic tests for cancer will each go through four stages of development prior to commercialization: the research stage; assay development; validation studies; and CLIA validation. Clinical utility studies will also be conducted after commencement of the marketing of a diagnostic test.
 

The first stage of the development of a CLIA LDT is the research stage. In the research stage of a molecular diagnostic, biological markers are analyzed to determine if specific markers are differentially expressed in certain diseases. We are developing blood and urine tests that differentiate malignant patient samples from benign patient samples by looking at differences in the amount of specific mRNA and miRNA expressed in whole blood or urine. The objective of this phase of the development process is to delineate promising biomarkers.

In the second stage, assay development, the best performing mRNA and miRNA biomarkers are combined into an assay. The optimal combination of biomarkers that are to be utilized in the final diagnostic are determined through bioinformatics and machine learning software strategies, and assay/marker reliability and usability. The end result of this stage is a “locked down” assay.

The locked down assay is first engineered and tested for reliability, reproducibility, accuracy, precision and stability in series of research and development studies, which we referred to as R&D validation studies, that result in the validation of the assay. In these R&D validation studies, blinded samples are run through the assay to confirm that the results reported by the assay are consistent across an appropriate range of real world, day to day variables including operating temperature variances and sample differences.

After the completion of the R&D validation study, studies and analysis are run in the CLIA laboratory – the laboratory where the diagnostic will be performed after commercial launch – in order to confirm the reliability of the diagnostic test and the full test system in the clinical environment. The CLIA validation phase confirms that the diagnostic test being used routinely in the clinical oncology market meets the appropriate regulatory and clinical standards. Successful completion of this stage results in the finalization and lockdown of the commercial diagnostic test system. At this point, the laboratory undergoes the inspection and certification process, which allows the marketing of the diagnostic in specific states or countries.
 
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The final phase of the diagnostic pathway occurs after the final diagnostic test has been launched and consists of carrying out one or more clinical utility studies. These studies are important for obtaining coverage and reimbursement by payers such as Medicare, Medicaid, third party commercial insurers, health maintenance organizations (“HMOs”), and large corporations that self-insure. Clinical utility studies analyze the healthcare economics associated with a diagnostic test, and in particular whether it results in overall patient benefits and decreased expenditures for the healthcare system. These studies track the progress of patients who have had the diagnostic test administered; for those patients where the diagnostic test has ruled out the possibility of a disease, downstream procedures are tracked to see if physician behavior has changed. The results of this phase may be published in peer review journals and are generally compiled in dossiers to share with managed care groups, including both public and commercial payers. Obtaining positive results in clinical utility studies is very important in obtaining positive coverage and reimbursement decisions by payers.

For example, in our first product candidate - the lung confirmatory diagnostic - patients who have received a suspicious finding in a low dose computed tomography (LDCT) screening will be tested with our diagnostic. During our post marketing clinical utility studies, we will be tracking patients with a benign result to see if any unnecessary downstream procedures (bronchoscopy or surgical biopsy) are still performed. In other words, we will track whether our diagnostic tests prevent unnecessary procedures and reduce the overall cost of diagnosing lung cancer, or whether they are used in addition to downstream procedures, and thereby increase overall costs.

Our three most advanced diagnostic tests (lung, breast and bladder cancer tests) are in the assay development stage. We anticipate that our lung cancer diagnostic test will move into the R&D validation stage in 2016 and finish the CLIA validation stage by the end of 2016 but there can be no assurance that the development of that diagnostic test will advance in that time frame.

OncoCyte Product Pipeline

Lung Cancer Diagnostic Test

Current Standard of Care

The current standard of care for diagnosing lung cancer in high risk patients is LDCT scanning which became part of the current standard of care with the United States Preventive Services Task force (“USPSTF”) guidelines recommending annual LDCTs for patients at high risk for lung cancer. The USPSTF was created in 1984 as an independent, volunteer panel of national experts in prevention and evidence-based medicine. The USPSTF works to improve the health of all Americans by making evidence-based recommendations about clinical preventive services such as screenings, counseling services, and preventive medications.
 
44

The guidelines, released in December of 2013, recommend annual LDCT scans for all Americans aged 55 to 80 years old who have a 30 pack-year smoking history and currently smoke or have quit within the past 15 years. A 30 pack-year smoking history is defined as the number of cigarette packs smoked per day times the number of years smoked. A 30 pack-year patient would include the following types of patients:

· Person who has smoked a pack a day (20 cigarettes) for 30 years;

· Person who has smoked 15 cigarettes a day for 40 years; and/or

· Person who has smoked 40 cigarettes a day for 15 years.

These guidelines were driven by a need to improve the standard of care for diagnosing lung cancer. Currently, the survival rate for lung cancer is very low – only 17% of people are still alive five years after a lung cancer diagnosis. These low survival rates result in one of the highest mortality rates for lung cancer, which is projected to kill 158,000 Americans in 2015.


Moreover, the survival rate, unlike many other types of cancer, has not increased significantly in the last 30 years. The low probability of surviving lung cancer significantly affected the late diagnosis – with more than half of all patients diagnosed after the point that the cancer has spread. USPSTF guidelines were developed to increase the probability of detecting lung cancer in earlier stages, which can significantly improve the survival rates.

Lung Cancer Survival Rates by Stage


However, the earlier detection of lung cancer will not come without risks. LDCTs are highly sensitive imaging procedures and they result in many false positives. Clinical studies have shown that 26% of LDCTs are indeterminate of which 96% are shown to be false positives. This results in patients being referred for risky downstream procedures including bronchoscopies, needle biopsies and surgery. These invasive procedures have been shown to result in morbidity and mortality including:
 
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· 0.5 to 1% mortality and

· 4-20% major complications.

Source: Evaluation of Individuals with Pulmonary Nodules: When is it Lung Cancer? Chest 2013 May:143 (Suppl):e83-e120.

Market for Lung Cancer Diagnostic Tests

Lung cancer is a primary cause of cancer-related death, in part because there is no effective diagnostic test to screen patients for lung cancer at an early stage.

USPSTF guidelines, which recommend LDCT scans for patients at high risk for lung cancer, may impact up to 10 million Americans who fit the criteria of 30 pack-year smokers. Research has shown that 26% of patients will have suspicious LDCT results, and around 96% of those indeterminate results will be false positives which could result in as many as 2 million unnecessary lung biopsy procedures.

We will initially focus on patients with indeterminate diagnoses of larger nodules over 8 millimeters, which is shown as Intended Use 1 in the graph below. This market is estimated to include between 800,000 and 1.1 million patients annually. We intend to expand the use of our lung cancer diagnostic into Intended Use 2 which targets patients with smaller nodules, who currently are put into a wait and hold pattern. These patients are scheduled for repeated LDCTs, risking the increase radiation exposure and incurring incremental costs to determine whether the nodule is growing. Finally, we will work on a diagnostic that could be used as a screening diagnostic and potentially replace LDCTs for the 7-10 million patients who meet the USPSTF guidelines for high risk, which is represented as Intended Use 3 in the following graph.

Market Opportunity for Lung Diagnostics


Clinical Trials

We are collaborating with Wistar to develop the confirmatory lung cancer diagnostic test and in a large, multi-site clinical study evaluating the blood-based lung cancer diagnostic test. This collaboration involves the development of a prototype assay and a clinical study with over 2,000 blood samples obtained at six clinical sites from patients with a high-risk profile for development of lung cancer. Enrollment has continued since 2014 with all sites meeting or exceeding their collection goals. Additionally, we recently started recruiting additional patients through clinical trials that we are sponsoring directly.

Large clinical trials are needed to produce patient subsamples that ensure the development of a highly reliable, accurate diagnostic test. In the case of the lung cancer trials, samples are being collected from patients who are at risk for lung cancer, based on having positive or suspicious results from LDCT screening, and who have undergone biopsies to determine the pathology results. Additionally, we will be collecting samples from patients who used alternative screening procedures such as chest x-rays and who were referred for biopsies.
 
Wistar investigators are currently assessing gene expression patterns in blood cells of patients with malignant lung disease and patients with non-malignant lung disease. Preliminary analysis of patient data from this study was completed during the first quarter of 2015 and preliminary findings from the research showed a sensitivity of 76% and a specificity of 88%. Sensitivity refers to the probability of detecting the presence of the disease accurately; while specificity refers to the probability of accurately predicting not having the disease.
 
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The lung confirmatory diagnostic is currently in the assay development stage. We anticipate that the assay will move into the R&D validation study stage in early 2016 and complete the CLIA validation stage in late 2016 but there can be no assurance that the development of that diagnostic test will advance in that time frame.

Data concerning the OncoCyte/Wistar preliminary lung assay performance with initial biomarkers and classifiers was presented at the American Thoracic Society in May of 2015. The OncoCyte/Wistar preliminary lung assay had a false positive rate of only 12%. In comparison, National Lung Screening Test results reported in the New England Journal of Medicine (August 2011) showed that LDCTs have a very high false positive rate of approximately 96%.

Wistar ATS Presentation


Sensitivity is the probability of detecting the presence of the disease accurately. A sensitivity of 76% means that three out of four cancers were detected. Specificity is the probability of accurately predicting not having the disease. In this case, approximately 9 out of 10 people without the disease were predicted. A false positive rate is a function of specificity and is equal to 1 minus specificity or 12% in this case.

As part of our SRA with Wistar, we have an option to exclusively license any inventions, discoveries or technology developed by Wistar, or by us using Wistar technology, in the course of the collaborative research. We have exercised certain of these exclusive options and are negotiating license agreements with Wistar.

In addition to the trials with Wistar, under an agreement with Cornell University we have obtained blood samples from lung cancer patients and from cancer-free patients for use in determining levels of tumor-associated gene expression in these samples. The results of these analyses supplemented the results of our study with Wistar.

Breast Cancer Diagnostic Tests

Current Standard of Care

The early detection of cancer is associated with improved outcomes for patients. Mammography has been widely used since the 1970s for breast cancer screening in asymptomatic women; in 2013 over 38 million screening mammograms were performed in the US alone. Current US National Cancer Institute (“NCI”) guidelines recommend screening mammograms every one to two years in women 40 years and older, while the American Cancer Society and the National Comprehensive Cancer Network both recommend screening mammography every year starting at age 40. However in November of 2009, USPSTF revised their screening recommendations increasing the age to 50 and length of time between screenings from annual to biennial. This was partially driven by the concerns around false positives. Approximately 10% of women are recalled from screening mammography for further testing and approximately 95% of those women’s test results end up as false positives. Over the course of 10 years of screening, one out of every two women will experience a false positive with 7% to 17% of those women having unnecessary biopsies.

At the same time, mammogram screening in women aged 40 to 74 has been associated with relative reduction in breast cancer mortality of 15% to 20%. However, the NCI estimates that approximately 20% of all breast cancers are not detected by mammography during screening. These false negatives or missed diagnoses, together with the false positives or over diagnoses, indicate a strong unmet need for a breast cancer screening test with superior specificity and sensitivity when compared to standard screening mammography.
 
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Additionally guidelines recommend MRI screening for approximately 6 million women who either have a family history, a BRCA gene mutation or dense breast tissue, since mammograms have been shown to miss cases of cancer in patients that meet these profiles.

Breast Cancer Screening Protocol

OncoCyte is developing a confirmatory diagnostic test that could be used with women who have an indeterminate mammogram result (BI-RADS 3 or 4). In the case of a mammogram BI-RADS 3 score, repeat imaging is recommended, which means that women may have to schedule another mammogram or they may be referred to a more costly MRI procedure. In the case of a mammogram BI-RADS 4 score, women are often referred for a biopsy. Our breast confirmatory diagnostic could be incorporated into breast screening protocols to confirm whether women with BI-RADS 3 or 4 scores need to undergo additional costly imaging or an invasive biopsy.

The early detection of cancer and its precursors is associated with improved outcomes for patients. Mammography has been widely used since the 1970s for breast cancer screening in asymptomatic women; in 2013 over 38 million screening mammograms were performed in the U.S. alone. Current US National Cancer Institute (“NCI”) guidelines recommend screening mammograms every one to two years in women 40 years and older, while the American Cancer Society and the National Comprehensive Cancer Network both recommend screening mammography every year starting at age 40. However in November of 2009, USPSTF revised their screening recommendations and increased the age to 50 years of age and biennial versus annual screening. This was partially driven by the concerns around false positives. Mammogram screening in women aged 40 to 74 has been associated with relative reduction in breast cancer mortality of 15% to 20%. However, the NCI estimates that approximately 20% of all breast cancers are not detected by mammography during annual screening, which indicates a strong unmet need for a breast-cancer screening test with superior specificity and sensitivity when compared to standard screening mammography. In addition, approximately 10% of women are recalled from screening mammography for further testing and approximately 95% of these women’s test results end up as false positives. Over the course of 10 years of screening, one out of every two women will experience a false positive with 7% to 17% of these women having unnecessary biopsies.

Additionally guidelines recommend MRI screening for approximately 6 million women who either have a family history, a BRCA gene mutation or dense breast tissue, since mammograms have been shown to miss cases of cancer in patients that meet these profiles.
 
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Market Opportunity

Each year approximately 350,000 women have mammograms that are suspicious and many of these women are sent on to biopsies. This is the focus of our initial research for our breast cancer confirmatory diagnostic as shown in the following graph. We are planning to expand our research efforts to include the second intended use – women who meet the guidelines for MRIs. There are over 6 million women in the U.S. for whom the guidelines recommend both a mammogram and a MRI yearly.

We plan to expand the use of our diagnostic in the future to meet the needs for a better breast cancer screening diagnostic, which could impact up to 38 million women each year. Research over the last 25 years has shown that large numbers of women are having unnecessary biopsies resulting in estimates of $4 billion a year being spent on false positives (Health Affairs, 34, no.4 (2015):576-583).

Market Opportunity for Breast Cancer Diagnostic Tests



Breast Cancer Diagnostic Clinical Trials
 
We have tested the performance of our cancer markers in detecting breast cancer in a set of 134 samples from patients with confirmed cases of breast cancer. The outcome of this initial experiment led us to start prospective clinical trials during the first quarter of 2014 with our sponsorship of a 600 patient study at Scottsdale Medical Imaging Laboratories. As of July 2015, we had collected over 900 patient blood samples. Data from this and ongoing studies will be used to support an initial use of the breast cancer diagnostic test by radiologists to aid in determining the malignancy potential of suspicious mammography findings, and by oncologists as a tool for recurrence surveillance in breast-cancer survivors. We anticipate that we will complete enrollment by the third quarter of 2016. As part of the initial collaboration, we have retained all rights to develop and market our proprietary breast cancer diagnostic tests.

Bladder Cancer Diagnostic Tests

Current Standard of Care

The current standard of care for bladder cancer diagnosis is cytology and cystoscopies. Urine cytology is a test to look for abnormal cells in a patient’s urine. Urine cytology is used along with other tests and procedures to diagnose urinary tract cancers. Cystoscopy is a procedure that allows a doctor to examine the lining of the bladder and the urethra, tube that carries urine out of the body. A hollow tube called a cystoscope, equipped with a lens, is inserted into the patient’s urethra and slowly advanced into the bladder. Increasingly over the years, cystoscopies have been used in conjunction with cytology which has resulted in increasing costs for the detection of bladder cancer.
 
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Current Bladder Diagnostic Protocol


Market Opportunity

Bladder cancer has the highest lifetime treatment costs per patient of all cancers. The high recurrence rate and ongoing invasive monitoring requirement are the key contributors to the economic and human toll of this disease.

Urothelial carcinoma constitutes more than 90% of bladder cancers in the Americas, Europe and Asia. Although most patients with bladder cancer can be treated with organ-sparing chemotherapy, UC has a relapse rate of nearly 70% and can progress to invasive, metastatic, and lethal disease. The regular surveillance and treatment of recurrent disease from the time of diagnosis for the remainder of a patient’s life makes urothelial Carcinoma the most costly malignancy on a per patient basis. The problem is amplified because the two standard methods for surveillance - microscopic assessment of urinary cytology specimens and bladder cystoscopy – which possess significant limitations with respect to both performance and cost. Although urine cytology does have a very high positive predictive value and low false positive rate, it has a low negative predictive value and a high indeterminate rate. Patients who have indeterminate urine cytology results commonly undergo cystoscopy, which is painful, time consuming, costly, and unnecessary in many cases since a neoplasm is often not present. In urothelial carcinoma, as in virtually all other cancers, earlier and more accurate diagnosis, including diagnosis of disease recurrence, is generally associated with better outcomes and lower cost.

Overall markets for bladder cancer diagnostics are large and growing. Based on National Cancer Institute statistics released in 2012, it was estimated that in 2013 over 72,000 new cases of bladder cancer would occur in the United States and a total of over 550,000 men and women alive would have a history of bladder cancer and be subject to recurrence surveillance testing using cystoscopy or urine cytology. Additionally, another 3 million patients present yearly with hematuria (blood in urine), an early symptom of bladder cancer and 500,000 patients have indeterminate cytology findings. These three patient profiles: indeterminate cytology, hematuria and surveillance, could result in a potential market opportunity of approximately 4.5 million tests yearly.

Sending urine specimens to us for analysis using our diagnostic tests instead of performing a cystoscopy procedure would be a significant departure from the current standard of care in the diagnosis of bladder cancer. Urologists may be reluctant or unwilling to change their practices and utilize our diagnostic test for bladder cancer even if our test is proven to have a high rate of accuracy in detecting the presence or absence of cancer.

The potential resistance of urologists to adopt the use of our bladder cancer diagnostic test, means that marketing that test could require a substantial effort by a sales force meeting with urologists. Due to this concern and our limited financial and marketing resources, we may seek to enter into an agreement with a larger company that has greater marketing resources for the marketing of our bladder cancer test. We may license out both completion of development and marketing to another company, retaining rights to receive a royalty on sales and possibly some sales related milestone payments, or we may complete the development of the test and seek to co-market the test with another company in an arrangement that might provide for a sharing of marketing costs and revenues. There is no assurance that we will be successful in entering into a licensing or co-marketing arrangement or that a licensee or co-marketing partner will succeed in marketing our bladder cancer diagnostic test. If we enter into a license or co-marketing agreement, our revenues from the sale of our bladder cancer diagnostic test may be substantially less than the amount of revenues and gross profits that we might receive if we were to market that diagnostic test ourselves.

Bladder Cancer Diagnostic Test Clinical Trials

As part of our clinical development of a urine-based bladder cancer diagnostic test, we initiated a clinical trial in January 2014 that has been expanded to a multi-site trial. The trial will involve up to 1,200 patient samples obtained from at least nine large urology clinics located throughout the United States. Patient enrollment as of November 16, 2015 is approximately 92% complete with almost 1,100 samples in house. The clinical trial is designed to expand the potential use of our bladder cancer test beyond pathology laboratories and into urologic practices at the point of cystoscopy. The goal of the current clinical trial is to compare the performance of our bladder cancer markers to the performance of cystoscopy. Investigators in the trial are collecting urine samples from patients undergoing cystoscopy for the diagnosis of either primary or recurrent bladder cancer. Cystoscopy and biopsy results will be compared with the results of our proprietary diagnostic test panel in determining the overall performance of our classifier and markers.
 
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The clinical trial should be completed by the end of 2015 and we have locked down the assay and are anticipating the completion of the R&D validation study stage and the CLIA validation by midyear 2016.

In May of 2015, we presented preliminary findings of our bladder research at the American Association of Cancer Research. Preliminary findings showed a sensitivity of 90% and a specificity of 83%. Sensitivity is the probability of detecting the presence of the disease accurately. A sensitivity of 90% means that 9 out of 10 cancers were detected. Specificity is the probability of accurately predicting not having the disease. We expect that the inclusion of additional markers will improve the diagnostics sensitivity and specificity further.

Future Diagnostic Development Milestones

Over the next two years, our goal is to achieve the following milestones relating to the development and commercialization of our cancer diagnostic tests:

· Licensing Wistar Inventions;

· Out-licensing or co-marketing partnership for our bladder cancer confirmatory and recurrence diagnostic;

· Completion of a prospective patient study for analytical validation of lung and breast cancer diagnostics;

· Analytical validation of the lung and breast confirmatory diagnostics – analytical validation is a series of experiments with the same samples to ensure that the test results can be replicated under different circumstances;

· Establish CLIA laboratory and obtain certificate of registration, certificate of compliance and inspection for all 50 states;

· Launch of a confirmatory diagnostic test for lung cancer;

· Proof of concept for a screening diagnostic test for lung cancer; and

· Proof of concept for a screening diagnostic and/or confirmatory diagnostic test for breast cancer.

Achieving the milestones will require expanding our research team to include diagnostic development personnel as well as sufficient clinical trial samples to conduct all the validation tests required.

Technology for Diagnostic Tests

In our liquid biopsy tests for lung, breast and bladder cancer, we are using the same general strategy for the identification of mRNA and miRNA biomarkers and are developing a gene expression classifier to interpret the differential gene expression or miRNA expression and yield a malignant versus benign determination. Ultimately our research may rely on only one type of biomarker in a specific indication.  In the case of lung cancer, our test will be developed on mRNA biomarkers only.   In the case of breast cancer, we are studying the use of both RNA markers and monoclonal antibodies directed to proteins, potentially including COLX, as a blood-based test assaying concentrations of the proteins and/or RNA markers.

Blood samples are collected by venipuncture into tubes and total RNA is isolated. mRNA biomarkers were identified using microarray equipment. The best performing mRNA biomarkers will be transferred to the commercial platform we will use in our CLIA laboratory. Differentially expressed miRNAs will be identified by screening the human V3 miRNA panel or alternative RNA detection methods. The optimal combination and final panel of mRNA and miRNA biomarkers together with potential protein-based assays will be determined using bioinformatics and machine learning strategies. The optimal classifier will be developed that yields the best discrimination between malignant and benign. The performance of the final biomarker panel and classifier will be tested on an independent set of samples to determine performance characteristics.
 
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For bladder cancer, we are developing a urine test for use in recurrence screening and hematuria. The bladder cancer diagnostic is based on differential mRNA expression in urine samples. mRNA biomarkers were identified using microarray and top biomarkers were transferred to the commercial platform. A streamlined assay was developed that uses crude urine sediment lysates rather than purified RNA, eliminating the need for RNA isolation and amplification. The optimal classifier will be developed that yields the best discrimination between malignant and benign. The performance of the final biomarker panel and classifier will be tested on an independent set of samples to determine performance characteristics.


Biomarkers are important to the diagnosis of cancer in that their presence or absence in a specific patient sample drives the sensitivity and specificity scores of a molecular diagnostic. For example if a specific mRNA is only seen expressed in patients with cancer, it can be used to help make a malignant call on that sample. The use of biomarkers with a classifier can help ensure that the sensitivity score, which is a measure of correcting identifying the disease is sufficiently high to reduce false positives, ensuring that patients with the disease are correctly diagnosed. At the same time, biomarkers can be used to hone the specificity measure, which is a measure of correctly identifying patients without the disease, which reduces the number of patients who are unnecessary referred to biopsy.

Sponsored Research Agreement with The Wistar Institute of Anatomy and Biology

We have entered into a SRA, with Wistar pursuant to which Wistar investigators are conducting a multi-center patient study in which they are assessing gene expression patterns in blood cells of patients with malignant versus non-malignant lung disease. We have agreed to provide funding for the research that Wistar is conducting for us under the SRA. Under the SRA, we have an option to obtain a worldwide, exclusive, royalty bearing license, with the right to sublicense, to use the data, methods, techniques, processes, and Wistar Inventions related to molecular diagnostics for lung cancer developed or discovered by the principal investigator or anyone working under her direction in the performance of the sponsored research.

We will pay certain costs related to the filing, prosecution, and maintenance of patents related to Wistar Inventions for which we have exercised our option to negotiate a license. If the negotiating period for obtaining a license from Wistar expires without the execution of a license agreement, our obligation to pay those patent costs will terminate.

We have agreed to indemnify Wistar, certain related persons, and the principal investigator against liabilities, damages, losses and expenses due to claims by any third party which result or arise out of the SRA, the options to license Wistar Inventions, or any licenses to Wistar Inventions.

The SRA will terminate on July 16, 2016 or upon the earlier completion of the sponsored research. The SRA may be terminated at an earlier date (a) by a party if the other party breaches the terms of the SRA and fails to timely cure the breach, (b) by Wistar in the event of certain insolvency or bankruptcy proceedings or similar events pertaining to us, or (c) by either party for any reason, subject to a specified period of prior written notice. Wistar will be entitled to retain payments made prior to the early termination of the SRA to the extent of its reasonable costs of work performed prior to the termination, plus the costs of noncancellable commitments incurred by Wistar prior to the notice of termination.
 
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We have exercised our options to license certain Wistar Inventions and we and Wistar are negotiating the terms of definitive license agreements. However, there is no assurance that we will reach agreement with Wistar on the terms of any definitive license agreements, or that the terms of any license agreements that we may enter into will be favorable to us from a commercial point of view. The SRA provides for a specified negotiating period, after which our option to license Wistar Inventions will expire. If we fail to reach agreement with Wistar for licenses to use the existing Wistar Inventions or for any additional Wistar Inventions that may arise from the research and development work they are performing for us, we may not be able to complete the development of our lung cancer diagnostic test or we may need to commence, at our expense, new research and development work without the right to use the Wistar Inventions, or, if feasible, license technology from a third party.

Manufacturing

Facilities Required

Under a Shared Facilities Agreement with BioTime, we have use of laboratory and office space at Biotime’s facility in Alameda, California. BioTime is planning to relocate its headquarters and as part of that relocation, OncoCyte expects to have access to a space sufficient for its CLIA laboratory.

Raw Materials

The processing of our diagnostics will use commercially available reagents that are sourced by a well-known manufacturer of molecular diagnostic analyzers, prep stations and reagents that has been in business for over 10 years. Although we do not believe that we will encounter sourcing issues for these supplies, if an interruption in supply were to occur, we might need to find a different source of supply of both the reagents and the analytic equipment that we will be using in our CLIA laboratory. An interruption in supply of reagents could cause us to suspend or limit laboratory operations, and a change in analytic equipment could require us to re-establish various testing procedures, which also could disrupt our operations.

Marketing

Following CLIA certification for our laboratory and diagnostic tests, we will market our diagnostic tests directly to health care providers working in the areas of lung cancer and in other areas of cancer where we will be developing molecular diagnostics. These health care providers will collect blood samples or send patients to laboratories to have blood or urine samples collected. These blood samples, also referred to as liquid biopsies, will be sent to our CLIA laboratory in California, either by the health care provider or the laboratory, where the sample will be run through an assay and a gene expression classifier to determine a binary result, either benign or suspicious. That result will be presented to the physician ordering the procedure in a standardized report.

We will ramp up these sales and marketing teams over the next year. Over time, we will continue to grow our sales, market access and marketing organizations to increase the awareness and utilization of our diagnostic test and to prepare for additional diagnostic test launches.

Patents and Trade Secrets

We rely primarily on patents and contractual obligations with employees and third parties to protect our proprietary rights. We have sought, and intend to continue to seek, appropriate patent protection for important and strategic components of our proprietary technologies by filing patent applications in the U.S. and certain foreign countries. There can be no assurance that any of our patents will guarantee protection or market exclusivity for our diagnostic tests and diagnostic test candidates. We may also use license agreements both to access technologies developed by other companies and universities and to convey certain intellectual property rights to others. Our financial success will be dependent in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property rights and to operate without infringing upon the proprietary rights of others. As of August 14, 2015, we have 13 U.S. patents pending and 38 international patents issued or pending to protect our proprietary technologies.
 
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Patents and Expiration Dates
                                    
The patents we hold and those for which we have an exclusive option to license from Wistar have been issued in certain key countries and will expire at various times.

OncoCyte Diagnostic Patent Portfolio

Patent
family
Indication
Jurisdictions filed at
(current status pending
unless indicated otherwise)
Expiry date
 Claims
(PCT or US pending)
Types of claims
supported by
specification
ONCO-040
Breast
United States
May 6, 2033
Composition of matter; use or process
Composition of matter; use or process
ONCO-052
Breast
United States
Australia
Canada
China
EPO
Hong Kong
Japan
Korea
Aug 16, 2032
Use or process
Composition of matter; use or process
ONCO-05O
Bladder
United States
Australia – ISSUED
Australia divisional
Canada
EPO
Hong Kong
Jun 22, 2032
Composition of matter; use or process
 
Australia issued claims – use or process
 
Composition of matter; use or process
ONCO-056
Bladder
United States
Australia
Canada
China
EPO
Hong Kong
Japan
Korea
Nov 15, 2032
Composition of matter; use or process
Composition of matter; use or process
ONCO-060
Bladder
PCT application filed July 22, 2014 – national stage applications TBD
July 22, 2034
Composition of matter; use or process
Composition of matter; use or process
ONCO-065
Bladder
United States - Provisional
Jan 28, 2036
Composition of matter; use or process
Composition of matter; use or process
WST 1 (1)
Lung
United States – ISSUED
United States Continuation
Canada
EPO – national patents ISSUED in France, Germany, Spain, United Kingdom
India
Dec 5, 2028
US issued: Composition of matter
 
US, Canada, India pending: Composition of matter; use or process
 
EPO: Composition of matter; use or process
Composition of matter; use or process
 
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WST 2 (1)
Lung
United States –Provisional
May 19, 2036
Composition of matter; use or process
Composition of matter; use or process
ONCO-053
Pancreas
United States
Jan 14, 2033
Composition of matter; use or process
Composition of matter; use or process
ONCO-054
Thyroid
United States
Jan 11, 2033
Composition of matter; use or process
Composition of matter; use or process
ONCO-057
Ovarian
United States
Oct 3, 2032
Composition of matter; use or process
Composition of matter; use or process
ONCO-058
Colon
United States
Australia
Canada
China
EPO
Hong Kong
Japan
Korea
Aug 31, 2032
Composition of matter; use or process
Composition of matter; use or process
ONCO-051
Pan
United States
Australia
Canada
EPO
Hong Kong
Jun 22, 2032
Use or process
Composition of matter; use or process
ONCO-059
Pan
United States
Australia
Canada
China
EPO
Hong Kong
Japan
Korea
Aug 31, 2032
Composition of matter; use or process
Composition of matter; use or process
ONCO-064
Pan
PCT application filed July 23, 2014 – national stage applications TBD
July 23, 2034
Composition of matter; use or process
Composition of matter; use or process
                           
(1) Owned by Wistar
                      
All patents and patent applications listed in the above table, with the exception of Wistar patents and patent applications (WST 1 and WST 2), are owned by OncoCyte. OncoCyte has an exclusive option to license the Wistar patents and the terms of a license agreement are currently being negotiated. All patents and patent applications provide support for both composition of matter and process or use claims. In the instances the currently pending claims are directed to either a method or composition of matter, the election is due to an issued restriction requirement and we intend to pursue the non-elected subject matter in a continuation application or applications. All patent expiration dates are provided. The U.S. dates are exclusive of any potential Patent Term Adjustment, which is not applicable in the other jurisdictions.
                      
General Risks Related to Obtaining and Enforcing Patent Protection

Our patents and patent applications are directed to compositions of matter, formulations, methods of use and/or methods of manufacturing. The patent positions of pharmaceutical and biotechnology companies, including ours, are generally uncertain and involve complex legal and factual questions. Our business could be negatively impacted by any of the following:
 
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· The claims of any patents that are issued may not provide meaningful protection, may not provide a basis for commercially viable diagnostic tests or may not provide us with any competitive advantages;

· Our patents may be challenged by third parties;

· Others may have patents that relate to our technology or business that may prevent us from marketing our diagnostic test candidates unless we are able to obtain a license to those patents;

· Patent applications to which we have rights may not result in issued patents; and/or

· We may not be successful in developing additional proprietary technologies that are patentable.

In addition, others may independently develop similar or alternative technologies, duplicate any of our technologies and, if patents are licensed or issued to us, design around the patented technologies licensed to or developed by us. Moreover, we could incur substantial costs in litigation if we have to defend ourselves in patent lawsuits brought by third parties or if we initiate such lawsuits

The United States Supreme Court’s decisions in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and Association for Molecular Pathology v. Myriad Genetics may limit our ability to obtain patent protection on diagnostic methods that merely recite a correlation between a naturally occurring event and a diagnostic outcome associated with that event. Our cancer diagnostic tests are based on the presence of certain genetic markers for a variety of cancers. In Mayo Collaborative Services v. Prometheus Laboratories, Inc. , the Supreme Court ruled that patent protection is not available for the use of a mathematical correlation of the presence of a well-known naturally occurring metabolite as a means of determining proper drug dosage. The claims in the contested patents that were the subject of that decision were directed to measuring the serum level of a drug metabolite and adjusting the dosing regimen of the drug based on the metabolite level. The Supreme Court said that a patent claim that merely claimed a correlation between the blood levels of a drug metabolite and the best dosage of the drug was not patentable subject matter because it did no more than recite a correlation that occurs in nature.

In Association for Molecular Pathology v. Myriad Genetics, the Supreme Court ruled that the discovery of the precise location and sequence of certain genes, mutations of which can dramatically increase the risk of breast and ovarian cancer, was not patentable. Knowledge of the gene location and sequences was used to determine the genes’ typical nucleotide sequence, which, in turn, enabled the development of medical tests useful for detecting mutations in these genes in a particular patient to assess the patient’s cancer risk. But the mere discovery of an important and useful gene did not render the genes patentable as a new composition of matter.

The USPTO has issued interim guidelines in light of the Supreme Court decisions indicating that process claims having a natural principle as a limiting step will be evaluated to determine if the claim includes additional steps that practically apply the natural principle such that the claim amounts to significantly more than the natural principle itself. Because the diagnostic tests that we are developing combine an innovative methodology with newly discovered compositions of matter, we are hopeful that this Supreme Court decision will not preclude the availability of patent protection for our diagnostic tests.

There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid or infringing of third party claims. A patent interference proceeding may be instituted with the USPTO when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent filed before March 16, 2013. At the completion of the interference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested legal proceedings, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect to any of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us. In addition to interference proceedings, the USPTO can reexamine issued patents at the request of a third party seeking to have the patent invalidated. After March 16, 2013 an inter partes review proceeding will allow third parties to challenge the validity of an issued patent where there is a reasonable likelihood of invalidity. This means that patents owned or licensed by us may be subject to re-examination and may be lost if the outcome of the re-examination is unfavorable to us.
 
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Post Grant Review under the America Invents Act makes available opposition-like proceedings in the United States. As with the USPTO interference proceedings, Post Grant Review proceedings will be very expensive to contest and can result in significant delays in obtaining patent protection or can result in a denial of a patent application. Also, a derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from the work of another inventor.

Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries. As with the USPTO interference proceedings, these foreign proceedings can be very expensive to contest and can result in significant delays in obtaining a patent or can result in a denial of a patent application.

The enforcement of patent rights often requires litigation against third party infringers, and such litigation can be costly to pursue. Even if we succeed in having new patents issued or in defending any challenge to issued patents, there is no assurance that our patents will be comprehensive enough to provide us with meaningful patent protection against our competitors.

In addition to patents, we rely on trade secrets, know-how, and continuing technological advancement to maintain our competitive position. We have entered into intellectual property, invention, and non-disclosure agreements with our employees, and it is our practice to enter into confidentiality agreements with our consultants. There can be no assurance, however, that these measures will prevent the unauthorized disclosure or use of our trade secrets and know-how, or that others may not independently develop similar trade secrets and know-how or obtain access to our trade secrets, know-how, or proprietary technology.

Competition

We face substantial competition in our business, and that competition is likely to intensify further as new diagnostic tests and technologies reach the market. Superior new diagnostic tests are likely to sell for higher prices and generate higher profit margins once acceptance by the medical community is achieved. Those companies that are successful in introducing new diagnostic tests and technologies to the market first may gain significant economic advantages over their competitors in the establishment of a customer base and track record for the performance of their diagnostic tests and technologies. Such companies will also benefit from revenues from sales that could be used to strengthen their research and development, production, and marketing resources. All companies engaged in the medical products industry face the risk of obsolescence of their products and technologies as more advanced or cost effective products and technologies are developed by their competitors. As the industry matures, companies will compete based upon the performance and cost effectiveness of their products.

The cancer diagnostic test industry is characterized by rapidly evolving technology and intense competition. Our competitors include major multinational diagnostic companies and specialty biotechnology companies. Many of these companies are well-established and possess technical, research and development, financial, and sales and marketing resources significantly greater than ours. In addition, smaller biotech companies may form strategic collaborations, partnerships, and other types of joint ventures with larger, well established industry competitors that afford these companies’ potential research and development and commercialization advantages. Academic institutions, governmental agencies, and other public and private research organizations are also conducting and financing research activities which may produce diagnostic tests directly competitive to those we are developing.

Molecular diagnostic competitors in the category of our first planned diagnostic test launch (lung confirmatory) include two currently marketed diagnostic tests. Xpresys Lung was launched in late 2013 by Integrated Diagnostics and the company has recently announced coverage by major payers. The other currently marketed diagnostic test is Early CDT lung, which was launched in 2012 by a European diagnostics company OncImmune Ltd. OncImmune has sold its U.S. assets to a CLIA laboratory, operating under the name OncImmune USA, LLC. Additionally, we anticipate competition from Exact Sciences Corp, Gensignia Life Sciences, Inc. and Veracyte, Inc. which have diagnostic tests in the pipeline. Gensignia announced the certification of its CLIA lab in October of this year.

In addition to molecular diagnostics, an imaging competitor has a diagnostic test that may compete directly against our confirmatory lung diagnostic test. VisionGate, Inc. has a sputum (spit) test that is read by their proprietary Cell-CT ® system, which takes an optical CT scan of individual cells to generate 3D images of each cell.
 
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Third-Party Payer Reimbursement

Billing, Coverage, and Reimbursement for Diagnostic tests

Revenues from our clinical laboratory testing will be derived from several different sources. Depending on the billing arrangement, the instruction of the ordering physician and applicable law, parties that may reimburse us for our services include:

· Third-party payers that provide coverage to the patient, such as an insurance company, a managed care organization or a governmental payer program;

· Physicians or other authorized parties, such as hospitals or independent laboratories, that order the testing service or otherwise refer the testing services to us; or

· Patients in cases where the patient has no insurance, has insurance that partially covers the testing, or owes a co-payment, co-insurance or deductible amount.

Medicare

We expect that a substantial portion of the patients for whom we may perform diagnostic tests will have Medicare as their primary medical insurance. We cannot assure that, without Medicare reimbursement our planned tests will produce sufficient revenues to enable us to reach profitability and achieve our other commercial objectives.

Clinical diagnostic laboratory tests are generally reimbursed under the Medicare Clinical Laboratory Fee Schedule. Reimbursement under the Medicare program for the diagnostic tests that we will offer is based on the Medicare Clinical Laboratory Fee Schedule, which is subject to geographic adjustments and is updated annually.
 
Medicare payment amounts are established for each Current Procedural Terminology (“CPT”) code. CPT codes are the main data code set used by physicians, hospitals, laboratories and other health care professionals to report separately- payable clinical laboratory services for reimbursement purposes. The CPT coding system is maintained and updated on an annual basis by the American Medical Association (“AMA”). Each year, new laboratory test codes are added to the fee schedules and corresponding fees are developed in response to a public comment process. We will request a unique CPT code from the AMA for our diagnostic test. Any updates and changes in CPT coding and reimbursement methods could impact our revenues. The introduction of new codes by Centers for Medicare and Medicaid Services (“CMS”) in combination with other actions with regard to pricing could result in lower reimbursements to us than those we may anticipate, or could result in a reduction in the payments that we may receive, for our tests and could make it more difficult to obtain coverage from Medicare or other payers. There can be no guarantees that Medicare and other payers will establish positive or adequate coverage policies or reimbursement rates.
 
In addition, under the Clinical Laboratory Fee Schedule, Medicare also sets a cap on the amount that it will pay for any individual test. This cap, usually referred to as the National Limitation Amount, is set at a percentage of the median of all the contractor fee schedule amounts for each billing code.

Medicare has coverage policies that can be national or regional in scope. Coverage means that the test is approved as a benefit for Medicare beneficiaries. If there is no coverage, neither we nor any other party, such as a reference laboratory, may receive reimbursement from Medicare for the service.

Legislative and Regulatory Changes Impacting Medicare Reimbursements

From time to time, Congress has revised the Medicare statute and the formulas it establishes for both the Medicare Clinical Laboratory Fee Schedule. The payment amounts under the Medicare fee schedules are important because they not only will determine our reimbursement under Medicare, but those payment amounts are also often used as a basis for payment amounts set by other governmental and private third-party payers. For example, state Medicaid programs are prohibited from paying more than the Medicare fee schedule limit for clinical laboratory services furnished to Medicaid recipients.
 
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Under the statutory formula for Medicare Clinical Laboratory Fee Schedule amounts, increases are made annually based on the Consumer Price Index for All Urban Consumers as of June 30 for the previous twelve-month period. The Affordable Care Act (“ACA”) has, among other things, imposed cuts to the Medicare reimbursement for clinical laboratories. The ACA replaced the 0.5% cut enacted by the Medicare Improvements for Patients and Providers Act with a “productivity adjustment” that will reduce the Consumer Price Index update in payments for clinical laboratory tests. The ACA includes a 1.75% reduction in the CPI update for clinical laboratories for the years 2011 through 2015. The Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRJCA”), enacted in 2012, mandated an additional change in reimbursement for clinical laboratory service programs. This legislation required CMS to reduce the Medicare Clinical Laboratory Fee Schedule by 2% in 2013, which in turn has served as a base for subsequent years. As a consequence of the changes required by ACA and MCTRJCA, payment for clinical laboratory services has gone down in recent years.
 
Under the Protecting Access to Medicare Act of 2014 (“PAMA”), which was signed to law in April 2014, there will be major changes to the payment formula under the Medicare Clinical Laboratory Fee Schedule. Beginning January 1, 2016, each clinical laboratory must report laboratory test payment data for each Medicare-covered clinical diagnostic laboratory test that it furnishes during a time period to be defined by future regulations. The reported data must include the payment rate reflecting all discounts, rebates, coupons and other price concessions and the volume of each test that was paid by each private payer, such as health insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations.

PAMA has the potential to significantly impact the way that laboratory tests are reimbursed by Medicare. Reimbursement rates for advanced diagnostic tests will initially be based on list prices or charges and then will be pegged to the average price paid by commercial third party payers such as health insurance companies. Diagnostics in this category must meet one of the following criteria:

· Analysis of multiple biomarkers of DNA, RNA or proteins combined with a unique algorithm to yield a single patient-specific result;

· Cleared or approved by the FDA; or

· Meets other similar criteria established by the Secretary of Health and Human Services.

Beginning January 1, 2017 Medicare payment for any new advanced diagnostic test will be based on the list price/charge. After the test is commercially available for two quarters, the laboratory will be required to report payment and volume information and this data will be used to set payment for the test for the following year.

· If data shows that the list price was greater than 130% of the payment using established methodology, generally a weighted median, CMS will recoup the difference from the laboratory through a payment claw back.

· Payment will be updated annually based on the weighted median of commercial payer reimbursement.

Congress has proposed on several occasions to impose a 20% coinsurance charge on patients for clinical laboratory tests reimbursed under the Medicare Clinical Laboratory Fee Schedule, which would require us to bill patients for these amounts. Because of the relatively low reimbursement for many clinical laboratory tests, in the event that Congress were to ever enact such legislation, the cost of billing and collecting for these services would often exceed the amount actually received from the patient and effectively increase our costs of billing and collecting.

On September 25, 2015, CMS released preliminary determinations for the calendar year 2016 for the Medicare Clinical Laboratory Fee Schedule for some test codes, including some for oncology diagnostics, as had been anticipated. These preliminary determinations were based on a cross walk approach rather than a gap-fill approach. A cross walk approach matches a new code for a diagnostic against existing codes to determine the appropriate payment rate; while a gap-fill approach looks at local pricing patterns, including charges for the tests and any discounts on charges and payments determined by other payers. At this point it is not clear what methodology CMS may use in their determinations for future diagnostics.
 
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Some Medicare claims may be subject to policies issued by the former and current Medicare Administrative Contractor (“MAC”) for California. CMS relies on a network of MACs to process Medicare claims, and MACs serve as the primary operational contact between the Medicare Fee-For-Service program, and approximately 1.5 million health care providers enrolled in the program. Palmetto GBA, acting on behalf of many MACs, issued a Local Coverage Determination that affects coverage, coding and billing of many molecular diagnostic tests. Under this Local Coverage Determination, Palmetto GBA stated that it would not cover any molecular diagnostic tests unless the test is expressly included in a National Coverage Determination issued by CMS or a Local Coverage Determination or coverage article issued by Palmetto GBA. Denial of coverage for our diagnostic tests by Palmetto GBA or its successor MAC, Noridian Healthcare Solutions, or reimbursement at inadequate levels, would have a material adverse impact on our business and on market acceptance our planned diagnostic tests.

Private and Governmental Third Party Payers

Where there is a private or governmental third-party payer coverage policy in place, we will bill the payer and the patient in accordance with the established policy. Where there is no coverage policy in place, we will pursue reimbursement on a case-by-case basis. Our efforts in obtaining reimbursement based on individual claims, including pursuing appeals or reconsiderations of claims denials, could take a substantial amount of time, and bills may not be paid for many months, if at all. Furthermore, if a third-party payer denies coverage after final appeal, payment may not be received at all.

Reimbursement rates paid by private third-party payers can vary based on whether the provider is considered to be an “in-network” provider, a participating provider, a covered provider, an “out-of-network” provider or a non-participating provider. These definitions can vary among payers. An in-network provider usually has a contract with the payor or benefits provider. This contract governs, among other things, service-level agreements and reimbursement rates. In certain instances an insurance company may negotiate an in-network rate for our testing. An in-network provider may have rates that are lower per test than those that are out-of-network, and that rate can vary widely. Rates vary based on the payor, the testing type and often the specifics of the patient’s insurance plan. If a laboratory agrees to contract as an in-network provider, it generally expects to receive quicker payment and access to additional covered patients. However, it is likely that we will initially be considered an “out-of-network” or non-participating provider by payers who cover the vast majority of lives until such time that we can negotiate contracts with these payers.

We cannot predict whether, or under what circumstances, payers will reimburse for all components of our tests. Full or partial denial of coverage by payers, or reimbursement at inadequate levels, would have a material adverse impact on our business and on market acceptance of our tests.

Direct Billing Laws and Other State Law Restrictions on Billing for Laboratory Services

Laws and regulations in certain states prohibit laboratories from billing physicians or other purchasers for testing that they order. Some states may allow laboratories to bill physicians directly but may prohibit the physician and, in some cases, other purchasers from charging more than the purchase price for the services, or may allow only for the recovery of acquisition costs, or may require disclosure of certain information on the invoice. In some cases, and if not prohibited by law or regulation, we may bill physicians, hospitals and other laboratories directly for the services that they order. An increase in the number of states that impose similar restrictions could adversely affect us by encouraging physicians to perform laboratory services in-house or by causing physicians to refer services to other laboratories that are not subject to the same restrictions.

Government Regulation

Clinical Laboratory Improvement Amendments of 1988 and State Regulation

As a provider of laboratory testing on human specimens for the purpose of disease diagnosis, prevention, or treatment, we will be required to hold certain federal, state and local licenses, certifications and permits to conduct our business. In 1988, Congress enacted CLIA, which established quality standards for all laboratories providing testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test was performed. Our laboratory will obtain a CLIA certificate of accreditation. We also will be required to meet certain laboratory licensing and other requirements under state laws. Our laboratory will hold the required licenses from the applicable state agencies in the states in which we operate or from which we receive blood or urine samples for testing.
 
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Under CLIA, a laboratory is defined as any facility which performs laboratory testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health of human beings. CLIA requires that we hold a certificate applicable to the complexity of the categories of testing we perform and that we comply with certain standards. CLIA further regulates virtually all clinical laboratories by requiring that they comply with various operational, personnel, facilities administration, quality and proficiency testing requirements intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. CLIA certification is also a prerequisite to be eligible to be reimbursed for services provided to state and federal health care program beneficiaries. CLIA is user-fee funded. Therefore, all costs of administering the program must be covered by the regulated facilities, including certification and survey costs.

Under the CLIA, laboratory licensing requires a site inspection, review of standard operating procedures and verification that diagnostic results can be reproduced reliably across a number of different conditions. Before submitting for a license, extensive clinical testing, which is typically done in two phases, must be undertaken at a hospital or medical center to demonstrate optimal use, safety, and efficacy of the test in diagnosing a specific condition. Each clinical study is conducted under the auspices of an IRB that will consider, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution.

Clinical studies are generally conducted in two phases. The first phase is analytical validation which is done in the research laboratory and involves the replication of consistent results for the same sample across a spectrum of different conditions. Once the analytical validation is completed, the assay moves into clinical validation. In clinical validation tests are run to confirm that consistent results for the same sample can be obtained in the actual laboratory that will conduct the commercial tests.

We will be subject to regular surveys and inspections to assess compliance with program standards. Laboratories performing high complexity testing are required to meet more stringent requirements than laboratories performing less complex tests.

CLIA and FDA Regulation of Diagnostic Tests

Our diagnostic tests will likely be classified as LDTs and consequently be governed under the CLIA regulations, as administered by CMS, as well as by applicable state laws. Historically, the FDA has exercised enforcement restraint with respect to most LDTs and has not required laboratories that offer LDTs to comply with FDA requirements for medical devices, such as registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls. In recent years, however, the FDA has stated it intends to end its policy of enforcement restraint and begin regulating certain LDTs as medical devices. On October 3, 2014, the FDA issued two draft guidance documents, entitled “Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs)” and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs)”, respectively, that set forth a proposed risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs. The FDA has indicated that it does not intend to modify its policy of enforcement restraint until the draft guidance documents are finalized. It is unclear at this time when, or if, the draft guidance documents will be finalized, and even then, the new regulatory requirements are proposed to be phased-in consistent with the schedule set forth in the guidance, which may happen in as little as 12 months after the draft guidance is finalized for certain high-priority LDTs. Nevertheless, the FDA may decide to regulate certain LDTs on a case-by-case basis at any time.

Failure to comply with applicable FDA regulatory requirements may trigger a range of enforcement actions by the FDA, including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations, and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity. We cannot predict the ultimate form or impact of any such FDA guidance and the potential effect on our diagnostic test services.
 
We cannot provide any assurance that FDA regulation, including premarket review, will not be required in the future for our diagnostic tests, whether through additional guidance or regulations issued by the FDA, new enforcement policies adopted by the FDA or new legislation enacted by Congress. It is possible that proposed legislation discussed above or other new legislation could be enacted into law, or new regulations or guidance could be issued by the FDA. Such new legislation may result in new or increased regulatory requirements for us to continue to offer our diagnostic tests or to develop and introduce new tests or services.
 
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If premarket review, including approval, is required, our business could be negatively affected until such review is completed and clearance to market or approval is obtained. If we are selling any of our diagnostic tests when new FDA approval requirements are implemented, we may be required to suspend sales until we obtain premarket clearance or approval. If our diagnostic tests are allowed to remain on the market but there is uncertainty about the legal status of those tests, if we are required by the FDA to label them investigational, or if labeling claims the FDA allows us to make are limited, order levels for the use of our tests may decline and reimbursement may be adversely affected.

New regulations could also require, among other things, additional clinical studies and submission of a premarket notification or filing a PMA application with the FDA. For example, LDTs with the same intended use as a cleared or approved companion diagnostic are defined in FDA’s draft guidance as “high-risk LDTs (Class III medical devices)” for which premarket review would be required. This may include the use of our LDTs for screening patients for cancer. See the discussion of FDA regulation of medical devices below under In Vitro Diagnostics (“IVDs”). If premarket review is required by the FDA, there can be no assurance that our diagnostic tests will be cleared or approved on a timely basis, if at all, nor can there any be assurance that labeling claims allowed by the FDA will be consistent with our intended claims or will be adequate to support continued adoption of and reimbursement for our tests. Compliance with FDA regulations would increase the cost of conducting our business, and subject us to heightened requirements of the FDA and penalties for failure to comply with these requirements. We may also decide voluntarily to pursue FDA premarket review of our diagnostic tests if we determine that doing so would be appropriate.

California State Laboratory Licensing

In addition to federal certification requirements of laboratories under CLIA, licensure will be required and maintained under California law for the San Francisco Bay Area based laboratory that we plan to establish. Such laws include standards for the day-to-day operation of a clinical reference laboratory, including the training and skills required of personnel and quality control. In addition, California laws mandate proficiency testing, which involves testing of specimens that have been specifically prepared for the laboratory.

We will not be permitted to perform diagnostic tests at our California CLIA laboratory until it is certified by the state, and if after certification our laboratory falls out of compliance with California standards, the California Department of Health Services (“DHS”) may suspend, restrict or revoke our license to operate our laboratory, assess substantial civil money penalties, or impose specific corrective action plans. Any such actions could materially affect our business.

Other States’ Laboratory Licensing

Some states require licensure of out-of-state laboratories that accept specimens from those states. Our laboratories will need to pass various state inspections in order to get licensed to provide LDTs in each of state that requires licensure. In addition to the inspection requirements of the other states, Pennsylvania, Florida and Maryland have laws that require a certificate of compliance, and New York has its own special inspection requirements that must be met, in order to market our diagnostics in those states or to perform diagnostic tests on specimens received from patients residing in those states.

In Vitro Diagnostics

In the future, we may elect to develop IVDs, which are regulated by the FDA as medical devices. Medical devices marketed in the United States are subject to the regulatory controls under CLIA, the Federal Food, Drug, and Cosmetic Act, and regulations adopted by the FDA. Some requirements, known as premarket requirements, apply to medical devices before they are marketed, and other requirements, known as post-market requirements, apply to medical devices after they are marketed.

The particular premarket requirements that must be met to market a medical device in the United States will depend on the classification of the device under FDA regulations. Medical devices are categorized into one of three classes, based on the degree of risk they present. Devices that pose the lowest risk are designated as Class I devices, devices that pose moderate risk are designated as Class II devices and are subject to general controls and special controls, and the devices that pose the highest risk are designated as Class III devices and are subject to general controls and premarket approval.
 
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A premarket submission to the FDA will be required for some Class I products, most Class II, and all Class III devices. Most Class I and some Class II devices are exempt from premarket submission requirements. Some Class I and most Class II devices may only be marketed after a 510(k) premarket notification, while a more extensive PMA or Premarket Approval is required to market Class III devices.

Unless and until the FDA’s draft guidance documents are finalized and the resulting new regulatory requirements are phased in our initial confirmatory diagnostics will not require FDA filing before launch. Since the tests are being developed as LDTs, the regulatory pathway that we will be following is the CLIA certification and inspection pathway. If the new requirements are phased in or if we elect to develop IVDs, our future screenings diagnostics may require a 510(k) submission or a PMA. In a 510(k) submission, the device sponsor must demonstrate that the new device is “substantially equivalent” to a predicate device in terms of intended use, technological characteristics, and performance testing. A 510(k) requires demonstration of substantial equivalence to another device that is legally marketed in the United States. Substantial equivalence means that the new device is at least as safe and effective as the predicate. A device is substantially equivalent if, in comparison to a predicate it (a) has the same intended use as the predicate; and has the same technological characteristics as the predicate; or (b) has the same intended use as the predicate; and has different technological characteristics and the information submitted to FDA; does not raise new questions of safety and effectiveness; and is demonstrated to be at least as safe and effective as the legally marketed predicate device.

A claim of substantial equivalence does not mean the new and predicate devices must be identical. Substantial equivalence is established with respect to intended use, design, energy used or delivered, materials, chemical composition, manufacturing process, performance, safety, effectiveness, labeling, biocompatibility, standards, and other characteristics. A device may not be marketed in the United States until the submitter receives a letter declaring the device substantially equivalent. If the FDA determines that a device is not substantially equivalent, the applicant may resubmit another 510(k) with new data, or request a Class I or II designation through the FDA’s de novo process which allows a new device without a valid predicate to be classified into Class I or II if it meets certain criteria, or file a reclassification petition, or submit a PMA.

A new 510(k) submission is required for changes or modifications to an existing approved device, where the modifications could significantly affect the safety or effectiveness of the device or the device is to be marketed for a new or different indication for use.

A PMA for Class III devices is the most stringent type of premarket submission. Before the FDA approves a PMA, the sponsor must provide valid scientific evidence demonstrating reasonable assurance of safety and effectiveness for the device’s intended use.

Submission of an application is no guarantee that the CMS or FDA will find it complete and accept it for filing. If an application is accepted for filing or licensing, following the CMS or FDA’s review, the CMS or FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not provide an adequate basis for approval.

Health Insurance Portability and Accountability Act

Under HIPAA, the Department of Health and Human Services (“HHS”) has issued regulations to protect the privacy and security of protected health information used or disclosed by health care providers, such as us. HIPAA also regulates standardization of data content, codes and formats used in health care transactions and standardization of identifiers for health plans and providers. Penalties for violations of HIPAA regulations include civil and criminal penalties.

CMS and the Office of Civil Rights issued a final rule in February 2014 to amend both the HIPAA and CLIA regulations. The final rule amended the HIPAA privacy rule to remove the CLIA laboratory exceptions, and as a result, HIPAA-covered laboratories are now required to provide individuals, upon request, with access to their completed test reports. Under the new rules CLIA laboratories and CLIA-exempt laboratories may provide copies of a patient’s completed test reports that, using the laboratory’s authentication process, can be identified as belonging to that patient. These changes to the CLIA regulations and the HIPAA Privacy Rule provide individuals with a greater ability to access their health information, empowering them to take a more active role in managing their health and health care. CLIA laboratories must create and maintain policies, procedures, and other documentation necessary to inform patients of the right to access laboratory test reports and how to exercise that right.
 
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We intend to fully comply with these regulations. The requirements under these regulations may periodically change and could have an effect on our business operations if compliance becomes substantially more costly than under current requirements.

New laws governing privacy may also be adopted in the future. We will take steps to comply with health information privacy requirements of which we are aware and to with which we must comply. However, we can provide no assurance that we will remain in compliance with diverse privacy requirements in all of the jurisdictions in which we do business. Failure to comply with privacy requirements could result in civil or criminal penalties, which could have a materially adverse effect on our business.

Physician Referral Prohibitions

Under a federal law directed at “self-referral,” commonly known as the Stark Law, there are prohibitions, with certain exceptions, on Medicare and Medicaid payments for laboratory tests referred by physicians who personally, or through a family member, have a “financial relationship”—including an investment or ownership interest or a compensation arrangement—with the clinical laboratory performing the tests. Several Stark Law exceptions are relevant to arrangements involving clinical laboratories, including: (1) fair market value compensation for the provision of items or services; (2) payments by physicians to a laboratory for clinical laboratory services; (3) certain space and equipment rental arrangements that satisfy certain requirements, and (4) personal services arrangements that satisfy certain requirements. The laboratory cannot submit claims to the Medicare Part B program for services furnished in violation of the Stark Law, and Medicaid reimbursements may be at risk as well. Penalties for violating the Stark Law include the return of funds received for all prohibited referrals, fines, civil monetary penalties and possible exclusion from the federal health care programs. Many states have comparable laws that are not limited to Medicare and Medicaid referrals.

Corporate Practice of Medicine

A number of states, including California, do not allow business corporations to employ physicians to provide professional services. This prohibition against the “corporate practice of medicine” is aimed at preventing corporations such as us from exercising control over the medical judgments or decisions of physicians. The state licensure statutes and regulations and agency and court decisions that enumerate the specific corporate practice rules vary considerably from state to state and are enforced by both the courts and regulatory authorities, each with broad discretion. If regulatory authorities or other parties in any jurisdiction successfully assert that we are engaged in the unauthorized corporate practice of medicine, we could be required to restructure our contractual and other arrangements. In addition, violation of these laws may result in sanctions imposed against us and/or the professional through licensure proceedings, and we could be subject to civil and criminal penalties that could result in exclusion from state and federal health care programs.

Federal and State Fraud and Abuse Laws

A variety of federal and state laws prohibit fraud and abuse. These laws are interpreted broadly and enforced aggressively by various state and federal agencies, including CMS, the Department of Justice, the Office of Inspector General for HHS, and various state agencies. In addition, the Medicare and Medicaid programs increasingly use a variety of contractors to review claims data and to identify improper payments as well as fraud and abuse. These contractors include Recovery Audit Contractors, Medicaid Integrity Contractors and Zone Program Integrity Contractors. In addition, CMS conducts Comprehensive Error Rate Testing audits, the purpose of which is to detect improper Medicare payments. Any overpayments identified must be repaid unless a favorable decision is obtained on appeal. In some cases, these overpayments can be used as the basis for an extrapolation, by which the error rate is applied to a larger universe of claims, and which can result in even higher repayments.
 
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, receiving, or providing remuneration, directly or indirectly, to induce or in return for either the referral of an individual, or the furnishing, recommending, or arranging for the purchase, lease or order of any health care item or service reimbursable, in whole or in part, under a federal health care program. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, credit arrangements, payments of cash, ownership interests and providing anything at less than its fair market value. Recognizing that the Anti- Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the health care industry, the Office of Inspector General for HHS has issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain requirements that, if met, will assure immunity from prosecution under the federal Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued. For further discussion of the impact of federal and state health care fraud and abuse laws and regulations on our business, see the section entitled “Risk Factors.”
 
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HIPAA also created new federal crimes, including health care fraud and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private third-party payers. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal health care programs, such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal health care programs.

Many states have laws similar to the federal laws described above and the state laws may be broader in scope and may apply regardless of payor.

Other Regulatory Requirements

Our laboratory will be subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood samples and other human tissue. Typically, we will use outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste. These vendors will be licensed or otherwise qualified to handle and dispose of such waste.

The Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers, including requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle stick or similar penetrating injuries.

Employees

As of November 15, 2015, we employed seven persons on a full-time basis and one person on a part-time basis. Three full-time employees hold Ph.D.s in one or more fields of science.

Legal Proceedings

From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently a party to any legal proceedings.

 
MANAGEMENT

Directors

The names and ages of our directors are:
 
William Annett , 61, joined OncoCyte as Chief Executive Officer in June 2015. Prior to becoming our Chief Executive Officer, Mr. Annett was a Managing Director at Accenture from 2011 to 2014, where he founded, built, and headed Accenture’s West Coast Life Sciences practice with sales, marketing, and delivery responsibilities for the entire territory. His clients included most of the major biotech and pharmaceutical companies in the western United States. At Genentech, from 2003 until 2011, Mr. Annett led the Commercial Strategy group and managed large operational projects with several hundred team members. He also directed the Project Finance function for research and development, which supported all development pipeline products with more than 200 clinical trials. In 2001 Mr. Annett founded and until 2003 served as CEO of Corra Life Sciences, a prenatal diagnostics company, which worked with a consortium of universities to develop blood tests for the major diseases of pregnancy. Mr. Annett also previously served as Chief Executive Officer of BioFX Laboratories, Inc. from 1999 to 2000. Early in his career, Mr. Annett also founded a consumer products company, which he led for six years as Chief Executive Officer. During his tenure, the company became publicly traded on NASDAQ and was then acquired. Mr. Annett holds an MBA from the Harvard Business School.
                                    
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Andrew Arno , 56, joined our Board of Directors in June 2015 and has 30 years of experience working with emerging growth companies. He is currently Vice Chairman of “The Special Equities Group” at Chardan Capital Markets, LLC, a privately held investment banking firm, and from June 2013 until July 2015 served as Managing Director of Emerging Growth Equities, an investment bank, and Vice President of Sabr, Inc., a family investment group. He was previously President of LOMUSA Limited, an investment banking firm. From 2009 to 2012, Mr. Arno served as Vice Chairman and Chief Marketing Officer of Unterberg Capital, LLC, an investment advisory firm that he co-founded. He was also Vice Chairman and Head of Equity Capital Markets of Merriman Capital LLC, an investment banking firm, and served on the board of the parent company, Merriman Holdings, Inc. Mr. Arno currently serves on the board of Smith Micro Software, Inc. and Asterias Biotherapeutics, Inc.

Mr. Arno brings over 30 years’ experience handling a wide range of corporate and financial matters and his background as an investment banker and strategic advisor to emerging growth companies qualifies him to serve on our Board of Directors.

Alfred D. Kingsley , 72, joined the Board of Directors during September 2009 and became Chairman of the Board during December 2010. Mr. Kingsley is also the Chairman of the Board of Directors of BioTime. Mr. Kingsley has been general partner of Greenway Partners, L.P., a private investment firm, and President of Greenbelt Corp., a business consulting firm, since 1993. Greenbelt Corp. served as BioTime’s financial advisor from 1998 until June 30, 2009. Mr. Kingsley was Senior Vice-President of Icahn and Company and its affiliated entities for more than 25 years. Mr. Kingsley is a director of our subsidiary Asterias Biotherapeutics, Inc. Mr. Kingsley holds a BS degree in economics from the Wharton School of the University of Pennsylvania, and a J.D. degree and LLM in taxation from New York University Law School.

Mr. Kingsley’s long career in corporate finance and mergers and acquisitions includes substantial experience in helping companies to improve their management and corporate governance, and to restructure their operations in order to add value for shareholders. Mr. Kingsley was instrumental in structuring our equity financings, and in the acquisition of the assets of CTI.

Aditya Mohanty , 49, joined BioTime as its Chief Operating Officer during December 2014. Mr. Mohanty previously served in a number of executive positions at Shire plc, including as President/Head Regenerative Medicine from 2013 to 2014, as Senior Vice President, Business and Technical Operations from 2012 to 2013, as Global Franchise Head MPS from 2010 to 2012, and as Vice President of Operations/Product General Manager from 2005 to 2012. Shire plc is a biotechnology company focused on research, development and commercialization of novel biological products for rare diseases. Mr. Mohanty was VP of Manufacturing and Operations at Transkaryotic Therapies, Inc. from 2002 to 2005 when it was acquired by Shire. Before joining Transkaryotic Therapies, Mr. Mohanty held a number of management positions at Baxter Healthcare Corporation, Bioscience Division from 1990 to 2002. Mr. Mohanty received an MBA degree from Saint Mary’s College, an MS in Chemical Engineering from Clarkson University, and a B. Tech in Chemical Engineering from REC Trichy, in India.
 
Robert W. Peabody, 61, joined the Board of Directors during September 2009. Mr. Peabody was appointed Chief Financial Officer of LifeMap Solutions, Inc., a subsidiary of BioTime, in November 2015. Mr. Peabody served as our Chief Financial Officer from September 2010 to October 2011 and from May 2013 until November 2015.  Mr. Peabody joined BioTime in October 2007 as its Senior Vice President and Chief Operating Office, and served as Chief Financial Officer from September 2010 until October 2011, and from May 2013 until November 2015. Prior to joining BioTime, Mr. Peabody served as Vice-President of Grant Administration for Ocata Therapeutics, Inc., and also served on its board of directors from 1998 to 2006. Prior to joining Ocata, Mr. Peabody spent 14 years as a Regional Controller for Ecolab, Inc., a Fortune 500 specialty chemical manufacturer and service company. He has also been an audit manager for Ernst and Young where he was a Certified Public Accountant on the audit staff serving the firm’s clients whose shares are publicly traded. Mr. Peabody received a Bachelor Degree in Business Administration from the University of Michigan.

Mr. Peabody brings to the Board of Directors his experience in financial management and accounting, including his experience in the management of emerging biotechnology companies.
 
Cavan Redmond, 54, joined our Board of Directors in August of 2015. Since 2014, Mr. Redmond has served as Partner for Zarsy, LLC. Mr. Redmond served as Chief Executive Officer of WebMD from May 2012 until May 2013. From August 2011 until May 2012, Mr. Redmond served as Group President, Animal Health, Consumer Healthcare and Corporate Strategy of Pfizer Inc., a pharmaceutical company. He served as Pfizer’s Group President, Animal Health, Consumer Healthcare, Capsugel and Corporate Strategy from December 2010 until August 2011 and as its Senior Vice President and Group President, Pfizer Diversified Businesses from October 2009 until December 2010. Prior to Pfizer’s acquisition of Wyeth, a pharmaceutical company, Mr. Redmond served as President, Wyeth Consumer Healthcare and Animal Health Business from May 2009 until October 2009. Before that, he held the positions of President, Wyeth Consumer Healthcare from December 2007 until May 2009 and Executive Vice President and General Manager, BioPharma, Wyeth Pharmaceuticals from 2003 until December 2007.
 
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Michael D. West, Ph.D ., 62, has served on the Board of Directors since September 2009 and served as our Chief Executive Officer from our inception until January 2011. Dr. West has been the Chief Executive Officer of BioTime since 2007 and has served on BioTime’s Board of Directors since 2002. Dr. West is also Vice President of Technology Integration and a director of Asterias Biotherapeutics, Inc. Prior to becoming Chief Executive Officer of BioTime in October 2007, Dr. West served as Chief Executive Officer, President, and Chief Scientific Officer of Ocata Therapeutics, Inc., a company engaged in developing human stem cell technology for use in regenerative medicine. Dr. West also founded Geron Corporation, and from 1990 to 1998 he was a Director and Vice-President of Geron, where he initiated and managed programs in telomerase diagnostics, oligonucleotide-based telomerase inhibition as anti-tumor therapy, and the cloning and use of telomerase in telomerase-mediated therapy wherein telomerase is utilized to immortalize human cells. From 1995 to 1998 Dr. West organized and managed the research between Geron and its academic collaborators James Thomson and John Gearhart that led to the first isolation of human embryonic stem and human embryonic germ cells. Dr. West received a B.S. Degree from Rensselaer Polytechnic Institute in 1976, an M.S. Degree in Biology from Andrews University in 1982, and a Ph.D. from Baylor College of Medicine in 1989 concentrating on the biology of cellular aging.

Dr. West is an internationally renowned pioneer and expert in stem cell research, and has extensive academic and business experience in age-related degenerative diseases, telomerase molecular biology, and human embryonic stem cell research and development. Dr. West brings to our Board of Directors the proven ability to conceive of and manage innovative research and development programs that have made scientifically significant discoveries in the field of human embryonic stem cells, and the ability to build companies focused on the great potential of regenerative medicine.

Director Independence

Our Board of Directors has determined that Andrew Arno and Cavan Redmond qualify as “independent” in accordance with Section 803(A) of the NYSE MKT Company Guide. The members of our Audit Committee also meet the independence standards under Section 803(B)(2) of the NYSE MKT Company Guide and Section 10A-3 under the Securities Exchange Act of 1934, as amended. In determining the independence of directors, our Board of Directors considered relationships and transactions during 2015 and during the past three fiscal years between each director or any member of the director’s immediate family, on the one hand, and our company and our affiliates, on the other hand. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent. The only compensation or remuneration that we provide to our independent directors is compensation as non-employee directors. None of these directors, nor any of the members of their families, have participated in any transactions with us that would disqualify them as “independent” directors under the standard described above.

William Annett, Michael D. West, and Alfred D. Kingsley do not qualify as “independent” because we are compensate them as executive officers, and Dr. West and Mr. Mohanty are full-time employees of BioTime, our controlling shareholder and Robert W. Peabody is a full-time employee of a BioTime subsidiary and was previously compensated by us while he served as our Chief Financial Officer.
 
Committees

Audit Committee

The Board of Directors has an Audit Committee that was formed during September 2015. The members of the Audit Committee are Andrew Arno and Cavan Redmond each of whom qualifies as being “independent” under Section 8.03(A) and 8.03(B) of the NYSE MKT Company Guide and under Rule 10A-3 of the Exchange Act. Mr. Arno is the Chairman of the Audit Committee. The purpose of the Audit Committee is to recommend the engagement of our independent registered public accountants, to review their performance and the plan, scope, and results of the audit, and to review and approve the fees we pay to our independent registered public accountants. The Audit Committee also will review our accounting and financial reporting procedures and controls, and all transactions between us and our executive officers, directors, and shareholders who beneficially own 5% or more of any class of our voting securities. We have adopted a written charter for our Audit Committee and plan to post the charter on our website.
 
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Compensation Committee

The Board of Directors has a Compensation Committee that was formed during September 2015. The members of the Compensation Committee are Andrew Arno and Cavan Redmond, both of whom qualify as “independent” in accordance with Section 803(A) and Section 805(c) of the NYSE MKT Company Guide. The Compensation Committee will determine or recommend to the Board of Directors the terms and amount of executive compensation and grants of options and other awards to key employees, consultants, and independent contractors under our Stock Option Plan. We have adopted a written charter for our Compensation Committee and plan to post the charter on our website.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that will apply to all of our employees, officers and directors, and such other our personnel as may be designated by the Chairman of our Audit Committee. We plan to post a copy of the code on our website and to disclose any amendments to the code, or any waivers of its requirements, on our website.

Compensation of Directors

Directors and members of committees of the Board of Directors who are our employees are entitled to receive compensation as employees but are not compensated for serving as directors or attending meetings of the Board of Directors or committees of the Board. All directors are entitled to reimbursements for their out-of-pocket expenses incurred in attending meetings of the Board of Directors or committees of the Board of Directors.

Non-employee directors, other than the Chairman of the Board of Directors, will receive an annual fee of $15,000 in cash, plus $1,000 for each regular or special meeting of the Board of Directors attended or $500 for each meeting attended by telephone conference call, and options to purchase 10,000 shares of common stock under our 2010 Stock Option.

The annual fee of cash will be paid, and the stock options granted will vest and become exercisable, in four equal quarterly installments, provided that the non-employee director remains a director on the last day of the applicable quarter. The options will expire if not exercised five years from the date of grant.

Directors who serve on the Audit Committee or the Compensation Committee shall receive, in addition to other fees payable to them as directors, the following annual fees:

· Audit Committee Chairman: $10,000

· Audit Committee Member other than Chairman: $7,000

· Compensation Committee Chairman: $7,500

· Compensation Committee Member other than Chairman: $5,000

Members of Audit Committee and Compensation Committee will also receive $1,000 for each committee meeting attended in person, and $500 for each committee meeting attended by telephone.

None of our current directors or any former directors received any compensation for serving on our Board of Directors during the fiscal year ended December 31, 2014.
 
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Executive Officers

William Annett, Karen Chapman, Alfred D. Kingsley, Kristine C. Mechem and Russell Skibsted are our only executive officers. Karen Chapman is the wife of Michael West, a member of our Board of Directors.

Karen B. Chapman has been Vice President of Research since March 2015. Dr. Chapman served as Director of Bioinformatics at OncoCyte from April 2011 to March 2015 leading the biomarker discovery group. She has focused her business career on biotechnology and medical applications of genetic technologies. While a scientist at Geron Corporation of Menlo Park, California, from 1994 to 1997, Dr. Chapman participated in the cloning of human telomerase and has been issued approximately 25 patents. Dr. Chapman was a co-founder of Origen Therapeutics, a company focused on the manufacture of therapeutic proteins in transgenic animal systems. She was also Senior Scientist and Associate Director of Business Development at Acata Inc. where she managed research efforts in the epigenetic and telomere status of embryonic stem cells and business contract negotiations. Dr. Chapman received her Ph.D. from Johns Hopkins University School of Medicine in 1991.

Kristine C. Mechem joined OncoCyte Corporation as Vice President of Marketing in August 2015 after serving as a commercialization consultant assisting in the areas of portfolio management, launch planning and forecasting from April 2015 until joining OncoCyte. Dr. Mechem served as a Director of Business Insights and Analytics at Abbott Diabetes Care, from 2011 until 2014, leading a team of analysts and forecasters supporting the business planning process and developing monthly key performance indicators for its senior management. Dr. Mechem brings to OncoCyte extensive experience within the biotechnology and diagnostics industry. Dr. Mechem’s leadership and industry experience includes: marketing, planning and analytic roles. Her experience spans from smaller early stage diagnostic companies such as Corra Life Sciences, to larger biopharma companies like Abbott Laboratories and Genentech. At Corra Life Sciences, a prenatal diagnostics company, she was a co-founder and served as Vice President of Business Development and Marketing from2006 until 2007. Dr. Mechem provided business development and marketing support working to secure co-development partners and license intellectual property from three prominent universities. At Genentech from 2009 until 2010, Dr. Mechem supported the portfolio management and led the business planning process for a $400 million annual revenue product. Her increasing roles of responsibility included long range planning, commercial opportunity assessments, and target product profile market research. Dr. Mechem holds a Ph.D. from the University of Chicago, where she was a National Institute of Child Health and Human Development (NICHD) fellow. She also completed the Stanford Business School Executive Program in Strategy and Organization.

Russell Skibsted was appointed as our Chief Financial Officer and as BioTime’s Chief Financial Officer during November 2015. Mr. Skibsted comes to OncoCyte and BioTime from Proove Biosciences, Inc. where he had served as Chief Financial Officer since 2014. From 2013 to 2014 Mr. Skibsted was Managing Director and Chief Financial Officer of RSL Ventures, where he provided financial consulting services to public and private companies in the life sciences sector. Mr. Skibsted served as Senior Vice President, Chief Financial Officer and Secretary of Aeolus Pharmaceuticals, a publicly traded biopharma company, from 2010 to 2013, and was Senior Vice President and Chief Business Officer of Spectrum Pharmaceuticals, a publicly traded, biopharmaceutical company, from 2006 to 2009. Previously, from 2004 to 2006, Mr. Skibsted served as Chief Financial Officer of Hana Biosciences, and from 2000 to 2004 he served as Chief Financial Officer and Portfolio Management Partner of Asset Management Company, a venture capital firm. Mr. Skibsted holds a B.A. in economics from Claremont McKenna College and an MBA from the Stanford Graduate School of Business.

Other Key Management Team Members

Lyssa Friedman joined OncoCyte as a consultant in April 2014 and was named Vice President of Clinical and Regulatory Affairs in September 2015. Ms. Friedman started her career as a registered nurse specializing in oncology, and has led clinical research operations teams for more than 15 years. Ms. Friedman was a founding team member at Veracyte, Inc. and worked there from 2008 to 2014, where she executed a 49-site, 4000-subject clinical validation study that resulted in the launch of the Afirma ® Gene Expression Classifier. She later oversaw clinical utility studies that contributed to positive coverage decision from the Centers for Medicare and Medicaid Services and major U.S private insurers. Ms. Friedman is an author of about a dozen peer-reviewed publications and is a frequent speaker on diagnostic development, clinical and regulatory affairs, and reimbursement. Ms. Friedman received her masters in Public Administration from the University of San Francisco.
 
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Advisory Board Members

In addition to our employees, OncoCyte has formed an advisory board of experts in bioinformatics and diagnostics development.

Name
Functional Expertise
Experience
Ljubomir Buturovic
Bioinformatics and Algorithm development
CEO and Co-founder Clinica Persona
 
VP and Chief Scientist, Pathwork Diagnostics,
 
Director Bioinformatics Inctye Corp, SFSU Adjunct Professor
 
Support for a number of FDA approved diagnostics
Lyndal Hesterberg
Product Development
Senior Advisor Carmenta Biosciences, CTO Crescendo Biosciences
Steven Rosenberg
Genomics Diagnostics Discovery and Development
CXO CardioDx, CSO CareDx, Chiron Research Fellow

Indemnification of Directors and Officers

Section   317 of the California Corporations Code permits indemnification of directors, officers, employees and other agents of corporations under certain conditions and subject to certain limitations. In addition, Section 204(a)(10) of the California Corporations Code permits a corporation to provide, in its articles of incorporation, that directors shall not have liability to the corporation or its shareholders for monetary damages for breach of fiduciary duty, subject to certain prescribed exceptions. Article Five of our Articles of Incorporation contains provisions for the indemnification of directors, officers, employees and other agents within the limitations permitted by Section 317 and for the limitation on the personal liability of directors permitted by Section 204(b)(10), subject to the exceptions required thereby.

Under Article VI of our bylaws, any person who is or was one of our directors or officers, employees, or other agents, or is or was serving at our request as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, will be considered an “agent” entitled to indemnification against expenses arising under certain proceedings. To the maximum extent permitted by the California General Corporation Law, we will indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of OncoCyte) by reason of the fact that the person is or was an agent of OncoCyte, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of OncoCyte and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct of was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the agent did not act in good faith and in a manner which agent reasonably believed to be in the best interests of OncoCyte or that the agent had reasonable cause to believe that his conduct was unlawful.

We will also indemnify any agents any who was or is a party or is threatened to be made a party, to any threatened, pending or completed action by or in the right of OncoCyte to procure a judgment in its favor by reason of the fact that person is or was an agent of OncoCyte, against expenses actually and reasonably incurred by the agent in connection with the defense or settlement of that action if the agent acted in good faith, in a manner that the agent believed to be in the best interests of OncoCyte and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made:
 
· In respect of any claim, issue or matter as to which that the agent is adjudged to be liable to OncoCyte in the performance of that person's duty to OncoCyte, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, that the agent is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;
 
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· Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or

· Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.

To the extent that an agent of OncoCyte is successful on the merits in defense of any proceeding for which the agent is entitled to indemnification under our bylaws, the agent will be indemnified against expenses of the defense actually and reasonably incurred.

Except as with respect to a successful defense on the merits in a proceeding, indemnification will be provided under our bylaws only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in our bylaws, by:

· A majority vote of a quorum consisting of directors who are not parties to the proceeding;

· Approval by the affirmative vote of a majority of the shares of OncoCyte entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or

· The court in which the proceeding is or was pending, on application made by OncoCyte or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by OncoCyte.

Expenses incurred in defending any proceeding may be advanced by OncoCyte before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in our bylaws.

We will not provide indemnification or advance expenses on behalf of an agent in any circumstance where it appears:

· That it would be inconsistent with a provision of our articles of incorporation, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

· That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
 
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EXECUTIVE COMPENSATION

Compensation Committee Interlocks and Insider Participation in Compensation Decisions

We did not have a Compensation Committee prior to September 2015, as we are a subsidiary of BioTime. The members of our newly organized Compensation Committee are Andrew Arno and Cavan Redmond, both of whom qualify as “independent” in accordance with Section 803(A) and Section 805(c) of the NYSE MKT Company Guide. Neither Mr. Arno nor Mr. Redmond is a current or former officer or employee of OncoCyte or BioTime or any of BioTime’s other subsidiaries, nor did either of them have any relationship with OncoCyte, BioTime or any of BioTime’s other subsidiaries requiring disclosure in this information statement under Item 404 of SEC Regulation S-K.

Prior to the formation of our Compensation Committee, executive compensation was determined by our Board of Directors, subject to approval by the Board of Directors or Compensation Committee of BioTime in the case of any OncoCyte officer or director who was also an officer or director of BioTime.

During last fiscal year, none of our executive officers served as (a) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers serves on our Compensation Committee, (b) a director of another entity, one of whose executive officers serves on our Compensation Committee, or (c) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Board of Directors, except that certain of our executive officers, including Michael D. West, Robert W. Peabody, and Alfred D. Kingsley, served on the boards of directors or as executive officers of BioTime and as directors and executive officers of one or more of BioTime’s other subsidiaries, and in their capacity as directors of OncoCyte and other BioTime subsidiaries each of them determined the compensation of other executive officers of OncoCyte and those BioTime subsidiaries, though none of them voted on matters pertaining to their own personal compensation.

Except for grants of stock options, our executive officers who were also executive officers of BioTime did not receive any direct compensation from us during 2014 and 2013 and during the first nine months of 2015. Instead, those executive officers and directors were compensated by BioTime in their respective capacities. BioTime allocated to us as an expense a portion of the compensation paid to our executive officers.

Executive Employment Agreements

We have entered into Employment Agreements with our Chief Executive Officer William Annett, our Vice President of Marketing Kristine Mechem, and our Vice President of Research Karen Chapman. Mr. Skibsted has an Employment Agreement with BioTime, and BioTime allocates a portion of his compensation to us as an allocated cost under the Shared Facilities Agreement.

Pursuant to his Employment Agreement, Mr. Annett will receive a base annual salary of $320,000. He is eligible to receive annual cash incentive bonus awards determined by the Board of Directors, with a target bonus of not less than 35% of his base salary, based on his achievement of specific, objectively determinable, performance goals at target levels for the year. If the specified performance goals are achieved at maximum levels, the amount of the annual bonus will be up to 150% of Mr. Annett’s base salary as determined by the Board of Directors in its sole discretion.

Mr. Annett’s employment agreement contains provisions entitling him to severance benefits under certain circumstances. If we terminate Mr. Annett’s employment without “cause” or if he resigns for “good reason” as those terms are defined in his employment agreement, he will be entitled to receive as a severance benefit six months base salary, a pro rates portion of the target bonus for the year, payable on the date that annual bonuses would otherwise be payable to executives, and any unvested stock options that would have vested during the six months following termination of his employment (the “Severance Period”) will vest, and the period during which his vested options may be exercised will be extended to earlier of the date twelve months after termination of his employment or the expiration date of the option. If Mr. Annett’s employment is terminated without “cause” or if he resigns for “good reason” within twelve months following a “Change of Control,” he will be entitled to twelve months base salary and the Severance Period will be twelve months rather than six months. In addition, if Mr. Annett elects continued health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) we will reimburse him for or we will directly pay the premiums for that coverage until the earlier of the end of the Severance Period or the date on which he receives equivalent health care insurance in connection with new employment. In order to receive the severance benefits, Mr. Annett must execute a general release of all claims against us and must return all our property in his possession.
 
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“Change of Control” means (A) the acquisition of our voting securities by a person or an Affiliated Group entitling the holder to elect a majority of our directors; provided, that an increase in the amount of voting securities held by a person or Affiliated Group who on the date of the Employment Agreement beneficially owned (as defined in Section 13(d) of the Exchange Act, and the regulations thereunder) more than 10% of our voting securities shall not constitute a Change of Control; and provided, further, that an acquisition of voting securities by one or more persons acting as an underwriter in connection with a sale or distribution of voting securities shall not constitute a Change of Control, (B) the sale of all or substantially all of our assets; or (C) a merger or consolidation in which we merge or consolidate into another corporation or entity in which our shareholders immediately before the merger or consolidation do not own, in the aggregate, voting securities of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity) entitling them, in the aggregate (and without regard to whether they constitute an Affiliated Group) to elect a majority of the directors or persons holding similar powers of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity). A Change of Control shall not be deemed to have occurred if all of the persons acquiring our voting securities or assets, or merging or consolidating with us, are one or more of our direct or indirect subsidiaries or parent corporations. “Affiliated Group” means (A) a person and one or more other persons in control of, controlled by, or under common control with, such person; and (B) two or more persons who, by written agreement among them, act in concert to acquire voting securities entitling them to elect a majority of our directors. “Person” includes both people and entities.

Mr. Annett’s Employment Agreement also provides that if any of the payments to him would constitute “parachute payments” under applicable provisions of the Internal Revenue Code and would be subject to excise tax, we will use our best efforts to obtain shareholder approval of the payment, or Mr. Annett may elect to accept a reduced amount that would not be subject to the excise tax on parachute payments.

Pursuant to her Employment Agreement, Ms. Mechem will receive a base annual salary of $200,000. She is eligible to receive annual cash incentive bonus awards determined by the Board of Directors, with a target bonus of not less than 30% of her base salary, based on her achievement of objectively determinable performance goals for the year. If we terminate Ms. Mechem’s employment without “cause” as defined in her Employment Agreement, she will be entitled to receive, as a severance benefit, payment of three months base salary if she has been employed by us for one year or less, or six months base salary, if she has been employed by us for more than one year. The severance compensation may be paid in a lump sum or, at our election, in installments consistent with the payment of her salary while employed by us. In order to receive the severance benefits, Ms. Mechem must execute a general release of all claims against us and must return all our property in her possession.

Pursuant to her Employment Agreement, Ms. Chapman’s base annual salary has been set by the Board of Directors at $200,000. She is eligible to receive annual bonus awards as may be approved by the Board of Directors in its discretion, based on her achievement of goals or milestones set by the Board of Directors. If we terminate Ms. Chapman’s employment without “cause” as defined in her Employment Agreement, she will be entitled to receive, as a severance benefit, payment of three months base salary. The severance compensation may be paid in a lump sum or, at our election, in installments consistent with the payment of her salary while employed by us. In order to receive the severance benefits, Ms. Chapman must execute a general release of all claims against us and must return all our property in her possession.
 
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The following tables show certain information relating to the compensation of our former Chief Executive Officer. There were no other executive officers whose compensation exceeded $100,000 during the fiscal year ended December 31, 2014. Dr. Wagner is referred to as a “Named Executive Officer.” William Annett became our current Chief Executive Officer during June 2015 and did not receive compensation as an officer or employee during the last fiscal year.

SUMMARY COMPENSATION TABLE
Name and principal position
 
Year
 
Salary
   
Bonus
   
Option
Awards (1)
   
All other
compensation
   
Total
 
Joseph P. Wagner
 
2014
 
$267,800
   
$10,000
   
$—
   
$12,614 (2)  
 
$290,414
 
Chief Executive Officer
 
2013
 
$260,000
   
$10,000
   
$—
   
$12,533 (2)  
 
$282,533
 
 

 
(1) No options were granted to Dr. Wagner during the years ended December 2014 and 2013.

(2) Entirely represents employer contributions to Dr. Wagner’s 401(k) plan. Dr. Wagner served as our Chief Executive Officer until May 29, 2015.

Stock Options Outstanding at Year End

The following table summarizes certain information concerning stock options granted by us under our 2010 Stock Option Plan, and held as of December 31, 2014 by our former Chief Executive Officer, who is our only Named Executive Officer:
 
OUTSTANDING EQUITY AWARDS AT YEAR-END  
Option Awards
 
Name
 
Number of Securities Underlying Unexercised Options Exercisable
   
Number of Securities Underlying Unexercised Options Unexercisable
   
Option Exercise Price
 
Option   Expiration   Date
 
Joseph P. Wagner
 
391,666 (1)  
 
8,333
   
$1.34
 
January 30, 2018
 
 


(1) These options became exercisable at the rate of 8,333 shares per month while Dr. Wagner was our employee. Dr. Wagner served as our Chief Executive Officer until May 29, 2015 and exercised 3,000 of his vested options in August 2015. The remaining unvested and vested options expired or were forfeited as a result of his resignation.

Stock Option Grants to Executive Officers During 2015

The following tables show certain information relating to the grant of stock options to our current executive officers during 2015, including options granted to Mr. Annett and Ms. Mechem under the terms of their respective Employment Agreements. No options were granted to any of our executive officers during 2014.
 
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2015 GRANTS OF PLAN-BASED AWARDS
Name
 
Number of Securities Underlying Options
   
Exercise Price of Option Awards ($/share) (1)
 
William Annett (1)
   
605,000
  (2)
 
 
$
2.20
   
Karen Chapman
   
100,000
  (3)
 
 
$
2.20
   
Alfred D. Kingsley
   
75,000
  (3)
 
 
$
2.20
   
Kristine Mechem
   
100,000
  (3)
 
 
$
3.16
   
 

 
(1) In addition to the options shown in this table, Mr. Annett holds vested options to purchase 5,000 shares of our common stock at an exercise price of $2.20 per share that were granted to him upon his appointment to our Board of Directors as a non-employee director during January 2015.

(2) Options to purchase 5,000 shares were fully vested on the date of grant. For the remaining 600,000 options, 25% will vest and thereby become exercisable one year from the date of grant, and the balance will vest in equal 36 monthly installments commencing on the first anniversary date of the grant, based upon Mr. Annett’s continued service as an employee or officer of OncoCyte.

(3) 25% of these options will vest and thereby become exercisable one year from the date of grant, and the balance will vest in equal 36 monthly installments commencing on the first anniversary date of the grant.

Stock Option Plan

We have adopted an Employee Stock Option Plan (the “Plan”) pursuant to which we may grant options to purchase, or we may sell as restricted stock, up to a total of 4,000,000 shares of common stock. The following summary of the Plan is qualified in all respects by reference to the full text of the Plan, a copy of which is has been filed as an exhibit to our registration statement on Form 10.

Administration of the Plan

The Plan is administered by our Board of Directors, which recommends to the Board of Directors which of our officers, directors, employees, consultants, and independent contractors should be awarded options or restricted stock, the number of shares subject to the options granted or shares of restricted stock to be sold, the exercise price of the options or purchase price of restricted stock, and certain other terms and conditions of the options and restricted stock. As permitted by the Plan, the Board of Directors has delegated administration of the Plan to the Compensation Committee.

No options may be granted under the Plan more than ten years after the date the Plan was adopted by the Board of Directors, and no options granted under the Plan may be exercised after the expiration of ten years from the date of grant.

Terms of the Options

Options granted under the Plan may be either “incentive stock options” within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options. Incentive stock options may be granted only to our employees and employees any parent or subsidiary company. The exercise price of incentive stock options granted under the Plan must be equal to not less than 85% of the fair market of our common stock on the date the option is granted. In the case of an optionee who, at the time of grant, owns more than 10% of the combined voting power of all classes of our capital stock, the exercise price of any incentive stock option must be at least 110% of the fair market value of the common stock on the grant date, and the term of the option may be no longer than five years. The aggregate fair market value of the common stock (determined as of the grant date of the option) with respect to which incentive stock options become exercisable for the first time by an optionee in any calendar year may not exceed $100,000.
 
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The options’ exercise price may be payable in cash or in shares of common stock having a fair market value equal to the exercise price, or in a combination of cash and common stock.

Options granted under the Plan are nontransferable (except by will or the laws of descent and distribution) and may vest upon the satisfaction of reasonable conditions determined by the Board of Directors or Compensation Committee. Incentive stock options may be exercised only during employment or within three months after termination of employment, subject to certain exceptions in the event of the death or disability of the optionee, provided, that the Board of Directors or Compensation Committee may waive this provision.

Certain Adjustments to Number of Shares and Exercise Price

The number of shares of common stock covered by the Plan, and the number of shares of common stock and the exercise price per share of each outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of common stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of issued and outstanding shares of common stock effected without receipt of consideration by us.

Corporate Reorganization or Liquidation

In the event of the dissolution or liquidation of OncoCyte, or in the event of a reorganization, merger, or consolidation of OncoCyte as a result of which OncoCyte common stock is changed into or exchanged for cash or property or securities not issued by us, or upon a sale of substantially all of our property to, or the acquisition of stock representing more than eighty percent 80% of the voting power of our capital stock then outstanding by, another corporation or person, the Plan and all options granted under the Plan shall terminate, unless provision can be made in writing in connection with such transaction for either the continuance of the Plan and/or for the assumption of options granted under the Plan, or the substitution for such options by options covering the stock of a successor corporation, or a parent or a subsidiary of a successor corporation, with appropriate adjustments as to the number and kind of shares and prices.

Restricted Stock Sales

In lieu of granting options, we may enter into restricted stock purchase agreements with employees under which they may purchase common stock subject to certain vesting and repurchase restrictions. We have the right to repurchase unvested shares at the shareholder’s cost upon the occurrence of specified events, such as termination of employment. The price at which shares may be sold under restricted stock purchase agreements will be not less than 85% of fair market value, or 100% of fair market value in the case of stock sold to a person who owns capital stock representing more than 10% of the combined voting power of all classes of our capital stock. We may permit employees or consultants, but not executive officers or directors, who purchase stock under restricted stock purchase agreements to pay for their shares by delivering a promissory note that is secured by a pledge of their shares.

Other Compensation Plans

We do not have any pension plans, defined benefit plans, or non-qualified deferred compensation plans.

Risk Considerations and Recoupment Policies

The Compensation Committee of our Board of Directors will consider, in establishing and reviewing our executive compensation programs, whether the program encourages unnecessary or excessive risk taking. Our executive compensation arrangements include a fixed salary that provides a steady income so that executives do not feel pressured to focus exclusively on stock price performance or short term financial targets to the detriment of our long-term operational and strategic objectives. We may supplement fixed salaries with discretionary bonus awards based on the executive’s performance as well as ours, and bonus awards based on our receipt of research grant funding. The stock options that we have granted to our executive officers under the Plan vest over four years, assuring that the executives take a long-term perspective in viewing their equity ownership.
 
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Because we have not adopted compensation plans, or made incentive awards, based on quantified financial performance measures, we have not adopted specific policies regarding the adjustment or recovery of awards or payments if the relevant performance measures are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. We may adopt such policies, however, if we adopt incentive compensation plans or grant incentive bonuses based on financial performance measures.

Tax Considerations

Section 162(m) of the Internal Revenue Code places a $1.0 million limit on the amount of compensation that a company can deduct in any one year for compensation paid to its chief executive officer and the three most highly-compensated executive officers employed by the company at the end of the year, other than the company’s chief financial officer. The $1.0 million deduction limit does not apply to compensation that is performance-based and provided under a shareholder-approved plan. We have never awarded cash compensation, in the form of salary and bonuses, in excess of the $1.0 million limit. Our stock option awards are designed to qualify for tax deductibility. Notwithstanding the foregoing, we may elect to pay compensation to executive officers that may not be fully deductible if we believe that is necessary to attract, retain and reward high-performing executives.

 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareholders

The following table sets forth information concerning beneficial ownership of our common stock by each shareholder known by us to be the beneficial owner of 5% or more of our common stock based on known beneficial ownership of OncoCyte common stock as of November 23, 2015, and on an estimated pro forma basis giving effect to the Distribution. We are not aware of any holder of BioTime common shares who will become a beneficial owner of 5% or more of our common stock as result of receiving shares in the Distribution.

Shareholder
 
Number of Shares Before Distribution
   
Percent of Total
   
Number of Shares After Distribution
   
Percent of Total
 
                         
BioTime, Inc.
1301 Harbor Bay Parkway, Suite 100
Alameda, California 94502
   
19,418,952
       
76.4
%
 
           
 
 
%  
                                         
George Karfunkel
126 East 56 th Street/15 th Floor
New York, New York 10022
   
3,500,000
       
13.8
%
 
           
 
  %  
                                         
Bernard Karfunkel
c/o The Sabr Group
126 East 56 th Street/15 th Floor
New York, New York 10022
   
2,500,000
       
9.8
%
 
           
  %  

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Security Ownership of Management

The following table sets forth information concerning beneficial ownership of our common stock by each member of our Board of Directors, our executive officers, and all of our executive officers and directors as a group as of November 23, 2015, and on an estimated pro forma basis giving effect to the Distribution.

   
Number of Shares Before Distribution
   
Percent of Total
   
Number of Shares After Distribution
   
Percent of Total
 
                                 
William Annett (1)
   
10,000
       
 
*                
 
*  
                                         
Michael D. West (2)
   
250,000
       
1.0
%
 
           
 
  %  
                                         
Alfred D. Kingsley (3)
   
125,000
       
 
*                
 
*  
                                         
Robert W. Peabody (4)
   
125,000
       
 
*                
 
*  
                                         
Karen B. Chapman (5)
   
200,000
       
 
*                
 
*  
                                         
Kristine C. Mechem (6)
   
-
       
 
*                
 
*  
                                         
Andrew Arno (7)
   
5,000
       
 
*                
 
*  
                                         
Redmond Cavan (7)
   
5,000
       
 
*                
 
*  
                                         
Aditya Mohanty
   
-
       
 
*                
 
*  
                                         
All executive officers and directors as a group (9 persons) (8)
   
720,000
       
1.5
%
 
           
 
  %  
 

 
*        Less than 1%

(1) Includes 10,000 shares that may be acquired through the exercise of stock options that are presently exercisable. Excludes 600,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

(2) Includes 250,000 shares that may be acquired through the exercise of stock options that are presently exercisable. Excludes 125,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

(3) Includes 125,000 shares that may be acquired through the exercise of stock options that are presently exercisable. Excludes 75,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

(4) Includes 125,000 shares that may be acquired through the exercise of stock options that are presently exercisable. Excludes 75,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

(5) Includes 200,000 shares that may be acquired through the exercise of stock options that are presently exercisable. Excludes 100,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

(6) Excludes 100,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.
 
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(7) Includes 2,500 shares that may be acquired through the sale of options that are presently exercisable and 2,500 shares that may be acquired upon the exercise of certain stock options that may become exercisable within 60 days. Excludes 5,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

(8) Includes 720,000 shares that may be acquired upon the exercise of certain stock options that are presently exercisable or that may become exercisable within 60 days. Excludes 1,085,000 shares that may be acquired upon the exercise of certain stock options that are not presently exercisable and that will not become exercisable within 60 days.

Certain Relationships and Related Party Transactions

In May 2015, we entered into Subscription Agreements with George Karfunkel and Bernard Karfunkel (the “Investors”) and BioTime (the “Subscription Agreements”). Under the Subscription Agreements, we sold 1,500,000 shares of our common stock for $3.3 million in cash, including 500,000 shares sold to George Karfunkel, and 1,000,000 shares sold to Bernard Karfunkel. Concurrently, BioTime purchased 1,500,000 shares of our stock in exchange for the cancelation of $3.3 million of our indebtedness owed to BioTime, and we delivered to BioTime a convertible promissory note (the “Note”) with regard to an additional $3.3 million of our outstanding indebtedness to BioTime. The Note bore interest at the rate of 1% per annum and was payable on November 30, 2016. Originally, BioTime had the right to convert the principal amount of the Note plus accrued interest into shares of our common stock at a conversion price of $2.20 per share commencing on a future date. On November 19, 2015, the Note was amended to permit BioTime to convert the Note into shares of our common stock at any time prior to payment in full of the principal balance and accrued interest and on November 20, 2015 BioTime converted the Note into 1,508,095 shares of our common stock.

In June 2015, after the sale of stock under the Subscription Agreements was completed, we entered into a second agreement with the Investors. Under the second agreement, the Investors agreed that if on or before June 30, 2016 we conduct another rights offering to our shareholders at a pre-offer valuation of at least $40.0 million, the Investors will purchase shares in that offering with an aggregate purchase price equal to the lesser of (a) a percentage of total amount of capital which we then seek to raise in the rights offer and in any concurrent offering to third parties equal to the Investors’ aggregate pro rata share of outstanding OncoCyte common stock on the record date for the rights offering, determined on a fully diluted basis, and (b) $3.0 million, or such lesser amount requested by us. Under the second agreement, we agreed that if shares of our common stock are not publicly traded on any stock exchange or over the counter market by January 15, 2016, we will issue to the Investors, warrants to purchase, in the aggregate, 1,500,000 shares of common stock at an exercise price of $0.02 per share. If issued, the warrants will expire on December 31, 2016.

The Investors also agreed that, for a period of one year from the date of the second agreement, neither of them shall invest or engage, directly or indirectly, whether as a partner, equity holder, lender, principal, agent, affiliate, consultant or otherwise, in any business anywhere in the world that develops products for the diagnosis and treatment of cancer or otherwise competes with us in any way; provided, however, that the passive ownership of less than 5% of the outstanding stock of any publicly-traded corporation will not be deemed, solely by reason thereof, to be in violation of that agreement.

During September 2015, we entered into Subscription Agreement with BioTime pursuant to which BioTime purchased 2,710,857 shares of our common stock for $8,349,440 in cash.

The foregoing offers and sales of our common stock were made in reliance upon the exemption from registration under the Securities Act pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
 
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We have entered into a Registration Rights Agreement, as amended, pursuant to which we have agreed to register for sale under the Securities Act, at our expense, shares of common stock sold to the Investors and BioTime. We have agreed to file a registration statement following a written request for registration from any holder or group of holders of not less than 25% of the shares covered by the Registration Rights Agreement, but not earlier than one year after we completes an initial public offering of our common stock registered under the Securities Act (an “IPO”). If, after we complete an IPO, we propose to register any of our securities for sale under the Securities Act, other than with respect to a subscription rights offer to our shareholders or registration statements on Form S-8, the holders of registration rights may include their shares in our registration statement, to the extent that their shares are not eligible for sale under SEC Rule 144 and subject to certain other limitations. We and the holders of the registration rights have agreed to indemnify each other from certain liabilities in connection the registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities Act.

In August 2015 our former Chief Executive Officer, Joseph Wagner, exercised options to purchase 3,000 shares of common stock for $4,020 in cash. The sale was made in reliance upon the exemption from registration under the Securities Act pursuant to Rule 701.

Shared Facilities Agreement and Relationship with BioTime

Since inception, BioTime has provided us with the use of office and laboratory facilities, laboratory and office equipment and supplies, utilities, insurance, and the services of its employees and contractors, for which we have reimbursed BioTime, either through cash payments, shares of our common stock, or delivering convertible promissory notes. As of September 30, 2015, we had approximately $437,000 due to BioTime.

We have entered into a Shared Facilities Agreement with BioTime through which BioTime will continue to provide us with the use of its facilities, equipment and supplies, utilities, and personnel at its cost plus 5%. However, to date BioTime has not charged us the 5% markup.

BioTime is not required to hire any additional personnel or to acquire any additional equipment or supplies for our use. We expect to hire our own personnel and to acquire our own equipment and supplies for our own exclusive use as the need arises.

The Shared Facilities Agreement will remain in effect from year to year, unless either party gives the other party written notice stating that this agreement shall terminate on December 31 of that year, or unless the agreement is otherwise terminated under another provision of the agreement.

Either party may terminate the Shared Facilities Agreement immediately upon the occurrence of a default by the other party. A default will be deemed to have occurred if a party (i) fails to pay any sum due under the Shared Facilities Agreement, or fails to perform any other obligation under the agreement, and the failure continues for a period of 5 days after written notice from the party seeking to terminate the agreement; (ii) becomes the subject of any order for relief in a proceeding under any Debtor Relief Law; (iii) becomes unable to pay, or admits in writing the party’s inability to pay, its debts as they mature; (iv) makes an assignment for the benefit of creditors; (v) applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitation, or similar officer for the party or for all or any part of the party’s property or assets, or any such officer is appointed for such party or any part of its assets without the party’s consent and such appointment is not dismissed or discharged within 60 calendar days; (vi) institutes or consents to any proceeding under any Debtor Relief Law with respect to the party or all or any part of the party’s property or assets, (vii) becomes subject to any proceeding under any Debtor Relief Law without the consent of the party if such case or proceeding continues undismissed or unstayed for 60 calendar days; or (viii) dissolves or liquidates or takes any action to dissolve or liquidate. As used in the Shared Facilities Agreement, the term Debtor Relief Law means the Bankruptcy Code of the United States of America, as amended, or any other similar debtor relief law affecting the rights of creditors generally.
 
Under the Shared Facilities Agreement, we have agreed to defend, indemnify, and hold harmless BioTime, BioTime’s shareholders, directors, officers, employees, and agents against and from any and all claims arising from our use of BioTime’s office and laboratory facilities, and from any of our work or other activities there, including all activities, work, and services performed by BioTime employees, contractors, and agents for us. The scope of our indemnification obligations also includes any and all claims arising from any breach or default on our part in the performance of any of our obligations under the terms of the Shared Facilities Agreement, or arising from any act or omission (including, but not limited to negligent acts or omissions) of us or any of our officers, agents, employees, contractors, guests, or invitees acting in that capacity. We are also assuming all risk of damage to property or injury to persons in, upon, or about the BioTime’s office and laboratory facilities, from any cause other than BioTime’s willful malfeasance or sole gross negligence. BioTime will not be liable to us for any loss or damages of any kind caused by, arising from, or in connection with (i) the performance of services by BioTime personnel for us, or the failure of any BioTime employee, contractor, or agent to perform any services for us, or (ii) any delay, error, or omission by any BioTime employee, contractor, or agent in the performance of services for us, except to the extent the loss or damage is the result of fraud, gross negligence or willful misconduct by a BioTime employee, contractor, or agent.
 
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Approval by the Board of Directors

All of the transactions described above were reviewed directly by the Board of Directors, and the Board of Directors determined whether to approve or withhold approval of each transaction. The Board of Directors applied such criteria as it determined to be appropriate in connection with its evaluation of each proposed transaction on a transaction by transaction basis, and did not have any written guidelines governing the Board of Directors’ exercise of its discretion. The directors considered such factors as they deemed relevant to the particular transaction.
                               
Related Person Transaction Policy

During November 2015, we adopted a Related Person Transaction Policy that applies to transactions exceeding $120,000 in which any of our officers, directors, beneficial owners of more than 5% of our common shares, or any member of their immediate family, has a direct or indirect material interest, determined in accordance with the policy (a “Related Person Transaction”). A Related Person Transaction must be reported to our outside legal counsel and our Chief Financial Officer, and will be subject to review and approval by our Audit Committee prior to effectiveness or consummation, to the extent practical. In addition, any Related Person Transaction that is ongoing in nature will be reviewed by the Audit Committee annually to ensure that the transaction has been conducted in accordance with any previous approval and that all required disclosures regarding the transaction are made.

The Audit Committee will review all relevant information available to it about a Related Person Transaction. The Audit Committee may approve or ratify the Related Person Transaction only if the Audit Committee determines that, under all of the circumstances, the transaction is in, or is not in conflict with, our best interests. The Audit Committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the Related Person in connection with approval of the Related Person Transaction.

As appropriate for the circumstances, the Audit Committee will review and consider:

the interest of the officer, director, beneficial owner of more than 5% of our common shares, or any member of their immediate family (“Related Person”) in the Related Person Transaction;

the approximate dollar value of the amount involved in the Related Person Transaction;

the approximate dollar value of the amount of the Related Person’s interest in the transaction without regard to the amount of any profit or loss;

whether the transaction was undertaken in the ordinary course of our business;

whether the transaction with the Related Person is proposed to be, or was, entered into on terms no less favorable to us than terms that could have been reached with an unrelated third party;

the purpose of, and the potential benefits to the transaction to us; and

any other information regarding the Related Person Transaction or the Related Person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.

A copy of our Related Person Transaction Policy will be posted on our website at www.oncocyte.com .
                                 
                                  
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

Material U.S. Federal Income Tax Consequences of the Distribution

The following discussion of applicable U.S. federal income tax law is a general discussion only that focuses exclusively on the U.S. federal income tax consequences of the Distribution. This summary is based on the United States Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder and judicial and administrative interpretations thereof, in each case as in effect and available as of the date of this prospectus and all of which are subject to change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below.

This summary does not discuss all tax considerations that may be relevant to shareholders in light of their particular circumstances, nor does it address the consequences to shareholders subject to special treatment under the U.S. federal income tax laws, such as tax-exempt entities, non-resident alien individuals, foreign entities, foreign trusts and estates and beneficiaries thereof, insurance companies and dealers in securities. In addition, this summary does not address any state, local or foreign tax consequences.

The following discussion does not purport to address the U.S. federal income tax position of any individual taxpayer, and does not include any matters of state or local tax laws or regulations, or any matters of any tax laws or regulations of any country other than the United States of America. The following discussion is not and should not be construed to be tax advice to any BioTime shareholder or any recipient of any OncoCyte common stock.

This discussion is limited to recipients of OncoCyte common stock in the Distribution that are “U.S. Holders” (as defined below) and who hold BioTime common shares as capital assets.

A U.S. Holder is a person or entity that is, for U.S. federal income tax purposes:

· an individual who is a citizen or a resident of the United States;

· a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state thereof or the District of Columbia;

· an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

· a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions, or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations.
 
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· a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions, or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations.

If a recipient of OncoCyte common stock in the Distribution is a partnership for U.S. federal income tax purposes, the tax treatment of a partner in that partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of such a partnership, you should consult your tax advisor regarding the tax consequences of the Distribution.

All BioTime shareholders should consult their own tax advisors concerning the specific tax consequences of the Distribution to them in light of their particular circumstances. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any BioTime shareholder or recipient of OncoCyte common stock

BioTime is distributing the Distribution Shares to its shareholders pro rata, other than with respect to fractional shares and with respect to shareholders residing in Excluded Jurisdictions. No fractional shares will be distributed. Any fractional shares of common stock and any shares of common stock that would have been distributed to shareholders residing in Excluded Jurisdictions will instead be aggregated and sold and the net cash proceeds will be distributed in lieu thereof.

BioTime should recognize gain (but not loss) on the Distribution in an amount equal to the excess of the fair market value of the Distribution Shares distributed over BioTime’s tax basis in those shares (which, in general, would equal BioTime’s tax basis in the assets contributed to OncoCyte in exchange for the shares of OncoCyte common stock). We expect that, if the Distribution occurs during 2015, BioTime will not have overall accumulated earnings and profits or current earnings and profits for 2015 after giving effect to any gain realized by BioTime as result of the Distribution. If BioTime does not have either (a) overall accumulated earnings and profits or (b) current earnings and profits for the taxable year that includes the Distribution (each as determined for U.S. federal income tax purposes), then:

· if the fair market value of the shares of OncoCyte common stock received does not exceed the BioTime shareholder’s basis in the shareholder’s BioTime shares, the shareholder would recognize no taxable gain as a result of the Distribution, and would be deemed to have received a return of capital that would reduce the shareholder’s basis in the shareholder’s BioTime shares by the fair market value of the shares of common stock received; and

· if the fair market value of the shares of common stock distributed to a BioTime shareholder exceeds the BioTime shareholder’s basis in the shareholder’s BioTime shares, then the excess would be taxable as gain from the sale or exchange of property that may be taxed as a long-term or short-term capital gain depending upon the shareholder’s holding period in the BioTime shares.

If BioTime has overall accumulated earnings and profits or current earnings and profits for the taxable year that includes the Distribution (each as determined for U.S. federal income tax purposes), including any earnings and profits resulting from the Distribution, then:

· the Distribution would be taxed as a dividend to a BioTime shareholder to the extent of the lesser of the shareholder’s allocable share of BioTime’s earnings and profits and the fair market value of the shares of OncoCyte common stock received by the shareholder in the Distribution; and

· if the fair market value of the shares of OncoCyte common stock received by a BioTime shareholder exceeds the shareholder’s allocable share of BioTime's earnings and profits, the excess would be a return of capital that will reduce the shareholder’s basis in the shareholder’s BioTime shares by that excess and, to the extent it exceeds the BioTime shareholder’s basis in the shareholder’s BioTime shares, would be taxable as gain from the sale or exchange of property that may be taxed as a long-term or short-term capital gain depending upon the shareholder’s holding period in the BioTime shares
 
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In addition, a BioTime shareholder’s basis in the shares of OncoCyte common stock should be equal to the fair market value of the OncoCyte shares on date of the Distribution, and the shareholder’s holding period for those shares should begin on the day following the Distribution.

Backup Withholding and Information Reporting

Generally, we must report annually to the IRS the amount of dividends paid to the shareholder, the shareholder’s name and address, and the amount of tax withheld, if any. A similar report will be sent to the shareholder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the shareholder’s country of residence.

Payments of dividends on our shares of common stock or payments of proceeds from the disposition of our shares of common stock made to the shareholder may be subject to additional information reporting and backup withholding at a current rate of 28% unless the shareholder:

· furnishes a correct taxpayer identification number, certify that the shareholder is not subject to backup withholding on the Form W-9 or successor form and otherwise complies with all the applicable requirements of the backup withholding rules; or

· establishes an exemption, for example, by properly certifying non-U.S. status on a Form W-8BEN or another appropriate version of IRS Form W-8; provided, however, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that the shareholder is a U.S. person.

Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Sale of Shares of OncoCyte Common Stock

In general, gain or loss will be recognized upon a sale of shares of OncoCyte common stock. The sale of shares of common stock will cause gain or loss to be recognized only with respect to the shares sold. The amount of such gain or loss will be the difference between the amount received in exchange for the shares sold and the holder's adjusted basis in the shares sold. The holder's tax basis in a share of common stock purchased through the exercise of rights will be the subscription price paid. The holder's tax basis in a share of common stock received from BioTime through the Distribution will be determined in the manner described above.

Such gain or loss will generally be treated as capital gain or loss if the shares of common stock sold were held as a capital asset. The gain or loss on the sale of shares of common stock will be long term capital gain or loss if shares of common stock were held for more than one year, and short term capital gain or loss if the shares of common stock had been held for one year or less. The holding period for OncoCyte common stock received from BioTime in the Distribution will commence on _________, 201__. To the extent applicable, the straddle rules, summarized below, will likely defer the commencement of a holder's holding period for this purpose, resulting in short term capital gain or loss.
 
83

SHARES ELIGIBLE FOR FUTURE SALE

There presently is no public market for our common stock or the rights, or any of our other securities. We cannot predict the effect, if any, that market sales of shares of our common stock, or the availability of those shares for sale, will have on the market price of our common stock prevailing from time to time. Future sales of any series of our common stock in the public market, or the availability of such shares for sale in the public market, could cause the prevailing market price of our common stock to fall could adversely affect our ability to raise equity capital in the future.

Following the completion of the Distribution and based on the number of shares of our capital stock outstanding as of _________, 2015, we will have a total of _________ shares of our common stock outstanding. All of the _________ Distribution Shares (other than those received by us on account of the BioTime common shares we hold) will be freely tradable, except that any shares received by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the Rule 144 limitations described below. The shares of our common stock that we receive from BioTime in the Distribution on account of the BioTime common shares we hold will cease to be outstanding upon issuance to us and will be restored to the status of authorized but unissued shares.

The remaining ____________ outstanding shares of common stock will be, and shares subject to outstanding stock options will upon issuance be, deemed “restricted securities” as defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered, or if they qualify for an exemption from registration under Rule 144 or Rule 701, under the Securities Act, which rules are summarized below.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of our common stock proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares of our common stock on behalf of our affiliates will be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

· 1% of the number of shares of our capital stock then outstanding, which will equal ______ shares immediately after this offering; or

· the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 by our affiliates or persons selling shares of our common stock on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
 
84

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this information statement before selling those shares pursuant to Rule 701.

Registration Rights

We have agreed to register for sale under the Securities Act _________ shares of common stock that we sold to certain investors without registration under the Securities Act. We have agreed to file a registration statement covering those shares following a written request for registration from any holder or group of holders of not less than 25% of the shares covered by the Registration Rights Agreement, but not earlier than one year after we completes an IPO. See “Security Ownership of Certain Beneficial Owners and Management – Certain Relationships and Related Party Transactions.”

Form S-8 Registration Statement

We intend to file a registration statement on Form S-8 under the Securities Act promptly after the completion of this offering to register shares of our common stock subject to options outstanding, as well as common stock reserved for future issuance, under our Stock Option Plan. The registration statement on Form S-8 is expected to become effective immediately upon filing, and shares of our common stock covered by the registration statement will then become eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates and vesting restrictions. See “Executive Compensation—Stock Option Plan” for a description of our Stock Option Plan.

The following table shows certain information concerning the options outstanding and available for issuance under all of our compensation plans and agreements as of December 31, 2014:
 
Plan Category
 
Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights
   
Weighted Average Exercise Price of the Outstanding Options, Warrants, and Rights
   
Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans
 
OncoCyte Equity Compensation Plans Approved by Shareholders
   
1,361,250
     
$
1.52
       
638,750
   

Additional information concerning our stock option plan and the stock options of our subsidiaries may be found in Note 6 to the Financial Statements, including the reverse stock split information in Note 1.
 
85

DESCRIPTION OF SECURITIES

Common Stock

Our Articles of Incorporation currently authorize the issuance of up to 50,000,000 shares of common stock, no par value, of which 25,421,952 shares were outstanding at November 23, 2015. As of November 23, 2015, there were four holders of the common stock, but following the completion of the Distribution we expect that there will be approximately _____ holders of our common stock based on the share position listings of BioTime as of ________, 2015. Each holder of record of common stock is entitled to one vote for each outstanding share owned, on every matter properly submitted to the stockholders for their vote.

Subject to the dividend rights of holders of any of the preferred stock that may be issued from time to time, holders of common stock are entitled to any dividend declared by the Board of Directors out of funds legally available for that purpose. We have not paid any cash dividends on our common stock, and it is unlikely that any cash dividends will be declared or paid on our common stock in the foreseeable future. Instead, we plan to retain our cash for use in financing our future operations and growth.

Subject to the prior payment of the liquidation preference to holders of any preferred stock that may be issued, holders of common stock are entitled to receive on a pro rata basis all of our remaining assets available for distribution to the holders of common stock in the event of the liquidation, dissolution, or winding up of our operations. Holders of common stock do not have any preemptive rights to become subscribers or purchasers of additional shares of any class of our capital stock.

Transfer Agent

The transfer agent and registrar for the common stock is American Stock Transfer and Trust Company, LLC, 59 Maiden Lane, New York, New York 10038.

Preferred Stock

Our Articles of Incorporation currently authorize the issuance of up to 5,000,000 shares of preferred stock, no par value. We may issue preferred stock in one or more series, at any time, with such rights, preferences, privileges and restrictions as the Board of Directors may determine, all without further action of our shareholders. Any series of preferred stock which may be authorized by the Board of Directors in the future may be senior to and have greater rights and preferences than the common stock. There are no shares of preferred stock presently outstanding and we have no present plan, arrangement, or commitment to issue any preferred stock.
 
86

ONCOCYTE CORPORATION
INDEX TO AUDITED FINANCIAL STATEMENTS
 
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheets as of December 31, 2014 and 2013
F-3
Statements of Operations for the Years Ended December 31, 2014 and 2013
F-4
Statements of Comprehensive Loss for the Years Ended December 31, 2014 and 2013
F-5
Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2014 and 2013
F-6
Statements of Cash Flows for the Years Ended December 31, 2014 and 2013
F-7
Notes to the Financial Statements
F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
OncoCyte Corporation

We have audited the accompanying balance sheets of OncoCyte Corporation as of December 31, 2014 and 2013 and the related statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OncoCyte Corporation at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2014 , in conformity with accounting principles generally accepted in the United States of America.

/s/ OUM & CO. LLP

San Francisco, California
October 1, 2015, except for Note 9, as to which the date is November 23, 2015
 
F-2

ONCOCYTE CORPORATION
BALANCE SHEETS
( In thousands )

   
December 31,
 
   
2014
   
2013
 
ASSETS
       
CURRENT ASSETS
       
Cash and cash equivalents
 
$
257
   
$
101
 
Available-for-sale securities, at fair value
   
3,280
     
4,630
 
Prepaid expenses and other current assets
   
114
     
120
 
Total current assets
   
3,651
     
4,851
 
                 
NONCURRENT ASSETS
               
Intangible assets, net
   
1,472
     
1,714
 
Equipment and furniture, net
   
118
     
148
 
Deferred tax assets
   
1,115
     
1,574
 
                 
TOTAL ASSETS
 
$
6,356
   
$
8,287
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
CURRENT LIABILITIES
               
Amount due to parent, BioTime
 
$
5,735
   
$
2,912
 
Amount due to affiliates
   
154
     
51
 
Accounts payable
   
144
     
103
 
Accrued expenses and other current liabilities
   
282
     
32
 
Deferred tax liabilities
   
1,115
     
1,574
 
Total current liabilities
   
7,430
     
4,672
 
                 
TOTAL LIABILITIES
   
7,430
     
4,672
 
                 
Commitments and contingencies (see Note 8)
               
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred stock, no par value, 5,000 shares authorized; none issued and outstanding
   
-
     
-
 
Common stock, no par value, 50,000 shares authorized; 18,200 shares issued and outstanding at December 31, 2014 and 2013
   
15,147
     
15,398
 
Accumulated other comprehensive loss on available-for-sale securities
   
(822
)
   
(1,370
)
Accumulated deficit
   
(15,399
)
   
(10,413
)
Total stockholders’ equity (deficit)
   
(1,074
)
   
3,615
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
$
6,356
   
$
8,287
 

The accompanying notes are an integral part of these financial statements.
 
F-3

ONCOCYTE CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)

   
Year Ended December 31,
 
   
2014
   
2013
 
         
OPERATING EXPENSES
       
Research and development
 
$
3,962
   
$
2,943
 
General and administrative
   
1,011
     
552
 
Total operating expenses
   
4,973
     
3,495
 
                 
Loss from operations
   
(4,973
)
   
(3,495
)
                 
OTHER EXPENSES, NET
               
Interest expense, net
   
2
     
-
 
Other expenses, net
   
11
     
-
 
Total other expenses, net
   
13
     
-
 
                 
NET LOSS
 
$
(4,986
)
 
$
(3,495
)
                 
Basic and diluted net loss per common share
 
$
(0.27
)
 
$
(0.19
)
                 
Weighted average common shares outstanding used to compute net loss per common share, basic and diluted
   
18,200
     
18,200
 

The accompanying notes are an integral part of these financial statements.
 
F-4

ONCOCYTE CORPORATION
STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)

   
Year Ended December 31,
 
   
2014
   
2013
 
         
NET LOSS
 
$
(4,986
)
 
$
(3,495
)
                 
Other comprehensive loss, net of tax:
               
Transfer of realized loss into equity on sale of BioTime shares
   
569
         
Unrealized (loss) gain on BioTime shares held as available-for-sale securities, net
   
(21
)
   
592
 
                 
COMPREHENSIVE LOSS
 
$
(4,438
)
 
$
(2,903
)

The accompanying notes are an integral part of these financial statements.
 
F-5

ONCOCYTE CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)

   
Common Stock
   
Accumulated
Other
Comprehensive
   
Accumulated
   
Stockholders’
Equity
 
   
Shares
   
Amount
   
Loss
   
Deficit
   
(Deficit)
 
BALANCE AT JANUARY 1, 2013
   
18,200
   
$
15,072
   
$
(1,962
)
 
$
(6,918
)
 
$
6,192
 
Net loss
   
-
     
-
     
-
     
(3,495
)
   
(3,495
)
Unrealized gain on available-for-sale securities
   
-
     
-
     
592
     
-
     
592
 
Stock-based compensation
   
-
     
326
     
-
     
-
     
326
 
BALANCE AT DECEMBER 31, 2013
   
18,200
     
15,398
     
(1,370
)
   
(10,413
)
   
3,615
 
Net loss
   
-
     
-
     
-
     
(4,986
)
   
(4,986
)
Unrealized loss on available-for-sale securities
   
-
     
-
     
(21
)
   
-
     
(21
)
Stock-based compensation
   
-
     
318
     
-
     
-
     
318
 
Transfer of realized loss into equity from sale of BioTime shares
   
-
     
(569
)
   
569
     
-
     
-
 
                                         
BALANCE AT DECEMBER 31, 2014
   
18,200
   
$
15,147
   
$
(822
)
 
$
(15,399
)
 
$
(1,074
)

The accompanying notes are an integral part of these financial statements.
 
F-6

ONCOCYTE CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)

   
Year Ended December 31
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
       
Net loss
 
$
(4,986
)
 
$
(3,495
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation expense
   
39
     
35
 
Amortization of intangible assets
   
242
     
242
 
Stock-based compensation
   
318
     
326
 
                 
Changes in operating assets and liabilities:
               
Amount due to parent, BioTime Inc.
   
2,823
     
2,136
 
Amount due to affiliates
   
103
     
72
 
Prepaid expenses and other current assets
   
6
     
(74
)
Accounts payable and accrued liabilities
   
291
     
48
 
                 
Net cash used in operating activities
   
(1,164
)
   
(710
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equipment
   
(9
)
   
(25
)
Proceeds from sale of BioTime shares
   
1,329
     
-
 
                 
Cash provided by (used in) investing activities
   
1,320
     
(25
)
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
156
     
(735
)
CASH AND CASH EQUIVALENTS:
               
At beginning of the period
   
101
     
836
 
At end of the period
 
$
257
   
$
101
 
                 
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
               
Unrealized (loss) gain on BioTime available-for-sale securities
 
$
(21
)
 
$
592
 
Transfer of realized loss into equity on sale of BioTime shares
   
569
     
-
 

The accompanying notes are an integral part of these financial statements.
 
F-7

ONCOCYTE CORPORATION
NOTES TO FINANCIAL STATEMENTS

1. Organization, Description of the Business and Liquidity

OncoCyte Corporation (“OncoCyte”) was incorporated in 2009 in the state of California as a majority-owned subsidiary of Bio Time, Inc. (“BioTime”), a publicly traded biotechnology company focused in the field of regenerative medicine. From inception through March 2011, OncoCyte focused substantially all of its efforts on the development of embryonic stem cell-derived cancer therapies. In April 2011, OncoCyte initiated development of molecular cancer diagnostics utilizing a discovery platform that focuses on identifying genetic markers broadly expressed in numerous types of cancer. OncoCyte is presently focusing its efforts on developing diagnostic tests for use in detecting a variety of cancers including breast, bladder, and lung cancers.

Liquidity

For all periods presented, OncoCyte had generated no revenues. Since inception, OncoCyte has financed its operations through the sale of its common stock to its current shareholders, including BioTime, loans from its parent company, BioTime and other BioTime affiliates, and sale of BioTime common shares that OncoCyte held as available-for-sale securities (see Note 5). OncoCyte has incurred operating losses and negative cash flows since inception, and had an accumulated deficit of $15.4 million and $10.4 million as December 31, 2014 and 2013, respectively.

OncoCyte plans to continue to invest significant resources in research and development in the field of molecular cancer diagnostics. OncoCyte expects to continue to incur operating losses and negative cash flows. As of December 31, 2014, OncoCyte had $257,000 in cash and cash equivalents and held BioTime shares available-for-sale, valued at $3.3 million, which OncoCyte may use for working capital purposes, as necessary (see Note 9).

2. Summary of Significant Accounting Policies

Basis of presentation

The financial statements presented herein have been prepared on a separate, stand-alone basis. The financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). BioTime has consolidated the results of OncoCyte into BioTime’s consolidated results based on BioTime’s ability to control OncoCyte’s operating and financial decisions and policies through the majority ownership of OncoCyte common stock throughout the periods presented. BioTime owned 75.3% of the outstanding common stock of OncoCyte at December 31, 2014 and 2013.

To the extent OncoCyte does not have its own employees or human resources for its operations, BioTime or BioTime commonly controlled and consolidated subsidiaries provide certain employees for administrative or operational services, as necessary, for the benefit of OncoCyte (see Note 4). Accordingly, BioTime allocates expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that particular employees devote to OncoCyte affairs. Other expenses such as legal, accounting, marketing, travel, and entertainment expenses are allocated to OncoCyte to the extent that those expenses are incurred by or on behalf of OncoCyte. BioTime also allocates certain overhead expenses such as insurance, internet and telephone expenses based on a percentage determined by management. These allocations are made based upon activity-based allocation drivers such as time spent, percentage of square feet of office or laboratory space used, and percentage of personnel devoted to OncoCyte’s operations or management. Management evaluates the appropriateness of the percentage allocations on a quarterly basis and believes that this basis for allocation is reasonable.

As further discussed in Notes 4 and 6, in connection with the services performed by employees of BioTime, or employees of other BioTime commonly controlled and consolidated subsidiaries within the BioTime group of affiliated entities, OncoCyte grants stock options to those employees performing services for OncoCyte and records stock-based compensation expense in the accompanying statements of operations for these services performed in the periods presented.
 
F-8

Reverse stock split
 
On November 18, 2015 OncoCyte effected a one-for-two reverse stock split of its common stock and a proportional adjustment to the conversion ratio for the related party convertible debt (see Note 9).

All share, per-share and related information including the price at which shares of common stock have been sold or may be issued, have been retroactively adjusted, in these financial statements and accompanying footnotes, where applicable, to reflect the impact of the reverse stock split including an adjustment to the related party debt conversion ratio and conversion prices.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates estimates which are subject to significant judgment, including those related to the allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, equipment and furniture, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, debt or other equity instruments. Actual results could differ materially from those estimates.

Fair value measurements

OncoCyte accounts for fair value measurements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”). ASC 820 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In determining fair value, OncoCyte utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For the periods presented, OncoCyte has no financial assets or liabilities recorded at fair value on a recurring basis, except for cash and cash equivalents consisting of money market funds and the available-for-sale securities of BioTime common stock held by OncoCyte described below. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input.

The carrying amounts of cash equivalents, prepaid expenses and other current assets, amounts due to BioTime and other affiliates, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.

Cash and cash equivalents

Cash equivalents typically consist of highly liquid investments, with maturities of three months or less when purchased. At December 31, 2014 and 2013, OncoCyte's cash balances totaled $257,000 and $101,000, respectively, and consist entirely of bank account deposits and amounts held in money market funds.
 
F-9

Financial instruments that potentially subject OncoCyte to credit risk consist principally of cash and cash equivalents. OncoCyte, at times, maintains cash and cash equivalent balances at financial institutions in excess of amounts insured by United States government agencies. OncoCyte places its cash and cash equivalents with high credit quality financial institutions.

Accounting for BioTime shares

OncoCyte accounts for the BioTime shares it holds as available-for-sale equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities , as the shares have a readily determinable fair value quoted on the NYSE MKT and are held principally for sale to meet future working capital needs. These shares are measured at fair value and reported as current assets on the balance sheet based on the closing trading price of the security as of the date being presented. Unrealized holding gains and losses are excluded from the statements of operations and reported in equity as part of other comprehensive income or loss, net of income taxes, until realized. Realized gains and losses for shares sold are reclassified out of accumulated other comprehensive income or loss and included in equity, as an increase or decrease to equity in common stock consistent with, and pursuant to, ASC 805-50, transactions between entities under common control.

In 2014, OncoCyte sold 406,756 shares of BioTime common stock in the open market for $1.3 million in cash proceeds to be used for working capital purposes. The sale resulted in a $569,000 realized loss, which was reclassified out of accumulated other comprehensive loss and recorded as a decrease to common stock equity on the dates of sale.

As of December 31, 2014, OncoCyte holds 879,418 shares of BioTime common stock available-for-sale with a fair market value of $3.3 million.

Long-lived intangible assets

Long-lived intangible assets, primarily consisting of acquired patents, patent applications, and licenses to use certain patents are stated at acquired cost, less accumulated amortization (see Note 3). Amortization expense is computed using the straight-line method over the estimated useful lives of the assets over a period of 10 years.

Equipment and furniture

Equipment and furniture are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally over a period of 36 to 120 months. Maintenance and repairs are expensed as incurred whereas significant renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in OncoCyte’s results of operations.

Impairment of long-lived assets

OncoCyte assesses the impairment of long-lived assets, which consist primarily of long-lived intangible assets, furniture and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Through 2014, there have been no such impairment losses.

Income taxes

OncoCyte has filed a standalone U.S. federal income tax return since its inception. For California purposes, OncoCyte’s activity for 2013 and 2014 has been included in BioTime’s California Combined tax return. The provision for income taxes has been determined as if OncoCyte had filed separate tax returns for the periods presented. Accordingly, the effective tax rate of OncoCyte in future years could vary from its historical effective tax rates depending on the future legal structure of OncoCyte and related tax elections. The historical deferred tax assets, including the operating losses and credit carryforwards generated by OncoCyte, will remain with OncoCyte. OncoCyte accounts for income taxes in accordance with GAAP, which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. OncoCyte’s judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If OncoCyte’s assumptions and consequently its estimates change in the future, the valuation allowance may be increased or decreased, which may have a material impact on OncoCyte’s statements of operations.
 
F-10

The guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. OncoCyte will recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of December 31, 2014 and 2013. OncoCyte is not aware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation for the years ended December 31, 2014 and 2013. OncoCyte is currently unaware of any tax issues under review.

Research and development expenses

Research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, and expenses for outside consultants. These expenses include both direct and allocated or indirect overhead costs (see Note 4). Research and development costs are expensed as incurred.

General and administrative expenses

OncoCyte’s general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, including direct costs and costs allocated by BioTime; professional and consulting fees; direct overhead and indirect overhead allocated by BioTime (see Note 4).

Stock-based compensation

OncoCyte recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with FASB ASC 718, Compensation – Stock Compensation (“ASC 718”).

OncoCyte estimates the fair value of employee stock-based payment awards on the grant-date and recognizes the resulting fair value, net of estimated forfeitures, over the requisite service period. OncoCyte uses the Black-Scholes option pricing model for estimating the fair value of options granted under OncoCyte’s Stock Option Plan. The fair value of each restricted stock grant, if any, is determined based on the value of the common stock granted or sold. OncoCyte has elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period.

Compensation expense for non-employee stock-based awards is recognized in accordance with ASC 718 and FASB ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Stock option awards issued to non-employees, consisting principally of employees of BioTime or employees of BioTime commonly controlled and consolidated subsidiaries who perform services for OncoCyte, are accounted for at fair value using the Black-Scholes option pricing model. Management believes that the fair value of the stock options is more reliably measured than the fair value of services received. OncoCyte records compensation expense based on the then-current fair values of the stock options at each financial reporting date. Compensation recorded during the service period is adjusted in subsequent periods for changes in the fair value of the stock options until the earlier of the date at which the non-employee’s performance is complete or a performance commitment is reached, which is generally when the stock option award vests. Compensation expense for non-employee grants is recorded on a straight-line basis in the statements of operations.

The Black-Scholes option pricing model requires OncoCyte to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected volatility, the risk-free interest rate and the dividend yield (see Note 6).
 
F-11

The fair value of the shares of common stock underlying the stock options has historically been determined by the Board of Directors. Because there has been no public market for OncoCyte’s common stock, the Board of Directors has determined the fair value of the common stock at the time of the grant of options by considering a number of objective and subjective factors including contemporaneous sales of common stock to investors, valuation of comparable companies, operating and financial performance and general and industry-specific economic outlook, amongst other factors. The fair value of the underlying common stock will be determined by the Board of Directors until such time as OncoCyte’s common stock is traded on an established stock exchange or national market system. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled Valuation of Privately Held Company Equity Securities Issued As Compensation .

The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. OncoCyte estimates the expected term of options granted based upon the “simplified method” provided under Staff Accounting Bulletin, Topic 14 , or SAB Topic 14.

Because OncoCyte’s common stock has no publicly traded history, OncoCyte estimates the expected volatility of the awards from the historical volatility of selected public companies within the biotechnology industry with comparable characteristics to OncoCyte, including similarity in size, lines of business, market capitalization, revenue and financial leverage. OncoCyte determined the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options. OncoCyte periodically assesses the comparable companies and other relevant factors used to measure expected volatility for future stock option grants.

The risk-free interest rate assumption is based upon observed interest rates on the United States government securities appropriate for the expected term of OncoCyte’s stock options.

The dividend yield assumption is based on OncoCyte’s history and expectation of dividend payouts. OncoCyte has never declared or paid any cash dividends on its common stock, and OncoCyte does not anticipate paying any cash dividends in the foreseeable future.

Net loss per common share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the weighted-average number of shares of common stock outstanding plus the potential effect of dilutive securities or contracts which are convertible to common stock, such as options and warrants (using the treasury stock method) and shares issuable in future periods, except in cases where the effect would be anti-dilutive. Because OncoCyte reported net losses for all periods presented, all potentially dilutive common stock are antidilutive for those periods.

The computations of basic and diluted net loss per common share for the years ended December 31, 2014 and 2013 are as follows (in thousands, except per share amounts):

   
2014
 
2013
Net loss
 
$
(4,986
)
 
$
(3,495
)
Weighted average common shares outstanding – basic and diluted
   
18,200
     
18,200
 
Net loss per common share – basic and diluted
 
$
(0.27
)
 
$
(0.19
)

The following common stock equivalents were excluded from the computation of diluted net loss per common share of common stock for the for the years ended December 31, 2014 and 2013 because including them would have been antidilutive (in thousands):

   
2014
   
2013
 
Stock options under Stock Option Plan
 
1,361
   
1,375
 

F-12

Segments

OncoCyte’s executive management team, as a group, represents the entity’s chief operating decision makers. To date, OncoCyte’s executive management team has viewed OncoCyte’s operations as one segment that includes, the research and development of diagnostic tests for the detection of cancer. As a result, the financial information disclosed materially represents all of the financial information related to OncoCyte’s sole operating segment.

Recent accounting pronouncements

In June 2014, the FASB issued ASU No. 2014-10, “ Development Stage Entities ” (Topic 915) – Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 eliminates the concept of a development stage entity (“DSE”) from GAAP and the current incremental reporting requirements for a DSE, including inception-to-date information, will no longer apply. The standard also clarifies that the disclosures in Topic 275, Risks and Uncertainties, apply to entities for which planned principal operations have not yet commenced. ASU 2014-10 is effective for annual periods beginning after December 15, 2014, and interim periods therein. Earlier adoption is permitted. OncoCyte early adopted ASU 2014-10 beginning January 1, 2013, and for interim periods thereafter.

In June 2014, the FASB issued ASU No. 2014-12 “ Compensation – Stock Compensation ” (Topic 718). The ASU provides guidance for accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target (for example, profitability target) could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The ASU requires a performance target that effects vesting and that could be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which it becomes probable that such performance condition would be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. For public business entities, the ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods therein. Early application is permitted. OncoCyte is in the process of evaluating the impact, if any, of adoption of the ASU on its financial statements.

In August 2014, the FASB issued ASU No. 2014-15 “ Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ” requiring management to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity’s ability to continue as a going concern. The guidance 1) provides a definition for the term “substantial doubt,” 2) requires an evaluation every reporting period, interim periods included, 3) provides principles for considering the mitigating effect of management’s plans to alleviate the substantial doubt, 4) requires certain disclosures if the substantial doubt is alleviated as a result of management’s plans, 5) requires an express statement, as well as other disclosures, if the substantial doubt is not alleviated, and 6) requires an assessment period of one year from the date the financial statements are issued. The standard is effective for OncoCyte’s reporting year ending December 31, 2016, and interim periods thereafter. Early adoption is permitted. OncoCyte is in the process of evaluating the impact, if any, of adoption of the ASU on its financial statements.
 
F-13

3. Selected Balance Sheet Components

Prepaid expenses and other current assets

At December 31, 2014 and 2013, prepaid expenses and other current assets were comprised of the following (in thousands):

   
2014
   
2013
 
Prepaid license fees
 
$
111
     
$
120
   
Other prepaid expenses and current asset
   
3
       
-
   
Prepaid expenses and other current assets
 
$
114
     
$
120
   

Accrued expenses and other current liabilities

At December 31, 2014 and 2013, accrued expenses and other current liabilities were comprised of the following (in thousands):

   
2014
   
2013
 
Accrued bonuses and payroll related expenses
 
$
147
     
$
-
   
Other accrued expenses
   
135
       
32
   
Accrued expenses and other current liabilities
 
$
282
     
$
32
   

Intangible assets, net

In 2011, OncoCyte, through its parent, BioTime, acquired substantially all of the assets of Cell Targeting, Inc. (“CTI”), a company that was engaged in cancer therapy. The assets acquired consist primarily of patents, patent applications, and licenses to use certain patents. OncoCyte issued 261,959 shares of BioTime common stock to CTI with a market value of $2.3 million and paid CTI $250,000 in cash to acquire the assets. The asset purchase was accounted for as a business combination under the acquisition method of accounting. OncoCyte amortizes intangible assets over their useful lives estimated to be 10 year at the date of the acquisition.

At December 31, 2014 and 2013, intangible assets were comprised of the following (in thousands):

   
2014
   
2013
 
Intangible assets
 
$
2,419
     
$
2,419
   
Accumulated amortization
   
(947
)
 
   
(705
)
 
Intangible assets, net
 
$
1,472
     
$
1,714
   

Amortization expense amounted to approximately $242,000 annually.

Equipment and furniture, net

At December 31, 2014 and 2013, equipment and furniture were comprised of the following (in thousands):

   
2014
   
2013
 
Equipment and furniture
 
$
251
     
$
242
   
Accumulated depreciation
   
(133
)
     
(94
)
 
Equipment and furniture, net
 
$
118
     
$
148
   

Depreciation expense amounted to approximately $39,000 and $35,000 for the years ended December 31, 2014 and 2013, respectively.
 
F-14

4. Related Party Transactions

Shared Facilities and Service Agreement

On October 8, 2009, OncoCyte and BioTime executed a Shared Facilities and Services Agreement (“Shared Facilities Agreement”). Under the terms of the Shared Facilities Agreement, BioTime will allow OncoCyte to use its premises and equipment located at Alameda, California for the sole purpose of conducting business. BioTime will also provide accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other similar administrative services to OncoCyte. BioTime may also provide the services of attorneys, accountants, and other professionals who may also provide professional services to BioTime and its other subsidiaries. BioTime will also provide OncoCyte with the services of its laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development work for OncoCyte at the premises.

BioTime charges OncoCyte a Use Fee for services received and usage of facilities, equipment, and supplies. For each billing period, BioTime prorates and allocates costs incurred, as applicable, to OncoCyte, such costs include services of Bio Time employees, equipment, insurance, lease, professional, software, supplies and utilities. Allocation depends on key cost drivers including actual documented use, square footage of facilities used, time spent, costs incurred by or for OncoCyte, or upon proportionate usage by BioTime and OncoCyte, as reasonably estimated by BioTime (collectively “Use Fees”). BioTime, at its discretion, has the right to charge OncoCyte a 5% markup on such allocated costs although BioTime has not elected to charge this markup since the inception of the Shared Facilities Agreement. The allocated cost of BioTime employees and contractors who provide services is based upon records maintained of the number of hours of such personnel devoted to the performance of services.

The Use Fee is determined and invoiced to OncoCyte on a quarterly basis for each calendar quarter of each calendar year. If the Shared Facilities Agreement terminates prior to the last day of a billing period, the Use Fee will be determined for the number of days in the billing period elapsed prior to the termination of the Shared Facilities Agreement. Each invoice will be payable in full by OncoCyte within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime employees from OncoCyte funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any employee or agent of OncoCyte. To date BioTime has not charged OncoCyte any interest.

In addition to the Use Fees, OncoCyte will reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte, provided that invoices documenting such costs are delivered to OncoCyte with each invoice for the Use Fee. Furthermore, BioTime will have no obligation to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte, and if any such supplies, goods, materials or services are obtained for OncoCyte, BioTime may arrange for the suppliers thereof to invoice OncoCyte directly.

The Shared Facilities Agreement will remain in effect from year each year, unless either party gives the other party written notice stating that the Shared Facilities Agreement will terminate on December 31 of that year, or unless the agreement otherwise terminated under another provision of the agreement.

In aggregate, BioTime allocated and charged such Use Fees to OncoCyte approximating $344,000 and $93,000 included in general and administrative expenses, and $552,000 and $194,000 included in research and development expenses included in the statements of operations during the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014 and 2013, OncoCyte had $5.9 million and $3.0 million outstanding and payable to BioTime and affiliates included in current liabilities in connection with the costs incurred under the Shared Facilities Agreement. Since these amounts are due and payable in 30 days of being invoiced, the payables are classified as current liabilities for all periods presented.
 
F-15

5. Shareholders’ Equity

Preferred Stock

OncoCyte is authorized to issue up to 5,000,000 shares of no par value preferred stock. To date, no preferred shares are issued and outstanding.

Common Stock

OncoCyte has up to 50,000,000 shares of no par value common stock authorized. The holders of OncoCyte’s common stock are entitled to receive ratably dividends when, as, and if declared by the Board of Directors out of funds legally available. Upon liquidation, dissolution, or winding up, the holders of OncoCyte common stock are entitled to receive ratably the net assets available after the payment of all debts and other liabilities and subject to the prior rights of OncoCyte outstanding preferred shares, if any.

The holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of OncoCyte stockholders. The holders of common stock have no preemptive, subscription, or redemption rights. The outstanding shares of common stock are fully paid and non-assessable.

In 2009, OncoCyte issued 8,500,000 shares of common stock to BioTime for $8,500 in cash in connection with OncoCyte incorporation and initial capitalization. In 2009, OncoCyte raised $4.0 million in cash through the sale of 3,000,000 shares of common stock to other investors.

In January 2011, OncoCyte issued 1,700,000 shares of its common stock to BioTime in exchange for 261,959 BioTime common shares with a market value of $2.3 million, and $250,000 in cash, which OncoCyte used as aggregate consideration for the acquisition of the assets of Cell Targeting, Inc. (see Note 3).

In August 2011, OncoCyte raised $3.0 million in cash through the sale of 1,500,000 shares of common stock to other investors and OncoCyte raised an additional $1.0 million in cash through the sale of 500,000 shares of OncoCyte common stock to BioTime. BioTime also acquired an additional 3,000,000 shares of OncoCyte common stock in exchange for 1,286,174 BioTime common shares having a market value of $6.0 million on the date of the share purchase.

6. Stock-based Compensation

Stock Option Plan

In August 2010, BioTime, as our majority shareholder, approved the 2010 Stock Option Plan (the “Plan”) under which OncoCyte reserved 2,000,000 shares of common stock for the grant of stock options or the sale of restricted stock. The Plan also permits OncoCyte to issue such other securities as its Board of Directors or the Compensation Committee administering the Plan may determine.

No options may be granted under the Plan more than ten years after the date upon which the Plan was adopted by the Board of Directors, and no options granted under the Plan may be exercised after the expiration of ten years from the date of grant. Under the Plan, options to purchase common stock may be granted to employees, directors and certain consultants at exercise prices not less than the fair market value of common stock at date of grant, subject to certain limited exceptions for options granted in substitution of other options. Options may be fully exercisable immediately, or may be exercisable according to a schedule or conditions specified by the Board of Directors or the Compensation Committee. Generally, OncoCyte stock options have service related vesting conditions based on the continued performance of services for OncoCyte. The Plan also permits OncoCyte to award restricted stock for services rendered or to sell common stock to employees subject to vesting provisions under restricted stock agreements that provide for forfeiture of unvested shares upon the occurrence of specified events. OncoCyte may permit employees or consultants, but not officers or directors, who purchase stock under restricted stock purchase agreements, to pay for their shares by delivering a promissory note that is secured by a pledge of their shares. To date, only stock options have been issued under the Plan.
 
F-16

As discussed in Note 4, in connection with the services performed by employees of BioTime, or employees of other BioTime commonly controlled and consolidated subsidiaries within the BioTime group of affiliated entities, OncoCyte grants stock options to those employees performing services for OncoCyte and records stock-based compensation expense in the accompanying statements of operations for these services performed in the periods presented.

Stock Options

Options granted under the Plan may be either “incentive stock options” within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options. Incentive stock options may be granted only to OncoCyte employees and employees of its subsidiaries, if any. The exercise price of stock options granted under the Plan must be equal to the fair market of OncoCyte common stock on the date the option is granted. In the case of an optionee who, at the time of grant, owns more than 10% of the combined voting power of all classes of OncoCyte stock, the exercise price of any incentive stock option must be at least 110% of the fair market value of the common stock on the grant date, and the term of the option may be no longer than five years. The aggregate fair market value of OncoCyte common stock (determined as of the grant date of the option) with respect to which incentive stock options become exercisable for the first time by an optionee in any calendar year may not exceed $100,000.

The options’ exercise price may be payable in cash or in common stock having a fair market value equal to the exercise price, or in a combination of cash and common stock, or other legal consideration for the issuance of stock as the Board of Directors or Compensation Committee may approve.

Incentive stock options granted under the Plan are nontransferable except by will or the laws of descent and distribution and may be exercised only during employment or within three months after termination of such employment, subject to certain exceptions in the event of the death or disability of the optionee.

Options other than incentive stock options under the Code are also nontransferable except by will or the laws of descent and distribution, except to the extent that the Board of Directors or Committee permits the optionee to transfer an option to a family member, a trust for family members, or other persons approved by the Board of Directors or Committee in its discretion.

Generally options will be exercisable only while the optionee remains an employee, director or consultant, or during a specific period thereafter as approved by the Board of Directors or Committee, but in the case of the termination of an employee, director, or consultant’s services due to death or disability, the period for exercising a vested option shall be extended to the earlier of 12 months after termination or the expiration date of the option.

The number of shares of common stock covered by the Plan, and the number of shares of common stock and the exercise price per share of each outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of common stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of issued and outstanding shares of common stock effected without receipt of consideration by OncoCyte.
 
F-17

Options Granted

As of December 31, 2014, 638,750 remained available for grants under the Plan.

A summary of OncoCyte stock option activity under the Plan and related information follows (in thousands except weighted average exercise price):

Option
 
Available for
Grant
   
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2013
   
639
       
1,361
     
$
1.50
   
Granted
   
(45
)
 
   
45
       
3.00
   
Forfeited or cancelled
   
31
       
(31
)
 
   
2.00
   
Outstanding at December 31, 2013
   
625
       
1,375
     
$
1.52
   
Forfeited or cancelled
   
13
       
(13
)
 
   
2.00
   
Outstanding at December 31, 2014
   
638
       
1,362
     
$
1.52
   
Exercisable at December 31, 2014
             
1,276
     
$
1.50
   

There were no exercises of stock options during the years ended December 31, 2014 and 2013.

Total proceeds if all options granted and outstanding as of December 31, 2014 were exercised would be approximately $2.1 million.

At December 31, 2014 and 2013, OncoCyte had approximately $87,000 and $416,000 of total unrecognized compensation expense, net of estimated forfeitures, related to the Plan that will be recognized over a weighted-average period of approximately 0.91 and 1.38 years, respectively.

OncoCyte recorded stock-based compensation expense in the following categories on the accompanying statements of operations for the years ended December 31, 2014 and 2013 (in thousands):

   
2014
   
2013
 
Research and development
 
$
177
     
$
183
   
General and administrative
   
141
       
143
   
Total stock-based compensation expense
 
$
318
     
$
326
   

The assumptions that were used to calculate the grant date fair value of OncoCyte’s employee and non-employee stock option grants for the years ended December 31, 2014 and 2013 were as follows.

   
2014 (1)
   
2013
 
Expected life (in years)
   
-
       
4.13
   
Risk-free interest rates
   
-
%      
1.28
%
 
Volatility
   
-
%
 
   
70.68
%
 
Dividend yield
   
-
%
 
   
0.00
%
 
 

 
 
(1)
No stock options were granted in 2014.

Stock-based compensation expense is recognized based on awards that are ultimately expected to vest, and as a result, the amount has been reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on OncoCyte’s historical experience and future expectations.
 
F-18

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If OncoCyte had made different assumptions, its stock-based compensation expense, and net loss for years ended December 31, 2014 and 2013, may have been significantly different.

There was no net income tax benefit recognized in the statements of operations for stock-based compensation expense for non-qualified stock options, as OncoCyte fully offsets net deferred tax assets with a valuation allowance (see Note 7). In addition, OncoCyte does not recognize deferred income taxes for incentive stock option compensation expense, and records a tax deduction only when a disqualified disposition has occurred.

7. Income Taxes

OncoCyte has filed a standalone U.S. federal income tax return since its inception. For California purposes, OncoCyte’s activity for 2013 and 2014 has been included in BioTime’s California Combined tax return. The provision for income taxes has been determined as if OncoCyte had filed separate tax returns for the periods presented. Accordingly, the effective tax rate of OncoCyte in future years could vary from its historical effective tax rates depending on the future legal structure of OncoCyte and related tax elections. The deferred tax assets, including the operating loss and credit carryforwards, generated by OncoCyte, will remain with OncoCyte.

The primary components of the net deferred tax assets and liabilities at December 31, 2014 and 2013 were as follows (in thousands):

   
2014
   
2013
 
Current deferred tax assets (liabilities):
           
Available-for-sale securities
 
$
(1,115
)
 
 
$
(1,574
)
 
Total current deferred tax liabilities
 
$
(1,115
)
 
 
$
(1,574
)
 
                     
Non-current deferred tax assets (liabilities):
                   
Net operating loss carryforwards
 
$
4,879
     
$
4,021
   
Research and development credit carryforwards
   
1,030
       
832
   
Patents and fixed assets
   
141
       
57
   
Stock-based compensation
   
24
       
21
   
Valuation Allowance
   
(4,959
)
 
   
(3,357
)
 
Total non-current deferred tax assets
 
$
1,115
     
$
1,574
   

Due to losses incurred for all periods presented, OncoCyte did not record any provision or benefit for income taxes.

Income taxes differed from the amounts computed by applying the U.S. federal income tax of 34% to pretax losses from operations as a result of the following:

   
2014
   
2013
 
Computed tax benefit at federal statutory rate
   
34
%      
34
%
 
Permanent differences
   
(2
%)      
(3
%)  
Change in valuation allowance
   
(34
%)      
(34
%)
 
Research and development credits
   
2
%      
3
%  
     
0
%      
0
%
 

As of December 31, 2014, OncoCyte has net operating loss carryforwards of approximately $13.9 million for U.S. federal income tax purposes, which expire through 2034. As of December 31, 2013, OncoCyte has net operating loss carryforwards of approximately $11.4 million for U.S. federal income tax purposes, which expire through 2033. OncoCyte’s federal research and development credit carryforwards of $502,000 as of December 31, 2014 and $405,000 as of December 31, 2013, will expire through 2034 and 2033, respectively. The state research and development credit carryforwards of $528,000 as of December 31, 2014 and $427,000 as of December 31, 2013 do not expire.
 
F-19

During 2014, OncoCyte sold 406,756 BioTime common shares in open market transactions which resulted in a taxable gain of approximately $1.3 million. This taxable gain was fully offset by current operating losses, thus resulting in no income taxes due from the sale. As of December 31, 2014, OncoCyte recorded a $1.1 million deferred tax liability resulting from the difference in the tax basis of BioTime shares held as compared to the basis of such shares reported on OncoCyte’s balance sheet (see Note 2).

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. OncoCyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. The change in the valuation allowance was $1.6 million and $1.1 million for the years ended December 31, 2014 and 2013, respectively.

Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a control change, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. There has not been a change in ownership for any of the periods presented.

OncoCyte may be subject to potential income tax examination by U.S. federal or states authorities. These potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws. In general, OncoCyte is no longer subject to tax examination by major taxing authorities for years before 2010. Although the statute is closed for purposes of assessing additional income and tax in those years, the taxing authorities may still make adjustments to the net operating loss and credit carryforwards used in open years. Any potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws.

8. Commitments and Contingencies

OncoCyte had no commitments other than those under the Shared Facilities and Services Agreement described in Note 4. The minimum fixed payments due under the Shared Facilities Agreement are approximately $15,000 per month.

Tax Filings

OncoCyte tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes OncoCyte has adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be significantly different than the amounts recorded in the financial statements.

Litigation – General

OncoCyte is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When OncoCyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, OncoCyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, OncoCyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. OncoCyte is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.
 
F-20

Employment Contracts

OncoCyte has entered into employment contracts with certain executive officers. Under the provisions of the contracts, OncoCyte may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations. At December 31, 2014, total potential severance obligations in connection with the termination of employment contracts approximated $170,000 for termination without cause and for termination due to a change in control.

Indemnification

In the normal course of business, OncoCyte may provide indemnifications of varying scope under OncoCyte’s agreements with other companies or consultants, typically OncoCyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, OncoCyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of OncoCyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to OncoCyte’s diagnostic tests. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments OncoCyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, OncoCyte have not been subject to any claims or demands for indemnification. OncoCyte also maintain various liability insurance policies that limit OncoCyte’s exposure. As a result, OncoCyte believe the fair value of these indemnification agreements is minimal. Accordingly, OncoCyte have not recorded any liabilities for these agreements as of December 31, 2014 and 2013.

9. Subsequent Events

In May 2015, OncoCyte entered into Subscription Agreements with two of its investors and BioTime (the “Subscription Agreements”). Under the Subscription Agreements, OncoCyte sold 1,500,000 shares of its common stock for $3.3 million in cash to two of its shareholders (the “Investors”), including 500,000 shares sold to George Karfunkel and 1,000,000 shares sold to Bernard Karfunkel, each of whom is a beneficial owner of more than 5% of the outstanding common shares of OncoCyte. Concurrently, BioTime purchased 1,500,000 shares of OncoCyte common stock in exchange for the cancelation of $3.3 million of indebtedness owed to BioTime by OncoCyte, and OncoCyte delivered to BioTime a convertible promissory note (the “Note”) for an additional $3.3 million of OncoCyte’s indebtedness to BioTime. The Note bears interest at the rate of 1% per annum and will mature and be payable on November 30, 2016. BioTime will have the right to convert the principal amount of the Note plus accrued interest into shares of OncoCyte common stock at a conversion price of $2.20 per share commencing on the earliest of November 8, 2016, or six months after OncoCyte completes an initial underwritten public offering of its common stock, or upon the occurrence of an “Event of Default” as defined in the Note. An Event of Default includes a failure of OncoCyte to pay any amount due on the Note or the commencement of bankruptcy proceedings by or against OncoCyte or the occurrence of certain insolvency related events, the dissolution or liquidation of OncoCyte, or any material breach or default by OncoCyte under any loan agreement, promissory note, or other instrument evidencing indebtedness payable to a third party. The conversion price is subject to pro rata adjustment in the event of a stock split, combination, reclassification, or similar event.

In June 2015, after the sale of stock under the Subscription Agreements were completed, OncoCyte and the Investors entered into a second agreement. Under the second agreement, the Investors agreed that if on or before June 30, 2016 OncoCyte conducts another rights offering to its shareholders at a pre-offer valuation of at least $40.0 million the Investors will purchase shares in that offering with an aggregate purchase price equal to the lesser of (a) a percentage of total amount of capital which OncoCyte then seeks to raise in the rights offer and in any concurrent offering to third parties equal to the Investors’ aggregate pro rata share of the outstanding OncoCyte common stock on the record date for the rights offering, determined on a fully diluted basis, and (b) $3.0 million, or such lesser amount requested by OncoCyte. Under the second agreement, OncoCyte agreed that if shares of OncoCyte common stock are not publicly traded on any stock exchange or over the counter market by January 15, 2016, OncoCyte will issue to the Investors, warrants to purchase, in the aggregate, 1,500,000 shares of OncoCyte common stock at an exercise price of $0.02 per share. If issued, the warrants will expire on December 31, 2016.
 
F-21

The Investors also agreed that, for a period of one year from the date of the second agreement, neither of them shall invest or engage, directly or indirectly, whether as a partner, equity holder, lender, principal, agent, affiliate, consultant or otherwise, in any business anywhere in the world that develops products for the diagnosis and treatment of cancer or otherwise competes with OncoCyte in any way; provided, however, that the passive ownership of less than 5% of the outstanding stock of any publicly-traded corporation will not be deemed, solely by reason thereof, to be in violation of that agreement.

In January 2015, OncoCyte amended the Plan by making an additional 2,000,000 shares of its common stock available for the grant of stock option and restricted stock awards and OncoCyte granted options to purchase 642,500 shares at an exercise price of $2.20 per share. In June 2015, OncoCyte granted options to purchase 610,000 shares at an exercise price of $2.20 per share. In August 2015, OncoCyte granted options to purchase 150,000 shares at an exercise price of $3.06 per share and on September 9, 2015, OncoCyte granted options to purchase 20,000 shares at an exercise price of $3.16 per share.

In June 2015, OncoCyte entered into a new employment agreement with its Chief Executive Officer, under which he will receive an annual salary of $320,000, 605,000 options to purchase OncoCyte common shares, 25% of which shall vest one year from the date of grant, and the balance in equal 36 monthly installments, and an additional 5,000 options that were fully vested on the date of grant. All of the stock options have an exercise price of $2.20 per share and expire 10 years from the date of grant. Under the employment agreement, the executive is eligible to earn an annual cash incentive bonus award determined by the Board of Directors in respect of each fiscal year during the executive’s employment, with a target bonus equal to no less than 35% of base salary for achievement of the specified performance goals at target levels for the applicable calendar year. The annual bonus payable is based upon the level of achievement of objectively determinable company and individual performance goals for the applicable calendar year, as determined by the Board of Directors in consultation with the executive. If the specified performance goals for the applicable calendar year are achieved at maximum levels, the annual bonus payable can be up to 150% of the annual base salary, as determined by the Board of Directors, in its sole discretion.

In August 2015, OncoCyte entered into a new employment agreement with its Vice President of Marketing, under which the executive will receive an annual salary of $200,000 and 100,000 options to purchase OncoCyte common shares, 25% of which shall vest one year from the date of grant, and the balance in equal 36 monthly installments. The stock options have an exercise price of $3.06 per share and expire 10 years from the date of grant. Under the employment agreement, the executive is eligible to earn an annual cash incentive bonus award determined by the Board of Directors in respect of each calendar year during the executive’s employment, with a target bonus equal to no less than 30% of base salary for achievement of the specified performance goals at target levels for the applicable calendar year. The annual bonus payable is based upon the level of achievement of objectively determinable company and individual performance goals for the applicable calendar year, as determined by the Board of Directors in consultation with the executive.

On September 17, 2015, OncoCyte sold 13,356 shares of BioTime stock in the open market for gross cash proceeds of approximately $44,000.

During September 2015, OncoCyte entered into a Subscription Agreement with BioTime pursuant to which BioTime purchased 2,710,857 shares of OncoCyte common stock for $8.3 million in cash, as part of a subscription offer made to all OncoCyte shareholders on a pro rata basis. The other OncoCyte shareholders had the right to purchase a total of 974,447 shares of OncoCyte common stock at the same price paid by BioTime, until November 16, 2015, when the right expired unexercised.

On October 1, 2015, OncoCyte sold 246,356 shares of BioTime stock to certain institutional investors under a negotiated transaction for gross cash proceeds of approximately $771,000.

On November 18, 2015, OncoCyte effected a one-for-two reverse stock split of its common stock and a proportional adjustment to the conversion ratio for the related party convertible debt.
 
On November 19, 2015, the Note described in Note 5 was amended to permit BioTime to convert the Note into shares of OncoCyte common stock at any time prior to payment in full of the principal balance and accrued interest, and on November 20, 2015, BioTime converted the Note into 1,508,095 shares of OncoCyte common stock.

OncoCyte has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through November 23, 2015, the day the financial statements were available for issuance.
 
F-22

ONCOCYTE CORPORATION
INDEX TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

Condensed Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014
F-24
Condensed Statements of Operations for the Nine Months Ended September 30, 2015 (unaudited) and 2014 (unaudited)
F-25
Condensed Statements of Comprehensive Loss for the Nine Months Ended September 30, 2015 (unaudited) and 2014 (unaudited)
F-26
Condensed Statements of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2015 (unaudited)
F-27
Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2015 (unaudited) and 2014 (unaudited)
F-28
Notes to the Condensed Financial Statements (unaudited)
F-29

F-23

ONCOCYTE CORPORATION
CONDENSED BALANCE SHEETS
( In thousands )

   
September 30, 2015
(unaudited)
   
December 31, 2014
(Note 1)
 
ASSETS
       
CURRENT ASSETS
       
Cash and cash equivalents
 
$
9,410
   
$
257
 
Available-for-sale securities, at fair value
   
2,598
     
3,280
 
Prepaid expenses and other current assets
   
20
     
114
 
Total current assets
   
12,028
     
3,651
 
                 
NONCURRENT ASSETS
               
Intangible assets, net
   
1,290
     
1,472
 
Equipment and furniture, net
   
97
     
118
 
Deferred tax assets
   
883
     
1,115
 
                 
TOTAL ASSETS
 
$
14,298
   
$
6,356
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
CURRENT LIABILITIES
               
Amount due to parent, BioTime
 
$
437
   
$
5,735
 
Amount due to affiliates
   
35
     
154
 
Accounts payable
   
282
     
144
 
Accrued expenses and other current liabilities
   
419
     
282
 
Deferred tax liabilities
   
883
     
1,115
 
Total current liabilities
   
2,056
     
7,430
 
Convertible note payable, related party
   
3,300
     
-
 
TOTAL LIABILITIES
   
5,356
     
7,430
 
                 
Commitments and contingencies (see Note 9)
               
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred stock, no par value, 5,000 shares authorized; none issued and outstanding
   
-
     
-
 
Common stock, no par value, 50,000 shares authorized; 23,914 and 18,200 shares issued and outstanding at September 30, 2015 (unaudited) and December 31, 2014, respectively
   
30,979
     
15,147
 
Accumulated other comprehensive loss on available-for-sale securities
   
(1,442
)
   
(822
)
Accumulated deficit
   
(20,595
)
   
(15,399
)
Total stockholders’ equity (deficit)
   
8,942
     
(1,074
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
$
14,298
   
$
6,356
 

The accompanying notes are an integral part of these unaudited condensed financial statements.
 
F-24

ONCOCYTE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)

   
Nine Months Ended September 30,
 
   
2015
   
2014
 
         
OPERATING EXPENSES
       
Research and development
 
$
3,098
   
$
2,837
 
General and administrative
   
2,081
     
638
 
Total operating expenses
   
5,179
     
3,475
 
                 
Loss from operations
   
(5,179
)
   
(3,475
)
                 
OTHER EXPENSES, NET
               
Interest expense, net
   
16
     
2
 
Other expenses, net
   
1
     
2
 
Total other expenses, net
   
17
     
4
 
                 
NET LOSS
 
$
(5,196
)
 
$
(3,479
)
                 
Basic and diluted net loss per common share
 
$
(0.26
)
 
$
(0.19
)
                 
Weighted average common shares outstanding used to compute net loss per common share, basic and diluted
   
19,803
     
18,200
 

The accompanying notes are an integral part of these unaudited condensed financial statements.
 
F-25

ONCOCYTE CORPORATION
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)

   
Nine Months Ended September 30,
 
   
2015
   
2014
 
         
NET LOSS
 
$
(5,196
)
 
$
(3,479
)
                 
Other comprehensive loss, net of tax
               
Transfer of realized loss into equity on sale of BioTime shares
   
18
     
73
 
Unrealized loss on BioTime shares held as available-for-sale securities, net
   
(638
)
   
(533
)
                 
COMPREHENSIVE LOSS
 
$
(5,816
)
 
$
(3,939
)

The accompanying notes are an integral part of these unaudited condensed financial statements.
 
F-26

ONCOCYTE CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(unaudited)

   
Common Stock
   
Accumulated
Other
Comprehensive
   
Accumulated
   
Stockholders’ Equity
 
   
Shares
   
Amount
   
Loss
   
Deficit
   
(Deficit)
 
BALANCE AT JANUARY 1, 2015
   
18,200
   
$
15,147
   
$
(822
)
 
$
(15,399
)
 
$
(1,074
)
Net loss
   
-
     
-
     
-
     
(5,196
)
   
(5,196
)
Issuance of common stock for cash to investors
   
1,500
     
3,300
     
-
     
-
     
3,300
 
Issuance of common stock for partial payment of related party amounts due to BioTime
   
1,500
     
3,300
     
-
     
-
     
3,300
 
Issuance of common stock for cash to BioTime
   
2,711
     
8,350
     
-
     
-
     
8,350
 
Exercise of options
   
3
     
4
     
-
     
-
     
4
 
Transfer of realized loss into equity from sale of BioTime shares
   
-
     
(18
)
   
18
     
-
     
-
 
Unrealized loss on available-for-sale securities
   
-
     
-
     
(638
)
   
-
     
(638
)
Stock-based compensation
   
-
     
831
     
-
     
-
     
831
 
Contingently issuable warrants to investors
   
-
     
65
     
-
     
-
     
65
 
                                         
BALANCE AT SEPTEMBER 30, 2015
   
23,914
   
$
30,979
   
$
(1,442
)
 
$
(20,595
)
 
$
8,942
 

The accompanying notes are an integral part of these unaudited condensed financial statements.
 
F-27

ONCOCYTE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

   
Nine Months Ended September 30,
 
   
2015
   
2014
 
CASH FLOWS FROM OPERATING ACTIVITIES:
       
Net loss
 
$
(5,196
)
 
$
(3,479
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation expense
   
32
     
29
 
Amortization of intangible assets
   
181
     
181
 
Stock-based compensation
   
831
     
164
 
Contingently issuable warrant expense to investors
   
65
     
-
 
Changes in operating assets and liabilities:
               
Amount due to parent, BioTime
   
1,290
     
2,531
 
Amount due to affiliates
   
(119
)
   
77
 
Prepaid expenses and other current assets
   
94
     
65
 
Accounts payable and accrued liabilities
   
275
     
78
 
Accrued interest on related party convertible debt
   
13
     
-
 
                 
Net cash used in operating activities
   
(2,534
)
   
(354
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equipment
   
(11
)
   
(13
)
Proceeds from sale of BioTime shares
   
44
     
329
 
                 
Net cash provided by investing activities
   
33
     
316
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from issuance of common stock
   
11,650
     
-
 
Proceeds from exercise of stock options
   
4
     
-
 
                 
Net cash provided by financing activities
   
11,654
     
-
 
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
9,153
     
(38
)
CASH AND CASH EQUIVALENTS:
               
At beginning of the period
   
257
     
101
 
At end of the period
 
$
9,410
   
$
63
 

The accompanying notes are an integral part of these unaudited condensed financial statements.
 
F-28

ONCOCYTE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Organization, Description of the Business and Liquidity

OncoCyte Corporation (“OncoCyte”) was incorporated in 2009 in the state of California as a majority-owned subsidiary of Bio Time, Inc. (“BioTime”), a publicly traded biotechnology company focused in the field of regenerative medicine. From inception through March 2011, OncoCyte focused substantially all of its efforts on the development of embryonic stem cell-derived cancer therapies. In April 2011, OncoCyte initiated development of molecular cancer diagnostics utilizing a discovery platform that focuses on identifying genetic markers broadly expressed in numerous types of cancer. OncoCyte is presently focusing its efforts on developing diagnostic tests for use in detecting a variety of cancers including breast, bladder, and lung cancers.

Liquidity

For all periods presented, OncoCyte had generated no revenues. Since inception, OncoCyte has financed its operations through the sale of its common stock to its current shareholders, including BioTime, loans from its parent company, BioTime and other BioTime affiliates, and sale of BioTime common shares OncoCyte holds as available-for-sale securities (see Note 5). OncoCyte has incurred operating losses and negative cash flows since inception, and had an accumulated deficit of $20.6 million (unaudited) and $15.4 million as September 30, 2015 and December 31, 2014, respectively.

OncoCyte plans to continue to invest significant resources in research and development in the field of molecular cancer diagnostics. OncoCyte expects to continue to incur operating losses and negative cash flows. As of September 30, 2015, OncoCyte had $9.4 million in cash and cash equivalents and held BioTime shares available-for-sale, valued at $2.6 million (unaudited), which OncoCyte may use for working capital purposes, as necessary (see Note 10).

2. Summary of Significant Accounting Policies

Basis of presentation

The condensed financial statements presented herein have been prepared on a separate, stand-alone basis. The condensed financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). BioTime has consolidated the results of OncoCyte into BioTime’s consolidated results based on BioTime’s ability to control OncoCyte’s operating and financial decisions and policies through the majority ownership of OncoCyte common stock throughout the periods presented. BioTime owned 74.9% (unaudited) of the outstanding common stock of OncoCyte at September 30, 2015.

To the extent OncoCyte does not have its own employees or human resources for its operations, BioTime or BioTime commonly controlled and consolidated subsidiaries provide certain employees for administrative or operational services, as necessary, for the benefit of OncoCyte (see Note 4). Accordingly, BioTime allocates expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that particular employees devote to OncoCyte affairs. Other expenses such as legal, accounting, marketing, travel, and entertainment expenses are allocated to OncoCyte to the extent that those expenses are incurred by or on behalf of OncoCyte. BioTime also allocates certain overhead expenses such as insurance, internet and telephone expenses based on a percentage determined by management. These allocations are made based upon activity-based allocation drivers such as time spent, percentage of square feet of office or laboratory space used, and percentage of personnel devoted to OncoCyte’s operations or management. Management evaluates the appropriateness of the percentage allocations on a quarterly basis and believes that this basis for allocation is reasonable.

As further discussed in Notes 4 and 7, in connection with the services performed by employees of BioTime, or employees of other BioTime commonly controlled and consolidated subsidiaries within the BioTime group of affiliated entities, OncoCyte grants stock options to those employees performing services for OncoCyte and records stock-based compensation expense in the accompanying statements of operations for these services performed in the periods presented.
 
F-29

Reverse stock split
 
On November 18, 2015, OncoCyte effected a one-for-two reverse stock split of its common stock and a proportional adjustment to the conversion ratio for the related party convertible debt (see Note 10).

All share, per-share and related information including the price at which shares of common stock have been sold or may be issued, have been retroactively adjusted, in these financial statements and accompanying footnotes, where applicable, to reflect the impact of the reverse stock split including an adjustment to the related party debt conversion ratio and conversion prices.

Unaudited interim financial information

The accompanying interim balance sheet as of September 30, 2015, the statements of operations and of cash flows for the nine months ended September 30, 2015 and 2014, the statement of stockholders’ equity (deficit) for the nine months ended September 30, 2015 and financial information disclosed in these notes to the condensed financial statements related to the nine months ended September 30, 2015 and 2014 are unaudited. These unaudited interim financial statements have been prepared in accordance with GAAP. In the opinion of the OncoCyte’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for a fair statement of OncoCyte’s statement of financial position as of September 30, 2015 and its results of operations and its cash flows for the nine months ended September 30, 2015 and 2014. The results for the nine months ended September 30, 2015 are not necessarily indicative of the results expected for any other interim period or for the full year. These interim financial statements and the financial information disclosed in these notes to the financial statements should be read in conjunction with the annual audited financial statements and notes thereto for the years ended December 31, 2014 and 2013 included in this information statement.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates estimates which are subject to significant judgment including those related to the allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, equipment and furniture, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, convertible debt, conversion features, warrants or other equity instruments. Actual results could differ materially from those estimates.

Fair value measurements

OncoCyte accounts for fair value measurements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”). ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In determining fair value, OncoCyte utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. For the periods presented, OncoCyte has no financial assets or liabilities recorded at fair value on a recurring basis, except for cash equivalents consisting of money market funds and the available-for-sale securities of BioTime common stock held by OncoCyte described in this Note 2. These assets are measured at fair value using the period-end quoted market prices as a level 1 input.
 
F-30

The carrying amounts of cash equivalents, prepaid expenses and other current assets, amounts due to BioTime and other affiliates, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.

The fair value of OncoCyte’s contingently issuable common stock warrants (see Note 6) is estimated using a Black-Scholes valuation model, using level 3 inputs, then adjusted for the probability of actually issuing those warrants to arrive at the probability-adjusted fair value. Since the contingently issuable warrants are equity classified and considered issued for accounting purposes as of June 30, 2015 (unaudited), no further remeasurement of the warrants’ fair value was made in subsequent periods for financial statement reporting purposes.

OncoCyte has elected not to measure the related party convertible promissory note payable (disclosed in Note 5) at fair value, with the changes in fair value recognized in the statements of operations each period in accordance with ASC 815-15, Derivatives and Hedging – Embedded Derivatives . The debt’s conversion feature can only be physically settled by delivery of common stock for converted principal and interest. The conversion feature does not meet the definition of an embedded derivative requiring bifurcation under the provisions of ASC 815-10 since, among other factors, OncoCyte is not permitted to, and BioTime cannot demand, a cash settlement in the event of a conversion and there is no net settlement available outside the debt agreement since the shares of common stock of OncoCyte underlying the conversion are not readily convertible into cash. The debt instrument does not fall within any of the three categories of liabilities defined in the scope of ASC 480-10, Distinguishing Liabilities from Equity . Accordingly, OncoCyte accounts for the convertible debt instrument in accordance with ASC 470-20, Debt with Conversion and Other Options . On the date the convertible debt was issued, the conversion price was equal to the fair value of the common stock underlying the conversion and no beneficial conversion feature was present based on the guidance of ASC 470-20 (see Note 5).

The issuance date fair value of the related party convertible debt is determined using a hybrid instrument valuation model by applying a market valuation method for the debt instrument using a risk-adjusted interest rate similar to “CC” and “D” rated junk bonds and, a Black-Sholes option pricing model for the conversion feature. The debt instrument and the conversion feature issuance date fair values are determined using level 3 inputs since both the risk adjustment made to the interest rate for the debt and the principal assumptions made in the option pricing model for the conversion feature are specific to OncoCyte and considered to be significant unobservable key inputs (see Note 5).

Due to the proximity of the May 8, 2015 issuance date and the September 30, 2015 balance sheet presented herein, the carrying value of the convertible debt approximates its fair value as of September 30, 2015 (unaudited) (see Note 5).

Cash and cash equivalents

Cash equivalents typically consist of highly liquid investments, with maturities of three months or less when purchased. At September 30, 2015 and December 31, 2014, OncoCyte’s cash balances totaled approximately $9.4 million (unaudited) and $257,000, respectively, and consist entirely of bank account deposits and amounts held in money market funds.

Financial instruments that potentially subject OncoCyte to credit risk consist principally of cash and cash equivalents. OncoCyte, at times, maintains cash and cash equivalents balances at financial institutions in excess of amounts insured by United States government agencies. OncoCyte places its cash and cash equivalents with high credit quality financial institutions.

Accounting for BioTime shares

OncoCyte accounts for the BioTime shares it holds as available-for-sale equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities , as the shares have a readily determinable fair value quoted on the NYSE MKT and are held principally for sale for future working capital purposes, as necessary. These shares are measured at fair value and reported as current assets on the balance sheet based on the closing trading price of the security as of the date being presented. Unrealized holding gains and losses are excluded from the statements of operations and reported in equity as part of other comprehensive income or loss, net of income taxes, until realized. Realized gains and losses for shares sold are reclassified out of accumulated other comprehensive income or loss and included in equity, as an increase or decrease to common stock equity consistent with, and pursuant to, ASC 805-50, transactions between entities under common control.
 
F-31

During the nine months ended September 30, 2015, OncoCyte sold 13,356 shares of BioTime stock in the open market for $44,000 (unaudited) in cash proceeds to be used for working capital purposes. The sale resulted in realized loss (unaudited) of $18,000, which was transferred out of accumulated other comprehensive loss and recorded as a decrease to common stock equity on the date of sale. During the nine months ended September 30, 2014, OncoCyte sold 86,156 shares of BioTime stock in the open market for $329,000 (unaudited) in cash proceeds to be used for working capital purposes. The sale resulted in a $73,000 realized loss (unaudited), which was reclassified out of accumulated other comprehensive loss and recorded as a decrease to common stock equity on the date of sale.

As of September 30, 2015, OncoCyte held 866,062 shares of BioTime common stock available-for-sale with a fair value of $2.6 million (unaudited).

Long-lived intangible assets

Long-lived intangible assets, primarily consisting of acquired patents, patent applications, and licenses to use certain patents are stated at acquired cost, less accumulated amortization (see Note 3). Amortization expense is computed using the straight-line method over the estimated useful lives of the assets over a period of 10 years.

Equipment and furniture

Equipment and furniture are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally over a period of 36 to 120 months. Maintenance and repairs are expensed as incurred whereas significant renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in OncoCyte’s results of operations.

Impairment of long-lived assets

OncoCyte assesses the impairment of long-lived assets, which consist primarily of long-lived intangible assets, furniture and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. To date, there have been no such impairment losses.

Income taxes

OncoCyte has filed a standalone U.S. federal income tax return since its inception. For California purposes, OncoCyte’s activity for 2013 and 2014 has been included in BioTime’s California Combined tax return. The provision for income taxes has been determined as if OncoCyte had filed separate tax returns for the periods presented. Accordingly, the effective tax rate of OncoCyte in future years could vary from its historical effective tax rates depending on the future legal structure of OncoCyte and related tax elections. The historical deferred tax assets, including the operating losses and credit carryforwards generated by OncoCyte, will remain with OncoCyte. OncoCyte accounts for income taxes in accordance with GAAP, which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. OncoCyte’s judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If OncoCyte's assumptions and consequently its estimates change in the future, the valuation allowance may be increased or decreased, which may have a material impact on OncoCyte’s statements of operations.
 
F-32

The guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. OncoCyte will recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of September 30, 2015 (unaudited) and December 31, 2014. OncoCyte is not aware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation for the nine months period ended September 30, 2015 and the year ended December 31, 2014. OncoCyte is currently unaware of any tax issues under review.

Research and development expenses

Research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, and expenses for outside consultants. These expenses include both direct and allocated or indirect overhead costs (see Note 4). Research and development costs are expensed as incurred.

General and administrative expenses

OncoCyte’s general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, including direct costs and costs allocated by BioTime; professional and consulting fees; direct and indirect allocated overhead (see Note 4).

Stock-based compensation

OncoCyte recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with FASB ASC 718, Compensation – Stock Compensation (“ASC 718”).

OncoCyte estimates the fair value of employee stock-based payment awards on the grant-date and recognizes the resulting fair value, net of estimated forfeitures, over the requisite service period. OncoCyte uses the Black-Scholes option pricing model for estimating the fair value of options granted under OncoCyte’s Stock Option Plan. The fair value of each restricted stock grant, if any, is determined based on the value of the common stock granted or sold. OncoCyte has elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period.

Compensation expense for non-employee stock-based awards is recognized in accordance with ASC 718 and FASB ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Stock option awards issued to non-employees, consisting principally employees of BioTime or BioTime commonly controlled and consolidated subsidiaries performing services for OncoCyte, are accounted for at fair value using the Black-Scholes option pricing model. Management believes that the fair value of the stock options is more reliably measured than the fair value of services received. OncoCyte records compensation expense based on the then-current fair values of the stock options at each financial reporting date. Compensation recorded during the service period is adjusted in subsequent periods for changes in the fair value of the stock options until the earlier of the date at which the non-employee’s performance is complete or a performance commitment is reached, which is generally when the stock option award vests. Compensation expense for non-employee grants is recorded on a straight-line basis in the statements of operations.

Net loss per common share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per common share reflects the weighted-average number of shares of common stock outstanding plus the potential effect of dilutive securities or contracts which are convertible to common stock, such as options and warrants (using the treasury stock method) and related party convertible debt (using the if converted method) and shares issuable in future periods, except in cases where the effect would be anti-dilutive. Because OncoCyte reported net losses for all periods presented, all potential contractual issuances of common stock are antidilutive for those periods.
 
F-33

The computations of basic and diluted net loss per common share are as follows (in thousands, except per share amounts):
 
   
Nine Months Ended September 30,
(unaudited)
 
   
2015
   
2014
 
Net loss
 
$
(5,196
)
 
 
$
(3,479
)  
Weighted average common shares outstanding – basic and diluted
   
19,803
       
18,200
   
Net loss per common share – basic and diluted
 
$
(0.26
)
 
 
$
(0.19
)
 

The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive (in thousands):

   
Nine Months Ended September 30,
(unaudited)
 
   
2015
   
2014
 
Stock options granted and outstanding under Stock Option Plan
   
2,235
       
1,362
   
Related party convertible debt (if converted shares)
   
1,500
       
-
   
Contingently issuable warrants to shareholders
   
1,500
       
-
   
Total
   
5,235
       
1,362
   

Segments

OncoCyte’s executive management team, as a group, represents the entity’s chief operating decision makers. To date, OncoCyte’s executive management team has viewed OncoCyte’s operations as one segment that includes the research and development of diagnostic tests for the detection of cancer. As a result, the financial information disclosed materially represents all of the financial information related to OncoCyte’s sole operating segment.

Recent accounting pronouncements

There are no recently issued accounting standards which are not yet effective which OncoCyte believes would materially impact the financial statements.

3. Selected Balance Sheet Components

Prepaid expenses and other current assets

At September 30, 2015 and December 31, 2014, prepaid expenses and other current assets were comprised of the following (in thousands):

   
September 30, 2015
(unaudited)
   
December 31,
2014
 
Prepaid license fees
 
$
20
     
$
111
   
Other prepaid expenses
   
-
       
3
   
Prepaid expenses and other current assets
 
$
20
     
$
114
   

F-34

Accrued expenses and other current liabilities

At September 30, 2015 and December 31, 2014, accrued expenses and other current liabilities were comprised of the following (in thousands):

   
September 30,
2015
(unaudited)
   
December 31,
2014
 
Accrued bonuses and payroll related expenses
 
$
110
     
$
147
   
Other accrued expenses
   
309
       
135
   
Accrued expenses and other current liabilities
 
$
419
     
$
282
   

Intangible assets, net

In 2011, OncoCyte, thorough its parent, BioTime, acquired substantially all of the assets of Cell Targeting, Inc. (“CTI”), a company that was engaged in research in cancer therapy. The assets acquired consist primarily of patents, patent applications, and licenses to use certain patents. OncoCyte issued 261,959 shares of BioTime common stock to CTI with a market value of $2.3 million and paid CTI $250,000 in cash to acquire the assets. The asset purchase was accounted for as a business combination under the acquisition method of accounting. OncoCyte amortizes intangible assets over their useful lives estimated to be 10 years at the date of the acquisition.

At September 30, 2015 and December 31, 2014, intangible assets were comprised of the following (in thousands):

   
September 30,
2015
(unaudited)
   
December 31,
2014
 
Intangible assets
 
$
2,419
     
$
2,419
   
Accumulated amortization
   
(1,129
)
 
   
(947
)
 
Intangible assets, net
 
$
1,290
     
$
1,472
   

Amortization expense amounted to approximately $181,000 (unaudited) for the nine months ended September 30, 2015 and 2014.

Equipment and furniture, net

At September 30, 2015 and December 31, 2014, equipment and furniture were comprised of the following (in thousands):

   
September 30,
2015
(unaudited)
   
December 31,
2014
 
Equipment and furniture
 
$
261
     
$
251
   
Accumulated depreciation
   
(164
)
 
   
(133
)
 
Equipment and furniture, net
 
$
97
     
$
118
   

Depreciation expense amounted to approximately $32,000 (unaudited) and $29,000 (unaudited) for the nine months ended September 30, 2015 and 2014, respectively.
 
F-35

4. Related Party Transactions

Shared Facilities and Service Agreement

In aggregate, BioTime allocated and charged such Use Fees to OncoCyte approximating $379,000 and $242,000 included in general and administrative expenses, and $435,000 and $423,000 included in research and development expenses included in the statements of operations during the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015 and December 31, 2014, OncoCyte had $472,000 (unaudited) and $5.9 million outstanding and payable to BioTime and affiliates included in current liabilities in connection with the costs incurred under the Shared Facilities and Services Agreement (the “Shared Facilities Agreement”). Since these amounts are due and payable in 30 days of being invoiced, the payables are classified as current liabilities for all periods presented.

5. Related Party Convertible Promissory Note Payable

In May 2015, OncoCyte entered into Subscription Agreements with BioTime and two other existing shareholders (see Note 6). In connection with the Subscription Agreements, BioTime purchased 1,500,000 shares of OncoCyte common stock in exchange for the cancelation of $3.3 million of indebtedness owed to BioTime by OncoCyte, and OncoCyte delivered to BioTime a convertible promissory note (the “Note”) for an additional $3.3 million of OncoCyte’s indebtedness to BioTime. The cancelation of the aggregate $6.6 million of indebtedness owed to BioTime was an extinguishment of debt under the provisions of ASC 470-50, Debt Modification and Extinguishment . Based on a valuation performed by OncoCyte, the issuance date fair value of the Note was $3.3 million (see Note 2) and, the fair value of the OncoCyte common stock on the date of the exchange was $3.3 million. Accordingly, no gain or loss resulted from the debt extinguishment.

The Note has a stated interest rate of 1% per annum. Interest on the Note is due and payable on January 2 of each year until the maturity date and any accrued but unpaid interest, along with principal, is due on the maturity date. The Note is due and payable on November 30, 2016, if not converted sooner, and can be prepaid sooner only with the written consent of BioTime.

The Note is convertible into 1,500,000 shares of OncoCyte common stock at a conversion price of $2.20 per share (see Note 2). The conversion price is subject to pro rata adjustment in the event of a stock split, combination, reclassification, or similar event. BioTime, at its election, can convert the Note into common stock on or after the first to occur of (i) November 8, 2016, (ii) the date that is six months after the first closing date on which OncoCyte completes a firm commitment underwritten initial public offering of its common stock under the Securities Act of 1933, as amended, and (iii) the occurrence of an Event of Default, as defined in the Note. An Event of Default includes OncoCyte’s failure to pay any amount due on the Note or the commencement of bankruptcy proceedings by or against OncoCyte or the occurrence of certain insolvency related events, OncoCyte’s corporate dissolution or liquidation, or any material breach or default by OncoCyte under any loan agreement, promissory note, or other instrument evidencing indebtedness payable to a third party.
 
F-36

6. Shareholders’ Equity

Common Stock

During September 2015, OncoCyte entered into a Subscription Agreement with BioTime pursuant to which BioTime purchased 2,710,857 shares of OncoCyte common stock for $8.3 million in cash, as part of a subscription offer made to all OncoCyte shareholders on a pro rata basis. The other OncoCyte shareholders had the right to purchase a total of 974,447 shares of OncoCyte common stock at the same price paid by BioTime, until November 16, 2015, when the right expired unexercised.

In May 2015, OncoCyte entered into Subscription Agreements with Bio Time and two other existing shareholders (“Investors”). Under the Subscription Agreements, OncoCyte issued 1,500,000 shares of common stock to the Investors for $3.3 million cash, or $2.20 per share. Concurrently, BioTime purchased 1,500,000 shares of OncoCyte common stock in exchange for the cancelation of $3.3 million of indebtedness owed to BioTime by OncoCyte (see Note 5).

Contingently Issuable Common Stock Warrants

In June 2015, after the sale of stock under the Subscription Agreements was completed, OncoCyte and the Investors entered into a second agreement. Under the second agreement, the Investors agreed that if on or before June 30, 2016 OncoCyte conducts another rights offering to its shareholders at a pre-offer valuation of at least $40.0 million the Investors will purchase shares in that offering with an aggregate purchase price equal to the lesser of (a) a percentage of total amount of capital which OncoCyte then seeks to raise in the rights offer and in any concurrent offering to third parties equal to the Investors’ aggregate pro rata share of the outstanding OncoCyte common stock on the record date for the rights offering, determined on a fully diluted basis, and (b) $3.0 million, or such lesser amount requested by OncoCyte. Under the second agreement, OncoCyte agreed that if shares of OncoCyte common stock are not publicly traded on any stock exchange or over the counter market by January 15, 2016, OncoCyte will issue to the Investors, warrants to purchase, in the aggregate, 1,500,000 shares of OncoCyte common stock at an exercise price of $0.02 per share. If issued, the warrants will expire on December 31, 2016.

The Investors also agreed that, for a period of one year from the date of the second agreement, neither of them shall invest or engage, directly or indirectly, whether as a partner, equity holder, lender, principal, agent, affiliate, consultant or otherwise, in any business anywhere in the world that develops products for the diagnosis and treatment of cancer or otherwise competes with OncoCyte in any way; provided, however, that the passive ownership of less than 5% of the outstanding stock of any publicly-traded corporation will not be deemed, solely by reason thereof, to be in violation of that agreement.

For accounting purposes, these contingently issuable common stock warrants, under the second agreement described above, are considered to be issued as an equity classified instrument. OncoCyte estimated the issue date fair value of the warrants using a Black-Scholes valuation model and management believes that there is a low probability of not satisfying the contingency and having to issue the warrants. Accordingly, the probability-adjusted, fair value of the warrants was $65,400 (unaudited) on the issuance date and recognized as a general and administrative expense, with a corresponding increase to common stock equity, during the nine months ended September 30, 2015 (see Note 2). However, for purposes of determining the weighted-average number of shares of common stock outstanding to calculate basic net loss per share, the shares underlying the warrants are not considered issued and outstanding since, as of, and for the nine months ended September 30, 2015, not all conditions of actually issuing the warrants had been satisfied as required under ASC 260-10-45, Computation of Basic Earnings per Share, since the shares are contingently issuable shares as defined by ASC 260-10-45.
 
F-37

7. Stock-based Compensation

Options Granted

As of September 30, 2015, there were 1,762,000 shares available for grant under the Plan.

A summary of OncoCyte stock option activity under the Plan and related information follows (in thousands, except weighted average exercise price):

Options
 
Available for
Grant
   
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2015
   
638
       
1,362
     
$
1.52
   
Increase in option pool
   
2,000
       
-
       
-
   
Granted
   
(1,438
)
 
   
1,438
       
2.20
   
Exercised
             
(3
)
 
   
1.34
   
Forfeited or cancelled
   
562
       
(562
)
 
   
1.58
   
Outstanding at September 30, 2015 (unaudited)
   
1,762
       
2,235
     
$
1.94
   
Exercisable at September 30, 2015 (unaudited)
             
952
     
$
1.60    

A summary of unvested option activity under the Plan is presented below (in thousands, except weighted average grant-date fair value):

Options
 
Number of
Shares
   
Weighted-
Average Grant-
Date Fair
Value
 
Unvested at January 1, 2015
   
85
     
$
2.00
   
Granted
   
1,437
       
2.20
   
Forfeited
   
(160
)
 
   
2.20
   
Vested
   
(79
)
 
   
2.00
   
Unvested at September 30, 2015 (unaudited)
   
1,283
     
$
2.20
   

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2015 was $1.78 per share. There were 3,000 options exercised during the nine months ended September 30, 2015 for total proceeds of $4,000. There were no options granted or exercised during the nine months ended September 30, 2014.

As of September 30, 2015, there was $1.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 3.4 years.

OncoCyte recorded stock-based compensation expense in the following categories in the accompanying statements of operations (in thousands):
 
   
Nine Months Ended September 30,
(unaudited)
 
   
2015
   
2014
 
Research and development
 
$
238
     
$
94
   
General and administrative
   
593
       
70
   
Total stock-based compensation expense
 
$
831
     
$
164
   

F-38

The Black-Scholes option pricing model requires OncoCyte to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected volatility, the risk-free interest rate and the dividend yield.

The fair value of the shares of common stock underlying the stock options has historically been determined by the Board of Directors. Because there has been no public market for OncoCyte’s common stock, the Board of Directors has determined the fair value of the common stock at the time of the grant of options by considering a number of objective and subjective factors including contemporaneous sales of common stock to investors, valuation of comparable companies, operating and financial performance and general and industry-specific economic outlook, among other factors. The fair value of the underlying common stock will be determined by the Board of Directors until such time as OncoCyte’s common stock is traded on an established stock exchange or national market system. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled Valuation of Privately Held Company Equity Securities Issued As Compensation .

The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. OncoCyte estimates the expected term of options granted based upon the “simplified method” provided under Staff Accounting Bulletin, Topic 14 , or SAB Topic 14.

Because OncoCyte’s common stock has no publicly traded history, OncoCyte estimates the expected volatility of the awards from the historical volatility of selected public companies within the biotechnology industry with comparable characteristics to OncoCyte, including similarity in size, lines of business, market capitalization, revenue and financial leverage. OncoCyte determined the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options. OncoCyte periodically assesses the comparable companies and other relevant factors used to measure expected volatility for future stock option grants.

The risk-free interest rate assumption is based upon observed interest rates on the United States government securities appropriate for the expected term of OncoCyte’s stock options.

The dividend yield assumption is based on OncoCyte’s history and expectation of dividend payouts. OncoCyte has never declared or paid any cash dividends on its common stock, and OncoCyte does not anticipate paying any cash dividends in the foreseeable future.

The assumptions that were used to calculate the grant date fair value of OncoCyte’s employee and non-employee stock option grants for the nine months ended September 30, 2015 and 2014 were as follows.

   
Nine Months Ended September
30,
(unaudited)
 
   
2015
   
2014 (1)
 
Expected life (in years)
   
6.89
       
-
   
Risk-free interest rates
   
1.81
%      
-
%
 
Volatility
   
74.25
%
 
   
-
%
 
Dividend yield
   
0.00
%
 
   
-
%
 
 

 
 
(1)
No stock options were granted in 2014.

Stock-based compensation expense is recognized based on awards that are ultimately expected to vest, and as a result, the amount has been reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on OncoCyte’s historical experience and future expectations.
 
F-39

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If OncoCyte had made different assumptions, its stock-based compensation expense, and net loss for the nine months ended September 30, 2015 and 2014, may have been significantly different.

There was no net income tax benefit recognized in the statements of operations for stock-based compensation expense for non-qualified stock options as OncoCyte fully offsets net deferred tax assets with a valuation allowance (see Note 8). In addition, OncoCyte does not recognize deferred income taxes for incentive stock option compensation expense, and records a tax deduction only when a disqualified disposition has occurred.

8. Income Taxes

OncoCyte has filed a standalone U.S. federal income tax return since its inception. For California purposes, OncoCyte’s activity for 2013 and 2014 has been included in BioTime’s California Combined tax return. The provision for income taxes has been determined as if OncoCyte had filed separate tax returns for the periods presented. Accordingly, the effective tax rate of OncoCyte in future years could vary from its historical effective tax rates depending on the future legal structure of OncoCyte and related tax elections. The deferred tax assets, including the operating loss and credit carryforwards, generated by OncoCyte, will remain with OncoCyte.

The primary components of the net deferred tax assets and liabilities at September 30, 2015 and December 31, 2014 were as follows (in thousands):

   
September 30,
2015
(unaudited)
   
 
December 31,
2014
 
Current deferred tax assets (liabilities):
           
Available-for-sale securities
 
$
(883
)
 
 
$
(1,115
)
 
Total current deferred tax liabilities
 
$
(883
)
 
 
$
(1,115
)
 
                     
Non-current deferred tax assets (liabilities):
                   
Net operating loss carryforwards
 
$
6,290
     
$
4,879
   
Research and development credit carryforwards
   
1,140
       
1,030
   
Patent and fixed assets
   
176
       
141
   
Stock-based compensation
   
476
       
24
   
Valuation allowance
   
(7,199
)
 
   
(4,959
)
 
Total non-current deferred tax assets
 
$
883
     
$
1,115
   

Income taxes differed from the amounts computed by applying the U.S. federal income tax of 34% to pretax losses from operations as a result of the following:

   
Nine Months Ended September 30,
 
   
2015
   
2014
 
Computed tax benefit at federal statutory rate
   
34
%      
34
%
 
Permanent differences
   
2
%
 
   
(5
%)  
Change in valuation allowance
   
(36
%)      
(31
%)
 
Research and development credits
   
0
%
 
   
2
%
 
     
-
       
-
   
 
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As of September 30, 2015, OncoCyte has net operating loss carryforwards of approximately $18.1 million for federal tax purposes, which expire through 2035. As of December 31, 2014, OncoCyte has net operating loss carryforwards of approximately $13.9 million for federal tax purposes, which expire through 2034. OncoCyte’s federal research and development credit carryforwards of $502,000 as of September 30, 2015 and December 31, 2014 will expire through 2034. Congress has not reinstated the research and development credit for federal purpose for 2015, so the federal research and development credit is unchanged from December 31, 2014. The state research and development credit carryforwards of $638,000 as of September 30, 2015 and $528,000 as of December 31, 2014 do not expire.

During 2014, OncoCyte sold 406,756 BioTime common shares in open market transactions which resulted in a taxable gain of approximately $1.3 million. This taxable gain was fully offset by current operating losses, thus resulting in no income taxes due from the sale. During the first nine months of 2015, OncoCyte sold 13,356 BioTime common shares in open market transactions which resulted in a taxable gain of approximately $44,000. This taxable gain expected to be fully offset by current operating losses, thus resulting in no income taxes due from the sale. OncoCyte has recorded a deferred tax liability of $0.9 million and $1.1 million at September 30, 2015 and December 31, 2014, respectively, resulting from the difference in the tax basis of BioTime shares held by OncoCyte as compared to the basis of such shares reported on OncoCyte’s balance sheet.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. OncoCyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a control change, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. There has not been a change in ownership for any of the periods presented.

OncoCyte may be subject to potential income tax examination by U.S. federal or U.S. states’ authorities. These potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws. In general, OncoCyte is no longer subject to tax examination by major taxing authorities for years before 2010. Although the statute is closed for purposes of assessing additional income and tax in those years, the taxing authorities may still make adjustments to the net operating loss and credit carryforwards used in open years. Therefore the statute should be considered open as it relates to the net operating loss and credit carryforwards. Any potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws.
 
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9. Commitments and Contingencies

OncoCyte had no commitments other than those under the Shared Facilities Agreement described in Note 4. The minimum fixed payments due under the Shared Facilities Agreement are approximately $13,000 per month.

Tax Filings

OncoCyte tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes OncoCyte has adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be significantly different than the amounts recorded in the financial statements.

Litigation – General

OncoCyte is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When OncoCyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, OncoCyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, OncoCyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. OncoCyte is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.

Employment Contracts

In August 2015, OncoCyte entered into a new employment agreement with its Vice President of Marketing, under which the executive will receive an annual salary of $200,000 and 100,000 options to purchase OncoCyte common shares, 25% of which shall vest one year from the date of grant, and the balance in equal 36 monthly installments. The stock options have an exercise price of $3.06 per share and expire 10 years from the date of grant. Under the employment agreement, the executive is eligible to earn an annual cash incentive bonus award determined by the Board of Directors in respect of each calendar year during the executive’s employment, with a target bonus equal to no less than 30% of base salary for achievement of the specified performance goals at target levels for the applicable calendar year. The annual bonus payable is based upon the level of achievement of objectively determinable company and individual performance goals for the applicable calendar year, as determined by the Board of Directors in consultation with the executive.

In June 2015, OncoCyte entered into a new employment agreement with its Chief Executive Officer, under which the executive will receive an annual salary of $320,000, 605,000 options to purchase OncoCyte common shares, 25% of which shall vest one year from the date of grant, and the balance in equal 36 monthly installments, and an additional 5,000 options that were fully vested on the date of grant. All of the stock options have an exercise price of $2.20 per share and expire 10 years from the date of grant. Under the employment agreement, the executive is eligible to earn an annual cash incentive bonus award determined by the Board of Directors in respect of each fiscal year during the executive’s employment, with a target bonus equal to no less than 35% of base salary for achievement of the specified performance goals at target levels for the applicable calendar year. The annual bonus payable is based upon the level of achievement of objectively determinable company and individual performance goals for the applicable calendar year, as determined by the Board of Directors in consultation with the executive. If the specified performance goals for the applicable calendar year are achieved at maximum levels, the annual bonus payable can be up to 150% of the annual base salary, as determined by the Board of Directors, in its sole discretion.

OncoCyte has entered into employment contracts with certain executive officers. Under the provisions of the contracts, OncoCyte may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations. At September 30, 2015, total potential severance obligations in connection with the termination of employment contracts approximated $303,000 for termination without cause and $397,000 for termination due to a change in control.
 
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Indemnification

In the normal course of business, OncoCyte may provide indemnifications of varying scope under OncoCyte’s agreements with other companies or consultants, typically OncoCyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, OncoCyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of OncoCyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to OncoCyte’s diagnostic tests. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments OncoCyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, OncoCyte have not been subject to any claims or demands for indemnification. OncoCyte also maintains various liability insurance policies that limit OncoCyte’s exposure. As a result, OncoCyte believes the fair value of these indemnification agreements is minimal. Accordingly, OncoCyte has not recorded any liabilities for these agreements as of September 30, 2015 and December 31, 2014.

10. Subsequent Events

On October 1, 2015, OncoCyte sold 246,356 shares of BioTime stock to certain institutional investors under a negotiated transaction for gross cash proceeds of approximately $771,000.

On November 18, 2015, OncoCyte effected a one-for-two reverse stock split of its common stock and a proportional adjustment to the conversion ratio for the related party convertible debt and conversion prices.
 
On November 19, 2015, the Note described in Note 5 was amended to permit BioTime to convert the Note into shares of OncoCyte common stock at any time prior to payment in full of the principal balance and accrued interest, and on November 20, 2015 BioTime converted the Note into 1,508,095 shares of OncoCyte common stock.
 
OncoCyte has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through November 23, 2015, the day the financial statements were available for issuance.
 
 
F-43