Stockholders' Equity | 8. Stockholders’ Equity Common Stock The total number of shares of common stock of Viracta outstanding as of December 31, 2021 and December 31, 2020 was 37,424,863 and 905,987 , respectively. Concurrent Financing On February 24, 2021, immediately prior to the closing of the Merger, the Company completed the February 2021 private placement offering of an aggregate of 12,012,369 shares of common stock for gross proceeds of $ 65.0 million and incurred fees and other offering costs of approximately $ 2.7 million. Sales Agreement On May 28, 2021, the Company entered into an Open Market Sale Agreement SM (the “Sale Agreement”) with Jefferies LLC (the “Sales Agent”), under which the Company may offer and sell up to $ 50.0 million shares (the “Shares”) of its common stock, par value $ 0.0001 per share (“Common Stock”), from time to time through the Sales Agent. The sales and issuances, if any, of the Shares by the Company under the Sale Agreement will be pursuant to the Company’s registration statement on Form S-3 (the “Registration Statement”), filed with the SEC on May 28, 2021 and declared effective by the SEC on June 4, 2021. Sales, if any, of the Shares pursuant to the Sale Agreement may be made in negotiated transactions or transactions that are deemed to be “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Stock Market, or sales made into any other existing trading market for the Common Stock. The Sales Agent is not required to sell any specific amount of securities, but will act as the Company’s sales agent using commercially reasonable efforts to sell the Shares from time to time, consistent with its normal trading and sales practices, applicable state and federal laws, rules and regulations and the rules of The Nasdaq Stock Market, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). As of December 31, 2021 , the Company has incurred legal and accounting costs of $ 0.1 million related to the Sales Agreement. As of December 31, 2021 , no shares had been issued pursuant to the Sales Agreement. Convertible Preferred Stock On November 25, 2020, the Company completed a Series E Preferred Stock equity financing, issuing 7,392,240 shares at a price per share of $ 5.41 , which yielded gross proceeds of approximately $ 40.0 million. The Series E Preferred Stock was convertible into common stock at any time prior to the Merger. The number of shares of common stock that will be issued upon such conversion is determined by dividing its original issuance price by the applicable conversion price. Liquidation Preference The outstanding shares would have been entitled to certain liquidation preferences according to their agreements, in the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary. Series E Preferred Stock held liquidation preference priority over Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock. Series D Preferred Stock held liquidation preference priority over Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock. Series C Preferred Stock held liquidation preference priority over both Series B Preferred Stock and Series A-1 Preferred Stock. Series B Preferred Stock held priority over Series A-1 Preferred Stock. If, upon the occurrence of such event, the proceeds distributed among the holders of the Series E Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock, the Series B Preferred Stock, and the Series A-1 Preferred Stock would have been insufficient to permit the full payment of the aforementioned preferential amounts to each holder of convertible preferred stock, then the entire proceeds legally available for distribution to the convertible preferred stock would have been distributed ratably among the holders of the Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, the Series B Preferred Stock, and the Series A-1 Preferred Stock in proportion to the full preferential amount that each such holder of convertible preferred stock was otherwise entitled to receive. Upon completion of the distributions required by the above-mentioned liquidation preferences, any remaining proceeds would have been distributed among the holders of Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock, Series A-1 Preferred Stock and common stock pro rata based on the number of shares of common stock held by each, assuming full conversion of the Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, the Series B Preferred Stock, and the Series A-1 Preferred Stock, to common stock at the then-effective conversion price for such shares. Dividends The holders of shares of Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock, and Series Preferred Stock would have been entitled to receive dividends, out of any assets legally available, prior and in preference to any declaration or payment of any dividend on the common stock, in an amount at least equal to 8 % per annum of the Series E original issue price, Series D original issue price, Series C original issue price, the Series B original issue price and the Series A-1 original issue price, respectively, all subject to adjustment from time to time for recapitalizations, payable when and if declared by the Company’s board of directors. The Company did no t declared any dividends on its convertible preferred stock. Voting The holder of each share of Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock would have been entitled to one vote for each share of common stock into which such preferred stock could then be converted and, with respect to such vote, such holder had full voting rights and powers equal to the voting rights and powers of the holders of common stock and would have been entitled to notice of any stockholders’ meeting in accordance with the Company’s bylaws. The Company was a party to a voting agreement with certain holders of its capital stock. The parties to the voting agreement had agreed, subject to certain conditions, to vote the shares of the Company’s capital stock held by them so as to elect the following individuals as directors: (1) two individuals designated by the holders of a majority of the outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, (2) one individual who is an industry expert designated by the holders of a majority of the outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as a single class and on an as-converted to Common Stock basis, (3) one individual designated by certain Series E holder, so long as that holder owns any shares of Series E Preferred Stock, (4) one individual designated by the holders of a majority of the outstanding shares of Series E Preferred Stock, (5) one individual who is an industry expert designated by the holders of a majority the outstanding shares of Series E Preferred Stock, and (6) the Company’s Chief Executive Officer. Upon the consummation of the merger with Sunesis Pharmaceuticals, Inc., the obligations of the parties to the voting agreement to vote its shares so as to elect these nominees, as well as the other rights and obligations under this agreement, terminated and none of the Company’s stockholders have any special rights regarding the nomination, election or designation of members of the combined company’s board of directors. Redemption The Company’s convertible preferred stock were not explicitly redeemable or at a specified date in the future. The convertible preferred stock were presented outside of stockholders’ equity because in the event of certain deemed liquidation events considered not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially all of the Company’s assets, the convertible preferred stock were redeemable at the option of the holders. As these deemed liquidation events were not probable of occurring, the Company did not adjust the carrying values of the convertible preferred stock. Automatic Conversion - Merger Upon the closing of a sale of shares of common stock in a public offering, all outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock were automatically converted into shares of common stock at the then effective conversion price, given that (a) the offering results in gross proceeds to the Company of at least $ 40.0 million before underwriting discount and commissions, and (b) the shares of common stock were listed for trading on the NASDAQ Global Market. In connection with the closing of the merger and the concurrent private placement of common stock, the holders of the Company’s preferred stock waived their right to exchange their shares into any class of stock other than common and converted to common stock immediately prior to the closing of the concurrent private placement of common stock. In connection with the Merger, all of the outstanding shares of Private Viracta’s convertible preferred stock were converted into 18,811,552 shares of the Company’s common stock. As of December 31, 2020, Private Viracta’s convertible preferred stock was classified as temporary equity on the accompanying consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of Private Viracta’s control, including liquidations, sale or transfer of control of Private Viracta. Private Viracta did not adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because the occurrence of any such change of control event was not deemed probable. With the Merger, the Company obtained 10,000,000 shares of authorized preferred stock available for future issuance in one or more series. Upon issuance, the Company can determine the rights, preferences, privileges and restrictions thereof. These rights, preference and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. There were 10,248 shares of this preferred stock outstanding as of December 31, 2021 , of which 1,915 shares were Series E Stock and 8,333 shares were Series F Stock. The Series E Stock and Series F Stock are non-voting Series E and Series F Convertible Preferred Stock at a stated price of $ 500 and $ 600 per share, respectively. Each share of non-voting Series E Stock and Series F Stock is convertible at a conversion ratio equal to the stated price divided by the conversion price, which is $ 17.50 per share and $ 21.00 per share, respectively, provided that conversion will be prohibited if, as a result, the holder and its affiliates would own more than 9.98 % of the total number of shares of common stock then outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series E and Series F Stock will receive a payment before any proceeds are distributed to the holders of Common Stock. Shares of Series E and Series F Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of this outstanding Series E Stock will be required to amend the terms of the Series E and Series F Stock. Shares of the Series E and Series F Stock will not be entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors, and will rank: • senior to all of the Company’s Common Stock; • senior to any class or series of the Company’s capital stock hereafter created specifically ranking by its terms junior to the Series E and Series F Stock; • on parity with any class or series of the Company’s capital stock hereafter created specifically ranking by its terms on parity with the Series E and Series F Stock; and • junior to any class or series of the Company’s capital stock hereafter created specifically ranking by its terms senior to the Series E and Series F Stock; in each case, as to distributions of assets upon the Company’s liquidation, dissolution or winding up whether voluntarily or involuntarily. Warrants Concurrent with the issuance of convertible promissory notes in 2018, the Company issued to the note investors warrants to purchase 250,323 shares of Viracta Common Stock (the “Common Warrants”). The Common Warrants’ exercise price was $ 0.09 per share. Unless previously exercised, the Common Warrants will expire on the seven-year anniversary of the date of issuance. As of December 31, 2021, Common Warrants to purchase 86,209 shares of Viracta Common Stock remain unexercised. These shares have been included in the weighted average shares outstanding for both basic and diluted earnings per share for the years ended December 31, 2021 and 2020 as their exercise price is for nominal consideration. In July 2020, the Company issued warrants exercisable for 206,440 pre-merger shares of Series E preferred stock, at a pre-merger exercise price of $ 0.6055 per share, to Silicon Valley Bank in conjunction with the Company’s entry into the SVB Loan Agreement (the “Lender Warrants”). Upon completion of the Merger, the Lender Warrants became exercisable for 23,100 shares of common stock at an exercise price of $ 5.42 per share. The Lender Warrants will expire on July 30, 2030. Common Stock Reserved for Future Issuance Common stock reserved for future issuance are as follows in common equivalent shares: December 31, 2021 2020 Conversion of preferred stock 292,799 18,811,552 Common stock warrants 109,309 193,266 Preferred stock warrants — 23,100 Stock options issued and outstanding for all plans 4,051,572 1,127,842 RSUs outstanding 745,668 — Authorized for future option grants 1,169,523 1,108,809 Common stock authorized for the ESPP 60,948 — Total 6,429,819 21,264,569 Equity Incentive Plans In January 2017, the Company adopted the Viracta Therapeutics, Inc. 2016 Equity Incentive Plan (the “2016 Plan”), which permitted stock option and restricted stock unit grants to employees, members of the board of directors, and outside consultants. The Plan allowed for grants of incentive stock options with exercise prices of at least 100 % of the fair market value of Viracta’s common stock, nonqualified options with exercise prices of at least 85 % of the fair market value of the Company’s common stock, restricted stock, and restricted stock units. All stock options granted under the 2016 Plan have a ten-year life and generally vest over zero to four years . In connection with the closing of the Merger, no further awards will be made under the 2016 Plan but the 2016 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2016 Plan. At the time of the close of the Merger, the Company adopted the Viracta Therapeutics, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which also permits stock options and restricted stock unit grants to employees, members of the board of directors, and outside consultants. The maximum number of shares of the Company’s common stock available for issuance under the 2021 Plan equals the sum of (a) 2,628,571 shares; (b) any shares of common stock of the Company which are subject to awards under the Sunesis 2011 Equity Incentive Plan (the “Sunesis 2011 Plan”) or the 2016 Plan as of the effective date of the 2021 Plan which become available for issuance under the 2021 Plan after such date in accordance with its terms; and (c) an annual increase on the first day of each calendar year beginning with January 1 of the calendar year following the effectiveness of the 2021 Plan and ending with the last January 1 during the initial ten year term of the 2021 Plan. This annual increase would be equal to the lesser of (i) 3,771,428 shares, (ii) five percent of the number of shares of the Company’s common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, and (iii) such number of shares of the Company’s common stock as determined by the Company’s board of directors. The 2021 Plan allows for grants of incentive stock options with exercise prices of at least 100 % of the fair market value of Viracta’s common stock, nonqualified options with exercise prices of at least 100 % of the fair market value of the Company’s common stock, restricted stock, and restricted stock units. All stock options granted to date have a ten-year life and generally vest over zero to four years . Additionally, in connection with the closing of the Merger, no further awards will be made under the Sunesis 2011 Plan. As of December 31, 2021, 88,019 fully vested options remain outstanding under the Sunesis 2011 Plan with a weighted average exercise price of $ 27.65 per share. The share-based compensation recorded in the accompanying consolidated statements of operations for the years ending December 31, 2021 and 2020 is presented below (in thousands): Year Ended December 31, 2021 2020 Research and development $ 2,122 $ 158 General and administrative 3,420 190 Total $ 5,542 $ 348 On June 30, 2021, the Company adopted the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”) and reserved 1,000,000 shares for future grant under the 2021 Inducement Plan. As of December 31, 2021 , there were 715,000 shares available for issuance under the 2021 Inducement Plan. Stock Options The Company recorded share-based compensation related to stock options of $ 4.8 million and $ 0.3 million for the year ended December 31, 2021 and 2020, respectively. Fair value is determined on the date of grant for options. Compensation expense is recognized over the vesting period based on the fair value of the options. The fair value of stock options is estimated using the Black-Scholes model with the assumptions disclosed in the following table: Year Ended December 31, 2021 2020 Risk free interest rate 0.66 % - 1.33 % 0.46 % - 0.87 % Expected option term 5.8 - 6.3 years 5.5 - 6.3 years Expected volatility of common stock 84.15 % - 90.20 % 72.13 % - 90.20 % Expected dividend yield 0 % 0 % The expected term of stock options is based on the simplified method, which is an average of the contractual term of the option and its vesting period. The expected volatility of stock options is based upon the historical volatility of a number of publicly traded companies in similar stages of clinical development. The risk-free interest rate is based on the average yield of U.S. Treasury Bills appropriate for the expected term of the stock option grants. The Company has not historically paid cash dividends and does not anticipate declaring dividends in the future. As of December 31, 2021 , unrecognized compensation expense related to unvested options granted totaled $ 17.3 million. The expense is expected to be recognized over a weighted-average period of 3.0 years. A summary of the stock option activity under the 2016 Plan and the 2021 Plan during the period ended December 31, 2021 is presented below (in thousands except for per share and weighted average term): Number of Weighted Weighted Aggregate Intrinsic Value Outstanding at December 31, 2020 1,128 $ 1.08 8.5 $ 2,827 Granted 3,223 $ 8.82 Exercised ( 301 ) $ 0.98 $ 8 Cancelled ( 86 ) $ 3.23 $ 154 Outstanding at December 31, 2021 3,964 $ 7.33 8.9 $ 1,973 Outstanding at December 31, 2021 (Sunesis 2011 Plan) 88 $ 27.65 3.4 $ — Vested and exercisable at December 31, 2021 852 $ 7.39 7.8 $ 829 The intrinsic values of the above represent the aggregate value of the total pre-tax intrinsic value based upon a common stock price of $ 3.65 and $3 .58 at December 31, 2021 and 2020, respectively, and the contractual exercise price. The weighted average grant date fair value per share of employee stock options granted during the years ended December 31, 2021 and 2020 was $ 6.25 and $ 1.64 , respectively. Restricted Stock Units The Company recorded share-based compens ation related to RSUs of $ 0.7 million for the year ended December 31, 2021. There were no RSUs granted prior to 2021. For RSU equity awards, grant date fair value is estimated using the closing stock price on the date of grant. Compensation expense is recognized over the vesting period based on the fair value of the RSUs. A summary of the restricted stock unit activity under the plans during the period ended December 31, 2021 is presented below (in thousands except for per share and weighted average term): RSUs Weighted Weighted Outstanding at December 31, 2020 — $ — — Granted 852 4.22 Vested ( 107 ) 4.22 Cancelled — — Outstanding at December 31, 2021 745 $ 4.22 3.4 As of December 31, 2021 , unrecognized compensation expense related to unvested RSUs totaled $ 2.7 million. The expense is expected to be recognized over a weighted-average period of 3.4 years. Employee Stock Purchase Plan The Company adopted the 2011 Employee Stock Purchase Plan (the “2011 ESPP”) as part of the Merger. The 2011 ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Eligible employees can purchase shares of the Company’s common stock at 85 % of the lower of the fair market value of the common stock at (i) the beginning of a 12-month offering period, or (ii) at the end of one of the two related 6-month purchase periods. No participant in the 2011 ESPP may be issued or transferred shares of common stock value at more than $ 25,000 per calendar year. As of December 31, 2021 , there were 60,948 shares available for future issuance under the 2011 ESPP. |