| Convertible Preferred Stock | 4. Convertible Preferred
Stock
In January 2015, the Company completed a Series F convertible
preferred stock offering that generated $3.3 million , net of
$74,000 of issuance costs. In the offering, the Company issued
2,623,650 shares of Series F convertible preferred stock at a price
of $1.2706 per share. In conjunction with the Series F financing,
the Company also amended the certificate of incorporation to
increase the number of authorized shares of common stock to
160,000,000 shares.
All shares of convertible preferred stock have a liquidation
preference in the event of a change of control event. In the event
of a liquidation or winding up of the Company, holders of Series F
convertible preferred stock are entitled to the liquidation
preference of $6.3530 for each such share of preferred stock,
together with any declared but unpaid dividends, prior to the
payment of any distributions to the holders of Series AA, Series
BB, Series BB-1, Series C and Series D and Series E convertible
preferred stock. The holders of Series E convertible preferred
stock have a liquidation preference that provides for a return of
two (2) times the amount of original investment and then full
participation on a pro rata basis as if converted to common stock.
The holders of Series D convertible preferred stock have a
liquidation preference that provides for a return of five
(5) times the amount of original investment and then full
participation on a pro rata basis as if converted to common stock.
Holders of Series CC convertible preferred stock, Series BB-1
convertible preferred stock, Series BB convertible preferred stock,
and Series AA convertible preferred stock have a liquidation
preference that provides for a dollar-for-dollar return of capital
and then full participation on a pro rata basis as if converted to
common stock. As the preferred stock is subject to a liquidation
preference upon an event outside the control of the Company, the
related amounts have been presented outside of stockholders’
deficit. The carrying value of preferred stock will be adjusted to
redemption value if it becomes probable that a redemption will
occur.
Redemption is not possible as the preferred stock was converted to
common stock as of the Merger closing date of August 20, 2015.
Voting
Each share of convertible preferred stock is entitled to voting
rights equivalent to the number of shares of common stock into
which each share can be converted. Each share of common stock is
entitled to one vote.
Conversion
Each share of Series F convertible preferred stock is convertible
at the holder’s option at any time into ten shares common
stock, subject to adjustment for anti-dilution. Each share of
convertible preferred stock is convertible at the holder’s
option at any time into common stock, subject to adjustment for
anti-dilution. The conversion price for Series AA convertible
preferred stock is $1.00 per share, for Series BB convertible
preferred stock is $1.2706 per share, for Series BB-1 convertible
preferred stock is $1.3843 per share, and for Series CC, Series D,
Series E and Series F convertible preferred stock is $1.2706 per
share. Conversion is automatic upon the closing of an underwritten
public offering with an offering price of at least $3.8118 per
share and aggregate gross proceeds of at least $40.0 million, or
upon the written consent of holders of at least 66.67% of the
then-outstanding convertible preferred stock.
Dividends
Holders of Series F convertible preferred stock are entitled to
noncumulative dividends, prior to the payment of any dividends to
holders of Series A, Series B, Series B-1, Series C and Series E
convertible preferred stock, at an annual rate of $0.101648 per
share if and when declared by the board of directors.
Holders of Series E convertible preferred stock are entitled to
noncumulative dividends, prior to the payment of any dividends to
holders of Series A, Series B, Series B-1, Series C, and Series D
convertible preferred stock, at an annual rate of $0.101648 per
share if and when declared by the board of directors. Holders of
Series D convertible preferred stock are entitled to noncumulative
dividends, prior to the payment of any dividends to holders of
Series A, Series B, Series B-1, and Series C convertible preferred
stock, at an annual rate of $0.101648 per share if and when
declared by the board of directors. Holders of Series C convertible
preferred stock are entitled to noncumulative dividends, prior to
the payment of any dividends to holders of Series A, Series B, and
Series B-1 convertible preferred stock, at an annual rate of
$0.101648 per share if and when declared by the board of directors.
Holders of Series B and Series B-1 convertible preferred stock are
entitled to noncumulative dividends, prior to the payment of any
dividends to the holders of Series A convertible preferred stock,
at an annual rate of $0.101648 per share for the Series B
convertible preferred stock and of $0.120432 per share for the
Series B-1 convertible preferred stock, if and when declared by the
board of directors. Holders of Series A convertible preferred stock
are entitled to noncumulative dividends at an annual rate of $0.08
per share if and when declared by the board of directors. These
dividends are to be paid in advance of any distributions to common
stockholders. No dividends had been declared through June 30,
2015.
Liquidation
In the event of a liquidation or winding up of the Company, holders
of Series F convertible preferred stock are entitled to the
liquidation preference of $6.353 for each such share of preferred
stock, together with any declared but unpaid dividends, prior to
the payment of any distributions to the holders of Series AA,
Series BB, Series BB-1, Series C, Series D and Series E convertible
preferred stock. In the event of a liquidation or winding up of the
Company, holders of Series E convertible preferred stock are
entitled to the liquidation preference of $2.5412 for each such
share of preferred stock, together with any declared but unpaid
dividends, prior to the payment of any distributions to the holders
of Series AA, Series BB, Series BB-1, Series C and Series D
convertible preferred stock. In the event of a liquidation or
winding up of the Company, holders of Series D convertible
preferred stock are entitled to the liquidation preference of
$6.353 for each such share of preferred stock, together with any
declared but unpaid dividends, prior to the payment of any
distributions to the holders of Series AA, Series BB, Series BB-1,
and Series C convertible preferred stock. The holders of Series CC
convertible preferred stock are entitled to the liquidation
preference of $1.2706 for each such share of preferred stock,
together with any declared but unpaid dividends, prior to the
payment of any distributions to the holders of Series AA, Series
BB, and Series BB-1 convertible preferred stock. The holders of
Series AA, Series BB, and Series BB-1 convertible preferred stock
are then entitled to the liquidation preference of $1.00, $1.2706
and $1.5054, respectively, for each such share of preferred stock,
together with any declared but unpaid dividends, prior to the
payment of any distributions to the holders of common stock. After
payment of these preferential amounts, the remaining assets of the
Company shall be distributed among the holders of the convertible
preferred stock and common stock pro rata based on the number of
shares of common stock held (assuming conversion of the convertible
preferred stock). | 4. Stockholders’
Deficit and Convertible Preferred Stock Convertible Preferred
Stock and Warrants
On
April 9, 2014, the Company completed a Series E convertible
preferred stock offering that generated $5.0 million in gross
proceeds. In the offering, Catalyst issued 983,778 Series E
preferred stock warrant shares with a strike price equal to $1.2706
per share, with a corresponding term of five years from issuance as
well as warrants to purchase a number of shares equal to 25% of
Series E preferred shares purchased by the participants in the
financing. The warrants have an exercise price of $1.2706 per share
(as adjusted for stock splits, stock dividends, reclassification
and the like) and expire on April 9, 2019.
The Company
accounts for the preferred stock warrants in accordance with the
guidance contained in ASC 815-40, whereby the warrants do not meet
the criteria for equity treatment and must be recorded as a
liability. Accordingly, the Company classifies the warrants as a
liability at its fair value. The warrants are subject to
remeasurement at each balance sheet date, with any change in fair
value recognized as a component of other income (expense), net in
the statements of operations.
The Company
estimated the fair value of these warrants at the balance sheet
date using the Black-Scholes option pricing model, based on the
estimated market value of the underlying common stock at the
valuation measurement date, the remaining contractual term of the
warrant, risk-free interest rates and expected dividends on and
expected volatility of the price of the underlying common stock. At
issuance, the Preferred E Warrants were valued at $745,885. The
Company revalued the warrants as of December 31, 2014 and the
fair value of the Preferred E Warrants was $391,361.
The authorized,
issued and outstanding shares of convertible preferred stock and
liquidation preferences per share thereof as of December 31,
2014, were as follows:
Shares Authorized Shares Issued
and Outstanding Liquidation Preference Per
Share
Series AA 7,327,166 7,327,166 $ 1.0000
Series BB 23,104,618 23,104,618 $ 1.2706
Series BB-1 5,978,477 5,978,477 $ 1.5054
Series CC 46,429,980 46,429,980 $ 1.2706
Series D 629,630 629,630 $ 6.3530
Series E 5,000,000 3,935,140 $ 2.5412
88,469,871 87,405,011
All shares of
preferred stock have a liquidation preference in the event of a
change of control event. The holders of Series E preferred stock
have a liquidation preference that provides for a return of two
(2) times the amount of original investment and then full
participation on a pro rata basis as if converted to common stock.
The holders of Series D preferred stock have a liquidation
preference that provides for a return of five (5) times the
amount of original investment and then full participation on a pro
rata basis as if converted to common stock. Holders of Series CC
preferred stock, Series BB-1 preferred stock, Series BB preferred
stock, and Series AA preferred stock have a liquidation preference
that provides for a dollar-for-dollar return of capital and then
full participation on a pro rata basis as if converted to common
stock. As the preferred stock is subject to a liquidation
preference upon an event outside the control of the Company, the
related amounts have been presented outside of stockholders’
deficit. The carrying value of preferred stock will be adjusted to
redemption value if it becomes probable that a redemption will
occur. Management does not believe that redemption is probable
based on current business conditions. Voting
Each share of
convertible preferred stock is entitled to voting rights equivalent
to the number of shares of common stock into which each share can
be converted. Each share of common stock is entitled to one
vote. Conversion
Each share of
convertible preferred stock is convertible at the holder’s
option at any time into common stock, subject to adjustment for
anti-dilution. The conversion price for Series AA convertible
preferred stock is $1.00 per share, for Series BB convertible
preferred stock is $1.2706 per share, for Series BB-1 convertible
preferred stock is $1.3843 per share, and for Series CC, Series D
and Series E convertible preferred stock is $1.2706 per share.
Conversion is automatic upon the closing of an underwritten public
offering with an offering price of at least $3.8118 per share and
aggregate gross proceeds of at least $40,000,000, or upon the
written consent of holders of at least 66.67% of the
then-outstanding convertible preferred stock. Dividends
Holders of
Series E convertible preferred stock are entitled to noncumulative
dividends, prior to the payment of any dividends to holders of
Series AA, Series BB, Series BB-1, Series CC, and Series D
convertible preferred stock, at an annual rate of $0.101648 per
share if and when declared by the board of directors. Holders of
Series D convertible preferred stock are entitled to noncumulative
dividends, prior to the payment of any dividends to holders of
Series AA, Series BB, Series BB-1, and Series CC convertible
preferred stock, at an annual rate of $0.101648 per share if and
when declared by the board of directors. Holders of Series CC
convertible preferred stock are entitled to noncumulative
dividends, prior to the payment of any dividends to holders of
Series AA, Series BB, and Series BB-1 convertible preferred stock,
at an annual rate of $0.101648 per share if and when declared by
the board of directors. Holders of Series BB and Series BB-1
convertible preferred stock are entitled to noncumulative
dividends, prior to the payment of any dividends to the holders of
Series AA convertible preferred stock, at an annual rate of
$0.101648 per share for the Series BB convertible preferred stock
and of $0.120432 per share for the Series BB-1 convertible
preferred stock, if and when declared by the board of directors.
Holders of Series AA convertible preferred stock are entitled to
noncumulative dividends at an annual rate of $0.08 per share if and
when declared by the board of directors. These dividends are to be
paid in advance of any distributions to common stockholders. No
dividends had been declared through December 31,
2014.
Liquidation
In the event of
a liquidation or winding up of the Company, holders of Series E
convertible preferred stock are entitled to the liquidation
preference of $2.5412 for each such share of preferred stock,
together with any declared but unpaid dividends, prior to the
payment of any distributions to the holders of Series AA, Series
BB, Series BB-1, Series C and Series D convertible preferred stock.
In the event of a liquidation or winding up of the Company, holders
of Series D convertible preferred stock are entitled to the
liquidation preference of $6.353 for each such share of preferred
stock, together with any declared but unpaid dividends, prior to
the payment of any distributions to the holders of Series AA,
Series BB, Series BB-1, and Series C convertible preferred stock.
The holders of Series CC convertible preferred stock are entitled
to the liquidation preference of $1.2706 for each such share of
preferred stock, together with any declared but unpaid dividends,
prior to the payment of any distributions to the holders of Series
AA, Series BB, and Series BB-1 convertible preferred stock. The
holders of Series AA, Series BB, and Series BB-1 convertible
preferred stock are then entitled to the liquidation preference of
$1.00, $1.2706 and $1.5054, respectively, for each such share of
preferred stock, together with any declared but unpaid dividends,
prior to the payment of any distributions to the holders of common
stock. After payment of these preferential amounts, the remaining
assets of the Company shall be distributed among the holders of the
convertible preferred stock and common stock pro rata based on the
number of shares of common stock held (assuming conversion of the
convertible preferred stock). 2004 Incentive Stock
Plan
The
Company’s 2004 Stock Plan (the Plan) was adopted by the board
of directors in January 2004. Pursuant to the Plan, options or
stock purchase rights may be granted to employees and consultants
of the Company. Options granted may be either incentive stock
options or non-statutory stock options. Incentive stock options may
be granted to employees with exercise prices of no less than the
fair value of the common stock on the grant date, and non-statutory
options may be granted to employees or consultants at exercise
prices of no less than 85% of the fair value of the common stock on
the grant date, as determined by the board of directors. Options
vest as determined by the board of directors, generally over four
years. The 2004 Incentive stock plan had a term of 10 years and
expired in 2014. No more options can be issued under this
plan.
However, on
February 5, 2010, and March 17, 2009, the Company granted
performance-based options to purchase 170,203 and 2,301,796 shares,
respectively, to certain key members of management with the
following vesting terms: 12.5% of the shares vest each year on the
anniversary of the vesting commencement date subject to the
optionee’s continued employment with the Company; an
additional 12.5% of the total number of shares in each grant will
be eligible for vesting each year on the anniversary of the vesting
commencement date based upon the board of director’s
determination of the achievement of Company goals or other
achievements; and 100% of any unvested shares shall become vested
immediately prior to the consummation of a change of control of the
Company. Options granted under the Plan expire no more than ten
years after the date of grant. Total expense associated with the
performance-based options for the years December 31, 2014 and
December 31, 2013, was $60,437 and $60,437
respectively.
The following
table summarizes stock option activity under the Plan, including
stock options granted to nonemployees, and related
information:
2004
Incentive Stock Plan
Outstanding
Options
Shares Available for Grant Number of Weighted- Average Exercise Price
Balances at
December 31, 2013 315,141 6,435,868 $ 0.34
Options
exercised (150,000 ) 0.29
Options
forfeited 59,685 (59,685 ) 0.15
Stock
repurchased — — —
Balances at
December 31, 2014 374,826 6,226,183 $ 0.23
Since the 2004
Incentive Stock Plan expired the Company issued stock outside of
the plan. The following table summarizes stock option activity for
options issued outside of the plan. Stock options have only been
granted to non-employees outside the plan
Out of Plan
Options
Outstanding
Options
Shares Available for Grant Number of Weighted- Average Exercise Price
Balances at
December 31, 2013 — — $ —
Out of Plan Options
granted 325,000 0.29
Options
forfeited — — —
Stock
repurchased — — —
Balances at
December 31, 2014 — 325,000 $ 0.29
At
December 31, 2014, all of the outstanding options to purchase
common stock of the Company were exercisable. The options are
summarized in the following table:
2004
Incentive Stock Plan
Exercise Price Per Share Number of Number of Weighted-
(In
Years)
$0.0500 30,000 30,000 0.6861
$0.0700 214,000 214,000 0.0700
$0.2800 2,642,815 2,642,815 5.2084
$0.3600 526,375 526,375 4.3173
$0.4000 826,206 769,605 6.1113
$0.4400 1,887,975 671,060 8.8634
$0.4800 98,812 82,268 7.4444
6,226,183 4,936,123 5.5050
Out of plan
options
Exercise Price Per Share Number of Number of Weighted-
$0.2900 325,000 314,583 1.8300
At
December 31, 2014, the total aggregate intrinsic value of
options outstanding was $627,491. The weighted-average grant fair
value of options granted during 2014 and 2013 was $0.23 and $0.29
per share, respectively. During the years ended December 31,
2014 and 2013, the total intrinsic value of options exercised based
upon the difference between the exercise price and the estimated
fair value of the shares as of the date of exercise was $0.06 and
$0.00, respectively.
Options
outstanding that have vested or are expected to vest as of
December 31, 2014, are as follows:
Number of Weighted- Weighted- Aggregate
(In
Years)
Vested 5,109,350 $ 0.34 5.453 $ 84,378
Expected to Vest 748,782 0.34 5.453 84,378
Total 5,858,132 $ 0.34 5.453 $ 84,378
Options to
purchase 0 and 1,500,370 shares of stock were granted to employees
during 2014 and 2013, respectively. The compensation expense for
the years ended December 31, 2014 and 2013, associated with
stock option grants to employees was $0 and $175,713,
respectively.
The estimated
grant-date fair value-based measurements of the employee stock
options were calculated using the Black-Scholes valuation model,
based on the following weighted-average assumptions in the years
ended December 31, 2014 and 2013:
December 31,
2014 2013
Expected term 5.14 years 5.98 years
Expected
volatility 64.62 % 78.147 %
Risk-free interest
rate 1.61 % 1.06 %
Expected dividend
yield 0 % 0 %
Expected
Term.
Expected
Volatility.
Risk-Free
Interest Rate.
Expected
Dividend Yield.
At
December 31, 2014, the Company had employee stock-based
compensation expense of $173,704 and at December 31, 2013 of
$296,963 related to unvested stock awards not yet recognized, which
is expected to be recognized over an estimated weighted-average
period of 1.83 years. Options Granted to
Nonemployees
During 2014 and
2013, options to purchase 325,000 and 149,665 shares, respectively,
of common stock were issued to consultants that vest over one to
four years with a weighted-average exercise price of $0.29 and
$0.44 per share, respectively. During the years ended
December 31, 2014 and 2013, the Company recorded stock-based
compensation expense attributable to these nonemployee stock awards
of $70,710 and $61,670, respectively.
The estimated
grant-date fair values of the nonemployee stock options were
determined using the Black-Scholes valuation model and the
following assumptions:
Year Ended December 31,
2014 2013
Risk-free interest
rate 1.61 % 1.06 %
Expected
volatility 64.62 % 78 %
Expected dividend
yield 0 % 0 %
Weighted-average
contractual term 5.14 years 5.98 years
Additional
compensation of $180,992 will be recorded in future periods for the
remaining unvested portions of the nonemployee option
grants. 2012 Retention
Plan
On
December 5, 2012 the Company adopted a retention bonus plan
for service providers, including employees, consultants and
non-employee directors, to Catalyst. The plan provides for certain
payments to be made to plan participants, up to a maximum of 10% of
the total liquidation preference due to holders of Company
preferred stock, in the event of a “Corporate
Transaction” and corresponding liquidation preference
payments made to holders of Company preferred stock.
In the plan, a
Corporate Transaction is defined as: a merger in which the Company
is not the surviving entity, a sale or disposition of substantially
all of the assets of the Company, a complete liquidation or
dissolution of the Company, or similar transaction. The retention
bonus plan expires on December 5, 2022. No amounts have been
accrued or paid through December 31, 2014. Common Stock
Warrants
In August 2004,
the Company entered into three separate agreements with three
individuals to obtain specified patent licenses related to the
development of proteases as a therapeutic platform for oncology. In
connection with these agreements, the Company issued warrants to
purchase an aggregate of 15,000 shares of common stock of the
Company at an exercise price of $0.05 per share. The warrants are
exercisable upon the earlier of achieving certain patent-related
milestones set forth in the agreement or on the seventh anniversary
of the warrant agreement. The warrants were all exercisable and
outstanding as of December 31, 2013. The warrants expired on
August 9, 2014, unexercised.
In conjunction
with the loan agreement that the Company entered into in March 2005
for equipment financing, the Company issued a warrant to the lender
to purchase 33,750 shares of Series A convertible preferred stock
of the Company at an exercise price of $1.00 per share. In February
2012, corresponding with a bridge loan financing, the warrant to
purchase Series A convertible preferred stock was converted into a
warrant to purchase Company common stock. The fair market value of
the warrant at the time of conversion, $13,196, was reclassified as
equity. Prior to the conversion the warrant was classified as a
liability and at the end of each reporting period changes in the
fair value of the warrant during the period are recorded in other
income or expense. For the years ended December 31, 2014 and
2013, the Company recorded $0 of other income related to the
changes in the fair value of the warrant. The warrant expired on
March 3, 2015. |
