| Redeemable Convertible Preferred Stock and Warrants | E. Redeemable Convertible Preferred Stock and
Warrants
Authorized, Issued, and Outstanding Redeemable Convertible
Preferred Stock
In April 2015, the Company amended and restated its Certificate of
Incorporation to decrease the number of its authorized shares of
preferred stock to 10,000,000 shares with a par value of $0.0001
per share. As described in Note A, in April 2015, the Company
completed an IPO of its common stock. Upon completion of the IPO,
all outstanding shares of the Company’s redeemable
convertible preferred stock were automatically converted or
reclassified into an aggregate of 5,980,564 shares of the
Company’s common stock. As of September 30, 2015, the
Company had 10,000,000 shares of authorized and undesignated
preferred stock, and did not have any preferred stock
outstanding.
Preferred Stock Activity
The following table summarizes redeemable convertible preferred
stock activity for the nine months ended September 30,
2015:
Shares of
Series A Preferred Series B Preferred Series C Preferred Series D Preferred Series D-1 Preferred Total
Balance, December 31, 2014 9,704,215 6,220,000 18,557,408 7,255,425
– 41,737,048
Issuance of Series D-1 Preferred Stock
–
–
–
– 3,200,000 3,200,000
Exercise of Series D Preferred Warrants
–
–
– 3,205
– 3,205
Less: Conversion of Preferred Stock into Common Stock upon IPO (9,704,215) (6,220,000) (18,557,408) (7,258,630) (3,200,000) (44,940,253)
Balance, September 30, 2015
–
–
–
–
–
–
Series D-1 Redeemable Convertible Preferred Stock
In February 2015, the Company entered into a stock purchase
agreement with Cowen in which Cowen agreed to purchase and the
Company agreed to sell 3,200,000 shares of the Company’s
Series D-1 Preferred for $1.25 per share, or an aggregate of $4
million. Upon completion of the IPO, these shares automatically
converted into 415,584 shares of the Company’s common
stock.
Warrants
As described in Note A, in April 2015, the Company completed an IPO
of its common stock. Upon completion of the IPO, and as of
September 30, 2015, warrants to purchase 15,499,324 shares of
Series D Preferred were reclassified into warrants to purchase
2,066,543 shares of the Company’s common stock. As of
December 31, 2014, the Company had outstanding warrants to
purchase 15,502,529 shares of Series D Preferred at an exercise
price of $0.78 per share. During the nine months ended
September 30, 2015, warrants to purchase 3,205 shares of
Series D Preferred were exercised.
During 2013, the Company issued $3.8 million of convertible notes
and the warrants (the “2013 Warrants”) to purchase
1,079,453 shares of equity securities in a future financing meeting
specified criteria (a “Qualified Financing”) (Note C).
The 2013 Warrants allow the holders to purchase shares of the same
class and series of equity securities issued in the Qualified
Financing for an exercise price equal to the per share price paid
by the purchasers of such equity securities in the Qualified
Financing. When the Company entered into the Deerfield Facility
Agreement, the 2013 Warrants became warrants to purchase 1,079,453
shares of Series D Preferred. Upon completion of the IPO, the 2013
Warrants automatically converted into warrants to purchase 143,466
shares of the Company’s common stock at an exercise price of
$5.85 per share. The 2013 Warrants, if unexercised, expire on the
earlier of June 2, 2019, or upon a liquidation event.
On June 2, 2014, pursuant to the terms of the Deerfield
Facility Agreement, the Company issued the Deerfield Warrant to
purchase 14,423,076 shares of Series D Preferred (Note C). The
Company recorded the fair value of the Deerfield Warrant as a debt
discount and a warrant liability. The Deerfield Warrant, if
unexercised, expires on the earlier of June 2, 2024, or upon a
liquidation event. Upon completion of the IPO, the Deerfield
Warrant automatically converted into a warrant to purchase
1,923,077 shares of the Company’s common stock at an exercise
price of $5.85 per share. The Company is amortizing the debt
discount to interest expense over the term of the Term Notes and
the Deerfield Convertible Notes.
The Company determined that the 2013 Warrants and Deerfield Warrant
should be recorded as a liability and stated at fair value at each
reporting period upon inception. As stated above, upon completion
of the IPO, the 2013 Warrants and the Deerfield Warrant
automatically converted into warrants to purchase the
Company’s common stock. The Company determined that the 2013
Warrants should be marked to fair value and reclassified to equity
upon closing of the IPO. The Deerfield Warrant remains classified
as a liability and is recorded at fair value at each reporting
period since it can be settled in cash. Changes to the fair value
of the warrant liability are recorded through the statements of
operations as a fair value adjustment (Note H). | 9. Redeemable Convertible Preferred Stock and
Warrants
Authorized, Issued, and Outstanding Redeemable Convertible
Preferred Stock
Effective May 30, 2014, the Company amended its Certificate of
Incorporation to increase the number of its authorized shares of
preferred stock to 109,483,000 shares with a par value of $0.0001
per share.
The following table summarizes authorized, issued and outstanding
Series A redeemable convertible preferred stock (Series A
Preferred), Series B redeemable convertible preferred stock (Series
B Preferred), Series C redeemable convertible preferred stock
(Series C Preferred) and Series D Preferred as of
December 31, 2014:
Authorized Outstanding
Issue Price Conversion Price Liquidation
Series A Preferred 9,705,000 9,704,215 $ 0.40 $ 3.00 $ 3,881,686
Series B Preferred 6,220,000 6,220,000 $ 0.62 $ 4.65 3,856,400
Series C Preferred 18,558,000 18,557,408 $ 0.78 $ 5.85 14,474,778
Series D Preferred 75,000,000 7,255,425 $ 0.78 $ 5.85 5,659,232
Total 109,483,000 41,737,048 $ 27,872,096
Preferred Stock Activity
The following table summarizes redeemable convertible preferred
stock activity for the years ended December 31, 2013 and
2014:
Shares of
Series A Series B Series C Series D Total
Balance, January 1, 2013 9,704,215 6,220,000 18,557,408
– 34,481,623
Balance, December 31, 2013 9,704,215 6,220,000 18,557,408
– 34,481,623
Shares issued upon conversion of 2013 Convertible Notes
–
–
– 5,332,348 5,332,348
Shares issued for financing fee to Deerfield
–
–
– 1,923,077 1,923,077
Balance, December 31, 2014 9,704,215 6,220,000 18,557,408 7,255,425 41,737,048
Series A Redeemable Convertible Preferred Stock (Series A
Preferred)
On June 18, 2008, the Company adopted a resolution to amend
its Articles of Incorporation to increase the number of authorized
shares to 75,000,000, consisting of 50,000,000 shares of common
stock, no par value, and 25,000,000 shares of preferred stock, no
par value, of which 10,000,000 shares are designated as Series A
Preferred.
On June 23, 2008, the Company entered into a private placement
offering to secure additional equity capital. The private placement
offering resulted in the issuance of 7,500,000 shares of Series A
Preferred at $0.40 per share and the later issuance of warrants to
purchase 99,929 shares of common stock at $3.90 per share. The
gross proceeds of the private placement offering totaled $3,000,000
and direct offering costs were $403,757 resulting in net proceeds
to the Company of $2,596,243. The warrants were separately issued
to the placement agent for the private offering (Note 10).
During 2009, certain convertible debentures were exchanged for
Series A Preferred. As a result, the Company issued 2,204,215
Series A Preferred shares for full redemption of the
debentures.
Series B Redeemable Convertible Preferred Stock (Series B
Preferred)
On April 22, 2009, the Company adopted a resolution to amend
its Articles of Incorporation to authorize 7,000,000 shares of
Series B Preferred, no par value.
On April 22, 2009, the Company entered into a private
placement offering to secure additional equity capital. The private
placement offering resulted in the issuance of 6,220,000 shares of
Series B Preferred at $0.62 per share and the issuance of warrants
to purchase 82,895 shares of common stock at $4.65 per share. The
gross proceeds of the private placement offering totaled $3,856,400
and direct offering costs were $357,335, resulting in net proceeds
to the Company of $3,499,065. The warrants were separately issued
to the placement agent for the private offering (Note 10).
Series C Redeemable Convertible Preferred Stock (Series C
Preferred)
On July 15, 2010, the Company adopted a resolution to amend
its Articles of Incorporation to authorize 18,000,000 shares of
Series C Preferred, no par value.
During 2010, the Company entered into a private placement offering
to secure additional equity capital. In 2010, a total of 5,617,835
shares of Series C Preferred were sold at $0.78 per share. In
conjunction with the private placement offering, the Company also
issued a warrant to purchase 112,289 shares of common stock at
$5.85 per share. The gross proceeds of the private placement
offering totaled $4,381,916 and direct offering costs were
$405,074, resulting in net proceeds to the Company of $3,976,842.
The warrant was separately issued to the placement agent for the
private offering (Note 10).
On July 15, 2011, the Company adopted a resolution to amend
its Articles of Incorporation to increase the number of authorized
shares of common stock, no par value, from 70,000,000 to 85,000,000
and Class C Preferred, no par value, from 18,000,000 to
33,000,000.
During 2011, the Company entered into a private placement offering
to secure additional equity capital. The Company sold a total of
12,158,638 shares of Series C Preferred at $0.78 per share. In
conjunction with the private placement offering, the Company also
issued warrants to purchase 242,911 shares of common stock at $5.85
per share. The gross proceeds of the private placement offering
totaled $9,483,738 and direct offering costs were $892,070,
resulting in net proceeds to the Company of $8,591,668. The
warrants were separately issued to the placement agent for the
private offering.
During 2012, the Company sold a total of 864,268 shares of Series C
Preferred at $0.78 per share. In conjunction with the private
placement offering, the Company also issued warrants to purchase
16,430 shares of common stock at $5.85 per share. The gross
proceeds of the private placement offering totaled $674,129 and
direct offering costs were $148,636, resulting in net proceeds to
the Company of $525,493. The warrants were separately issued to the
placement agent for the private offering. In addition, 83,333
shares of Series C Preferred were repurchased from a former
employee of the Company at $0.78 per share.
Series D Redeemable Convertible Preferred Stock
During 2014, the Company issued 7,255,425 shares of Series D
Preferred at $0.78 per share in connection with the Qualified
Financing (Note 6). On June 2, 2014, the Company issued
5,332,348 shares of Series D Preferred upon conversion of the 2013
Convertible Notes and 1,923,077 shares of Series D Preferred to
Deerfield as a financing fee.
Significant terms of the redeemable convertible preferred stock
(together the Preferred Stock) are as follows:
Conversion Rights
Each share of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred is convertible, at the option of
the holder, at any time after the date of issuance into the number
of shares of common stock determined by dividing the original issue
price by the conversion price upon a qualifying liquidation or
capital event.
The initial conversion price of each share will be adjusted for
stock splits, combinations, recapitalizations, reclassifications
and similar events. The conversion price is subject to adjustment
if the Company issues additional shares of common stock at a price
less than the Series A Preferred, Series B Preferred, Series C
Preferred and/or Series D Preferred conversion prices in effect at
the time of such issuance.
All outstanding shares of Preferred Stock automatically convert
into shares of common stock upon the closing of a Qualified Public
Offering; an underwritten public offering of common stock that is
not a Qualified Public Offering but that is approved by Deerfield
and the board of directors; or the date specified by written
consent or agreement of the holders of a majority of the
then-outstanding shares of Preferred Stock, voting together as a
separate class on an as-converted to common stock basis. A
Qualified Public Offering is defined as the closing of the sale of
shares of common stock to the public at a price of at least $9.375
per share in a firm-commitment underwritten public offering
pursuant to an effective registration statement under the
Securities Act of 1933, with at least $25,000,000 of gross proceeds
to the Company and a listing of the common stock on the NASDAQ
Stock Market or the New York Stock Exchange.
Dividend Rights
With respect to the Company’s payment of dividends or
distributions, if any, the Series D Preferred ranks senior in
priority to the Series C Preferred, which ranks senior in priority
to the Series B Preferred, which ranks senior in priority to the
Series A Preferred, which ranks senior in priority to all shares of
common stock. Such dividends are payable only when, and if,
declared by the board of directors and are noncumulative.
Voting Rights
The Company’s Series A Preferred, Series B Preferred and
Series C Preferred are non-voting except to the extent voting
rights are required by General Corporation Law of the State of
Delaware. Each holder of Series D Preferred is entitled to cast the
number of votes equal to the number of whole shares of common stock
into which the shares of Series D Preferred held by such holder are
convertible. Holders of Series D Preferred vote together with the
holders of common stock as a single class.
Liquidation
Upon an Event of Liquidation, subject to the prior payment of any
and all amounts required under the Deerfield Convertible Notes, the
Deerfield Warrant and the Term Note, the assets and funds of the
Company legally available for distribution, if any, shall be
distributed among the holders of common stock and Preferred Stock
as follows:
n
Before
any distribution or payment is made to any holder of common stock,
Series A Preferred, Series B Preferred or Series C Preferred, the
holders of shares of Series D Preferred are entitled to be paid an
amount equal to the liquidation preference amount with respect to
each share of Series D Preferred. If the holders of Series D
Preferred have been paid in full the liquidation preference amounts
to which they are entitled, then, before any distribution or
payment is made to any holder of common stock, Series A Preferred
or Series B Preferred, the holders of shares of Series C Preferred
are entitled to be paid an amount equal to the liquidation
preference amount with respect to each share of Series C Preferred.
If the holders of Series D Preferred and the Series C Preferred
have been paid in full the liquidation preference amounts to which
they are entitled, then, before any distribution or payment is made
to any holder of common stock or Series A Preferred, the holders of
shares of Series B Preferred are entitled to be paid an amount
equal to the liquidation preference amount with respect to each
share of Series B Preferred. If the holders of Series D Preferred,
the Series C Preferred, and the Series B Preferred have been paid
in full the liquidation preference amounts to which they are
entitled, then, before any distribution or payment is made to any
holder of common stock, the holders of shares of Series A Preferred
are entitled to be paid an amount equal to the liquidation
preference amount with respect to each share of Series A
Preferred.
n If, upon an Event of Liquidation,
holders of the Preferred Stock have been paid in full the
liquidation preference amounts to which they are entitled, the
remaining assets and funds of the Company legally available for
distribution, if any, will be distributed among the holders of the
common stock and the Preferred Stock in proportion to the shares of
common stock then held by them and the shares of common stock that
they have the right to acquire upon conversion of the shares of
Preferred Stock.
An Event of Liquidation means (i) any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or
(ii) any Deemed Liquidation Event. A Deemed Liquidation Event
means (i) any merger, consolidation or share exchange
transaction in which the Company is a party and the Company issues
shares of its capital stock pursuant to such merger or
consolidation (except any such merger, consolidation or share
exchange involving the Company in which the shares of capital stock
of the Company outstanding immediately prior to such merger,
consolidation or share exchange continue to represent, or are
converted into or exchanged for, shares of capital stock that
represent, immediately following such merger or consolidation, at
least a majority, by voting power, of the capital stock of the
surviving or resulting corporation) or (ii) the sale, lease,
transfer, exclusive license or other disposition, in a single
transaction or series of related transactions, by the Company of
all or substantially all the assets or capital stock of the
Company.
As a result of the existence of the deemed liquidation feature, the
Company determined that all series of Preferred Stock are
redeemable upon the occurrence of a deemed liquidation event. They
are carried at initial fair value at each reporting period and
excluded from stockholders’ deficit in the accompanying
balance sheets. If the occurrence of a deemed liquidation event
becomes probable, all series of the Preferred Stock will be
adjusted to liquidation value during that period.
Series D Preferred Protective Provisions
The Company cannot take any of the following actions without the
written consent or affirmative vote of the holders of at least a
majority of the issued and outstanding shares of Series D
Preferred, which majority must include Deerfield:
n liquidate, dissolve or wind up the
business of the Company, or effect any merger or consolidation or
any other Deemed Liquidation Event;
n amend, alter or repeal any provision
of the Certificate of Incorporation or Bylaws in a manner that
adversely affects the holders of Series D Preferred;
n create or issue shares of any
additional class of capital stock unless the same ranks junior to
the Series D Preferred with respect to distributions upon an Event
of Liquidation, the payment of dividends and rights of
redemption;
n increase the authorized number of
shares of Series D Preferred or increase the authorized number of
shares of any other class of capital stock unless the same ranks
junior to the Series D Preferred with respect to distributions upon
an Event of Liquidation, the payment of dividends and rights of
redemption;
n issue any shares of Series D
Preferred other than as contemplated by the Deerfield Facility
Agreement, the Deerfield Convertible Notes or the Deerfield
Warrant;
n reclassify, alter or amend any
existing security of the Company (i) that is pari passu with
the Series D Preferred with respect to distributions payable upon
an Event of Liquidation, the payment of dividends or rights of
redemption, if such reclassification, alteration or amendment would
render such other security senior to the Series D Preferred with
respect to any such right, preference or privilege or
(ii) that is junior to the Series D Preferred with respect to
distributions payable upon an Event of Liquidation, the payment of
dividends or rights of redemption, if such reclassification,
alteration or amendment would render such other security senior to
or pari passu with the Series D Preferred with respect to any such
right, preference or privilege;
n declare, pay, or make any dividends
or other distributions to any holders of common stock, Series A
Preferred, Series B Preferred, Series C Preferred, or any other
capital stock that is junior to the Series D Preferred with respect
to the payment of dividends or distributions, or to any holders of
shares of a class of capital stock issued following the Series D
Preferred original issue date that is pari passu to the Series D
Preferred with respect to the payment of dividends;
n purchase, redeem or otherwise acquire
any shares of common stock, Series A Preferred, Series B Preferred,
Series C Preferred, or any other capital stock that is junior to
the Series D Preferred, or to any holders of shares of a class of
capital stock issued following the Series D Preferred original
issue date that is pari passu to the Series D Preferred;
provided however
n increase or decrease the authorized
number of directors constituting the board of directors.
Warrants
As of December 31, 2014, outstanding warrants to purchase the
Company’s Series D Preferred were as follows:
Issuance Date Number of Exercise
2013 1,079,453 $ 0.78
2014 14,423,076 $ 0.78
15,502,529
During 2013, the Company issued $3,846,000 of 2013 Convertible
Notes and the 2013 Warrants to purchase 1,079,453 shares of equity
securities in a future financing meeting specified criteria (a
Qualified Financing) (Note 6). The 2013 Warrants allow the holders
to purchase shares of the same class and series of equity
securities issued in the Qualified Financing for an exercise price
equal to the per share price paid by the purchasers of such equity
securities in the Qualified Financing. When the Company entered
into the Deerfield Facility Agreement, the 2013 Warrants became
warrants to purchase 1,079,453 shares of Series D Preferred. The
2013 Warrants, if unexercised, expire on the earlier of
June 2, 2019 or upon a liquidation event.
On June 2, 2014, pursuant to the terms of the Deerfield
Facility Agreement, the Company issued the Deerfield Warrant to
purchase 14,423,076 shares of Series D Preferred. The Company
recorded the fair value of the Deerfield Warrant as a debt discount
and a warrant liability. The Deerfield Warrant, if unexercised,
expires on the earlier of June 2, 2024 or upon a liquidation
event. The Company is amortizing the debt discount to interest
expense over the term of the Term Notes and the Deerfield
Convertible Notes.
The Company determined that the 2013 Warrants and Deerfield Warrant
should be recorded as a liability and stated at fair value at each
reporting period. Changes to the fair value of the warrant
liability are recorded through the statements of operations as a
fair value adjustment (Note 12). |
