| Warrants | 9. Warrants
Common Stock Warrants Issued in Pulmatrix Operating Private
Placement
At September 30, 2016, the Company had outstanding warrants to
purchase 3,190,030 shares of Company Common Stock at an exercise
price of $7.563 per share. The warrants were issued on
June 15, 2015 immediately prior to the Effective Time in
connection with the Pulmatrix Operating Private Placement.
Each warrant issued in the Pulmatrix Operating Private Placement
has a five-year term and becomes exercisable at the earliest to
occur of the date that (i) the Company enters into a strategic
license agreement with a third party related to any of the
Company’s products whereby the Company is guaranteed to
receive consideration having a value of at least $20,000,
(ii) the Company consummates a public or private offering of
common stock or securities convertible into common stock that
results in aggregate gross proceeds of at least $20,000 and the per
share value of such consideration is equal to at least $10.00 per
share, subject to certain adjustments, (iii) for a period of
sixty consecutive trading days, the volume weighted average price
per share of common stock exceeds $12.50, subject to certain
adjustments, and the average daily trading volume on such trading
market exceeds 40,000 shares per trading day, subject to certain
adjustments, or (iv) a change of control transaction occurs.
The number of shares of common stock underlying each warrant and
the exercise price per share are subject to adjustment in the case
of standard dilutive events.
Each warrant provides that, following it initially becoming
exercisable, if (i) the volume weighted average price of
common stock exceeds one hundred fifty percent (150%) of the
exercise price of the warrant for thirty (30) consecutive
trading days, (ii) the daily trading volume for common stock
exceeds 80,000 shares per trading day, subject to certain
adjustments, for thirty (30) consecutive trading days and
(iii) there is an effective registration statement under the
Securities Act of 1933, as amended, covering the resale of the
shares of common stock issuable upon the exercise of the warrant,
then the Company shall cancel the unexercised portion of the
warrant for consideration equal to $0.001 per share of common stock
underlying the warrant.
The proceeds from the issuance of the units were allocated between
the Company Common Stock and the warrants based on their relative
fair values. The value allocated to the warrants was classified
within equity on Company’s condensed consolidated balance
sheet.
Warrants Assumed in Merger.
Between March 2014 and May 2014, in connection with its initial
public offering (“IPO”), Ruthigen issued warrants to
purchase an aggregate of units (the “Series A
Warrants”). The Series A Warrants were originally each
exercisable at a price of $18.125 per warrant for (x) 0.4
shares of common stock and (y) a warrant (the “Series B
Warrant”) to purchase 0.4 shares of common stock at an
exercise price of $22.65625 per share. The Series A Warrants are
exercisable from the date of issuance and terminate on the second
anniversary of the date of issuance. The exercise price and the
number of shares for which each Series A Warrant may be exercised
is subject to adjustment in the event of stock dividends, stock
splits, reorganizations or similar events affecting the
Company’s common stock. In addition, subject to certain
exceptions, the exercise price of each the Series A Warrants
and the Series B Warrants is subject to a weighted average
reduction if the Company issues shares of common stock (or
securities convertible into common stock) in the future at a price
below both (a) the current exercise price of the Series A
Warrant; and (b) the current market price of the
Company’s common stock. The Series A Warrants may be called
by the Company, for consideration equal to $0.00025 per Series A
Warrant, on not less than 10 business days’ notice if the
closing price of the common stock is above 150% of the $18.125 IPO
price per unit for any period of 20 consecutive business days
ending not more than three business days prior to the call notice
date. The Series B Warrants will be exercisable upon issuance and
will terminate on the fifth anniversary of the date of issuance.
The Company agrees that, during the period the Series A Warrants
are outstanding, it will maintain the effectiveness of the
registration statement such that the holder may exercise the Series
A Warrants to receive registered shares of common stock and
registered Series B Warrants (and the shares of common stock
underlying the Series B Warrants). The Company determined that the
Series A and Series B Warrants are equity instruments because the
warrants are (a) freestanding financial instruments;
(b) indexed to the Company’s own stock; (c) not
permitted to be settled for cash; and (d) exercisable into
common stock for which the Company has sufficient authorized and
unissued shares.
Immediately following the Merger, the Company issued 136,000 shares
of its common stock to Ruthigen’s financial advisor and an
aggregate of 379,387 shares in the Ruthigen Private Placement at a
price of $6.875 per share. Pursuant to the weighted average
exercise price reduction provisions of the Series A Warrants and
the Series B Warrants, these issuances caused the exercise price
per unit of the Series A Warrants and the exercise price per share
of the Series B Warrants to drop to $17.83 and $22.28,
respectively.
1,219,000 Series A Warrants were outstanding at December 31,
2015. There were no exercises of any Series A Warrants prior to
March 26, 2016 and they expired according to their terms on
March 26, 2016. As no Series A Warrants were exercised, no
Series B Warrants were issued. There are no Series A nor Series B
Warrants outstanding at September 30, 2016.
Ruthigen issued to the representative of the underwriters in the
IPO warrants to purchase 37,100 shares of the Company’s
common stock at an exercise price of $22.65625 per share (the
“Representative’s Warrants”). The
Representative’s Warrants are exercisable commencing on
March 21, 2015 and expire on March 21, 2019.
Following the closing of the IPO and in connection with the IPO,
the underwriters exercised a portion of the over-allotment option.
In connection with the underwriters’ partial exercise of the
over-allotment option, Ruthigen issued to the representative of the
underwriters a five-year warrant to purchase an additional 2,160
shares of the Company’s common stock at an exercise price of
$22.65625 per share (“Underwriter’s Warrant”).
The Underwriter’s Warrant is exercisable commencing one year
from the date of issuance and expire on March 21, 2019.
Common Stock Warrants Issued with Term Loan
As described in Note 6, on June 11, 2015, Pulmatrix Operating
entered into a LSA with Hercules for a Term Loan in the principal
amount of $7,000. On June 16, 2015, in connection with the
LSA, the Company granted to Hercules a warrant to purchase 25,150
shares of Company Common Stock (the “Hercules
Warrants”) at an exercise price of $8.35 per share. The
warrants are exercisable in whole or in part any time prior to the
expiration date of June 16, 2020. In the event the warrants
are not fully exercised and the fair market value of one share of
Company Common Stock is greater than the exercise price of the
warrant, upon the expiration date any outstanding warrants will be
automatically exercised for shares of Company Common Stock on a net
basis. A portion of the proceeds from the Term Loan were allocated
to the warrants based on their grant date fair value. The value
allocated to the warrants of $198 was classified within equity on
Company’s condensed consolidated balance sheet, with a
corresponding amount recorded as a discount to the debt. The fair
value of the warrants was determined using the Black-Scholes option
pricing model, using the following assumptions:
Exercise price $ 8.35
Fair value of underlying stock $ 11.80
Expected volatility 72.52 %
Contractual term 5 years
Risk-free interest rate 1.68 %
Expected dividend yield 0 %
Common Stock Warrant Issued for Consulting Services
On August 31, 2015, the Company issued a warrant to purchase
30,000 shares of Company Common Stock (the “MTS
Warrants”) at an exercise price of $11.80 per share to MTS
Health Partners, L.P. in exchange for consulting services. The
warrant is fully vested and is exercisable in whole or in part any
time prior to the expiration date of August 31, 2020. The
Company recognized $211 of stock-based compensation expense which
was recorded to equity at the time of issuance. The fair value of
the warrant was determined using the Black-Scholes option pricing
model, using the following assumptions:
Exercise price $ 11.80
Fair value of underlying stock $ 11.80
Expected volatility 72.0 %
Contractual term 5 years
Risk-free interest rate 1.54 %
Expected dividend yield 0 %
The risk-free interest rate was obtained from U.S. Treasury rates
for the applicable periods. The Company’s expected volatility
was based upon the historical volatility for industry peers and
used an average of those volatilities. The expected life of the
Company’s options was determined using the simplified method
as a result of limited historical data regarding the
Company’s activity. The dividend yield considers that the
Company has not historically paid dividends, and does not expect to
pay dividends in the foreseeable future.
The following represents a summary of the warrants outstanding at
each of the dates identified:
Number of Shares Underlying Warrants
Warrants Issue Date Classification Exercisable For September 30, 2016 December 31, 2015
Private Placement Warrants June 15, 2015 Equity Common Stock 3,190,030 3,190,030
Hercules Warrants June 15, 2015 Equity Common Stock 25,150 25,150
MTS Warrants August 31, 2015 Equity Common Stock 30,000 30,000
Warrants Assumed in Merger
Series A Warrants March - May 2014 Equity Common Stock
— 1,219,000
Representative’s Warrants March 21, 2014 Equity Common Stock 37,100 37,100
Underwriter’s Warrants March 21, 2014 Equity Common Stock 2,160 2,160 |
