Annual report pursuant to Section 13 and 15(d) 12-31-2014

Equity

v2.4.1.9
Equity
12 Months Ended
Dec. 31, 2014
Equity [Abstract]  
Equity

8. Equity

Authorized Stock

In February 2014, prior to the completion of the IPO, the Company’s certificate of incorporation was amended and restated to increase the number of authorized common shares from 150,000,000 to 250,000,000 and the number of authorized preferred shares from 100,000,000 to 130,000,000.

Common Stock

Initial Public Offering

On February 12, 2014, the Company completed an IPO of its common stock, in which the Company sold and issued 3,682,900 shares of common stock, including 182,900 shares sold pursuant to the exercise by the underwriters of their over-allotment option, at an issuance price of $5.75 per share, less underwriting discounts and commissions. The Company received proceeds of approximately $15.4 million, net of approximately $5.8 million in underwriting and other offering costs from the IPO.

On February 11, 2014, the holders of a majority of the outstanding shares of the Company’s Series F convertible preferred stock agreed to waive the conversion adjustment under the Company’s Restated Certificate of Incorporation such that in no event would the denominator used to calculate the conversion ratio be less than $8.00, provided that the Company completed its IPO on or before June 30, 2014. Upon completion of the IPO in February 2014, all 80,910,394 outstanding shares of preferred stock converted into 8,029,779 shares of common stock and the value of the convertible preferred stock of $161.5 million was reclassified to stockholders’ equity. Furthermore, upon completion of the IPO, 2,344,731 warrants representing all outstanding warrants exercisable for shares of preferred stock converted into warrants exercisable for 159,834 shares of common stock and the convertible preferred stock warrant liability was reclassified to stockholders’ equity. Following the completion of the IPO, there were no shares of preferred stock or warrants exercisable for shares of preferred stock outstanding.

Secondary Offering

On November 26, 2014, the Company completed a secondary offering, in which the Company sold and issued 11,441,646 units. Each unit was issued at a price of $1.14 and consisted of one share of common stock and one common stock warrant (“Secondary Offering Warrant”). The Company received proceeds of approximately $11.3 million, net of approximately $1.7 million in cash underwriting and other offering costs from the secondary offering. The Company issued an additional 1,716,246 Secondary Offering Warrants pursuant to the underwriters’ over-allotment option.

The Secondary Offering Warrants were immediately exercisable after issuance into common shares at an exercise price of $1.48 and terminate on November 26, 2019. The Secondary Offering Warrants contain a cashless exercise provision whereby the holders may exercise warrants by paying the exercise price in cash or, in lieu of payment of the exercise price in cash, at any time 120 days after issuance, by electing to receive a cash payment from the Company equal to the Black Scholes Value (as defined below) of the number of shares the holder elects to exercise (the “Black Scholes Payment”); provided that we have discretion as to whether to deliver the Black Scholes Payment or, subject to meeting certain conditions, to deliver a number of shares of our common stock determined according to the following formula (the “Cashless Exercise”):

Total Shares = (A x B) / C

Where:

Total Shares is the number of shares of common stock to be issued upon a Cashless Exercise

A is the total number of shares with respect to which the warrant is then being exercised.

B is the Black Scholes Value (as defined below).

C is the closing bid price of our common stock as of two trading days prior to the time of such exercise.

As defined in the Secondary Offering Warrants, “Black Scholes Value” means the Black Scholes value of an option for one share of our common stock at the date of the applicable Black Scholes Payment or Cashless Exercise, which is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the closing bid price of the Common Stock as of trading day immediately preceding the date of issuance of the warrant, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the warrant as of the applicable Black Scholes Payment or Cashless Exercise, (iii) a strike price equal to the exercise price in effect at the time of the applicable Black Scholes Payment or Cashless Exercise, (iv) an expected volatility equal to 135% and (v) a remaining term of such option equal to five years (regardless of the actual remaining term of the warrant).

The Secondary Offering Warrants also have a mandatory exercise provision, whereby, in the event that the Company’s common stock trades at a price that is 25% or more above the exercise price of the warrants for a period of at least 20 consecutive trading days at any time 120 days after issuance, the Company may, subject to certain limitations in the warrants, require the holder of the warrants to exercise the warrants for cash payment of the exercise price.

The Secondary Offering Warrants are considered to be liabilities and are marked to market at each reporting period. The Company estimated the fair value of the Secondary Offering Warrants to be $10.5 million. The Company recorded $10.5 million of the $13.0 million gross proceeds from the secondary offering to derivative liabilities and $2.5 million to equity. Furthermore, $2.0 million of the offering costs were expensed and $488,000 was recorded to additional paid-in capital as a reduction of proceeds from the secondary offering. Had the cashless exercise provision been exercised by all holders of the Secondary Offering Warrants at December 31, 2014, the Company would have had to either pay $10.5 million in cash or issue 15,479,873 shares of common stock. The number of shares of common stock that would be required to satisfy the cashless exercise provision increases as the price of the Company’s stock decreases and decreases as the price of the Company’s stock increases.

In addition, as part of the underwriter agreement, the Company issued a Unit Option to the Underwriter to purchase a Unit at an exercise price of $1.43.  The Unit includes a share of common stock and a Secondary Offering Warrant. The Unit Option was determined to be a liability and the estimated fair value of $658,000 was included in offering costs.  Furthermore, 200,000 common stock warrants were issued to a financial advisor who advised on the transaction. These warrants were determined to be liabilities and the estimated fair value of $115,000 was included in offering costs.

Other Issuances

During the year ended December 31, 2014, the Company issued 50,583 shares of common stock to Magna as a commitment fee associated with the convertible notes and 50,000 shares of restricted common stock as consideration for termination of a consulting agreement. Furthermore, 444,403 shares of common stock were issued upon the vesting of restricted stock awards and 9,328 upon exercise of warrants.

The Company had reserved shares of common stock for future issuance as follows:

 

 

 

December 31,

 

 

 

2014

 

 

2013

 

Convertible preferred stock:

 

 

 

 

 

 

 

 

Shares outstanding

 

 

-

 

 

 

3,884,788

 

Warrants

 

 

 

 

 

 

 

 

Series C convertible preferred stock

 

 

-

 

 

 

52,325

 

Series D convertible preferred stock

 

 

-

 

 

 

12,786

 

Series E convertible preferred stock

 

 

-

 

 

 

27,224

 

Series F convertible preferred stock

 

 

-

 

 

 

10,475

 

Common stock warrants

 

 

16,657,021

 

 

 

473,835

 

Convertible notes

 

 

8,772,111

 

 

 

-

 

Common stock options

 

 

1,383,479

 

 

 

106,544

 

Restricted stock units

 

 

1,059,745

 

 

 

168,832

 

Shares available for grant under equity plans

 

 

-

 

 

 

91,659

 

 

 

 

27,872,356

 

 

 

4,828,468

 

Shares are based on the terms of securities outstanding as of the date presented. Upon completion of the IPO in February 2014, antidilution provisions were triggered for the Series F convertible preferred stock and Series F warrants and the Series F preferred stock converted into 4,906,874 shares of common stock and the Series F warrants converted into warrants to purchase 67,499 shares of common stock. Upon completion of the IPO, all shares of preferred stock converted into 8,029,779 shares of common stock.

Convertible Preferred Stock

In August and September 2013, the Company issued an aggregate of 4,740,000 shares of Series F convertible preferred stock at a purchase price of $2.00 per share, and associated warrants to purchase 91,951 shares of common stock. The warrants expire after five years and had an exercise price of $25.77 and $0.47 per share at December 31, 2013 and 2014, respectively. In addition, the Company issued warrants to purchase an aggregate of 9,311 shares of common stock to a placement agent, in August and September 2013. These warrants expire after five years and had an exercise price of $56.70 and $0.47 per share at December 31, 2013 and 2014, respectively.

There was no outstanding convertible preferred stock at December 31, 2014. At December 31, 2013, convertible preferred stock consisted of the following:

 

Series

 

Designated Shares

 

 

Shares Issued and Outstanding

 

 

Aggregate Liquidation Preference

(in thousands)

 

Series A

 

 

5,800,000

 

 

 

5,365,398

 

 

$

3,219

 

Series A-1

 

 

10,400,000

 

 

 

10,390,463

 

 

 

6,234

 

Series B

 

 

2,300,000

 

 

 

1,944,147

 

 

 

2,333

 

Series B-1

 

 

3,300,000

 

 

 

3,299,141

 

 

 

3,959

 

Series C

 

 

7,900,000

 

 

 

6,682,562

 

 

 

13,365

 

Series C-1

 

 

4,325,000

 

 

 

4,275,000

 

 

 

8,550

 

Series D

 

 

8,300,000

 

 

 

7,978,800

 

 

 

23,936

 

Series D-1

 

 

6,300,000

 

 

 

6,145,667

 

 

 

18,437

 

Series E

 

 

16,200,000

 

 

 

15,201,716

 

 

 

30,404

 

Series F

 

 

20,710,000

 

 

 

19,627,500

 

 

 

39,255

 

Undesignated

 

 

14,465,000

 

 

 

-

 

 

 

-

 

Total

 

 

100,000,000

 

 

 

80,910,394

 

 

$

149,692

 

Upon completion of the IPO in February 2014, all 80,910,394 outstanding shares of preferred stock converted into 8,029,779 shares of common stock and the value of the convertible preferred stock of $161.5 million was reclassified to stockholders’ equity.

The rights and preferences of the convertible preferred stock were as follows:

Dividends

Holders of the convertible preferred stock shall be entitled to receive noncumulative dividends in preference to any dividend on common stock payable only if declared by the Board of Directors. As of December 31, 2014 and 2013, the Board of Directors had not declared any dividends.

Liquidation Preference

In the event of any liquidation or winding up of the Company, including in the event of the merger, consolidation and sale of the Company, the holders of Series F convertible preferred stock were entitled to receive, in preference to holders of all other series of preferred stock and holders of common stock, a per share amount equal to $2.00, plus all accrued but unpaid dividends, when, as and if declared. If the Series F convertible preferred stock liquidation preference had been paid in full to holders of such preferred stock, thereafter, the holders of Series A and A-1, Series B and B-1, Series C and C-1, Series D and D-1 convertible preferred stock, and Series E convertible preferred stock, would have been entitled to receive ratably, and in preference to the holders of common stock, a per share amount equal to $0.60 for Series A and A-1 convertible preferred stock, $1.20 for Series B and B-1 convertible preferred stock, $2.00 for Series C and C-1 convertible preferred stock, $3.00 for Series D and D-1 convertible preferred stock, and $2.00 for Series E convertible preferred stock plus, with respect to each such series of preferred stock, all declared but unpaid dividends. After the payment of the liquidation preference to the holders of the preferred stock, the remaining assets would have been distributed ratably to the holders of the common stock.

A sale, merger, reorganization, liquidation, dissolution or winding up of the Company may have, in certain circumstances, been deemed to be a liquidation event and trigger the liquidation preferences associated with the outstanding shares of convertible preferred stock. Because a change in control could occur and not be solely within the control of the Company, all convertible preferred stock was deemed to be redeemable and classified outside of permanent equity in the accompanying consolidated balance sheets. However, because the timing of any such redemption was uncertain, the Company did not accrete the carrying value of the convertible preferred stock to its liquidation preference.

Conversion

The holders of the convertible preferred stock had the right to convert the shares of preferred stock held by such holders, at any time, into shares of common stock. Upon conversion, any declared but unpaid dividends on the preferred stock would have been paid in additional shares of common stock.

The convertible preferred stock was automatically converted into common stock, at the then applicable conversion ratio, upon the closing of a public offering of shares of common stock at a per share price not less than the then applicable conversion price (as adjusted for stock splits, stock dividends, recapitalizations, etc.).

The conversion ratio of each series of convertible preferred stock at December 31, 2013, was as follows:

 

Series

 

Conversion Ratio

 

Series A

 

 

0.0388

 

Series A-1

 

 

0.0582

 

Series B

 

 

0.0414

 

Series B-1

 

 

0.0591

 

Series C

 

 

0.0435

 

Series C-1

 

 

0.0631

 

Series D

 

 

0.0505

 

Series D-1

 

 

0.0653

 

Series E

 

 

0.0441

 

Series F

 

 

0.0388

 

On February 11, 2014, the holders of a majority of the outstanding shares of the Company’s Series F convertible preferred stock agreed to waive the conversion adjustment under the Company’s Restated Certificate of Incorporation such that in no event would the denominator used to calculate the conversion ratio be less than $8.00, provided that the Company completed its IPO on or before June 30, 2014. Upon completion of the IPO in February 2014, all 19,627,500 shares of Series F convertible preferred stock converted into 4,906,874 shares of common stock.

The conversion ratio of each series of convertible preferred stock at time of conversion was as follows:

 

Series

 

Conversion Ratio

 

Series A

 

 

0.0388

 

Series A-1

 

 

0.0582

 

Series B

 

 

0.0414

 

Series B-1

 

 

0.0591

 

Series C

 

 

0.0435

 

Series C-1

 

 

0.0631

 

Series D

 

 

0.0505

 

Series D-1

 

 

0.0653

 

Series E

 

 

0.0441

 

Series F

 

 

0.2500

 

Voting Rights

The preferred stock will vote together with the common stock, and not as separate classes, except as specifically provided below or as otherwise required by law. Each share of preferred stock shall have a number of votes equal to the number of shares of common stock the preferred stock is convertible into on an as-converted basis.

Unless an affirmative vote of 50% of the combined outstanding shares of preferred stock, voting separately as a class, is obtained, the Company shall not undertake any of the following: (i) declaration or payment of any dividend or other distribution or payment on the (or the redemption, purchase or other acquisition for value of any) capital stock of the Company or any subsidiary; (ii) any liquidation, dissolution, recapitalization or reorganization of the Company; (iii) transfer or disposition of assets or rights with a value of more than $1,000,000; and/or (iv) any amendment to the Company’s certificate of incorporation that changes or alters any of the preferences, voting powers or other rights and privileges of preferred stock.

Registration Rights

The preferred stockholders and warrant holders were granted registration rights that provide these holders the right to request, beginning 180 days after the completion of a qualifying initial public offering, that the Company file a registration statement to register under the Securities Act the common stock that would be issued upon conversion of the preferred shares or exercise of the warrants. Thereupon, the Company is obligated to use commercially reasonable efforts to timely file a registration statement. These registration rights are subject to certain conditions and limitations, including the Company’s right, based on advice of the lead managing underwriter of a future offering, to limit the number of shares included in any such registration under certain circumstances.