SERIES A PREFERRED STOCK

On May 6, 2016, Finjan entered into a Series A Preferred Stock Purchase Agreement with Halcyon LDRII, pursuant to which the Company agreed to issue to Halcyon LDRII in a private placement an aggregate of 102,000 shares of the Company’s Series A Preferred Stock Shares at a purchase price of $100.00 per share, for aggregate proceeds of $10.2 million. The closing of the Private Placement occurred on May 20, 2016. The Company incurred issuance costs of $710,000 which are recorded as an offset to the redeemable preferred stock.

The Series A Preferred Stock was accounted under Section 480-10-S99 - Distinguishing Liabilities from Equity (FASB Accounting Standards Codification 480) as amended by ASU 2009-04 - Accounting for Redeemable Equity Instruments (“ASU 2009-04”). Under ASU 2009-04, a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable a) at a fixed or determinable price on a fixed or determinable date, b) at the option of the holder, or c) upon the occurrence of an event that is not solely within the control of the issuer. The Company’s financing is redeemable at the option of the holder. Therefore, the Company classified the Series A Preferred Stock as temporary equity in the condensed consolidated balance sheet.

The Series A Preferred Stock have redemption features that have a determinable price and determinable date based on the following liquidation preferences:

The lesser of:


•	2.8x the original purchase price (OPP); or the following:

•1.5x the OPP if redeemed within 90 days of closing; or

•1.65x the OPP if redeemed between 90 and 360 days of closing; or

•1.75x the OPP if redeemed between 360 days and 720 days of closing; or

•Thereafter, 1.75x the OPP plus 0.1x the OPP for every 90 day period the preferred remains outstanding.

The redemption feature is at the option of the holder and is defined in the Certificate of Designation as a percentage of certain revenues, which varies by type of revenue as well as date received. These revenues include monetary awards, damages, fees, recoveries, judgments in a suit, as well as monies received from gross licensing, royalty or similar revenue recovered from JVP related to Finjan’s investment in JVP. Such monetary awards are not solely within the control of Finjan.

The increase in the redemption value is a deemed dividend that increases the carrying value of the Series A Preferred Stock to equal the redemption value at the end of each reporting period with an offsetting decrease to additional paid-in-capital. During the second quarter of 2016, the Company accreted a dividend of $5.1 million, and proportionally accreted the issuance cost, increasing the Preferred A stock to $15.0 million at June 30, 2016; the redemption (liquidation) value is $15.3 million (1.5x the $10.2 million private placement) at June 30, 2016.

Subsequent to quarter end, the Company redeemed $2.592 million or 17,286 shares of the Series A Preferred stock; $1.728 million reduced the value of the Series A Preferred stock and $0.864 million reduced the accretive value of the Series A Preferred stock.