10. Warrants

Equity Classified Common Stock Warrants

In connection with a debt financing in December 2013, the Company issued warrants to purchase 128,231 shares of its common stock with an exercise price of $5.84 per share. These warrants are exercisable any time at the option of the holder until December 16, 2023.

In connection with the merger of the Company and ViewRay Technologies, Inc. in July 2015, or the Merger, in July and August 2015, the Company conducted a private placement offering during which the Company issued warrants, or 2015 Placement Warrants, that provide the warrant holder the right to purchase 198,760 shares of common stock at an exercise price of $5.00 per share. These 2015 Placement Warrants are exercisable at any time at the option of the holder until the five-year anniversary of its date of issuance.

In connection with the March 2018 Direct Registered Offering, the Company issued warrants to purchase 1,418,116 shares of common stock at an exercise price of $8.31 per share, or the 2018 Offering Warrants. These 2018 Offering Warrants became exercisable upon issuance and expire in March 2025.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the March 2018 Direct Registered Offering of $59.1 million was allocated to common stock, Series A convertible preferred stock and the 2018 Offering Warrants based on their respective relative fair value upon issuance. The aggregate fair value of the 2018 Offering Warrants of $7.4 million was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 62.5%, risk-free interest rate of 2.8% and expected dividend yield of 0%. The allocated proceeds from the 2018 Offering Warrants of $6.6 million was recorded in additional paid-in-capital.

At March 31, 2018 and December 31, 2017, none of these equity classified warrants had been exercised and they remain outstanding.

Liability Classified Common Stock Warrants

In connection with the 2016 Private Placement, in August and September 2016, the Company issued warrants, or the 2016 Placement Warrants, that provide the warrant holder the right to purchase 1,380,745 shares of common stock at an exercise price of $2.95 per share. These 2016 Placement Warrants are exercisable at any time at the option of the holder until the seventh anniversary of their date of issuance. The 2016 Placement Warrants also contain protection whereby warrants will expire immediately prior to the consummation of a Change of Control and holders have the right to receive cash in the amount equal to the Black-Scholes value of warrants. A Change of Control is defined as: (i) a merger or consolidation of the Company with another corporation; (ii) the sale, transfer or other disposal of substantially all of the assets or a majority of the Company’s outstanding shares of capital stock; (iii) a purchase or exchange offer accepted by the holders of a majority of the outstanding voting shares of the Company’s capital stock; or (iv) a “person” or “group,” as defined by Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, is or will become the beneficial owner, directly or indirectly, of at least a majority of the voting power of the Company’s capital stock. The 2016 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the 2016 Private Placement of $13.8 million was allocated first to the 2016 Placement Warrants based on its fair value upon issuance, and the residual was allocated to the common stock. The fair value upon issuance of $2.7 million for the 2016 Placement Warrants was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 61.6%, risk-free interest rate of 1.4% and expected dividend yield of 0%.

During the three months ended March 31, 2018 and 2017, the Company recorded a gain of $3.6 million and a loss of $6.8 million, respectively, related to the change in fair value of the 2016 Placement Warrants. The fair value of the 2016 Placement Warrants of $6.3 million and $9.9 million at March 31, 2018 and December 31, 2017, respectively, was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	March 31, 2018		December 31, 2017
2016 Placement Warrant:
Expected term (in years)		5.4		5.7
Expected volatility	61.2%		62.1%
Risk-free interest rate	2.6%		2.2%
Expected dividend yield	0%		0%

At March 31, 2018, 1,355,641 shares of the 2016 Placement Warrants had not been exercised and were still outstanding.

In connection with the 2017 Private Placement, in January 2017, the Company issued warrants, the 2017 Placement Warrants, that provide the warrant holder the right to purchase 1,720,512 shares of common stock at an exercise price of $3.17 per share. These 2017 Placement Warrants became exercisable in July 2017 and expire in January 2024. The 2017 Placement Warrants also contain protection whereby warrants will expire immediately prior to the consummation of a Change of Control and holders have the right to receive cash in an amount equal to the Black-Scholes value of the warrants. A Change of Control in the 2017 Placement Warrants is defined the same way as for the 2016 Placement Warrants described above. The 2017 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the 2017 Private Placement of $26.1 million was allocated first to the 2017 Placement Warrants based on its fair value upon issuance, and the residual was allocated to the common stock. The fair value upon issuance of $3.4 million for the 2017 Placement Warrants was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 62.9%, risk-free interest rate of 2.2% and expected dividend yield of 0%.

During the three months ended March 31, 2018 and 2017, the Company recorded a gain of $4.6 million and a loss of $8.4 million, respectively, related to the change in fair value of the 2017 Placement Warrants. The fair value of the 2017 Placement Warrants of $7.9 million and $12.5 million at March 31, 2018 and December 31, 2017, respectively, was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	March 31, 2018		December 31, 2017
2017 Placement Warrant:
Expected term (in years)		5.8		6.1
Expected volatility	61.3%		62.3%
Risk-free interest rate	2.6%		2.3%
Expected dividend yield	0%		0%

At March 31, 2018, 1,711,123 shares of the 2017 Placement Warrants had not been exercised and were still outstanding.