Capital Stock

9 Months Ended

Sep. 30, 2021

Capital Stock

Capital Stock

F. Capital Stock

Pre-Funded Warrant

On August 11, 2021, the Company entered into a Securities Purchase Agreement (SPA) with RA Capital Healthcare Fund, L.P. (the Investor), pursuant to which the Company agreed to sell to the Investor a pre-funded warrant (the Pre-Funded Warrant) to purchase up to an aggregate of 5,434,782 shares of the Company’s common stock, par value $0.01 per share (common stock), for $5.51 per share of common stock underlying the Pre-Funded Warrant, which, together with the per share exercise price, is equal to $5.52. The private placement resulted in aggregate gross proceeds of $29.9 million, before $0.2 million of transaction costs.

The issuance and sale of the Pre-Funded Warrant under the SPA and the shares of common stock issuable upon exercise of the Pre-Funded Warrant were registered pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-251502).

The Pre-Funded Warrant’s fundamental transaction provision does not provide the warrant holders with the option to settle any unexercised warrants for cash in the event of any fundamental transactions; rather, in all fundamental transaction scenarios, the warrant holder will only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the stockholders of the Company in connection with the fundamental transaction, whether that consideration be in the form of cash, stock or any combination thereof. The Pre-Funded Warrant also includes a separate provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than 9.99% of the Company’s common stock. This threshold is subject to the Investor’s rights under the Pre-Funded Warrant to increase or decrease such percentage to any other percentage not in excess of 19.99% upon at least 61 days’ prior notice from the Investor to the Company

The Company has assessed the Pre-Funded Warrant for appropriate equity or liability classification pursuant to the Company’s accounting policy described in Note B, “Summary of Significant Accounting Policies.” During this assessment, the Company determined the Pre-Funded Warrant is a freestanding instrument that does not meet the definition of a liability pursuant to ASC 480 and does not meet the definition of a derivative pursuant to ASC 815. The Pre-Funded Warrant is indexed to the Company’s common stock and meets all other conditions for equity classification under ASC 480 and ASC 815. Based on the results of this assessment, the Company concluded that the Pre-Funded Warrant is a freestanding equity-linked financial instrument that meets the criteria for equity classification under ASC 480 and ASC 815. Accordingly, the Pre-Funded Warrant is classified as equity and is accounted for as a component of additional paid-in capital at the time of issuance. The Company also determined that the Pre-Funded Warrant should be included in the determination of basic and diluted earnings per share in accordance with ASC 260, Earnings per Share.

Compensation Policy for Non-Employee Directors

Pursuant to the Compensation Policy for Non-Employee Directors, as amended, non-employee directors are granted deferred share units upon initial election to the Board of Directors and annually thereafter. Initial awards and annual retainers vest quarterly over approximately three years and one year from the date of grant, respectively, contingent upon the individual remaining a director of ImmunoGen as of each vesting date. The number of deferred share units awarded is fixed per the policy on the date of the award. All unvested deferred share units will automatically vest immediately prior to the occurrence of a change of control. The redemption amount of deferred share units issued will be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board of Directors.

Pursuant to the Compensation Policy for Non-Employee Directors, as amended, non-employee directors also receive stock option awards upon initial election to the Board of Directors and annually thereafter. The directors received a total of 308,000 and 300,000 options during the nine months ended September 2021 and 2020, respectively, and the related compensation expense for the three and nine months ended September 30, 2021 and 2020 is included in the amounts discussed in the “Stock-Based Compensation” section of Note B above.