Note 8. Stockholders’ Equity

Preferred Stock

The Restated Certificate of Incorporation, as amended, of the Company permits its board of directors to issue up to 5,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting such series, and fix by resolution, the powers, privileges, preferences and relative, optional or special rights thereof, including liquidation preferences and dividends, and conversion and redemption rights of each such series.

As of December 31, 2019, the Company has designated the following class of preferred stock:

Series A: 1,500,000 authorized shares of Series A Convertible Preferred Stock

Series B1:277,921 authorized shares of Series B1 Redeemable Convertible Preferred Stock

Series B2:98,685 authorized shares of Series B2 Redeemable Convertible Preferred Stock

Series B3:82,814 authorized shares of Series B3 Redeemable Convertible Preferred Stock

Series B4:82,814 authorized shares of Series B4 Redeemable Convertible Preferred Stock

Note 8. Stockholders’ Equity (Continued)

Series A Convertible Preferred Stock. The dividends on the Series A convertible preferred stock (“Series A Preferred Stock”) are payable semi-annually in arrears at the rate of 1% per annum, at the election of the Company, either in cash or additional duly designated, fully paid and nonassessable shares of Series A Preferred Stock. In the event of liquidation, dissolution or winding up of the Company, after payment of debts and other liabilities of the Company, the holders of the Series A Preferred Stock then outstanding will be entitled to a distribution of $1 per share out of any assets available to shareholders. The Series A Preferred Stock is non-voting. All remaining shares of Series A Preferred Stock rank, as to payment upon the occurrence of any liquidation event, senior to the Company’s common stock. Shares of Series A Preferred Stock are convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of common stock at $272.00 per share, subject to adjustment. As of December 31, 2019 and 2018, there were 655 shares of Series A Preferred Stock outstanding.

Series B1, B2, B3 and B4 Convertible Preferred Stock. Holders of Series B1 Preferred Stock, Series B2 Preferred Stock, Series B3 Preferred Stock and Series B4 Preferred Stock (collectively, the “B1/B2/B3/B4 Preferred Stock”) are entitled to the amount of dividends, if and when declared, as would be payable to holders of common stock on an “as converted” basis (e.g. participating dividends). Until the applicable Transition Date (defined below), in the event of a liquidation event or deemed liquidation event, after payment of debts and other liabilities of the Company, the holders of the Series B1/B2/B3/B4 Preferred Stock then outstanding will be entitled to a distribution equal to the then applicable stated value per share of the Series B1/B2/B3/B4 Preferred Stock. Additionally, until the applicable Transition Date (defined below), at any time on or after the date that is the fifth (5th) anniversary of the initial issue date of the applicable series of preferred stock, all or any portion of the preferred stock is redeemable at the option of the holder at a redemption price of $152.00 per share (for Series B1 and Series B2 Preferred Stock) and $182.00 per share (for Series B3 and Series B4 Preferred Stock). The “Transition Date” means:

With respect to the Series B1 Preferred Stock, the first date following December 23, 2021, on which each of the Conditions (as defined below) is met (the “Series B1 Transition Date”); and

With respect to the Series B2 Preferred Stock, Series B3 Preferred Stock and Series B4 Preferred Stock, the first date following the two-year anniversary of the applicable series of preferred stock’s initial issue date, on which each of the Conditions (as defined below) is met (the “Series B2 Transition Date”).

The “Conditions” shall mean: (a) the closing price of the Company’s common stock has been equal to or exceeded the price that is equal to three times (3x) the applicable series of preferred stock’s conversion price ($1.52 for Series B1 Preferred Stock and B2 Preferred Stock; $1.82 for Series B3 Preferred Stock and Series B4 Preferred Stock) for 180 calendar days; (b) the 50-day average trading volume of the Company’s common stock is greater than 500,000 shares (subject to adjustment for any stock dividend, stock split, stock combination or other similar transaction); and (c) the presentation by the Company at an appropriate medical conference of the “Overall Survival” data as defined in its ILLUMINATE-301 study protocol.

The Series B1/B2/B3/B4 Preferred Stock is non-voting and rank, as to payment upon the occurrence of any liquidation event, senior to the Company’s common stock. Shares of Series B1 Preferred Stock and Series B2 Preferred Stock are convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of common stock at $1.52 per share, subject to adjustment. Shares of Series B2 Preferred Stock and Series B3 Preferred Stock are convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of common stock at $1.82 per share, subject to adjustment. As more fully described in Note 7, the Company’s outstanding Series B1 Preferred Stock is classified in temporary equity, outside of stockholders’ equity as of December 31, 2019. No shares of Series B2 Preferred Stock, Series B3 Preferred Stock or Series B4 Preferred Stock are outstanding as of December 31, 2019.

Note 8. Stockholders’ Equity (Continued)

Common Stock

On June 20, 2018, the Company's stockholders approved an amendment to the Company's Restated Certificate of Incorporation, as amended, to effect a reverse stock split of the Company's outstanding shares of common stock at a ratio within a range from 1-for-4 to 1-for-8 and set the number of authorized shares of the Company’s common stock at a number determined by calculating the product of 280,000,000 (previous number of authorized shares) multiplied by two times (2x) the reverse stock split ratio. On July 27, 2018, the Company implemented a 1-for-8 reverse split of its issued and outstanding shares of common stock (the “Reverse Split”), and set the number of its authorized shares of common stock to 70,000,000. The Reverse Split became effective on July 27, 2018 at 5:00 p.m., Eastern Time, and the Company’s common stock began trading on the Nasdaq Capital Market on a Reverse Split-adjusted basis at the opening of trading on July 30, 2018. As of a result of the Reverse Split, every eight shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Split resulted in any of the Company’s stockholders owning a fractional share, which was settled in cash. In connection with the Reverse Split, there was no change in the nominal par value per share of $0.001. The Reverse Split did not change the number of authorized shares or par value of the Company’s preferred stock.

Common Stock Authorized

As of December 31, 2019, the Company had 70,000,000 shares of common stock authorized of which 25,066,074 shares of common stock were reserved for the issuance upon the exercise of outstanding warrants and options to purchase common stock, outstanding restricted stock units, the conversion of Series A and Series B1 convertible preferred stock, shares required to be reserved under the LPC Purchase Agreement (defined below), and shares available for grant under the Company’s 2013 Stock Incentive Plan and shares available for purchase under the Company’s 2017 Employee Stock Purchase Plan.

Put Shares

Pursuant to the terms of a unit purchase agreement dated as of May 5, 1998, the Company issued and sold a total of 149,960 shares of common stock (the “Put Shares”) at a price of $128.00 per share. Under the terms of the unit purchase agreement, the initial purchasers (the “Put Holders”) of the Put Shares have the right (the “Put Right”) to require the Company to repurchase the Put Shares. The Put Right may not be exercised by any Put Holder unless: (1) the Company liquidates, dissolves or winds up its affairs pursuant to applicable bankruptcy law, whether voluntarily or involuntarily; (2) all of the Company’s indebtedness and obligations, including without

limitation the indebtedness under the Company’s then outstanding notes, has been paid in full; and (3) all rights of the holders of any series or class of capital stock ranking prior and senior to the common stock with respect to liquidation, including without limitation the Series A convertible preferred stock, have been satisfied in full. The Company may terminate the Put Right upon written notice to the Put Holders if the closing sales price of its common stock exceeds $256.00 per share for the twenty consecutive trading days prior to the date of notice of termination. Because the Put Right is not transferable, in the event that a Put Holder has transferred Put Shares since May 5, 1998, the Put Right with respect to those shares has terminated. As a consequence of the Put Right, in the event the Company is liquidated, holders of shares of common stock that do not have Put Rights with respect to such shares may receive smaller distributions per share upon the liquidation than if there were no Put Rights outstanding.

As of December 31, 2019, the Company has repurchased or received documentation of the transfer of 49,993 Put Shares and 4,472 of the Put Shares continued to be held in the name of Put Holders. The Company cannot determine at this time what portion of the Put Rights of the remaining 95,494 Put Shares have terminated.

Note 8. Stockholders’ Equity (Continued)

Equity Financings

Common Stock Purchase Agreement

On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park has committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at the Company’s sole discretion (the “LPC Purchase Agreement”). As consideration for entering into the LPC Purchase Agreement, the Company issued 269,749 shares of Company common stock to Lincoln Park as a commitment fee (the “Commitment Shares”). The closing price of the Company’s common stock on March 4, 2019 was $2.84 and the Company did not receive any cash proceeds from the issuance of the Commitment Shares. During the year ended December 31, 2019, the Company sold 1,535,848 shares pursuant to the LPC Purchase Agreement, resulting in net proceeds of $3.7 million.

"At-The-Market" Equity Program

In November 2018, the Company entered into a Equity Distribution Agreement (the “ATM Agreement”) with JMP Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million (the “Shares”) through JMP as its agent. Subject to the terms and conditions of the ATM Agreement, JMP will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions, by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, or if specified by the Company, by any other method permitted by law, including but not limited to in negotiated transactions. The Company has no obligation to sell any of the Shares, and the Company or JMP may at any time suspend sales under the ATM Agreement or terminate the ATM Agreement. JMP is entitled to a fixed commission of 3.0% of the gross proceeds from Shares sold. During the year ended December 31, 2019, the Company sold 532,700 Shares pursuant to the ATM Agreement resulting in net proceeds, after deduction of commissions and other offering expenses, of $1.6 million. No Shares were sold pursuant to the ATM Agreement during 2018.

October 2017 Follow-on Underwritten Public Offering

On October 30, 2017, the Company closed a follow-on underwritten public offering, in which it sold 4,166,666 shares of common stock at a price to the public of $12.00 per share for aggregate gross proceeds of $50.0 million (“2017 Offering”). On November 1, 2017, the Company sold an additional 625,000 shares of common stock pursuant to the exercise in full of the underwriters’ 30-day option to purchase additional shares of the Company’s common stock at the public offering price less the underwriting discount. The net proceeds to the Company from the 2017 Offering, including the exercise by the underwriters of their option to purchase additional shares and after deducting underwriters’ discounts and commissions and other offering costs and expenses, were approximately $53.7 million. Baker Brothers, which is affiliated with two of the Company’s directors, participated in the 2017 Offering and purchased 1,000,000 shares of the Company’s common stock at the price offered to the public.

Note 8. Stockholders’ Equity (Continued)

Common Stock Warrants

In connection with various financing transactions, the Company has issued warrants to purchase shares of the Company’s common stock and preferred stock. The Company accounts for common stock and preferred stock warrants as equity instruments or liabilities, depending on the specific terms of the warrant agreement. See Note 2 for further details on accounting policies related to the Company’s warrants.

The following table summarizes outstanding warrants to purchase shares of the Company’s common stock and/or preferred stock as of December 31, 2019 and 2018:


	Number of Shares
	December 31,	December 31,	Weighted-Average
Description	2019	2018	Exercise Price		Expiration Date
Liability-classified Warrants
December 2019 Series B1 warrants (1)	2,368,400	—		$ 1.52	Dec 2026
	2,368,400	—
Equity-classified Warrants
May 2013 warrants	1,949,754	1,977,041		$ 0.08	None (2)
September 2013 warrants	514,756	521,997		$ 0.08	None (2)
February 2014 warrants	266,006	269,844		$ 0.08	None (2)
	2,730,516	2,768,882

Total outstanding	5,098,916	2,768,882

(1)

The Series B1 warrants are exercisable for either common stock (exercise price of $1.52) or Series B1 Convertible Preferred Stock (exercise price of $152) at the discretion of the warrant holder.

(2)

In connection with December 2019 Private Placement, the expiration date on these warrants was amended to be indefinite.

The table below is a summary of the Company's warrant activity for the year ended December 31, 2019.


	Number of	Weighted-Average
	Warrants	Exercise Price
Outstanding at December 31, 2018	2,768,882	$	0.08
Issued (1)	2,368,400		1.52
Exercised	(38,366)		0.08
Expired	—		—
Outstanding at December 31, 2019	5,098,916	$	0.75

(1)

During the year ended December 31, 2019, certain related parties were issued warrants as more fully described in Note 16.