9. Shareholders’ Equity

Preferred Shares

BioTime is authorized to issue 2,000,000 shares of preferred stock. The preferred shares may be issued in one or more series as the board of directors may by resolution determine. The board of directors is authorized to fix the number of shares of any series of preferred shares and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed on the preferred shares as a class, or upon any wholly unissued series of any preferred shares. The board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred shares subsequent to the issue of shares of that series. As of December 31, 2016, no shares of preferred stock were issued or outstanding.

Common Shares

BioTime is authorized to issue 150,000,000 common shares with no par value. As of December 31, 2016, BioTime had 103,396,245 issued and 102,776,539 outstanding common shares. As of December 31, 2015, BioTime had 94,894,140 issued and 90,421,554 outstanding common shares. The difference of 619,706 and 4,472,586 common shares as of December 31, 2016 and 2015, respectively, is attributed to shares held by BioTime subsidiaries which are accounted for as treasury stock on the consolidated balance sheet.

On June 16, 2016, BioTime sold 7,322,176 common shares in an underwritten public offering at a public offering price of $2.39 per share, for net proceeds of $16.4 million, after deducting underwriting discounts and commissions and other expenses. On July 5, 2016, BioTime issued an additional 1,098,326 common shares upon the full exercise of the over-allotment option by the underwriters for net proceeds of $2.2 million, after deducting underwriting discounts.

On February 15, 2017, BioTime sold 7,453,704, shares of common stock in an underwritten public offering (see Note 16).

Significant common share transactions during the year ended December 31, 2015 are as follows:

In September 2015, BioTime raised $8.6 million through the sale of 2,607,401 common shares at an offering price of $3.29 to three of its shareholders.

During October 2015, BioTime sold 6,530,612 common shares for $20.4 million in the aggregate to certain investment funds in Israel that hold shares of companies that are included within certain stock indexes of the TASE. The $3.13 purchase price per share was determined with reference to the closing price of BioTime common shares on the TASE on the date of sale. In addition, OncoCyte sold 246,356 BioTime common shares at the same price to one of the Israeli investment funds.

In October 2015, BioTime sold 1,600,000 common shares to a shareholder for $5.1 million. The $3.19 price of price per share was the closing price of the common shares on the NYSE MKT on October 1, 2015, the last trading day before BioTime and the shareholder entered into a purchase agreement for the sale of the shares.

On December 31, 2015, BioTime distributed 4.7 million shares of OncoCyte common stock to its shareholders, on a pro rata basis, accounted for as a dividend in kind. On this date, BioTime shareholders received one share of OncoCyte common stock for every twenty shares of BioTime common stock held. As a result of this distribution, BioTime recorded a reduction in the carrying value of its investment in OncoCyte with a corresponding increase to noncontrolling interests in OncoCyte in the amount of $712,000, representing the reduction in BioTime’s ownership in OncoCyte by 18.7% from 76.5% to 57.8%. BioTime continues to hold a controlling financial interest in OncoCyte. This distribution generated a taxable gain of approximately $7.4 million to BioTime, however BioTime had sufficient current year losses to offset the entire gain.

See Note 10 for a summary of all option activity under the stock option plans of all subsidiaries for the years ended December 31, 2016 and 2015.

Treasury Stock

Certain BioTime subsidiaries hold BioTime common shares that the subsidiaries received from BioTime in exchange for capital stock in the subsidiaries. The BioTime common shares held by subsidiaries are treated as treasury stock by BioTime and BioTime does not recognize a gain or loss on the sale of those shares by its subsidiaries.

As of December 31, 2016, all 619,706 shares of treasury stock were held by OncoCyte. Beginning on February 17, 2017, and in connection with the OncoCyte Deconsolidation, those treasury shares will be considered to be issued and outstanding BioTime common shares.

BioTime Warrants

BioTime has issued warrants to purchase its common shares. Activity related to warrants in 2016 and 2015 is presented in the table below (in thousands, except price per share):

	Number of Warrant Shares			Per Share Exercise Price		Weighted Average Exercise Price
Outstanding, January 1, 2014		9,752		$	5.00-10.00	$	5.29
Exercised in 2014		(557	)		10.00		10.00
Outstanding, December 31, 2014		9,195		$	5.00	$	5.00
Exercised in 2015		(4	)		5.00		5.00
Warrant adjustment⁽¹⁾		919
Outstanding, December 31, 2015		10,110		$	4.55	$	4.55
Expired in 2016		(715	)		4.55		4.55
Outstanding, December 31, 2016⁽²⁾		9,395		$	4.55	$	4.55

(1)

The number of shares issuable upon the exercise of the warrants was adjusted as a result of the distribution of OncoCyte common stock to BioTime shareholders during December 2015.

(2)

The 9,394,862 outstanding warrants will expire, if unexercised, beginning June 5, 2018 through September 30, 2018.

Issuance of common stock and warrants by OncoCyte

On August 29, 2016, OncoCyte sold an aggregate of 3,246,153 immediately separable units, with each unit consisting of one share of OncoCyte common stock and one warrant to purchase one share of OncoCyte common stock (the “OncoCyte Offering Warrants”), at a price of $3.25 per unit (the “OncoCyte Offering”) for net proceeds of $9.8 million, after deducting underwriting discounts, commissions and other expenses. The sales were made pursuant to the terms and conditions of certain Purchase Agreements between OncoCyte and the purchasers in the OncoCyte Offering. The purchasers included certain OncoCyte existing shareholders other than BioTime.

The OncoCyte Offering Warrants have an exercise price of $3.25 per OncoCyte share, and may be exercised for five years from October 17, 2016, the date the OncoCyte Warrants became exercisable.

The OncoCyte Offering Warrants may be exercised on a net “cashless exercise” basis, meaning that the value of a portion of the OncoCyte Offering Warrant shares may be used to pay the exercise price (rather than payment in cash), in certain circumstances, including if a resale registration statement is not effective under the Securities Act when and as required by the Purchase Agreements.

Under certain provisions of the OncoCyte Offering Warrants, in the event of a Fundamental Transaction, as defined in the OncoCyte Offering Warrants, OncoCyte will use reasonable best efforts for the acquirer, or any successor entity other than OncoCyte, to assume the OncoCyte Offering Warrants. If the acquirer does not assume the OncoCyte Offering Warrant obligations, then the acquirer shall pay the holders of OncoCyte Offering Warrants an amount equal to the aggregate value equal to the Black Scholes Value, as defined in the OncoCyte Offering Warrants. The payment of the Black Scholes Value shall be made in cash or such other consideration that the acquirer paid to the other OncoCyte shareholders in the Fundamental Transaction.

OncoCyte is not required to net cash settle the OncoCyte Offering Warrants under any circumstance. OncoCyte considered the guidance in ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. Since solely an acquirer of OncoCyte, and not OncoCyte itself, may be required to net cash settle the OncoCyte Offering Warrants in the event of a Fundamental Transaction, the OncoCyte Offering Warrants are classified as equity.

As more fully discussed in Note 16, on February 17, 2017, certain of OncoCyte investors exercised 625,000 OncoCyte Offering Warrants which caused BioTime’s ownership of the outstanding OncoCyte common stock to decline below 50%.

Transactions with Noncontrolling Interests of Asterias and OncoCyte

BioTime accounts for a change in ownership interests in its subsidiaries that does not result in a change of control of the subsidiary by BioTime under the provisions of ASC 810-10-45-23, Consolidation – Other Presentation Matters. This guidance is applicable when a noncontrolling shareholder invests in a subsidiary’s common stock resulting in a decrease in the ownership percentage held by the controlling shareholder in the subsidiary, but not below 50%, with the controlling shareholder retaining “control” of the subsidiary as defined by GAAP. In accordance with this guidance, a change in ownership interest that does not result in a change of control (of the subsidiary) is considered an “equity transaction”. When this occurs, although the total net assets of the subsidiary increase by the amount of the investment made by the noncontrolling shareholder, there is a proportional and immediate transfer of carrying value from the noncontrolling shareholder to the controlling shareholder immediately after the investment, based on the respective ownership percentages. The subsidiary financing transactions with noncontrolling interests in Asterias for $18.3 million, and OncoCyte for $4.0 million, reported in the consolidated statements of shareholders’ equity for the year ended December 31, 2016, represent this proportional transfer of carrying value to BioTime pertaining to investments in Asterias and OncoCyte common stock made by noncontrolling shareholders in which BioTime’s ownership was reduced, but not below 50%. (see Note 16).