Stockholders’ Equity

Common Stock

During the twelve months ended December 31, 2013, the Company issued a total of 4,119,058 shares of common stock of which approximately: (i) 165,652 shares were issued upon the conversion of Series C-1² Preferred; (ii) 201,914 shares were issued upon the conversion of Series D-1² Preferred; (iii) 16,000 shares of unregistered common stock were issued to our President and Chief Executive Officer; (iv) 6,000 shares of unregistered common stock were issued to a director; (v) 14,000 shares of unregistered common stock were issued to two employees; (vi) 4,000 shares of restricted stock were issued to one employee; (vii) 40,000 shares were issued upon the vesting of restricted stock units; (viii) 1,742,857 shares of restricted stock were issued to an officer, director and three employees as a result of the Private Placement and (ix) 1,928,635 shares of restricted stock were issued to current and new investors as a result of the Private Placement.

Reverse Stock Splits

The Board of Directors approved the 2014 Reverse Stock Split of the Company’s Common Stock, which became effective on January 14, 2014, with an exchange ratio of 1-for-50. As a result of the 2014 Reverse Stock Split, each 50 shares of the Company’s issued and outstanding Common Stock were automatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued in connection with the 2014 Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal to the fractional share interest. The 2014 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stock underlying outstanding options were proportionately reduced and the exercise prices of outstanding options were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstanding convertible preferred stock were proportionately reduced and the conversion rates were proportionately decreased in accordance with the terms of the agreements governing such securities.

The Board of Directors approved the 2012 Reverse Stock Split of the Company’s Common Stock, which became effective on February 17, 2012, with an exchange ratio of 1-for-100. As a result of the 2012 Reverse Stock Split, each 100 shares of the Company’s issued and outstanding Common Stock were automatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued in connection with the 2012 Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal to the fractional share interest. The 2012 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stock underlying outstanding options and warrants were proportionately reduced and the exercise prices of outstanding options and warrants were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstanding convertible preferred stock and warrants were proportionately reduced and the conversion rates were proportionately decreased in accordance with the terms of the agreements governing such securities.

All Common Stock share and per share information in the accompanying consolidated financial statements and notes included in this report have been restated to reflect retrospective application of the two reverse stock splits for all periods presented, except for par value per share and the number of authorized shares, which were not affected by the 2014 Reverse Stock Split or 2012 Reverse Stock Split.

Preferred Stock

As of December 31, 2013, the Company’s Board of Directors is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share, in one or more series, of which 11,000 are designated for Series C-1² Stock and 10,000 are designated for Series F Stock. As of December 31, 2013, 7,016 shares of C-1² Stock and 3,250 shares of Series F Stock were issued and outstanding. As of December 31, 2012, 5,792 shares of Series C-1² Stock, 500 shares of Series C-2² Stock and 4,615 shares of Series D-1² Stock were issued and outstanding.

Warrants

As of December 31, 2013, there were no warrants outstanding.

Stock Option Plans

In May 2004, the Company adopted the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (the “2004 Plan”), under which, as amended, 12 shares of Common Stock were authorized for issuance. The 2004 Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to employees, directors, consultants and advisors of the Company with up to a 10-year contractual life and various vesting periods as determined by the Company’s Compensation Committee or the Board of Directors, as well as automatic fixed grants to non-employee directors of the Company. As of December 31, 2013, the 2004 Plan had been canceled by the Board of Directors and no shares were outstanding and or issuable under the 2004 Plan.

In May 2010, the Company granted options to purchase a total of 11 shares of Common Stock to two employees. These grants were made outside of the Company’s existing stockholder-approved equity compensation plans but were otherwise legally binding awards and did not require stockholder approval. These stock options were treated in all respects as if granted under the Company’s 2010 Equity Incentive Plan (the “2010 Plan”). During the first quarter of 2012, following termination of the two employees, the options were forfeited and are no longer available for grant.

In August 2010, the Company adopted the 2010 Plan under which 19 shares of Common Stock were authorized for issuance. The 2010 Plan is similar to the 2004 Plan. The 2010 Plan provided for automatic increases to the number of authorized shares available for grant; and as such, in September 2011, the authorized shares were increased by 320 shares, to a maximum authorized allowed of 340 shares. In May 2012, the stockholders approved an amendment to the 2010 Plan that increased the amount of shares authorized to 23,768, with automatic quarterly increases on the first day of each quarter based on 10% of the outstanding shares of Common Stock as of the last day of the previous quarter end. The authorized shares were increased by 956 and 2,410 at July and October 2012, respectively. As of December 31, 2013, the 2010 Plan had been canceled by the Board of Directors and no shares were outstanding and or issuable.

A summary of the Company’s stock option award activity as of and for the years ended December 31, 2013 and 2012 is as follows:



	Outstanding Options
	Shares Underlying Stock Options		Weighted-Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (yrs)	Aggregate Intrinsic Value
Outstanding at December 31, 2011	18		$	873,100
Granted	11,844,609		3
Forfeited/Expired	—		—
Outstanding at December 31, 2012	11,844,627		4
Granted	54,000		6
Canceled	(11,844,609	)	3
Forfeited/Expired	(18	)	873,100
Outstanding at December 31, 2013	54,000		$	6	10	$	94,500
Vested and expected to vest at December 31, 2013	—		$	—	0	$	—
Exercisable at December 31, 2013	—		$	—	0	$	—

In April 10, 2012, the Company awarded options to purchase up to 11,844,609 shares of Common Stock to the Chief Executive Officer, a board member and an employee. The inducement options were granted outside of the 2010 Plan, but are subject to the terms and conditions of the 2010 Plan. The inducement options were granted at an exercise price of $3.00. Two of the grants vest 25% on the one-year anniversary date of the grants and 1/48 of the shares monthly thereafter. The grant to the board member vests quarterly over a one-year period. The options granted in April of 2012 were canceled on September 24, 2013.

On September 24, 2013, the Company adopted a Equity Incentive Plan (the "2013 Plan") under which 42,920 shares of Common Stock were authorized for issuance. The 2013 Plan allows for automatic annual increases on the first day of each year based on 10% of the outstanding shares of Common Stock as of the last day of the previous year end.

Options granted under each of the Plans must have an exercise price equal to at least 100% of the fair market value of the Company’s Common Stock on the date of grant. The options will generally have a maximum contractual term of ten years and vest at the rate of one-fourth of the shares on the first anniversary of the date of grant and 1/48 of the shares monthly thereafter.

The weighted-average grant date fair value of options granted during the year ended December 31, 2013 was $6.00 per share. As of December 31, 2013, approximately $314,000 of total unrecognized compensation costs related to non-vested stock option awards is expected to be recognized over a weighted average period of approximately 3.8 years. No stock option exercises occurred during the years ended December 31, 2013 and 2012.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”) that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s Common Stock. In determining the expected life of employee options, the Company uses the “simplified” method. The expected life assumptions for non-employees were based upon the contractual term of the option. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The dividend yield assumption is based on the expectation of no future dividend payments by the Company.

The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	December 31,
	2013		2012
Risk-free interest rate	2.8	%	1.1	%
Dividend yield	0	%	0	%
Volatility	213	%	236	%
Expected life (years)	10.00 years		6.04 years

Share-based compensation expense recognized in the Consolidated Statements of Operations for fiscal years 2013 and 2012 is based on awards ultimately expected to vest. There were no forfeitures during 2013 and 2012 were.

At December 31, 2013, the Company has reserved 440,441 shares of Common Stock for future issuance upon exercise of all options granted or to be granted under the 2013 Plan.

Restricted Stock

On September 24, 2013, the Company issued restricted stock awards ("RSAs") of approximately 1,327,048 to an officer, 79,622 to a director and 336,185 to three employees. The grant to the officer, director and one of the employees are for the replacement of canceled stock options and RSUs granted on April 10, 2012, which is a result of the capital restructuring that took place on September 24, 2013. The RSAs were granted outside of the 2013 Equity Plan but are governed in all respects by the 2013 Equity Plan.

The RSAs for an officer vest as follows: (i) 1/14 vesting January 20, 2015; (ii) 1/14 vesting January 20, 2016, 2/7 vesting on the earlier of first drug approval or stock trading for 20 consecutive days at $10.50/share; (iii) 1/7 vesting on stock trading for 20 consecutive days at $7/share; (iv) 1/7 vesting on stock trading for 20 consecutive days at $12.50/share; (v) 1/7 vesting on stock trading for 20 consecutive days at $15/share; and (vi) 1/7 vesting on stock trading for 20 consecutive days at $17.50/share, any unvested shares will be forfeited if not satisfied within 7 years from date of grant. The RSAs for a director vest on March 1, 2013. The RSAs for the first employee vest as follows: (i) 1/4 vesting on NASDAQ listing or January 20, 2016; (ii) 1/4 vesting on January 20, 2015; and (iii) 1/2 monthly starting January 20, 2014 for 24 months. The RSAs for the second employee vest as follows: (i) 1/2 vesting monthly over 24 months from January 14, 2015; (ii) 1/4 vesting on the earlier of Nasdaq listing, but in no event earlier than January 14, 2014 or later than January 14, 2015; (iii) 1/4 vesting on January 14, 2015. The RSAs for the third employee vest as follows: (i) 1/4 vesting on January 1, 2014 and (ii) 3/4 vesting monthly starting January 1, 2014.

In April 2013, the Company issued an aggregate of 4,000 shares of restricted stock to an employee. The shares were issued under the 2010 Plan and vest quarterly beginning on January 14, 2013. These shares were subject to a reacquisition right if the services of the holder are terminated during the vesting period. No consideration is paid for the redemption of the shares under the reacquisition right, but the holder is required to return to the Company any cash dividends paid or payable with respect to the shares.

The grant date fair value is the market value on the grant date multiplied by the number of shares granted and share-based compensation expense is recognized on a straight-line basis over the vesting period. The share-based compensation expense for restricted stock during the twelve months ended December 31, 2013 is $95,000 for research and development expenses. The remaining unamortized share-based compensation expense for research and development to be recognized over the next 24 months is $1,900,000. The share-based compensation expense during the twelve months ended December 31, 2013 is $4,464,000 for general and administrative expenses. The remaining unamortized share-based compensation expense for general and administrative to be recognized over the next 35 months is $13,700,000.

Restricted Stock Units

The share-based compensation expense during the tweleve months ended December 31, 2013 by expense category was $52,000 for general and administrative expenses. The share-based compensation expense during the twelve months ended December 31, 2013 was $157 for research and development expenses. On September 24, 2013 the Company canceled 207,502 RSUs that were granted on April 10, 2012 to a director and an employee. As a result of the modification the remaining unamortized share-based compensation expense to be recognized over the remaining service period for the restricted stock units was transferred to the new RSAs and as of December 31, 2013 there is no unamortized share-based compensation expense relating to restricted stock units to be recognized.