Note 7.
Redeemable Convertible Preferred Stock (Continued)
The purchase and sale of the
securities issuable under tranches 2, 3 and 4 may occur in up to
three separate closings, each to be conducted at the Purchasers’
discretion. The right of the Purchasers to purchase Series B2,
Series B3 and Series B4 Preferred Stock will expire on February 12,
2021 (or on the 10th
business day following
the
Company’s ORR Data Announcement, as defined in the
December 2019 Securities Purchase
Agreement, for its ILLUMINATE-301
study, if later), August 12,
2021, and February 12, 2022, respectively. However, the Purchasers’
right to purchase securities under tranches 3 and 4 is contingent
on the purchase of all of the securities in each preceding tranche
right. In the event the Purchaser’s do not purchase all of the
securities in a given tranche, their right to purchase shares in
future tranches terminates and any outstanding warrants issued
under the December 2019 Securities Purchase Agreement would
terminate. Additionally, the Company has the right to decline the
Series B4 Preferred Stock investment if its common stock trades
at $7.60 for 20
days out of
30 days subsequent to the closing of the Series B3
Preferred Stock investment.
In addition to the aggregate gross proceeds received from the
Initial Closing and the Option Fee, the Company is eligible, at the
discretion of the Purchasers, to receive aggregate gross proceeds
of up to an additional $87.6 million under the December 2019
Securities Purchase Agreement.
Accounting Considerations
The Company determined that the
Series B1 Preferred Stock, the accompanying Series B1 warrants, and
each of the Future Tranche Rights represented a freestanding
financial instrument. The warrants and the Future Tranche Rights
are liability classified as the underlying shares are potentially
redeemable and such redemption is deemed to be outside of the
Company’s control.
Due to the redeemable nature of the Series B1 Preferred Stock, the
Series B1 Preferred Stock is currently classified as temporary
equity. While the Series B1 Preferred Stock is not currently
redeemable, it will become redeemable either on (i) the fifth
anniversary of the initial issue date, or December 23, 2024,
provided that certain events (the “Redemption Loss Events”) do not
occur first or (ii) upon a liquidation or deemed liquidation event,
provided that certain events (the “Liquidation Loss Events”) do not
occur first. The Company cannot assess the probability of whether
the Redemption Loss Events will occur prior to the fifth
anniversary of the initial issue date, if ever, as certain factors
triggering such events are outside the control of the Company.
Accordingly, the carrying value of the Series B1 Preferred Stock is
being accreted to its redemption value as of June 30, 2020. In the
event the holders of the Series B1 Preferred Stock lose their right
to request redemption, the Series B Preferred Stock will no longer
be accreted to its redemption value until redemption upon a
liquidation event is deemed probable. For the three and six months
ended June 30, 2020, accretion was de minimis.
Note 8.
Stockholders’ Equity
Common Stock –
Authorized Shares
On May 12, 2020, the Company’s stockholders approved the Charter
Amendment. Also on May 12, 2020, following stockholder approval,
the Company filed the Charter Amendment with the Secretary of State
of the State of Delaware.
Equity
Financings
April 2020 Private Placement
On April 7, 2020, the Company entered into a Securities Purchase
Agreement (the “April 2020 Securities Purchase Agreement”) with
Pillar Partners, an existing stockholder and related party as more
fully described in Note 11, under which the Company sold 3,039,514
shares of common stock and accompanying warrants to purchase
3,039,514 shares of the Company’s common stock with an exercise
price of $2.28 per share, for aggregate gross proceeds of $5.0
million. Each share and the accompanying common warrant had a
combined purchase price of $1.645, which included $0.125 for each
share of common stock underlying each warrant.