11.	CAPITAL AND CONVERTIBLE REDEEMABLE PREFERRED STOCK

On July 20, 2012, the Company entered into a stock purchase agreement with outside investors to issue an aggregate of up to 4,535,357 shares of Series A Preferred at $10.80 per share. The initial round closed on July 20, 2012 and in conjunction with this round the Company issued and sold an aggregate of 2,647,350 shares of Series A Preferred and Common Stock Warrants to purchase up to 47,828 shares of common stock to the investors, and a warrant to purchase 161,977 shares of common stock to an advisor. Subject to the Company’s achievement of certain milestones or the approval of at least a majority of the holders of the outstanding Series A Preferred shares to waive such milestone conditions, investors also committed to invest an additional $20,648 from the sale of Series A Preferred Stock in a second closing no later than March 2015.

In December 2013, the holders of the outstanding Series A Preferred shares agreed to waive the milestone conditions that were previously required to close the second round of the financing. On December 18, 2013, the Company entered into an Amended and Restated Series A and A-1 Preferred Stock Purchase Agreement, whereby the Company sold 955,568 shares of Series A-1 Preferred Stock, par value $0.01, at a price of $10.80 per share and the 3% net sales distribution payment royalty agreement discussed below, resulting in aggregate proceeds of $10,324, half of the $20,648 noted above. Subject to the Company’s achievement of certain milestones or the approval of at least a majority of the holders of the outstanding Series A Preferred and Series A-1 Preferred shares to waive such milestone conditions, investors committed to invest the remaining $10,324 from the sale of Series A-1 Preferred Stock, which was to close no later than December 31, 2014.

In connection with the closing of the second round on December 18, 2013, holders of Series A Preferred forfeited their right to receive a 2% net sales distribution payment. The 2% net sales distribution payment was replaced with a new, freestanding royalty agreement under which the purchasers of the Series A-1 Preferred in the Second Closing are entitled to receive a net sales distribution payment equal to 3% of net sales during the calendar year, discussed in Note 9. The 2% net sales distribution payment was an embedded right in the Series A Preferred. The forfeiture of this right resulted in an extinguishment of all 2,647,350 outstanding shares of Series A Preferred.

 

Immediately following the extinguishment, 2,647,350 shares of the Series A Preferred were reissued (without the right to the 2% net sales distribution payment) and recorded at their fair value of $42,617 or $16.10 per share. The 955,568 shares of Series A-1 Preferred were recorded at their fair value of $14,454 or $15.13 per share. The redemption feature relating to the new 3% net sales distribution payment was initially accounted for as a freestanding financial instrument, was recorded at its fair value of $13,100 as a long-term liability in 2014. As part of the extinguishment, the Company recorded a reduction of additional paid-in capital of $28,000, representing the difference between the extinguished carrying value of Series A Preferred of $31,910 and the fair value of the net consideration transferred to stockholders of $59,910. The $28,000 is also treated as a reduction of earnings attributable to common stockholders in the calculation of net income (loss) per share.

On October 14, 2014, the Company entered into an amended and restated royalty agreement with the Royalty Recipients which provided for redemption provision of the net sales royalty payment to be terminated upon the closing of the Company’s IPO (the “A&R Royalty Agreement”). As the A&R Royalty Agreement was entered into directly as a result of the investors’ interest in the Company as stockholders, the change in value of the net sales payment liability of $15,803 was recorded to additional paid-in-capital and was also treated as an addition of earnings attributable to common stockholders in the calculation of net income (loss) per share. On December 3, 2014, the Company completed its IPO and the redemption provision of the net sales royalty payment was terminated.

In May 2014, the milestone conditions required to close the third round of the financing had been met. On May 27, 2014, the Company sold 955,565 shares of Series A-1 Preferred Stock, par value $0.01, at a price of $10.80 per share, resulting in aggregate proceeds of $10,324, the second half of the $20,648 noted above. The Company incurred $10 of issuance costs with this financing. As part of the financing, the Company recorded a reduction of additional-paid-in capital of $3,520, representing the amount to bring the preferred stock from the net transaction amount of $10,314 to the fair value of $13,834 or $14.48 per share. The $3,520 is also treated as a reduction of earnings attributable to common stockholders in the calculation of net income (loss) per share.

In November 2014, in preparation for the IPO, the Company effected a reverse stock split in which each of the Company’s stockholders received one share of common stock in exchange for 10.804 shares of common stock.

In December 2014, in connection with the completion of the IPO, the Company completed the conversion of all outstanding shares of the Company’s convertible redeemable preferred stock into 5,158,407 shares of common stock.

Common Stock

The holders of shares of common stock are entitled to one vote per share. The holders of shares of common stock are not entitled to receive dividends, unless declared by the Company’s board of directors out of legally available funds, if ever.

Reserved for future issuance

The Company has reserved for future issuance the following number of shares of common stock:

 

		As of December 31, 2015
Vesting of restricted stock			5,191
Options to purchase common stock			1,222,767
Common stock warrants (equity)			166,403
Total			1,394,361

 

Convertible Redeemable Preferred Stock

The Company had issued several series of convertible redeemable preferred stock. From and after the date of issuance of any shares of convertible preferred stock, dividends accrued at a rate of eight percent (8.0%) per annum payable in cash or shares at the option of the holder, when and as declared by the Company’s board of directors. As of December 31, 2014, no dividends had been declared or paid. The Company had recorded cumulative accrued dividends for the convertible preferred stock of $3,307 as of December 31, 2013. Upon the closing of the IPO on December 3, 2014, all of the outstanding shares of the Company’s convertible redeemable preferred stock and accrued dividends were converted into 5,158,407 shares of its common stock. As of December 31, 2014, the Company does not have any convertible redeemable preferred stock issued or outstanding. The following describes each series of convertible redeemable preferred stock previously issued.

Series A Convertible Redeemable Preferred Stock

On July 20, 2012, the Company entered into a stock purchase agreement to raise up to $49,000 through the sale of shares of a Series A Preferred, $0.01 par value per share, at a purchase price per share of $10.80 per share. In conjunction with the closing of this financing, the Company issued and sold an aggregate of 2,647,350 shares of Series A Preferred Stock at a price per share of $10.80 for an aggregate purchase price of $26.5 million, net of issuance costs (Series A Financing).

Series A-1 Convertible Redeemable Preferred Stock

On December 18, 2013, the Company entered into an Amended and Restated Series A and A-1 Preferred Stock Purchase Agreement (the “Stock Purchase Agreement”), whereby the Company sold 955,568 shares of Series A-1 Preferred, par value $0.01, at a price of $10.80 per share, resulting in aggregate proceeds of $10,324. On May 27, 2014, the Company closed the third and final closing of the Amended and Restated Series A and A-1 Preferred Stock Purchase Agreement as the conditions required for this closing were met. As a result of this third closing, the Company sold 955,565 shares of Series A-1 preferred stock at a purchase price of $10.80 per share, resulting in aggregate proceeds of $10,324.

General Rights, Preferences and Privileges

The holders of shares of the Series A Preferred and Series A-1 Preferred (collectively, the “Preferred Stock”) were entitled to the number of votes equal to the number of whole shares of common stock into which the shares of the applicable series of Preferred Stock held by such holder were convertible on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company or by written consent of stockholders in lieu of meetings. Dividends accrued at a rate per annum of 8.0%, payable in cash or in shares at the option of the holder, when and as declared by the board of directors. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock then outstanding were entitled to be paid out of the assets of the Company available for distribution to stockholders an amount per share equal to $10.80, plus any accrued but unpaid dividends.

Net Sales Distribution Payment

Within 45 days of the end of each calendar year, the Company shall pay the Royalty Recipients a payment equal to, in the aggregate, 3% of net sales during such calendar year, which is the Net Sales Distribution Payment. The Net Sales Distribution Payment shall be distributed pro rata based on the percentages set forth in the freestanding royalty agreement entered into in connection with the closing of the December 18, 2013 financing previously discussed.

 

Net sales shall mean the gross amount received by the Company, its affiliates and their sub-licensees for sales of the Company’s products less (a) intercompany sales, (b) amounts repaid or credited by reason of actual rejection or return of applicable products, (c) reasonable and customary trade, quantity or cash rebates or discounts to the extent allowed, (d) amounts for outbound transportation, insurance, handling or shipping, and (e) taxes, customs duties and other governmental charges levied on or measured by sales of products, as adjusted for rebates and refunds. If any product is sold for non-cash consideration, net sales shall be calculated based on the average non-discounted cash amount charged to independent third parties for the product during the same period in the same country or based upon the fair value of the product.

As part of the “Stock Purchase Agreement, at the election of the Royalty Recipients, all or a portion of the net sales payments could be redeemed by the Company. The Royalty Recipients could elect to have each net sales percentage point redeemed for $10,000 payable in cash or the Company’s common stock. If the Royalty Recipients choose to elect common stock, the fair value per share will be determined as follows: (a) if the Company was publicly-traded, the average of the 10-day trailing closing price, or (b) if not publicly-traded, the fair market value as determined by board of directors. The Royalty Recipients could exercise their redemption right any time after January 1, 2017 and prior to January 1, 2019, provided, however, that each election must be at least six months apart.

As noted in Note 9, Warrants, Other Liability, and Net Sales Distribution Payment Liability, on October 14, 2014, the Company entered into an amended and restated royalty agreement with the Royalty Recipients which provided for redemption provision of the net sales royalty payment to be terminated upon the closing of the Company’s IPO (the “A&R Royalty Agreement”). As the A&R Royalty Agreement was entered into directly as a result of the investors’ interest in the Company as stockholders, the change in value of the net sales payment liability of $15,803 was recorded to additional paid-in-capital and was also treated as an addition of earnings attributable to common stockholders in the calculation of net income (loss) per share. On December 3, 2014, the Company completed its IPO and the redemption provision of the net sales royalty payment was terminated. The net sales distribution payment of 3% remains in full force and effect.