Note 9—Stockholders’ Equity

Serial Preferred Stock

The Company’s authorized capital stock includes 10,000,000 shares of serial preferred stock, with a par value of $0.001 per share. No shares of preferred stock were outstanding at June 30, 2018 or December 30, 2017.

On April 17, 2017, the Company entered into a rights agreement (the “Rights Agreement”) with Computershare Trust Company, N.A., as rights agent. In connection with the adoption of the Rights Agreement and pursuant to its terms, the Company’s board of directors authorized and declared a dividend of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record at the close of business on May 18, 2017 (the “Record Date”), and authorized the issuance of one Right for each share of the Company’s common stock issued by the Company (except as otherwise provided in the Rights Agreement) between the Record Date and the Distribution Date (as defined below).

Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company, when exercisable and subject to adjustment, one unit consisting of one one-thousandth of a share (a “Unit”) of Series A Preferred Stock of the Company (the “Preferred Stock”), at a purchase price of $6.56 per Unit, subject to adjustment. Subject to the provisions of the Rights Agreement, including certain exceptions specified therein, a distribution date for the Rights (the “Distribution Date”) will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired or otherwise obtained beneficial ownership of 15% or more of the then‑outstanding shares of the Company’s common stock, and (ii) 10 business days (or such later date as may be determined by the Company’s board of directors) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. The Rights are not exercisable until the Distribution Date and, unless earlier redeemed or exchanged by the Company pursuant to the terms of the Rights Agreement, will expire on the earlier of (i) the close of business on April 17, 2018, the first anniversary of the adoption of the Rights Agreement, and (ii) the date of any settlement, adjudication, dismissal with prejudice, abandonment by the Company or other conclusive and final resolution of the Company’s legal proceedings against SK hynix (see Note 8).

On April 16, 2018, the Company entered into an amendment (the “Amendment”) to the Rights Agreement. The Amendment amends the definition of “Expiration Date” in the Rights Agreement to incorporate all of the Company’s legal proceedings against SK hynix, and amends the definition of “Final Expiration Date” in the Rights Agreement to mean the close of business on April 17, 2019. Accordingly, the Amendment extends the final expiration of the Rights issued pursuant to the Rights Agreement from April 17, 2018 to April 17, 2019. As a result, and pursuant to the Amendment, the Rights will expire and become unexercisable on or before, in accordance with the terms of the Rights Agreement, the close of business on April 17, 2019.

In connection with the adoption of the Rights Agreement, the Company’s board of directors approved a Certificate of Designation of the Series A Preferred Stock (the “Certificate of Designation”) designating 1,000,000 shares of its serial preferred stock as Series A Preferred Stock and setting forth the rights, preferences and limitations of the Preferred Stock. The Company filed the Certificate of Designation with the Secretary of State of the State of Delaware on April 17, 2017.

Common Stock

On May 31, 2017, the Company’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of shares of its common stock that it is authorized for issuance from 90,000,000 to 150,000,000.

On August 22, 2017, the Company completed an underwritten public offering (the “2017 Offering”), pursuant to which it sold 8,500,000 shares of its common stock at a price to the public of $0.60 per share. The net proceeds to the Company from the 2017 Offering were $4.4 million, after deducting underwriting discounts and commissions and offering expenses paid by the Company.

On November 14, 2017, the Company entered into the Sales Agreement with the Agent to sell shares of its common stock, with aggregate gross proceeds of up to $9.0 million, from time to time, through the ATM Program. Under the Sales Agreement, the Company sets the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Sales Agreement provides that the Agent is entitled to compensation for its services in an amount equal to 3% of the gross proceeds from the sale of shares sold under the Sales Agreement. The Company has no obligation to sell any shares under the Sales Agreement and may suspend solicitation and offers under the Sales Agreement. As of June 30, 2018, the Company sold 25,983,098 shares (17,088,876 shares during the six months ended June 30, 2018) of its common stock in the ATM Program for net proceeds of $6.6 million ($3.8 million during the six months ended June 30, 2018), after deducting sales commissions and other offering expenses paid by the Company. In addition, subsequent to June 30, 2018 through August 10, 2018, the Company sold 8,978,094 shares of its common stock for approximate net proceeds of $1.3 million, after deducting sales commissions and other offering expenses paid by the Company.

On May 17, 2018, the Company entered into a Board approved arm’s length Purchase Agreement with a trust controlled by C.K. Hong, the Company’s President, Chief Executive Officer and Chairman of the Board, pursuant to which the Company sold to Mr. Hong’s trust 5,405,405 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $0.148 (which equals the most recent consolidated closing bid price of the Company’s common stock, as reported by The Nasdaq Capital Market, as of the signing of the Purchase Agreement). The aggregate net proceeds received by the Company were $800,000.

Stock-Based Compensation

The Company has stock-based compensation awards outstanding pursuant to its Amended and Restated 2006 Equity Incentive Plan, as re-approved by its stockholders on June 8, 2016 (the “Amended 2006 Plan”), under which a variety of stock-based awards, including stock options, may be granted to employees and non-employee service providers of the Company. In addition to awards granted pursuant to the Amended 2006 Plan, the Company periodically grants equity-based awards outside the Amended 2006 Plan to certain new hires as an inducement to enter into employment with the Company.

Subject to certain adjustments, as of June 30, 2018, the Company was authorized to issue a maximum of 12,605,566 shares of its common stock pursuant to awards granted under the Amended 2006 Plan. Pursuant to the terms of the Amended 2006 Plan, the maximum number of shares of common stock subject to the plan automatically increased on the first day of each calendar year from January 1, 2007 through January 1, 2016, by the lesser of (i) 5.0% of the number of shares of common stock issued and outstanding as of the first day of the applicable calendar year, and (ii) 1,200,000 shares of common stock, subject to adjustment for certain corporate actions. Beginning January 1, 2017, the automatic annual increase to the number of shares of common stock that may be issued pursuant to awards granted under the Amended 2006 Plan is equal to the lesser of (i) 2.5% of the number of shares of common stock issued and outstanding as of the first day of the applicable calendar year, and (ii) 1,200,000 shares of common stock, subject to adjustment for certain corporate actions. As of June 30, 2018, the Company had 2,248,817 shares of common stock available for issuance pursuant to future awards to be granted under the Amended 2006 Plan. Stock options granted under the Amended 2006 Plan generally vest at a rate of at least 25% per year over four years and expire 10 years from the date of grant. Restricted stock awards vest in two equal annual installments over two years.

The following table summarizes the Company’s stock option activities during the six months ended June 30, 2018:


	Options Outstanding
			Weighted-
	Number of		Average
	Shares		Exercise
	(in thousands)		Price
Options outstanding at December 30, 2017	8,745	$	1.39
Options granted	770		0.25
Options exercised	-		-
Options expired/forfeited	(1,114)		1.35
Options outstanding at June 30, 2018	8,401	$	1.29

The following table summarizes the Company’s restricted stock awards activities during the six months ended June 30, 2018:


	Restricted Stock Outstanding
			Weighted-
			Average
	Number of		Grant-Date
	Shares		Fair Value
	(in thousands)		per Share
Balance outstanding at December 30, 2017	-	$	-
Restricted stock granted	525		0.25
Restricted stock forfeited	-		-
Restricted stock vested	-		-
Balance outstanding at June 30, 2018	525	$	0.25

The following table presents the assumptions used to calculate the weighted-average grant date fair value of stock options granted by the Company during the periods presented:


		Six Months Ended
	June 30,			July 1,
	2018			2017
Expected term (in years)		6.4			6.3
Expected volatility		108	%		87	%
Risk-free interest rate		2.62	%		2.06	%
Expected dividends		-			-
Weighted-average grant date fair value per share	$	0.21		$	0.76

As of June 30, 2018, the amount of unearned stock-based compensation estimated to be expensed from the Company’s 2018 fiscal year through the Company’s 2020 fiscal year related to unvested stock options and restricted stock is approximately $0.8 million, net of estimated forfeitures. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately 2.2 years. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense or calculate and record additional expense. Future stock-based compensation expense and unearned stock-based compensation expense will increase to the extent the Company grants additional stock options or other stock-based awards.

Warrants

The following is a summary of the Company’s warrant activity during the six months ended June 30, 2018:


			Weighted
	Number of		Average
	Shares		Exercise
	(in thousands)		Price
Warrants outstanding - December 30, 2017		4,924	$	0.66
Warrants granted		50	$	0.25
Warrants exercised		-	$	-
Warrants expired		(1,525)	$	0.89
Warrants outstanding - June 30, 2018		3,449	$	0.55