Preferred Purchase Agreement

3 Months Ended

Mar. 31, 2023

Preferred Purchase Agreement [Abstract]

(9)	Preferred Purchase Agreement

Preferred Purchase Agreement

On March 29, 2023, the Company closed the Series F Preferred Offering. Pursuant to the Certificate of Designation of Preferences, Rights and Limitations of the Series F Convertible Voting Preferred Stock (the “Certificate of Designation”), each share of

Series F-1 Preferred

Stock is, subject to the Stockholder Approval, automatically convertible into shares of common stock and/or, if applicable, shares of

Series F-2 Preferred

Stock, par value $0.01 per share (the “Series

F-2

Preferred Stock” and, together with the Series

F-1

Preferred Stock, the Series

F-3

Preferred Stock and the Series

F-4

Preferred Stock, the “Series F Preferred Stock”), of the Company in lieu of common stock.

The aggregate exercise price of the Preferred Tranche A Warrants is approximately $34.9 million, exercisable for an aggregate of 34,860 shares of

Series F-3 Preferred

Stock commencing on the Exercisability Date until the earlier of 21 days following the Company’s announcement of receipt of approval from the U.S. Food and Drug Administration for HEPZATO and March 31, 2026.

The aggregate exercise price of the Preferred Tranche B Warrants is approximately $24.9 million, exercisable for an aggregate of 24,900 shares of

Series F-4 Preferred

Stock commencing on the Exercisability Date until the earlier of 21 days following the Company’s announcement of receipt of recording at least $10 million in quarterly U.S. revenue from the commercialization of HEPZATO and March 31, 2026; provided, however, that if the FDA Approval occurs on or before February 15, 2024 and the holder of the Preferred Tranche B Warrant has not exercised its Preferred Tranche A Warrant by or before March 7, 2024, then any

Series F-4 Preferred

Stock not yet exercised pursuant to the Preferred Tranche B Warrant at such time shall expire.

Subject to the terms and limitations contained in the Certificate of Designation, the

Series F-1 Preferred

Stock issued in the Series F Preferred Offering will not become convertible until the Stockholder Approval. On the first (1st) Trading Day following the announcement of the Stockholder Approval, each share of

Series F-1 Preferred

Stock shall automatically convert into common stock, at the conversion price of $3.30 per share, subject to the terms and limitations contained in the Certificate of Designation. Subject to the limitations set forth in the

Certificate of Designation, at the option of the holder, each share of

Series F-2 Preferred

Stock,

Series F-3 Preferred

Stock or

Series F-4 Preferred

Stock shall be convertible into common stock, at the conversion price of $3.30 per share, $4.50 per share and $6.00 per share, respectively, rounded down to the nearest whole share, and in each case subject to the terms and limitations contained in the Certificate of Designation.

If Stockholder Approval isn’t received by the

one-year

anniversary of the March 2023 Securities Offering, then the Series

F-1

Preferred becomes redeemable at the option of the Requisite Holders for the Liquidation Preference Amount at any time until the three-year anniversary of the March 31, 2023 Securities Offering. The Requisite Holders is a majority of the then Series F Stockholders. Series F Convertible Preferred Stock Liquidation Payments are triggered upon (a) any voluntary or involuntary liquidation, dissolution or winding up of the Company; (b) a change of control transaction; or (c) a Deemed Liquidation Event (collectively a “Liquidation”). Prior to Stockholder Approval, the Series F Convertible Preferred Stock has parity with the Series E and Series

E-1

Convertible Preferred Stock and the Liquidation Payments would be three (3) times the original issuance price, plus declared but unpaid dividends, until Stockholder Approval is received. After Stockholder Approval, the Liquidation Payments would be distributed to both the Preferred and Common stockholders, on an “as converted basis”.

The Company concluded that the preferred warrants were not in the scope of Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity ASC 480,) since the preferred warrants are not mandatorily redeemable; and do not have obligations to issue a variable number of shares of preferred stock, The Company determined the preferred warrants met the definition of a derivative but were not considered indexed to the Company’s stock common since the warrants require early settlement by repurchasing the preferred warrants for cash in an amount equal to the Black-Scholes value in the event of a Fundamental Transaction at

pre-specified

volatility of 100% as an input to the Black-Scholes calculation. The Company determined to record the preferred warrants at fair value with subsequent changes in fair value recorded in earnings.

The gross proceeds of

$24.9

million were allocated first to the Preferred Warrant liabilities at their fair value of

$4.9

million, with the residual of

$20.0 million

being allocated to the Series F-1 Preferred Stock. Since the Series

F-1

Preferred Stock is redeemable at the option of the holder beginning at the one-year anniversary of the March 2023 Securities Offering, until Stockholder Approval is received the Series

F-1

Preferred Stock is initially classified as temporary (mezzanine) equity at allocated proceeds of $

20.0

million less issuance costs of the $

1.6

million. The Company expensed $

0.4

million of issuance costs that were allocated to the warranty liability during the three months ended March 31, 2023.

The Series

F-2,

F-3

and

F-4

Preferred Stock are not mandatorily redeemable, redeemable at the holder’s election or contingently redeemable at the holder’s election (at this point, a Deemed Liquidation Event would potentially trigger pro rata liquidation payments to the preferred and common stockholders on a pro rata “as converted” basis. Accordingly, the Series

F-2,

F-3

and

F-4

Preferred will be classified as permanent equity. After stockholder approval, the Series F-1 Preferred Stock automatically converts into common stock which is classified as permanent equity.