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Convertible Series A Preferred Stock | 6 Months Ended
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Jun. 30, 2016
Convertible Series A Preferred Stock |
Convertible Series A Preferred Stock | 7. Convertible Series A Preferred Stock On March 31, 2015, the Company issued 745,637 shares of Series A preferred stock at a per share price of $6.70585, as adjusted for the Reverse Stock Split, or $5.0 million in the aggregate, consisting of $1.5 million in cash and $3.5 million representing 125% of the principal and accrued and unpaid interest on the Convertible Notes, all of which converted into shares of Series A preferred stock. The Series A preferred stock has the following rights and preferences: Dividend Rights Dividends effectively accrue on a daily basis at a simple rate of 8% per annum on the sum of the original per share issue price. Dividends are effectively deemed declared daily and are payable upon the occurrence of certain events. In addition, the holders of the Series A preferred stock have rights to participate in common stock dividends, entitling holders of Series A preferred stock to a dividend payable at the same time as the dividend paid on common stock based on the number of shares of common stock each share of Series A preferred stock would convert into if such shares had converted on the record date. There were no dividends deemed payable and accrued, but unpaid dividends were $0.5 million and $0.3 million as of June 30, 2016 and December 31, 2015, respectively (See Note 5 — Commitments and Contingencies). Voting Rights Each share of Series A preferred stock shall be entitled to vote together with the common stock on all actions to be taken by the stockholders of the Company, based on the number of shares of common stock into which each share of Series A preferred stock could be converted. A separate vote of a majority of the outstanding shares of Series A preferred stock is required to (1) issue or authorize any class or series of equity securities or equivalents, (2) effect any transaction that results in a change in control, (3) change the principal business of the Company, enter new lines of business, or exit the current line of business, (4) issue of convertible debt above a certain threshold, or (5) materially sell, transfer, license, pledge or encumber technology or intellectual property. A management stock option plan approved by the board of directors, however, is not subject to a separate vote of the Series A preferred stockholders, but any subsequent increases to the authorized option pool are subject to approval by the Series A preferred stock holders via a separate vote. Liquidation Rights In the event of any liquidation, dissolution, or winding‑up of the Company, whether voluntary or involuntary, merger, consolidation or transaction in which over 50% of the Company’s voting power is transferred, or a sale, lease, transfer, exclusive license or disposition of all or substantially all of the assets of the Company, the Series A preferred stock holders shall be entitled to the assets of the Company legally available for distribution before any distribution or payment is made to the holders of common stock. The distribution amount shall equal the original issue price of the Series A preferred stock (as adjusted for any stock dividends, combinations, splits or other recapitalizations since issuance), plus any accrued or declared but unpaid dividends thereon. After payment of the full liquidation preference to the Series A preferred stock holders, the remaining assets legally available for distribution shall be distributed to the holders of common stock and holders of the Series A preferred stock pro rata based on the number of shares of common stock each share of Series A preferred stock would convert into if such shares had converted immediately prior to such liquidation, dissolution, or winding‑up. Conversion Rights Shares of Series A preferred stock, at the option of the holder, may be converted at any time into shares of common stock. The conversion rate shall be obtained by dividing the Series A preferred stock original issue price of $6.70585 per share, as adjusted for the Reverse Stock Split, by the conversion price per share in effect at the time of conversion. The Series A conversion price is initially equal to the original issue price, but shall be adjusted on a broad‑based weighted average basis in connection with certain dilutive events. The conversion price for the Series A preferred stock was $6.70585 per share at June 30, 2016 and December 31, 2015 (as adjusted for the Reverse Stock Split). The Series A holder would also be entitled to receive additional shares of common stock for any unpaid Series A dividends (whether or not declared). Shares of Series A preferred stock shall automatically be converted into common stock based upon the then‑effective Series A conversion price upon the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series A preferred stock, or at the closing of a firmly underwritten public offering whereby the common stock of the Company is listed on a U.S. national securities exchange and with a public offering price of at least 1.5 times the Series A original issue price of $6.70585 and net cash proceeds before underwriting discounts of at least $50 million. Redemption Rights The holders of at least 80% of the outstanding shares of Series A preferred stock may require the Company to redeem all outstanding shares of Series A preferred stock at any time on or after December 31, 2020 at a redemption price equal to the greater of 150% of the liquidation preference of the Series A preferred stock or the fair market value per share plus any unpaid declared dividends. The liquidation preference of the Series A preferred stock is defined as an amount per share equal to $6.70585, as adjusted from time to time for any stock dividends, combinations, splits or recapitalizations, plus any accrued or declared but unpaid dividends thereon. The redemption value for redeemable preferred stock may at times be based on fair market value. The assumptions used in calculating the estimated fair market value at each reporting period represent the Company’s best estimate, however, inherent uncertainties are involved. As a result, if factors or assumptions change, the estimated fair value could be materially different. As of June 30, 2016, the estimated fair value of the Series A preferred stock was $7.2 million. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying amount of the instrument to equal the redemption value at the end of each reporting period since it is probable that the instruments will become redeemable. In the absence of retained earnings, these charges are recorded against additional paid‑in‑capital, if any, and then to accumulated deficit. The Company evaluated the Series A preferred stock and determined that it is considered an equity host under ASC 815, Derivatives and Hedging. In making this determination, the Company’s analysis followed the whole instrument approach that compared an individual feature against the entire Series A preferred stock instrument that included that feature. The Company’s analysis was based on a consideration of the economic characteristics and risks of the Series A preferred stock. More specifically, the Company evaluated all of the stated and implied substantive terms and features of the Series A preferred stock, including: (1) redemption features and their underlying exercisability, (2) existence of any protective covenants, (3) nature of dividends rights, (4) nature of voting rights, and (5) the existence and nature of any conversion rights. As a result of the above, the Company concluded that the Series A preferred stock represented an equity host, and as such, the redemption and/or conversion features of the Series A preferred stock were considered to be clearly and closely related to the associated Series A preferred stock host instrument. Accordingly, the redemption and/or conversion features of the Series A preferred stock were not considered an embedded derivative that required bifurcation.

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