GNVC » Topics » (a) CAPITAL STOCK

These excerpts taken from the GNVC 10-K filed Mar 16, 2009.

(a) CAPITAL STOCK

In April 2005, we filed with the Securities and Exchange Commission a $35.0 million shelf registration statement on Form S-3, replacing our prior $25.0 million shelf registration statement.

On September 26, 2005, we sold 7,600,000 shares of common stock to various investors at $2.00 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $14.0 million. SG Cowen & Co., LLC (SG Cowen) was engaged as the sole placement agent for this transaction. At the time of this offering, Stelios Papadopoulos, Ph.D., was a Vice Chairman in the investment banking division of SG Cowen and was a member of our Board of Directors.
On December 21, 2006, we sold 9,610,000 shares of common stock to various investors at $2.05 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $18.3 million.

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TABLE OF CONTENTS

GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS

(9) STOCKHOLDERS’ EQUITY  – (continued)

In February 2007, we filed a $100.0 million shelf registration statement on Form S-3 with the Securities and Exchange Commission. The shelf registration was declared effective February 12, 2007 and allows us to obtain financing through the issuance of any combination of common stock, preferred stock, warrants, or debt. On June 11, 2008, pursuant to this shelf registration statement, we completed a registered direct offering to various investors of 11,258,279 shares of common stock and warrants to purchase 2,251,653 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a warrant to purchase 0.20 shares of common stock at a per unit price of $1.51. The warrants, which have a term of 5 years and an exercise price of $2.016 per share, have been valued using the Black-Scholes pricing model as of the closing date and have been accounted for in permanent equity. Proceeds of this offering, net of offering costs, totaled $15.7 million.

On March 15, 2006, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to $30.0 million of our common stock within a 3-year period, subject to certain conditions and limitations. The CEFF will expire on March 15, 2009. Due to the pricing formula, however, the actual amount of additional financing available to us under the CEFF may be substantially less than the committed amount. In particular, Kingsbridge is not obligated to purchase shares of common stock at a price lower than $1.25. In addition, the maximum number of shares we may issue under the CEFF is 12,375,050.

Under the CEFF, we may require Kingsbridge to purchase shares of common stock at prices between 88 percent and 92 percent of the volume weighted average price (VWAP) on each trading day during an 8-day pricing period. Settlement for sales under the CEFF takes place in two tranches after the fourth and eighth day of the pricing period. The value of the maximum number of shares the Company may issue in any pricing period is equal to the lesser of 1.75 percent of the Company’s market capitalization immediately prior to the commencement of the pricing period, or $5.0 million. The minimum VWAP for determining the purchase price at which our stock may be sold in any pricing period is the greater of $1.25, or 75 percent of the closing price of our common stock on the day prior to the commencement of the pricing period. As required under the CEFF, we filed a resale registration statement with respect to the resale of shares issued pursuant to the CEFF and underlying the warrant, which was declared effective May 5, 2006. We are required to use commercially reasonable efforts to maintain its effectiveness.

As part of the arrangement, we issued a warrant to Kingsbridge to purchase 520,000 shares of our common stock at an exercise price equal to $2.67. The warrant became exercisable on September 15, 2006 and will remain exercisable until September 15, 2011. We have classified the warrant as a current liability for deferred financing costs, which is recorded at its fair value as determined under a Black-Scholes pricing model. Assuming a 2.75 year remaining life for the warrant, a 1.55 percent risk-free interest rate, and an 94.59 percent expected volatility and no dividend yield, the fair value of warrant liability as of December 31, 2008 was $35,000, a decrease of $221,000 compared to the prior year. Changes in fair value are recorded against operations in the reporting period in which they occur; increases and decreases in fair value are recorded to interest expense.

The fair value of the warrant issued to Kingsbridge on the date of grant of $800,000 or $1.54 per share, was initially recorded as a deferred financing cost to additional paid-in capital, with the opposing entry being accrued to other expenses in the balance sheet. Such deferred financing costs are allocated to Kingsbridge shares on an as drawn basis. Through December 31, 2008, the current liability has been marked-to-market using the Black-Scholes option-pricing model. Changes in fair value are recorded against operations in the reporting period in which they occur; increases or decreases in fair value are recorded as interest expense. During 2008 and 2007, the decrease in the fair value of the warrant of $221,000 and $445,000, respectively, resulted in a decrease in interest expense. Stock drawn under the CEFF is initially recorded outside of permanent equity, until such time as Kingsbridge sells the shares to outside third parties, due to the existence of a cash payment feature in the agreement that compensates Kingsbridge based on any reduction in the fair value

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TABLE OF CONTENTS

GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS

(9) STOCKHOLDERS’ EQUITY  – (continued)

of shares held by Kingsbridge during a period in which GenVec fails to maintain the effectiveness of the abovementioned registration statement, or electively imposes a trading blackout (i.e., a registration payment arrangement). The amount of compensation is payable in cash in both circumstances, or, at the sole discretion of GenVec, in shares of the Company’s common stock in the event of a trading blackout. The Company follows the provisions of FASB Staff Position No. EITF 00-19-2,“Accounting for Registration Payment Arrangements,” which requires that contingent obligations to make future payments under a registration payment arrangement be recognized and measured separately in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. The Company believes the likelihood of such a cash payment is not probable and therefore does not need to recognize a liability for such obligations.

In June 2007, we initiated our first draw against the CEFF. On June 26, 2007, subsequent to the first 4 days of the pricing period, the Company sold 769,773 common shares for gross proceeds of $1.8 million. On July 2, 2007, subsequent to the last 4 days of the pricing period, we sold under the CEFF, 832,441 common shares for gross proceeds of $1.8 million. On April 18, 2008, subsequent to the first 4 days of the pricing period, we sold 777,057 shares of common stock for gross proceeds of $1.47 million. The pricing period ended on April 25, 2008, at which time we sold an additional 905,559 shares of common stock for gross proceeds of $1.47 million. As of December 31, 2008, we have sold 3,284,830 shares of common stock to Kingsbridge. Kingsbridge holds no shares of common stock purchased pursuant to the CEFF; therefore, all shares sold are recorded in permanent equity.

In September 2001, our Board of Directors declared a dividend which was issued on September 28, 2001 of one preferred stock purchase right (a Right) for each share of common stock outstanding. The Rights initially trade with, and are inseparable from the common stock. The Rights will become exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the outstanding common stock of GenVec (an Acquiring Person), or announces the intention to commence a tender or exchange offer the consummation of which would result in that person or group becoming an Acquiring Person. Each Right allows its holder, other than the Acquiring Person, to purchase from the Company one one-hundredth of a share of Series A junior participating preferred stock (the Preferred Share), at a purchase price of $50.00, subject to adjustment. This portion of a Preferred Share gives the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. The Rights expire on September 7, 2011, unless redeemed earlier by the Company at a price of $0.01 per Right at any time before the Rights become exercisable.

In addition to the common stock reflected on our balance sheets, the following items are reflected in the capital accounts as of December 31, 2008 and 2007:

4,400,000 shares of $0.001 par value preferred stock have been authorized; none are issued or outstanding.
600,000 shares of $0.001 par value Series A junior participating preferred stock have been authorized in connection with the preferred stock purchase rights referred to above; none are issued or outstanding.

(a) CAPITAL STOCK

In April 2005, we filed with the Securities and Exchange Commission a $35.0 million shelf registration statement on Form S-3, replacing our prior $25.0 million shelf registration statement.

On September 26, 2005, we sold 7,600,000 shares of common stock to various investors at $2.00 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $14.0 million. SG Cowen & Co., LLC (SG Cowen) was engaged as the sole placement agent for this transaction. At the time of this offering, Stelios Papadopoulos, Ph.D., was a Vice Chairman in the investment banking division of SG Cowen and was a member of our Board of Directors.
On December 21, 2006, we sold 9,610,000 shares of common stock to various investors at $2.05 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $18.3 million.

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TABLE OF CONTENTS

GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS

(9) STOCKHOLDERS’ EQUITY  – (continued)

In February 2007, we filed a $100.0 million shelf registration statement on Form S-3 with the Securities and Exchange Commission. The shelf registration was declared effective February 12, 2007 and allows us to obtain financing through the issuance of any combination of common stock, preferred stock, warrants, or debt. On June 11, 2008, pursuant to this shelf registration statement, we completed a registered direct offering to various investors of 11,258,279 shares of common stock and warrants to purchase 2,251,653 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a warrant to purchase 0.20 shares of common stock at a per unit price of $1.51. The warrants, which have a term of 5 years and an exercise price of $2.016 per share, have been valued using the Black-Scholes pricing model as of the closing date and have been accounted for in permanent equity. Proceeds of this offering, net of offering costs, totaled $15.7 million.

On March 15, 2006, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to $30.0 million of our common stock within a 3-year period, subject to certain conditions and limitations. The CEFF will expire on March 15, 2009. Due to the pricing formula, however, the actual amount of additional financing available to us under the CEFF may be substantially less than the committed amount. In particular, Kingsbridge is not obligated to purchase shares of common stock at a price lower than $1.25. In addition, the maximum number of shares we may issue under the CEFF is 12,375,050.

Under the CEFF, we may require Kingsbridge to purchase shares of common stock at prices between 88 percent and 92 percent of the volume weighted average price (VWAP) on each trading day during an 8-day pricing period. Settlement for sales under the CEFF takes place in two tranches after the fourth and eighth day of the pricing period. The value of the maximum number of shares the Company may issue in any pricing period is equal to the lesser of 1.75 percent of the Company’s market capitalization immediately prior to the commencement of the pricing period, or $5.0 million. The minimum VWAP for determining the purchase price at which our stock may be sold in any pricing period is the greater of $1.25, or 75 percent of the closing price of our common stock on the day prior to the commencement of the pricing period. As required under the CEFF, we filed a resale registration statement with respect to the resale of shares issued pursuant to the CEFF and underlying the warrant, which was declared effective May 5, 2006. We are required to use commercially reasonable efforts to maintain its effectiveness.

As part of the arrangement, we issued a warrant to Kingsbridge to purchase 520,000 shares of our common stock at an exercise price equal to $2.67. The warrant became exercisable on September 15, 2006 and will remain exercisable until September 15, 2011. We have classified the warrant as a current liability for deferred financing costs, which is recorded at its fair value as determined under a Black-Scholes pricing model. Assuming a 2.75 year remaining life for the warrant, a 1.55 percent risk-free interest rate, and an 94.59 percent expected volatility and no dividend yield, the fair value of warrant liability as of December 31, 2008 was $35,000, a decrease of $221,000 compared to the prior year. Changes in fair value are recorded against operations in the reporting period in which they occur; increases and decreases in fair value are recorded to interest expense.

The fair value of the warrant issued to Kingsbridge on the date of grant of $800,000 or $1.54 per share, was initially recorded as a deferred financing cost to additional paid-in capital, with the opposing entry being accrued to other expenses in the balance sheet. Such deferred financing costs are allocated to Kingsbridge shares on an as drawn basis. Through December 31, 2008, the current liability has been marked-to-market using the Black-Scholes option-pricing model. Changes in fair value are recorded against operations in the reporting period in which they occur; increases or decreases in fair value are recorded as interest expense. During 2008 and 2007, the decrease in the fair value of the warrant of $221,000 and $445,000, respectively, resulted in a decrease in interest expense. Stock drawn under the CEFF is initially recorded outside of permanent equity, until such time as Kingsbridge sells the shares to outside third parties, due to the existence of a cash payment feature in the agreement that compensates Kingsbridge based on any reduction in the fair value

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TABLE OF CONTENTS

GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS

(9) STOCKHOLDERS’ EQUITY  – (continued)

of shares held by Kingsbridge during a period in which GenVec fails to maintain the effectiveness of the abovementioned registration statement, or electively imposes a trading blackout (i.e., a registration payment arrangement). The amount of compensation is payable in cash in both circumstances, or, at the sole discretion of GenVec, in shares of the Company’s common stock in the event of a trading blackout. The Company follows the provisions of FASB Staff Position No. EITF 00-19-2,“Accounting for Registration Payment Arrangements,” which requires that contingent obligations to make future payments under a registration payment arrangement be recognized and measured separately in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. The Company believes the likelihood of such a cash payment is not probable and therefore does not need to recognize a liability for such obligations.

In June 2007, we initiated our first draw against the CEFF. On June 26, 2007, subsequent to the first 4 days of the pricing period, the Company sold 769,773 common shares for gross proceeds of $1.8 million. On July 2, 2007, subsequent to the last 4 days of the pricing period, we sold under the CEFF, 832,441 common shares for gross proceeds of $1.8 million. On April 18, 2008, subsequent to the first 4 days of the pricing period, we sold 777,057 shares of common stock for gross proceeds of $1.47 million. The pricing period ended on April 25, 2008, at which time we sold an additional 905,559 shares of common stock for gross proceeds of $1.47 million. As of December 31, 2008, we have sold 3,284,830 shares of common stock to Kingsbridge. Kingsbridge holds no shares of common stock purchased pursuant to the CEFF; therefore, all shares sold are recorded in permanent equity.

In September 2001, our Board of Directors declared a dividend which was issued on September 28, 2001 of one preferred stock purchase right (a Right) for each share of common stock outstanding. The Rights initially trade with, and are inseparable from the common stock. The Rights will become exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the outstanding common stock of GenVec (an Acquiring Person), or announces the intention to commence a tender or exchange offer the consummation of which would result in that person or group becoming an Acquiring Person. Each Right allows its holder, other than the Acquiring Person, to purchase from the Company one one-hundredth of a share of Series A junior participating preferred stock (the Preferred Share), at a purchase price of $50.00, subject to adjustment. This portion of a Preferred Share gives the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. The Rights expire on September 7, 2011, unless redeemed earlier by the Company at a price of $0.01 per Right at any time before the Rights become exercisable.

In addition to the common stock reflected on our balance sheets, the following items are reflected in the capital accounts as of December 31, 2008 and 2007:

4,400,000 shares of $0.001 par value preferred stock have been authorized; none are issued or outstanding.
600,000 shares of $0.001 par value Series A junior participating preferred stock have been authorized in connection with the preferred stock purchase rights referred to above; none are issued or outstanding.

(a) CAPITAL STOCK



In April 2005, we filed with the Securities and Exchange Commission a $35.0 million shelf registration statement on Form S-3, replacing our prior $25.0 million shelf registration statement.















On September 26, 2005, we sold 7,600,000 shares of common stock to various investors at $2.00 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $14.0 million. SG Cowen & Co., LLC (SG Cowen) was engaged as the sole placement agent for this transaction. At the time of this offering, Stelios Papadopoulos, Ph.D., was a Vice Chairman in the investment banking division of SG Cowen and was a member of our Board of Directors.














On December 21, 2006, we sold 9,610,000 shares of common stock to various investors at $2.05 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $18.3 million.




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TABLE OF CONTENTS



GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS



(9) STOCKHOLDERS’ EQUITY  – (continued)



In February 2007, we filed a $100.0 million shelf registration statement on Form S-3 with the Securities and Exchange Commission. The shelf registration was declared effective February 12, 2007 and allows us to obtain financing through the issuance of any combination of common stock, preferred stock, warrants, or debt. On June 11, 2008, pursuant to this shelf registration statement, we completed a registered direct offering to various investors of 11,258,279 shares of common stock and warrants to purchase 2,251,653 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a
warrant to purchase 0.20 shares of common stock at a per unit price of $1.51. The warrants, which have a term of 5 years and an exercise price of $2.016 per share, have been valued using the Black-Scholes pricing model as of the closing date and have been accounted for in permanent equity. Proceeds of this offering, net of offering costs, totaled $15.7 million.



On March 15, 2006, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to $30.0 million of our common stock within a 3-year period, subject to certain conditions and limitations. The CEFF will expire on March 15, 2009. Due to the pricing formula, however, the actual amount of additional financing available to us under the CEFF may be substantially less than the committed amount. In particular, Kingsbridge is not obligated to purchase shares of common stock at a price lower than $1.25. In addition, the maximum number of shares we may issue under the CEFF is
12,375,050.



Under the CEFF, we may require Kingsbridge to purchase shares of common stock at prices between 88 percent and 92 percent of the volume weighted average price (VWAP) on each trading day during an 8-day pricing period. Settlement for sales under the CEFF takes place in two tranches after the fourth and eighth day of the pricing period. The value of the maximum number of shares the Company may issue in any pricing period is equal to the lesser of 1.75 percent of the Company’s market capitalization immediately prior to the commencement of the pricing period, or $5.0 million. The minimum VWAP for determining the purchase price at which our stock may
be sold in any pricing period is the greater of $1.25, or 75 percent of the closing price of our common stock on the day prior to the commencement of the pricing period. As required under the CEFF, we filed a resale registration statement with respect to the resale of shares issued pursuant to the CEFF and underlying the warrant, which was declared effective May 5, 2006. We are required to use commercially reasonable efforts to maintain its effectiveness.



As part of the arrangement, we issued a warrant to Kingsbridge to purchase 520,000 shares of our common stock at an exercise price equal to $2.67. The warrant became exercisable on September 15, 2006 and will remain exercisable until September 15, 2011. We have classified the warrant as a current liability for deferred financing costs, which is recorded at its fair value as determined under a Black-Scholes pricing model. Assuming a 2.75 year remaining life for the warrant, a 1.55 percent risk-free interest rate, and an 94.59 percent expected volatility and no dividend yield, the fair value of warrant liability as of December 31, 2008 was $35,000, a
decrease of $221,000 compared to the prior year. Changes in fair value are recorded against operations in the reporting period in which they occur; increases and decreases in fair value are recorded to interest expense.



The fair value of the warrant issued to Kingsbridge on the date of grant of $800,000 or $1.54 per share, was initially recorded as a deferred financing cost to additional paid-in capital, with the opposing entry being accrued to other expenses in the balance sheet. Such deferred financing costs are allocated to Kingsbridge shares on an as drawn basis. Through December 31, 2008, the current liability has been marked-to-market using the Black-Scholes option-pricing model. Changes in fair value are recorded against operations in the reporting period in which they occur; increases or decreases in fair value are recorded as interest expense. During 2008
and 2007, the decrease in the fair value of the warrant of $221,000 and $445,000, respectively, resulted in a decrease in interest expense. Stock drawn under the CEFF is initially recorded outside of permanent equity, until such time as Kingsbridge sells the shares to outside third parties, due to the existence of a cash payment feature in the agreement that compensates Kingsbridge based on any reduction in the fair value





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TABLE OF CONTENTS



GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS



(9) STOCKHOLDERS’ EQUITY  – (continued)



of shares held by Kingsbridge during a period in which GenVec fails to maintain the effectiveness of the abovementioned registration statement, or electively imposes a trading blackout (i.e., a registration payment arrangement). The amount of compensation is payable in cash in both circumstances, or, at the sole discretion of GenVec, in shares of the Company’s common stock in the event of a trading blackout. The Company follows the provisions of FASB Staff Position No. EITF 00-19-2,“Accounting for Registration Payment Arrangements,” which requires that contingent obligations to make future payments under a registration payment
arrangement be recognized and measured separately in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. The Company believes the likelihood of such a cash payment is not probable and therefore does not need to recognize a liability for such obligations.



In June 2007, we initiated our first draw against the CEFF. On June 26, 2007, subsequent to the first 4 days of the pricing period, the Company sold 769,773 common shares for gross proceeds of $1.8 million. On July 2, 2007, subsequent to the last 4 days of the pricing period, we sold under the CEFF, 832,441 common shares for gross proceeds of $1.8 million. On April 18, 2008, subsequent to the first 4 days of the pricing period, we sold 777,057 shares of common stock for gross proceeds of $1.47 million. The pricing period ended on April 25, 2008, at which time we sold an additional 905,559 shares of common stock for gross proceeds of $1.47 million. As
of December 31, 2008, we have sold 3,284,830 shares of common stock to Kingsbridge. Kingsbridge holds no shares of common stock purchased pursuant to the CEFF; therefore, all shares sold are recorded in permanent equity.



In September 2001, our Board of Directors declared a dividend which was issued on September 28, 2001 of one preferred stock purchase right (a Right) for each share of common stock outstanding. The Rights initially trade with, and are inseparable from the common stock. The Rights will become exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the outstanding common stock of GenVec (an Acquiring Person), or announces the intention to commence a tender or exchange offer the consummation of which would result in that person or group becoming an Acquiring Person. Each Right allows its holder, other than the
Acquiring Person, to purchase from the Company one one-hundredth of a share of Series A junior participating preferred stock (the Preferred Share), at a purchase price of $50.00, subject to adjustment. This portion of a Preferred Share gives the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. The Rights expire on September 7, 2011, unless redeemed earlier by the Company at a price of $0.01 per Right at any time before the Rights become exercisable.



In addition to the common stock reflected on our balance sheets, the following items are reflected in the capital accounts as of December 31, 2008 and 2007:















4,400,000 shares of $0.001 par value preferred stock have been authorized; none are issued or outstanding.














600,000 shares of $0.001 par value Series A junior participating preferred stock have been authorized in connection with the preferred stock purchase rights referred to above; none are issued or outstanding.


(a) CAPITAL STOCK



In April 2005, we filed with the Securities and Exchange Commission a $35.0 million shelf registration statement on Form S-3, replacing our prior $25.0 million shelf registration statement.















On September 26, 2005, we sold 7,600,000 shares of common stock to various investors at $2.00 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $14.0 million. SG Cowen & Co., LLC (SG Cowen) was engaged as the sole placement agent for this transaction. At the time of this offering, Stelios Papadopoulos, Ph.D., was a Vice Chairman in the investment banking division of SG Cowen and was a member of our Board of Directors.














On December 21, 2006, we sold 9,610,000 shares of common stock to various investors at $2.05 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $18.3 million.




F-21












TABLE OF CONTENTS



GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS



(9) STOCKHOLDERS’ EQUITY  – (continued)



In February 2007, we filed a $100.0 million shelf registration statement on Form S-3 with the Securities and Exchange Commission. The shelf registration was declared effective February 12, 2007 and allows us to obtain financing through the issuance of any combination of common stock, preferred stock, warrants, or debt. On June 11, 2008, pursuant to this shelf registration statement, we completed a registered direct offering to various investors of 11,258,279 shares of common stock and warrants to purchase 2,251,653 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a
warrant to purchase 0.20 shares of common stock at a per unit price of $1.51. The warrants, which have a term of 5 years and an exercise price of $2.016 per share, have been valued using the Black-Scholes pricing model as of the closing date and have been accounted for in permanent equity. Proceeds of this offering, net of offering costs, totaled $15.7 million.



On March 15, 2006, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to $30.0 million of our common stock within a 3-year period, subject to certain conditions and limitations. The CEFF will expire on March 15, 2009. Due to the pricing formula, however, the actual amount of additional financing available to us under the CEFF may be substantially less than the committed amount. In particular, Kingsbridge is not obligated to purchase shares of common stock at a price lower than $1.25. In addition, the maximum number of shares we may issue under the CEFF is
12,375,050.



Under the CEFF, we may require Kingsbridge to purchase shares of common stock at prices between 88 percent and 92 percent of the volume weighted average price (VWAP) on each trading day during an 8-day pricing period. Settlement for sales under the CEFF takes place in two tranches after the fourth and eighth day of the pricing period. The value of the maximum number of shares the Company may issue in any pricing period is equal to the lesser of 1.75 percent of the Company’s market capitalization immediately prior to the commencement of the pricing period, or $5.0 million. The minimum VWAP for determining the purchase price at which our stock may
be sold in any pricing period is the greater of $1.25, or 75 percent of the closing price of our common stock on the day prior to the commencement of the pricing period. As required under the CEFF, we filed a resale registration statement with respect to the resale of shares issued pursuant to the CEFF and underlying the warrant, which was declared effective May 5, 2006. We are required to use commercially reasonable efforts to maintain its effectiveness.



As part of the arrangement, we issued a warrant to Kingsbridge to purchase 520,000 shares of our common stock at an exercise price equal to $2.67. The warrant became exercisable on September 15, 2006 and will remain exercisable until September 15, 2011. We have classified the warrant as a current liability for deferred financing costs, which is recorded at its fair value as determined under a Black-Scholes pricing model. Assuming a 2.75 year remaining life for the warrant, a 1.55 percent risk-free interest rate, and an 94.59 percent expected volatility and no dividend yield, the fair value of warrant liability as of December 31, 2008 was $35,000, a
decrease of $221,000 compared to the prior year. Changes in fair value are recorded against operations in the reporting period in which they occur; increases and decreases in fair value are recorded to interest expense.



The fair value of the warrant issued to Kingsbridge on the date of grant of $800,000 or $1.54 per share, was initially recorded as a deferred financing cost to additional paid-in capital, with the opposing entry being accrued to other expenses in the balance sheet. Such deferred financing costs are allocated to Kingsbridge shares on an as drawn basis. Through December 31, 2008, the current liability has been marked-to-market using the Black-Scholes option-pricing model. Changes in fair value are recorded against operations in the reporting period in which they occur; increases or decreases in fair value are recorded as interest expense. During 2008
and 2007, the decrease in the fair value of the warrant of $221,000 and $445,000, respectively, resulted in a decrease in interest expense. Stock drawn under the CEFF is initially recorded outside of permanent equity, until such time as Kingsbridge sells the shares to outside third parties, due to the existence of a cash payment feature in the agreement that compensates Kingsbridge based on any reduction in the fair value





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TABLE OF CONTENTS



GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS



(9) STOCKHOLDERS’ EQUITY  – (continued)



of shares held by Kingsbridge during a period in which GenVec fails to maintain the effectiveness of the abovementioned registration statement, or electively imposes a trading blackout (i.e., a registration payment arrangement). The amount of compensation is payable in cash in both circumstances, or, at the sole discretion of GenVec, in shares of the Company’s common stock in the event of a trading blackout. The Company follows the provisions of FASB Staff Position No. EITF 00-19-2,“Accounting for Registration Payment Arrangements,” which requires that contingent obligations to make future payments under a registration payment
arrangement be recognized and measured separately in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. The Company believes the likelihood of such a cash payment is not probable and therefore does not need to recognize a liability for such obligations.



In June 2007, we initiated our first draw against the CEFF. On June 26, 2007, subsequent to the first 4 days of the pricing period, the Company sold 769,773 common shares for gross proceeds of $1.8 million. On July 2, 2007, subsequent to the last 4 days of the pricing period, we sold under the CEFF, 832,441 common shares for gross proceeds of $1.8 million. On April 18, 2008, subsequent to the first 4 days of the pricing period, we sold 777,057 shares of common stock for gross proceeds of $1.47 million. The pricing period ended on April 25, 2008, at which time we sold an additional 905,559 shares of common stock for gross proceeds of $1.47 million. As
of December 31, 2008, we have sold 3,284,830 shares of common stock to Kingsbridge. Kingsbridge holds no shares of common stock purchased pursuant to the CEFF; therefore, all shares sold are recorded in permanent equity.



In September 2001, our Board of Directors declared a dividend which was issued on September 28, 2001 of one preferred stock purchase right (a Right) for each share of common stock outstanding. The Rights initially trade with, and are inseparable from the common stock. The Rights will become exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the outstanding common stock of GenVec (an Acquiring Person), or announces the intention to commence a tender or exchange offer the consummation of which would result in that person or group becoming an Acquiring Person. Each Right allows its holder, other than the
Acquiring Person, to purchase from the Company one one-hundredth of a share of Series A junior participating preferred stock (the Preferred Share), at a purchase price of $50.00, subject to adjustment. This portion of a Preferred Share gives the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. The Rights expire on September 7, 2011, unless redeemed earlier by the Company at a price of $0.01 per Right at any time before the Rights become exercisable.



In addition to the common stock reflected on our balance sheets, the following items are reflected in the capital accounts as of December 31, 2008 and 2007:















4,400,000 shares of $0.001 par value preferred stock have been authorized; none are issued or outstanding.














600,000 shares of $0.001 par value Series A junior participating preferred stock have been authorized in connection with the preferred stock purchase rights referred to above; none are issued or outstanding.


(a) CAPITAL STOCK



In April 2005, we filed with the Securities and Exchange Commission a $35.0 million shelf registration statement on Form S-3, replacing our prior $25.0 million shelf registration statement.















On September 26, 2005, we sold 7,600,000 shares of common stock to various investors at $2.00 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $14.0 million. SG Cowen & Co., LLC (SG Cowen) was engaged as the sole placement agent for this transaction. At the time of this offering, Stelios Papadopoulos, Ph.D., was a Vice Chairman in the investment banking division of SG Cowen and was a member of our Board of Directors.














On December 21, 2006, we sold 9,610,000 shares of common stock to various investors at $2.05 per share under the shelf registration. Proceeds, net of offering costs, from this sale totaled $18.3 million.




F-21












TABLE OF CONTENTS



GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS



(9) STOCKHOLDERS’ EQUITY  – (continued)



In February 2007, we filed a $100.0 million shelf registration statement on Form S-3 with the Securities and Exchange Commission. The shelf registration was declared effective February 12, 2007 and allows us to obtain financing through the issuance of any combination of common stock, preferred stock, warrants, or debt. On June 11, 2008, pursuant to this shelf registration statement, we completed a registered direct offering to various investors of 11,258,279 shares of common stock and warrants to purchase 2,251,653 shares of common stock. The shares of common stock and warrants were offered in units consisting of one share of common stock and a
warrant to purchase 0.20 shares of common stock at a per unit price of $1.51. The warrants, which have a term of 5 years and an exercise price of $2.016 per share, have been valued using the Black-Scholes pricing model as of the closing date and have been accounted for in permanent equity. Proceeds of this offering, net of offering costs, totaled $15.7 million.



On March 15, 2006, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to $30.0 million of our common stock within a 3-year period, subject to certain conditions and limitations. The CEFF will expire on March 15, 2009. Due to the pricing formula, however, the actual amount of additional financing available to us under the CEFF may be substantially less than the committed amount. In particular, Kingsbridge is not obligated to purchase shares of common stock at a price lower than $1.25. In addition, the maximum number of shares we may issue under the CEFF is
12,375,050.



Under the CEFF, we may require Kingsbridge to purchase shares of common stock at prices between 88 percent and 92 percent of the volume weighted average price (VWAP) on each trading day during an 8-day pricing period. Settlement for sales under the CEFF takes place in two tranches after the fourth and eighth day of the pricing period. The value of the maximum number of shares the Company may issue in any pricing period is equal to the lesser of 1.75 percent of the Company’s market capitalization immediately prior to the commencement of the pricing period, or $5.0 million. The minimum VWAP for determining the purchase price at which our stock may
be sold in any pricing period is the greater of $1.25, or 75 percent of the closing price of our common stock on the day prior to the commencement of the pricing period. As required under the CEFF, we filed a resale registration statement with respect to the resale of shares issued pursuant to the CEFF and underlying the warrant, which was declared effective May 5, 2006. We are required to use commercially reasonable efforts to maintain its effectiveness.



As part of the arrangement, we issued a warrant to Kingsbridge to purchase 520,000 shares of our common stock at an exercise price equal to $2.67. The warrant became exercisable on September 15, 2006 and will remain exercisable until September 15, 2011. We have classified the warrant as a current liability for deferred financing costs, which is recorded at its fair value as determined under a Black-Scholes pricing model. Assuming a 2.75 year remaining life for the warrant, a 1.55 percent risk-free interest rate, and an 94.59 percent expected volatility and no dividend yield, the fair value of warrant liability as of December 31, 2008 was $35,000, a
decrease of $221,000 compared to the prior year. Changes in fair value are recorded against operations in the reporting period in which they occur; increases and decreases in fair value are recorded to interest expense.



The fair value of the warrant issued to Kingsbridge on the date of grant of $800,000 or $1.54 per share, was initially recorded as a deferred financing cost to additional paid-in capital, with the opposing entry being accrued to other expenses in the balance sheet. Such deferred financing costs are allocated to Kingsbridge shares on an as drawn basis. Through December 31, 2008, the current liability has been marked-to-market using the Black-Scholes option-pricing model. Changes in fair value are recorded against operations in the reporting period in which they occur; increases or decreases in fair value are recorded as interest expense. During 2008
and 2007, the decrease in the fair value of the warrant of $221,000 and $445,000, respectively, resulted in a decrease in interest expense. Stock drawn under the CEFF is initially recorded outside of permanent equity, until such time as Kingsbridge sells the shares to outside third parties, due to the existence of a cash payment feature in the agreement that compensates Kingsbridge based on any reduction in the fair value





F-22












TABLE OF CONTENTS



GENVEC, INC.
  
NOTES TO FINANCIAL STATEMENTS



(9) STOCKHOLDERS’ EQUITY  – (continued)



of shares held by Kingsbridge during a period in which GenVec fails to maintain the effectiveness of the abovementioned registration statement, or electively imposes a trading blackout (i.e., a registration payment arrangement). The amount of compensation is payable in cash in both circumstances, or, at the sole discretion of GenVec, in shares of the Company’s common stock in the event of a trading blackout. The Company follows the provisions of FASB Staff Position No. EITF 00-19-2,“Accounting for Registration Payment Arrangements,” which requires that contingent obligations to make future payments under a registration payment
arrangement be recognized and measured separately in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. The Company believes the likelihood of such a cash payment is not probable and therefore does not need to recognize a liability for such obligations.



In June 2007, we initiated our first draw against the CEFF. On June 26, 2007, subsequent to the first 4 days of the pricing period, the Company sold 769,773 common shares for gross proceeds of $1.8 million. On July 2, 2007, subsequent to the last 4 days of the pricing period, we sold under the CEFF, 832,441 common shares for gross proceeds of $1.8 million. On April 18, 2008, subsequent to the first 4 days of the pricing period, we sold 777,057 shares of common stock for gross proceeds of $1.47 million. The pricing period ended on April 25, 2008, at which time we sold an additional 905,559 shares of common stock for gross proceeds of $1.47 million. As
of December 31, 2008, we have sold 3,284,830 shares of common stock to Kingsbridge. Kingsbridge holds no shares of common stock purchased pursuant to the CEFF; therefore, all shares sold are recorded in permanent equity.



In September 2001, our Board of Directors declared a dividend which was issued on September 28, 2001 of one preferred stock purchase right (a Right) for each share of common stock outstanding. The Rights initially trade with, and are inseparable from the common stock. The Rights will become exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the outstanding common stock of GenVec (an Acquiring Person), or announces the intention to commence a tender or exchange offer the consummation of which would result in that person or group becoming an Acquiring Person. Each Right allows its holder, other than the
Acquiring Person, to purchase from the Company one one-hundredth of a share of Series A junior participating preferred stock (the Preferred Share), at a purchase price of $50.00, subject to adjustment. This portion of a Preferred Share gives the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. The Rights expire on September 7, 2011, unless redeemed earlier by the Company at a price of $0.01 per Right at any time before the Rights become exercisable.



In addition to the common stock reflected on our balance sheets, the following items are reflected in the capital accounts as of December 31, 2008 and 2007:















4,400,000 shares of $0.001 par value preferred stock have been authorized; none are issued or outstanding.














600,000 shares of $0.001 par value Series A junior participating preferred stock have been authorized in connection with the preferred stock purchase rights referred to above; none are issued or outstanding.


EXCERPTS ON THIS PAGE:

10-K (5 sections)
Mar 16, 2009
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