TPTX » Topics » 6. Redeemable Convertible Preferred Stock

These excerpts taken from the TPTX 10-K filed Mar 31, 2008.

8. Redeemable Convertible Preferred Stock

        Beginning in 2000 and continuing until 2006, we issued redeemable convertible preferred stock which was convertible at the option of the holder on a one-for-one basis into shares of common stock. The holder of each share of redeemable convertible preferred stock was entitled to one vote for each share of common stock into which it would have converted.

        We increased the carrying amount of the redeemable convertible preferred stock by periodic accretions related to offering costs and the fair value of the warrants and the related beneficial conversion feature, so that the carrying amount would have equaled the minimum redemption value on the earliest redemption date. Increases in the carrying amount of the redeemable convertible preferred stock were recorded as increases in our accumulated deficit.

        Holders of the redeemable convertible preferred stock had parity with holders of common stock on an as-if converted basis for all dividends declared by the Board of Directors. Holders of the redeemable convertible preferred stock were entitled to cash dividends, which accrued at the rate of 6% of the applicable original issue price per annum, compounded annually. The dividends were cumulative and payable when and if declared by the Board of Directors.

        In the event of liquidation, the holders of the redeemable convertible preferred stock would have received a liquidation preference equal to the original issuance price plus accrued but unpaid dividends.

F-17


TorreyPines Therapeutics, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2007

8. Redeemable Convertible Preferred Stock (Continued)


The liquidation preference had priority over all distributions to common stockholders. After payment of the liquidation preference, all remaining assets from liquidation, if any, were to be distributed to the holders of the redeemable convertible preferred stock and the common stock according to the number of shares held.

        On October 3, 2006, pursuant to the Merger, the outstanding shares of redeemable convertible preferred stock were exchanged for a total of 7,958,059 shares of common stock, and warrants to purchase 1,500,000 shares of common stock. On October 3, 2006, the carrying amount of the redeemable convertible preferred stock was increased by $342,000, the amount of unamortized issuance costs as of that date. Upon the exchange of the redeemable convertible preferred stock for common stock we reversed a total of $13,958,000 of redeemable convertible preferred stock dividends accrued through October 3, 2006. As of December 31, 2007, there are no issued or outstanding shares of redeemable convertible preferred stock.

        The following is a summary of the redeemable convertible preferred stock exchanged for common stock in the Merger:

Description
  Share Price
  Total Shares
Series A   $ 5.60   1,429,617
Series B     9.24   2,068,455
Series C     9.24   3,770,951
Series C-2     9.24   689,036
         
Total redeemable convertible preferred stock exchanged for common stock         7,958,059
         

8. Redeemable Convertible Preferred Stock



        Beginning in 2000 and continuing until 2006, we issued redeemable convertible preferred stock which was convertible at the option of the holder on a
one-for-one basis into shares of common stock. The holder of each share of redeemable convertible preferred stock was entitled to one vote for each share of common stock into
which it would have converted.



        We
increased the carrying amount of the redeemable convertible preferred stock by periodic accretions related to offering costs and the fair value of the warrants and the related
beneficial conversion feature, so that the carrying amount would have equaled the minimum redemption value on the earliest redemption date. Increases in the carrying amount of the redeemable
convertible preferred stock were recorded as increases in our accumulated deficit.



        Holders
of the redeemable convertible preferred stock had parity with holders of common stock on an as-if converted basis for all dividends declared by the Board of
Directors. Holders of the redeemable convertible preferred stock were entitled to cash dividends, which accrued at the rate of 6% of the applicable original issue price per annum, compounded annually.
The dividends were cumulative and payable when and if declared by the Board of Directors.




        In
the event of liquidation, the holders of the redeemable convertible preferred stock would have received a liquidation preference equal to the original issuance price plus accrued but
unpaid dividends.



F-17








TorreyPines Therapeutics, Inc.



Notes to Consolidated Financial Statements (Continued)



December 31, 2007



8. Redeemable Convertible Preferred Stock (Continued)






The
liquidation preference had priority over all distributions to common stockholders. After payment of the liquidation preference, all remaining assets from liquidation, if any, were to be
distributed to the holders of the redeemable convertible preferred stock and the common stock according to the number of shares held.



        On
October 3, 2006, pursuant to the Merger, the outstanding shares of redeemable convertible preferred stock were exchanged for a total of 7,958,059 shares of common stock, and
warrants to purchase 1,500,000 shares of common stock. On October 3, 2006, the carrying amount of the redeemable convertible preferred stock was increased by $342,000, the amount of unamortized
issuance
costs as of that date. Upon the exchange of the redeemable convertible preferred stock for common stock we reversed a total of $13,958,000 of redeemable convertible preferred stock dividends accrued
through October 3, 2006. As of December 31, 2007, there are no issued or outstanding shares of redeemable convertible preferred stock.



        The
following is a summary of the redeemable convertible preferred stock exchanged for common stock in the Merger:




































































Description
 Share Price
 Total Shares
Series A $5.60 1,429,617
Series B  9.24 2,068,455
Series C  9.24 3,770,951
Series C-2  9.24 689,036
     
Total redeemable convertible preferred stock exchanged for common stock    7,958,059
     




This excerpt taken from the TPTX 10-K filed Mar 29, 2007.

8.   Redeemable Convertible Preferred Stock

In September 2000, the Company issued 1,428,271 shares of Series A Redeemable Convertible Preferred Stock at $5.60 per share, for proceeds of $7,914,827, net of issuance costs of $85,173. This included the conversion of a bridge loan received in May 2000, plus accrued interest, in the aggregate amount of $404,419. During 2006, a warrant for shares of Series A Redeemable Convertible Preferred Stock was exercised via a net exercise resulting in the issuance of 1,346 shares of Series A Redeemable Convertible Preferred Stock.

In June 2001, the Company issued 979,813 shares of Series B Redeemable Convertible Preferred Stock at $9.24 per share, for proceeds of $9,006,788, net of issuance costs of $43,210. In September 2002, the Company issued an additional 1,088,647 shares of the Series B Redeemable Convertible Preferred Stock at $9.24 per share for proceeds of $10,016,202, net of issuance costs of $39,042. In October 2003, the Company issued an additional 544,613 shares of the Series B Redeemable Convertible Preferred Stock at $9.24 per share for proceeds of $4,968,261, net of issuance costs of $62,038. The Company also issued warrants in conjunction with this stock issuance. The warrants were valued using the Black-Scholes model (see Note 9). The fair value of the warrants ($134,141) and the value of the related beneficial conversion feature ($134,141) were recorded as issuance costs and are being accreted over the redemption period. The total fair value of the warrants and the value of the related beneficial conversion feature is $268,282.

In September and November 2004, the Company issued 3,226,346 shares of Series C Redeemable Convertible Preferred Stock at $9.24 per share, for proceeds of $29,185,098, net of issuance costs of $614,899.

In September 2004, 544,613 shares of Series B Redeemable Convertible Preferred Stock were exchanged for 544,613 shares of Series C Redeemable Convertible Preferred Stock. As a result of the exchange, accrued dividends of $272,475 relating to these Series B shares were reversed. The remaining balance of the issuance costs and the remaining balance of the fair value of the warrants and the beneficial conversion feature are being accreted over the redemption period of the Series C Redeemable Convertible Preferred Stock.

In June 2006, the Company issued 689,036 shares of Series C-2 Redeemable Convertible Preferred Stock at $9.24 per share, for proceeds of $6,322,165, net of issuance costs of $42,104.

F-18




TorreyPines Therapeutics, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2006

These excerpts taken from the TPTX 8-K filed Dec 13, 2006.

5. Redeemable Convertible Preferred Stock

In June 2006, the Company issued 4,242,846 shares of Series C-2 Redeemable Convertible Preferred Stock at $1.50 per share, for proceeds of $6,322,165, net of issuance costs of $42,104.  The terms of the Series C-2 Redeemable Convertible Preferred Stock are identical to the terms of the Company’s Series A, Series B and Series C Redeemable Convertible Preferred Stock disclosed in the consolidated financial statements for the year ended December 31, 2005 that are filed as Exhibit 99.1 to this form 8-K/A.  The Company is increasing the carrying amount of the redeemable convertible preferred stock by periodic accretions related to offering costs and the fair value of warrants issued in connection with the Series B Redeemable Convertible Preferred Stock and the related beneficial conversion feature, so that the carrying amount will equal the minimum redemption value on the earliest redemption date.  Increases in the carrying amount of the redeemable convertible preferred stock are recorded as increases in the Company's accumulated deficit.  In connection with the June 2006 issuance of Series C-2 Redeemable Convertible Preferred Stock, the Company amended the Shareholder’s Rights Agreement underlying the Series A, Series B and Series C Redeemable Convertible Preferred Stock to extend the redemption date of these shares to July 14, 2008.   The unamortized offering costs, fair value of warrants and related beneficial conversion feature are being accreted through July 14, 2008.

6. Redeemable Convertible Preferred Stock

In September 2000, the Company issued 8,794,800 shares of Series A Redeemable Convertible Preferred Stock at $0.91 per share, for proceeds of $7,914,827, net of issuance costs of $85,173. This included the conversion of a bridge loan received in May 2000, plus accrued interest, in the aggregate amount of $404,419.

In June 2001, the Company issued 6,033,332 shares of Series B Redeemable Convertible Preferred Stock at $1.50 per share, for proceeds of $9,006,788, net of issuance costs of $43,210. In September 2002, the Company issued an additional 6,703,496 shares of the Series B Redeemable Convertible Preferred Stock at $1.50 per share for proceeds of $10,016,202, net of issuance costs of $39,042. In October 2003, the Company issued an additional 3,353,534 shares of the Series B Redeemable Convertible Preferred Stock at $1.50 per share for proceeds of $4,968,261, net of issuance costs of $62,038. The Company also issued warrants in conjunction with this stock issuance. The warrants were valued using the Black-Scholes model (see Note 7). The fair value of the warrants ($134,141) and the value of the related beneficial conversion feature ($134,141) were recorded as issuance costs and are being accreted over the redemption period. The total fair value of the warrants and the value of the related beneficial conversion feature is $268,282.

In September and November 2004, the Company issued 19,866,665 shares of Series C Redeemable Convertible Preferred Stock at $1.50 per share, for proceeds of $29,185,098, net of issuance costs of $614,899.

In September 2004, 3,353,534 shares of Series B Redeemable Convertible Preferred Stock were exchanged for 3,353,534 shares of Series C Redeemable Convertible Preferred Stock. As a result of the exchange, accrued dividends of $272,475 relating to these Series B shares were reversed. The remaining balance of the issuance costs and the remaining balance of the fair value of the warrants and the beneficial conversion feature are being accreted over the redemption period of the Series C Redeemable Convertible Preferred Stock.

The redeemable convertible preferred stock is convertible at the option of the holder on a one-for-one basis into shares of common stock. In addition, the redeemable convertible preferred stock will automatically convert into common shares upon the closing of an underwritten public offering of equity securities which results in gross proceeds of at least $40,000,000, at a per share price of not less than $4.50 per share. The holder of each share of redeemable convertible preferred stock is entitled to one vote for each share of common stock into which it would convert. On or after July 14, 2007, the holders of the redeemable convertible preferred stock may elect to have the Company redeem all or part of the shares at a price equal to the original issue price plus accrued and unpaid dividends.

The Company is increasing the carrying amount of the redeemable convertible preferred stock by periodic accretions related to offering costs and the fair value of the warrants and the related beneficial conversion feature, so that the carrying amount will equal the minimum redemption value on the earliest redemption date. Increases in the carrying amount of the redeemable convertible preferred stock are recorded as increases in the Company’s accumulated deficit.

Holders of the redeemable convertible preferred stock have parity with holders of common stock on an as-if converted basis for all dividends declared by the Board of Directors. Holders of the redeemable convertible preferred stock are entitled to cash dividends, which accrue at the rate of 6%

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of the applicable original issue price per annum, compounded annually. The dividends are cumulative and payable when, and if declared by the Board of Directors.

In the event of liquidation, the holders of the redeemable convertible preferred stock receive a liquidation preference equal to the original issuance price plus accrued but unpaid dividends. The liquidation preference has priority over all distributions to common stockholders. After payment of the liquidation preference, all remaining assets from liquidation, if any, are to be distributed to the holders of the redeemable convertible preferred stock and the common stock according to the number of shares held.

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