Note 7 — Stockholders’ Equity (Deficit)

Class A Preferred Shares

On September 13, 2016, the Class A Common Stock was eliminated and 2,000,000 shares of Preferred Stock were authorized, of which 250,000 have been designated as Class A Preferred Stock and the remainder are undesignated preferred stock. The Class A Preferred Stock, with a par value of $0.0001 per share, is identical to undesignated Common Stock other than as to voting rights, conversion rights, and the PIK Dividend right (as described below). The undesignated Preferred Stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to determine or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions, if any), the redemption price or prices, the liquidation preferences and other designations, powers, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock (but not below the number of shares of any such series then outstanding).

Pursuant to the Company’s Second Amended and Restated Certificate of Incorporation, the holders of the outstanding shares of Class A Preferred Stock shall receive on each February 17 (each a “PIK Dividend Payment Date”) after the original issuance date of the Class A Preferred Stock until the date all outstanding Class A Preferred Stock is converted into Common Stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of Common Stock (such dividend being herein called “PIK Dividends”) such that the aggregate number of shares of Common Stock issued pursuant to such PIK Dividend is equal to two and one-half percent (2.5%) of the Corporation’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date (“PIK Record Date”). In the event the Class A Preferred Stock converts into Common Stock, the holders shall receive all PIK Dividends accrued through the date of such conversion. No dividend or other distribution shall be paid, or declared and set apart for payment (other than dividends payable solely in capital stock on the capital stock of the Company) on the shares of Common Stock until all PIK Dividends on the Class A Preferred Stock shall have been paid or declared and set apart for payment. All dividends are non-cumulative. On June 13, 2018, the Company’s Stockholders adopted an amendment to the Company’s Third Amended and Restated Certificate of Incorporation amending the PIK Dividend Payment Date going forward to January 1 of each year. This PIK Dividend was waived in connection with the Waiver Agreement signed on November 12, 2018 between Avenue, Fortress and InvaGen.

On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Class A Preferred Stock shall be entitled to cast for each share of Class A Preferred Stock held by such holder as of the record date for determining stockholders entitled to vote on such matter, the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the number of shares of outstanding Common Stock and (B) the whole shares of Common Stock in to which the shares of outstanding Class A Common Stock and the Class A Preferred Stock are convertible, and the denominator of which is number of shares of outstanding Class A Preferred Stock (the “Class A Preferred Stock Ratio”). Thus, the Class A Preferred Stock will at all times constitute a voting majority.

Each share of Class A Preferred Stock is convertible, at the option of the holder, into one fully paid and nonassessable share of Common Stock (the “Conversion Ratio”), subject to certain adjustments. If the Company, at any time effects a subdivision or combination of the outstanding Common Stock (by any stock split, stock dividend, recapitalization, reverse stock split or otherwise), the applicable Conversion Ratio in effect immediately before that subdivision is proportionately decreased or increased, as applicable, so that the number of shares of Common Stock issuable on conversion of each share of Class A Preferred Stock shall be increased or decreased, a applicable, in proportion to such increase or decrease in the aggregate number of shares of Common Stock outstanding. Additionally, if any reorganization, recapitalization, reclassification, consolidation or merger involving the Company occurs in which the Common Stock (but not the Class A Preferred Stock) is converted into or exchanged for securities, cash or other property, then each share of Class A Preferred Stock becomes convertible into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Company issuable upon conversion of one share of the Class A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction.

Common Stock

As of December 31, 2019, the Company’s authorized capital stock consists of 50,000,000 shares of common stock, with $0.0001 par value, and 2,000,000 shares of Preferred Stock, with $0.0001 par value, of which 250,000 have been designated as Class A Preferred Stock and the remainder are undesignated Preferred Stock.

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our Board of Directors, subject to any preferential dividend rights of outstanding preferred stock.

In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Awards to Fortress

Pursuant to the Company’s Third Amended and Restated Certificates of Incorporation, on February 17, 2018, the Company issued 273,837 shares of common stock to Fortress, which equaled to 2.5% of the fully diluted outstanding equity of Avenue at the time of issuance for the annual stock dividend.

Equity Incentive Plan

The Company has in effect the 2015 Incentive Plan (“2015 Incentive Plan’). The 2015 Incentive Plan was adopted in January 2015 by our stockholders. Under the 2015 Incentive Plan, the compensation committee of the Company’s board of directors is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan authorizes grants to issue up to 2,000,000 shares of authorized but unissued common stock and expires 10 years from adoption and limits the term of each option to no more than 10 years from the date of grant.

Total shares available for the issuance of stock-based awards under the Company’s 2015 Incentive Plan was 405,849 shares at December 31, 2019.

Restricted Stock Units and Restricted Stock Awards

The following table summarizes restricted stock unit and award activity for the year ended December 31, 2019:

 

For the years ended December 31, 2019 and 2018 stock-based compensation expenses associated with the amortization of restricted stock units and restricted stock awards for employees and non-employees were approximately $1.8 million and $1.5 million, respectively.

For the years ended December 31, 2019, and 2018, the weighted average grant date fair value of restricted stock units and awards granted was $5.95 and $3.48, respectively. The total fair value of restricted stock units and awards that vested during the years ended December 31, 2019 and 2018 was $1.2 million and $0.1 million, respectively.

At December 31, 2019, the Company had unrecognized stock-based compensation expense related to restricted stock units and restricted stock awards of $1.1 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.3 years. This amount does not include, as of December 31, 2019, 311,173 shares of restricted stock outstanding which are performance-based and vest upon achievement of certain corporate milestones. The expense is recognized over the vesting period of the award. Stock-based compensation for milestone awards will be measured and recorded if and when it is probable that the milestone will be achieved.

On November 12, 2018, the Company and Dr. Lucy Lu entered into an amendment to the Executive Employment Agreement, dated June 10, 2015 (“the Employment Agreement”), pursuant to which the Dr. Lu. shall be vested in one hundred percent (100%) of all unvested equity rewards in the event of the termination of the Executive Employment Agreement upon her death, complete disability, termination without cause or resignation for good reason not in connection with a change of control (other than certain equity awards which may be granted following the SPMA). Pursuant to the amendment, the Executive’s separation benefits following her termination without cause or resignation for good reason in connection with a change of control (100% vesting) is subject to an additional condition that Dr. Lu has not entered into a new employment agreement with the Company’s acquirer or an affiliate thereof. Dr. Lu’s original Employment Agreement provided for accelerated vesting of only those unvested shares that would have vested in the upcoming year upon death or disability, termination without cause outside of a change in control, or resignation for good reason outside of a change in control. As this modification does not affect the fair value of the award, no adjustment to compensation cost is necessary. Any acceleration of vesting upon the events described above will result in a recognition of the remaining compensation cost associated with the award.

Stock Options

On August 15, 2017, 20,000 stock options were granted to a consultant under the 2015 Incentive Plan. These options were cancelled in January 2019 as the vesting criteria pertaining to the price of the Company's stock was not met by the deadline.

The following table summarizes stock option award activity for the year ended December 31, 2019:

 

Stock Warrants

On June 26, 2017, sufficient equity capital was raised so that the Company had cash equal to five times the amount of the portion of the proceeds of a note  payable with National Securities, Inc. The note payable was fully paid off in 2017. As a result, the Company issued warrants for 125,000 common shares with an exercise price of par value and a ten-year term.

On June 26, 2017, in connection with the automatic conversion of its convertible notes with WestPark Capital, Inc. which automatically converted upon the closing of the IPO, the Company issued 2,488 warrants at an exercise price of $4.02 and a ten-year term. Pursuant to the terms of the note agreement, the exercise price represents the price at which the notes converted, which is equal to a 33% discount to the IPO price of $6.00 per share.

The following table summarizes the warrant activity for the year ended December 31, 2019: