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Warrants And Other Derivatives
 3 Months Ended
Jun. 30, 2012
Warrants And Other Derivatives [Abstract]  
Warrants And Other Derivatives

11. Warrants and Derivative Liabilities

     On April 4, 2012, the Company entered into a Securities Purchase Agreement as described in Note 10, which included a warrant to purchase 3.1 million shares of the Company's common stock. The warrant is exercisable at any time on or after the date that is six months after the issuance of the warrant and entitles CVI to purchase shares of the Company's common stock for a period of five years from the initial date the warrant becomes exercisable at a price equal to $5.45 per share, subject to certain price-based and other anti-dilution adjustments. The warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates would beneficially own in excess of 4.99% of the Company's common stock. This percentage may be raised to any other percentage not in excess of 9.99% at the option of the holder of the warrant, upon at least 61-days' prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time.

     The Company accounts for the warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as a change in fair value in other income (expense) until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. The Company used the Black-Scholes option pricing model to calculate the fair value of the warrant, using the following assumptions:

  April 4,   June 30,  
  2012   2012  
Risk-free interest rate 1.19 % 0.77 %
Expected annual dividend yield 0.0 % 0.0 %
Expected volatility 80.0 % 80.84 %
Term 5.5 years   5.28 years  
Fair Value $7.0 million   $8.5 million  

 

     The Company recorded the change in the fair value of the CVI warrant of $1.5 million to change in fair value of derivatives and warrants in the three months ended June 30, 2012.

 

     The Company determined certain embedded derivatives issued with the Convertible Notes required accounting as a liability, which requires they be accounted for as a standalone liability subject to revaluation at each balance sheet date with changes in fair value recorded as change in fair value of derivatives and warrants until the earlier of exercise or expiration.

     The Company calculated the fair value of the derivative liabilities bifurcated from the Convertible Notes (see Note 10, "Debt") utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option's life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. Following is a summary of the key assumptions used to value the convertible note derivative feature:

  April 4,   June 30,  
  2012   2012  
 
Expected Volatility 75.0 % 71.0 %
Risk Free Rate 0.44 % 0.33 %
Bond Yield 15.0 % 16.0 %
Recovery Rate 30.0 % 30.0 %
Redeemable yes   yes  
Total Time (years) 2.5   2.28  
Dilution Effect yes   yes  
Indicated Percent of Par 117.0 % 121.0 %
Fair Value $3.7 million   $4.5 million  

 

     The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company's common stock and the implied volatility of the Company's traded options. To determine the risk-free interest rate an interpolated rate was used based on the two and three year United States Treasury rates. The bond yield was estimated by comparing comparable corporate debt and yield information. The recovery rate of the Convertible Note was estimated by reviewing historical corporate debt that went into default. The bond is redeemable by the Company at any point after the one-year anniversary of the grant date provided certain provisions within the note. The total time is based on the actual contractual terms, 30 months. It was determined that there is a dilution effect based on the Company's ability to make payments in shares of common stock.

     The Company recorded the change in the fair value of the derivative liabilities of $0.8 million to changes in fair value of derivatives and warrants in the three months ended June 30, 2012.

     On June 5, 2012, the Company entered into a Loan and Security Agreement with Hercules (see Note 10, "Debt", for additional information regarding the Loan and Security Agreement). In conjunction with this agreement, the Company issued a warrant to purchase approximately 139,000 shares of the Company's common stock. The warrant is exercisable at any time after the issuance of the warrant and entitles Hercules to purchase shares of the Company's common stock for a period of five and half years from the initial date the warrant becomes exercisable at a price equal to $3.59 per share subject to certain price-based and other anti-dilution adjustments.

     The Company accounts for the warrant as a liability due to certain provisions within the warrant, which requires that it be recorded at fair value. The warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as changes in fair value of derivatives and warrant until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. The Company calculated the fair value of the warrant using the Black-Scholes option pricing model to value the warrant, using the following assumptions:

  June 5,   June 30,  
  2012   2012  
Risk-free interest rate 0.77 % 0.80 %
Expected annual dividend yield 0.0 % 0.0 %
Expected volatility 79.9 % 80.32 %

 

 

  June 5, June 30,
  2012 2012
Term 5.5 years 5.44 years
Fair Value $0.4 million $0.5 million

 

     The company prepared their estimates for the assumptions used to determine the fair value of the warrants issued in conjunction with both the Convertible Note and Term Loan utilizing the respective terms of the warrants with similar inputs under the Black Scholes valuation method more fully described in Note 2.

     The company recorded the change in the fair value of the Hercules warrant of $0.1 million to changes in fair value of derivatives and warrants in the three months ended June 30, 2012.