Temporary Equity

Series A and A-2 Preferred Stock

On May 13, 2011 and August 5, 2011, the Company issued 280 thousand shares of Series A Preferred Stock and 120 thousand shares of Series A-2 Preferred Stock, respectively, in private placements pursuant to securities purchase agreements, for aggregate gross proceeds of $400.0. The Preferred Stock (i) is redeemable for cash (or, if a holder does not elect cash, automatically converted into common stock) on May 13, 2018, (ii) is convertible into the Company’s common stock at an initial conversion price of $6.50 per share for the Series A and $7.00 per share for the Series A-2, both subject to anti-dilution adjustments, (iii) has a liquidation preference of the greater of 150% of the purchase price or the value that would be received if it were converted into common stock, (iv) accrues a cumulative quarterly cash dividend at an annualized rate of 8% and (v) has a quarterly non-cash principal accretion at an annualized rate of 4% that will be reduced to 2% or 0% if the Company achieves specified rates of growth measured by increases in its net asset value. Effective April 1, 2012, and October 1, 2012, such accretion rate was reduced from, respectively, 4% to 2% for the remainder of Fiscal 2012, and then from 2% to 0% for the period subsequent to Fiscal 2012, as a result of achieving a specified level of growth in the Company’s net asset value as calculated in accordance with the terms of the certificates of designation governing the Preferred Stock. The Preferred Stock is entitled to vote, subject to certain regulatory limitations, and to receive cash dividends and in-kind distributions on an as-converted basis with the common stock.

During Fiscal 2013 the Company received and duly executed requests to convert a total of 6 thousand shares of Series A-2 Preferred Stock, resulting in the issuance of 852 thousand shares of the Company’s common stock.

If the Company were to issue certain equity securities at a price lower than the conversion price of the respective series of Preferred Stock, the conversion price would be adjusted downward to reflect the dilutive effect of the newly issued equity securities (a “down round” provision). Therefore, as discussed further in Note 2, the conversion feature required bifurcation and must be separately accounted for at fair value with any changes in fair value reported in current earnings.

As of the respective issuance dates, the Company determined the fair values of the bifurcated conversion feature were approximately $85.7 for the Series A Preferred Stock and approximately $17.6 for the Series A-2 Preferred Stock. The residual $296.7 aggregate value of the host contracts, less $14.1 of issuance costs, has been classified as temporary equity, as the securities are redeemable at the option of the holder and upon the occurrence of an event that is not solely within the control of the issuer. The resulting $117.4 difference between the issuance price and initial carrying value of $282.6 is being accreted to “Preferred stock dividends and accretion” in the accompanying Consolidated Statements of Operations using the effective interest method over the Preferred Stock’s contractual/expected life of approximately seven years through May 13, 2018.

The carrying value of Preferred Stock reflects the following components:



	Series A (280 shares)			Series A-2 (120 shares)			Total
Initial issuance price in Fiscal 2011	$	280.0		$	120.0		$	400.0
Principal accretion:
Fiscal 2011	4.3			0.7			5.0
Fiscal 2012	8.6			3.7			12.3
Fiscal 2013	—			—			—
Cumulative principal accretion	12.9			4.4			17.3
Redemption value of preferred stock converted into common stock upon election of holder	—			(5.9		)	(5.9		)
Redemption value as of September 30, 2013	292.9			118.5			411.4
Bifurcation of embedded conversion feature at issuance	(85.7		)	(17.6		)	(103.3		)
Issuance costs	(11.1		)	(3.0		)	(14.1		)
Accretion:
Fiscal 2011	4.2			0.5			4.7
Fiscal 2012	11.7			2.8			14.5
Fiscal 2013	12.4			3.7			16.1
Carrying value of Preferred Stock as of September 30, 2013	$	224.4		$	104.9		$	329.3

EXCO/HGI JV Class B Redeemable Common Units

Also included in Temporary Equity is $0.1 million of Class B Redeemable Common Units issued by the EXCO/HGI JV under the terms of its incentive plan (“Incentive Unit Plan”.) For additional information regarding the Incentive Unit Plan and the units issued thereunder, refer to Note 22, “Stock Compensation”.