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Stockholders' Equity
 3 Months Ended
Mar. 31, 2014
Stockholders' Equity

Note 10. Stockholders’ Equity

Common Stock and Associated Warrant Liability

In August 2009, the Company issued warrants to purchase 2.4 million shares of common stock, exercisable at an exercise price of $2.90 per share (“2009 Warrants”). The 2009 Warrants are exercisable for a period of five years from the issue date. The fair value on the date of issuance of the 2009 Warrants was determined to be $2.8 million using the Black-Scholes model and/or binomial-lattice option valuation model and applying the following assumptions: (i) a risk-free rate of 2.48%, (ii) an expected term of 5.0 years, (iii) no dividend yield and (iv) a volatility of 77%.

In November 2010, the Company received net proceeds of approximately $19.7 million, after deducting underwriting discounts and commissions and stock issuance costs of approximately $1.3 million, from an underwritten public offering of 7.4 million units. Each unit sold consisted of one share of common stock and a warrant to purchase 1/2 of a share of common stock. Each unit was sold for $2.85, resulting in the issuance of 7.4 million shares of common stock and warrants to purchase 3.7 million shares of common stock, exercisable at an exercise price of $3.20 per share (“2010 Warrants”). The warrants issued in November 2010 became exercisable on May 15, 2011 and are exercisable for a period of five years from the issue date. The fair value on the date of issuance of the 2010 Warrants was determined to be $5.8 million using the Black-Scholes model and/or binomial-lattice option valuation model and applying the following assumptions: (i) a risk-free rate of 1.23%, (ii) an expected term of 5.0 years, (iii) no dividend yield and (iv) a volatility of 85%.

The fair value of the 2009 Warrants and 2010 Warrants was recorded on the consolidated balance sheets as a liability pursuant to “Accounting for Derivative Instruments and Hedging Activities” and “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” Topics of ASC and will be adjusted to fair value at each financial reporting date thereafter until the earlier of exercise or modification to remove the provisions which require the warrants to be treated as a liability, at which time, these warrants would be reclassified into stockholders’ equity. The Company classified the 2009 Warrants and 2010 Warrants as a liability as these warrants contain certain provisions that, under certain circumstances, which may be out of the Company’s control, could require the Company to pay cash to settle the exercise of the warrants or may require the Company to redeem the warrants.

The fair value of the warrants at March 31, 2014 and December 31, 2013 consisted of the following (in thousands):

 

     March 31,
2014		      December 31,
2013		  

2009 Warrants

    $ 4,637       $ 8,542   

2010 Warrants

      6,719         11,848   
  

 

 

     

 

 

  

Total warrant liability

    $ 11,356       $ 20,390   
  

 

 

     

 

 

  

The fair value of the Company’s warrants was based on using the binomial-lattice option valuation model and using the following assumptions at March 31, 2014 and December 31, 2013:

 

     March 31,
2014		     December 31,
2013		  

2009 Warrants:

     

Expected term (in years)

      0.40        0.65   

Estimated volatility

      52 %      45 % 

Risk-free interest rate

      0.07 %      0.10 % 

Expected dividend yield

      0 %      0 % 

2010 Warrants:

     

Expected term (in years)

      1.61        1.86   

Estimated volatility

      45 %      41 % 

Risk-free interest rate

      0.44 %      0.38 % 

Expected dividend yield

      0 %      0 % 

The Company recorded a non-cash gain of $9.0 million and a non-cash loss of $5.1 million during the three months ended March 31, 2014, and 2013, respectively, in “Gain (Loss) from Revaluation of warrant liability” on the condensed consolidated statements of operations due to the changes in fair value of the warrants. Significant changes to the Company’s market price for its common stock will impact the implied and/or historical volatility used to fair value the warrants. Any significant increases in the Company’s stock price will likely create an increase to the fair value of warrant liability. Similarly, any significant decreases in the Company’s stock price will likely create a decrease to the fair value of warrant liability. During the three months ended March 31, 2014, there were no exercises of these warrants. In 2013, warrants to purchase 186,586 shares of common stock were exercised from the outstanding 2010 Warrants.

 

Sales Agreements

The Company entered into an At-The-Market Issuance Sales Agreement in June 2011, as amended in January 2012 and August 2012 (as amended, the “MLV Agreement”), with MLV & Co. LLC, formerly McNicoll, Lewis & Vlak LLC (“MLV”) that provides for the issuance and sale of shares of the Company’s common stock over the term of the MLV Agreement having an aggregate offering price of up to $20.0 million through MLV. At March 31, 2014, the Company had less than $0.1 million of common stock available to be sold under the MLV Agreement. During the three months ended March 31, 2014, the Company had no sales of its common stock under the MLV Agreement. The MLV Agreement expires in June 2014.

On March 21, 2014, the Company entered into Amendment No. 1 to the Controlled Equity OfferingSM Sales Agreement, dated August 31, 2012 (as amended, the “Amended Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) that provides for the issuance and sale of shares of its common stock over the term of the Amended Cantor Agreement having an aggregate offering price of up to an aggregate of $70.0 million through Cantor. Under the Amended Cantor Agreement, Cantor also acts as the Company’s sales agent and receives compensation based on an aggregate of 2% of the gross proceeds on the sale price per share of its common stock. The issuance and sale of these shares by the Company pursuant to the Amended Cantor Agreement are deemed an “at-the-market” offering and are registered under the Securities Act. During the year ended December 31, 2013, approximately 5.4 million shares of the Company’s common stock were sold under the Amended Cantor Agreement for aggregate net proceeds of $23.5 million. During the three months ended March 31, 2014, the Company had no sales of its common stock under the Amended Cantor Agreement. At March 31, 2014, the Company had approximately $41.5 million of common stock available to be sold under the Amended Cantor Agreement.

Public Offering of Common Stock

The Company completed a public offering of common stock on March 19, 2013. As a result of this offering, the Company issued approximately 8.3 million shares of its common stock at $4.20 per share. The Company provided the underwriters an overallotment of an additional approximately 1.3 million shares of its common stock, which was fully subscribed. Combined gross proceeds for the offering were approximately $40.3 million. Net proceeds to the Company were approximately $38.0 million after underwriters’ discount of approximately $1.8 million and offering costs of approximately $0.5 million.

Stockholder Rights Plan

In October 2009, the Company’s Board of Directors adopted an amendment to its 1999 stockholder rights plan, commonly referred to as a “poison pill,” to reduce the exercise price, extend the expiration date and revise certain definitions under the plan. The stockholder rights plan is intended to deter hostile or coercive attempts to acquire the Company. The stockholder rights plan enables stockholders to acquire shares of the Company’s common stock, or the common stock of an acquirer, at a substantial discount to the public market price should any person or group acquire more than 15% of the Company’s common stock without the approval of the Board of Directors under certain circumstances. The Company has designated 250,000 shares of Series C Junior Participating preferred stock for issuance in connection with the stockholder rights plan.