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STOCKHOLDERS' EQUITY
 9 Months Ended
Sep. 30, 2012
STOCKHOLDERS' EQUITY  
STOCKHOLDERS' EQUITY

9.   STOCKHOLDERS’ EQUITY

 

All share and per share information presented gives effect to the reverse stock split, which occurred on August 24, 2012.

 

Preferred stock

 

As of September 30, 2012, there were 1,213,142 shares of Preferred Stock issued and outstanding at an issue price of $10.00 per share. Dividends on the Preferred Stock are cumulative from the date of original issuance at the annual rate of 6% of the liquidation preference of the Preferred Stock, payable quarterly on the first day of February, May, August and November, commencing February 1, 2005. Any dividends must be declared by the Company’s Board of Directors and must come from funds that are legally available for dividend payments. The Preferred Stock has a liquidation preference of $10 per share, plus accrued and unpaid dividends.

 

The Preferred Stock is convertible at the option of the holder at any time into the Company’s shares of common stock at a conversion rate of approximately 0.06079 shares of common stock for each share of Preferred Stock based on a price of $164.50. The Company has reserved 73,747 shares of common stock for issuance upon conversion of the remaining shares of Preferred Stock outstanding at September 30, 2012.

 

During 2010, 833,671 shares of Preferred Stock were converted into 236,514 shares of the Company’s common stock. Since inception through September 30, 2012, holders have voluntarily converted 1,776,858 shares of Preferred Stock into common stock. The converted shares of Preferred Stock have been retired and canceled and shall upon cancellation be restored to the status of authorized but unissued shares of preferred stock, subject to reissuance by the Board of Directors as shares of Preferred Stock of one or more series.

 

The Company may automatically convert the Preferred Stock into common stock if the closing price of the Company’s common stock has exceeded $246.75, which is 150% of the conversion price of the Preferred Stock, for at least 20 trading days during any 30-day trading period, ending within five trading days prior to notice of automatic conversion.

 

The Certificate of Designations governing the Preferred Stock provides that if the Company fails to pay dividends on its Preferred Stock for six quarterly periods, holders of Preferred Stock are entitled to nominate and elect two directors to the Company’s Board of Directors. This right accrued to the holders of Preferred Stock as of August 2, 2010 and two directors were nominated and elected at the annual meeting held on May 24, 2011.

 

The Preferred Stock has no maturity date and no voting rights prior to conversion into common stock, except under limited circumstances.

 

From November 6, 2007, the Company may, at its option, redeem the Preferred Stock in whole or in part, out of funds legally available at the redemption prices per share stated below, plus an amount equal to accrued and unpaid dividends up to the date of redemption:

 

Year from November 1, 2011 to October 31, 2012

 

$

10.18

 

Year from November 1, 2012 to October 31, 2013

 

$

10.12

 

Year from November 1, 2013 to October 31, 2014

 

$

10.06

 

November 1, 2014 and thereafter

 

$

10.00

 

 

The Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on any dividend payment date beginning on November 1, 2005 (the “Exchange Date”) for the Company’s 6% Convertible Subordinated Debentures (“Debentures”) at the rate of $10 principal amount of Debentures for each share of Preferred Stock. The Debentures, if issued, will mature 25 years after the Exchange Date and have terms substantially similar to those of the Preferred Stock.

 

On March 6, 2012, June 22, 2012, and September 12, 2012, the Company’s Board of Directors decided not to declare a quarterly cash dividend on the Company’s 6% Convertible Exchangeable Preferred Stock (“Preferred Stock”) with respect to the first, second, and third quarters of 2012, respectively, that would have otherwise been payable on May 1, 2012, August 1, 2012 and November 1, 2012, respectively.

 

Common Stock

 

March 2012 Sale of Common Stock and Economic Rights

 

On March 22, 2012, the Company entered into a purchase agreement with certain existing institutional stockholders, raising approximately $2.9 million of proceeds, net of certain fees and expenses. The proceeds from the financing will be used to fund ongoing litigation-related expenses on certain intellectual property and for general corporate purposes.

 

Under the terms of the purchase agreement, the investors purchased 669,726 shares of the Company’s common stock at a price of $4.53, which is equal to the 10-day average closing price of the Company’s common stock for the period ending on March 21, 2012. In addition to the common stock, investors received contractual rights to receive cash equal to 10% of any future litigation settlement related to the specified intellectual property, subject to a cap.  In certain defined situations, the Company may have to issue either additional shares or warrants. The shares issued at closing are subject to a lock-up period of one year from the date of issuance. See Note 4 - Fair Value Measurements for further details.

 

Common Stock Warrants

 

The following table summarizes information about warrants outstanding at September 30, 2012:

 

Issued in Connection With 

 

Expiration
Date

 

Common Shares
Issuable

 

Weighted
Average
Exercise
Price

 

April 2006 stock issuance

 

2013

 

367,347

 

$

49.00

 

February 2007 stock issuance

 

2014

 

151,773

 

$

59.08

 

December 2007 CEFF

 

2013

 

14,286

 

$

9.80

 

July 2009 Series II stock issuance

 

2014

 

98,894

 

$

7.00

 

January 2010 stock issuance

 

2015

 

101,786

 

$

22.82

 

January 2010 stock issuance

 

2015

 

100,714

 

$

19.95

 

October 2010 stock issuance

 

2015

 

594,514

 

$

13.44

 

July 2011 stock issuance

 

2015

 

544,118

 

$

9.52

 

Total

 

 

 

1,973,432

 

$

22.96

 

 

There were no exercises of warrants during the three and nine months ended September 30, 2011 and 2012.