Stockholders' Equity

9 Months Ended

Sep. 30, 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”).

In November 2010, the Company issued warrants to purchase 3.7 million shares of common stock, exercisable at an exercise price of $3.20 per share. The warrants issued in November 2010 (“2010 Warrants”) became exercisable on May 15, 2011, and are exercisable for a period of five years from the issue date.

The fair value of the 2009 Warrants and 2010 Warrants was recorded on the condensed consolidated balance sheets as a liability pursuant to “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” Topics of ASC and are adjusted to fair value at each financial reporting date thereafter until the earlier of exercise, expiration 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 September 30, 2014 and December 31, 2013, consisted of the following (in thousands):

	September 30,		December 31,
	2014		2013
2009 Warrants	$	0	$	8,542
2010 Warrants		3,931		11,848
Total warrant liability	$	3,931	$	20,390

The fair value of the Company’s warrants was based on option valuation models and using the following assumptions at September 30, 2014 and December 31, 2013:

		December 31,
		2013
2009 Warrants:
Expected term (in years)		0.65
Estimated volatility		45%
Risk-free interest rate		0.10%
Expected dividend yield		0%
	September 30,	December 31,
	2014	2013
2010 Warrants:
Expected term (in years)	1.11	1.86
Estimated volatility	47%	41%
Risk-free interest rate	0.13%	0.38%
Expected dividend yield	0%	0%

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 the warrant liability. Similarly, any significant decreases in the Company’s stock price will likely create a decrease to the fair value of the warrant liability. During the three months ended September 30, 2014, warrants to purchase 2,400,000 shares of common stock were exercised from the outstanding 2009 Warrants and as such there were no outstanding 2009 Warrants remaining at September 30, 2014. During the nine months ended September 30, 2014, warrants to purchase 157,894 shares of common stock were exercised from the outstanding 2010 Warrants. As of September 30, 2014, 3.3 million of the 2010 warrants were outstanding.

Sales Agreement

On March 21, 2014, the Company entered into Amendment No. 1 to the Controlled Equity Offering^SM 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 $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 1933 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 proceeds of $23.5 million. During the nine months ended September 30, 2014, 1.7 million shares of the Company’s common stock were sold under the Amended Cantor Agreement for aggregate proceeds of $7.1 million. At September 30, 2014, the Company had approximately $34.4 million of common stock available to be sold under the Amended Cantor Agreement.

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.