MAKE-WHOLE DIVIDEND LIABILITY

9 Months Ended

Sep. 30, 2016

Make-whole dividend liability [Abstract]

MAKE-WHOLE DIVIDEND LIABILITY

MAKE-WHOLE DIVIDEND LIABILITY

In June 2013, the Company entered into a Series A Preferred Stock Purchase Agreement. Holders of Series A Preferred Stock are entitled to cumulative dividends at a rate of 8.0% per annum, with the dividend rate being indexed to the Company's stock price and subject to adjustment. Conversion or redemption of the Series A Preferred Stock within 4 years of issuance requires the Company pay a make-whole dividend to the holders, whereby dividends for the full four year period are to be paid in cash or common stock (valued at 10% below market price).

The Company concluded the make-whole dividends should be characterized as embedded derivatives under ASC 815. The make-whole dividends were expensed at the time of issuance and recorded as "Make-whole dividend liability" in the Condensed Consolidated Balance Sheets.

The fair value of these dividend liabilities, which are indexed to the Company's common stock, must be evaluated at each period end. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The fair value determination required forecasting stock price volatility, expected average annual return and conversion date. During the nine months ended September 30, 2016, the fair value of the make-whole liability decreased $0.19 million from the fair value at December 31, 2015 as a result of the conversion described below.

During the nine months ended September 30, 2016, the holders of the Series A Preferred Stock exercised their right to convert 46,849 shares of Series A Preferred Stock into 2,343 shares of common stock. Additionally, the Company paid make-whole dividends in the amount of $0.19 million by issuing 6,940,593 shares of common stock.

At September 30, 2016, there were 165,541 shares of Series A outstanding. At September 30, 2016, the Company was entitled to redeem the outstanding Series A preferred shares for $1.3 million, plus a make-whole amount of $0.7 million, payable in cash or common shares. The fair value of the make-whole dividend liabilities for the Series A preferred shares, which approximates cash value, was $0.7 million as of September 30, 2016.