CONVERTIBLE SENIOR NOTES

Overview of 2013 Convertible Notes

On December 17, 2013, we entered into an agreement for the sale of $120 million aggregate principal amount of 2.75% Convertible Senior Notes (equaling 120,000 notes, denominated in $1,000 principal units). the "2013 Convertible Notes." As of December 31, 2018 and December 31, 2017, $0 and $38.2 million of debt principal was outstanding, respectively. Maturity of the 2013 Convertible Notes occurred on December 15, 2018, and substantially all of these notes were converted into our common stock at a rate of 95 shares per $1,000 principal units, with an in-the-money conversion price of $10.53 per common share.

Proceeds and Conversion Hedge

We received net proceeds of $115.4 million in December 2013 for the sale of the 2013 Convertible Notes, after deducting banker and professional fees of $4.6 million. We used a portion of these net proceeds to simultaneously enter into “bought call” and “sold warrant” transactions with Royal Bank of Canada (collectively, the "Conversion Hedge"). We recorded the Conversion Hedge on a net cost basis of $13.1 million, as a reduction to “additional paid-in capital” within our Consolidated Balance Sheets, and under applicable GAAP, were not marked-to-market through earnings or comprehensive income.

We entered into these Conversion Hedge transactions to reduce the potential dilution to our stockholders and/or offset any cash payments that we would be required to make in excess of the principal amount, upon the conversion of the 2013 Convertible Notes (in the event that the market price of our common stock was greater than the conversion price). The strike price of the “bought call” was equal to the conversion price and conversion rate of the 2013 Convertible Notes (at such time, it matched the 11.4 million common shares into which the holders could convert the 2013 Convertible Notes); the strike price of our “sold warrant” is $14.03 per share of our common stock, and was also for 11.4 million common shares (reduced by partial unwinding of these instruments in 2016 and 2017, as discussed below).

Open Market Purchases of 2013 Convertible Notes and Conversion Hedge Unwind in December 2016 and October 2017

In December 2016, we completed two open market purchases of our 2013 Convertible Notes, aggregating 9,963 note units (equivalent to $10 million principal value) for $9 million. We recognized an aggregate book loss of $25 thousand on the retirement of these 2013 Convertible Notes (based on its carrying value under GAAP), which is included in "other (expense) income, net" on the Consolidated Statements of Operations for the year ended December 31, 2016. Concurrent with these two open market purchases in December 2016, we concurrently unwound a portion of our previously sold warrants and previously purchased call options (that were part of our Conversion Hedge described below) for aggregate net proceeds of $21 thousand. We recorded a corresponding net increase to "additional paid-in capital" in the Consolidated Balance Sheets as of December 31, 2016.

In October 2017, we completed an additional open market purchase of our 2013 Convertible Notes, aggregating 69,472 note units (equivalent to $69.5 million principal value) for $27.3 million in cash and 5.4 million newly-issued shares of our common stock, then worth $73 million. We recognized a book loss of $0.8 million on the retirement of these 2013 Convertible Notes (based on its carrying value under GAAP), which was included in "other (expense) income, net" on the Consolidated Statements of Operations for the year ended December 31, 2017.

Concurrent with this open market purchase in October 2017, we also unwound a portion of the previously sold warrants and previously purchased call options that were part of our Conversion Hedge for aggregate net proceeds of $5.8 million. We recorded a corresponding net increase to "additional paid-in capital" in the Consolidated Balance Sheets as of December 31, 2017.

Carrying Value and Fair Value of 2013 Convertible Notes at December 31, 2017

The carrying value of the 2013 Convertible Notes as of December 31, 2017, is summarized as follows:



	Year Ended December 31, 2017
Principal amount	$	40,565
(Less): Unamortized debt discount (amortized through December 2018)	(2,101		)
(Less): Debt issuance costs	(240		)
Carrying value	$	38,224

As of December 31, 2017, the estimated aggregate fair value of the 2018 Convertible Notes is $74.3 million. These estimated fair values represent a Level 2 measurement (see Note 2(xiii)), based upon the 2018 Convertible Notes quoted bid price at each date in a thinly-traded market. Maturity of the 2013 Convertible Notes occurred on December 15, 2018, and converted at a rate of 95 shares per $1,000 principal units, with an in-the-money conversion price of $10.53 per common share.

Components of Interest Expense on 2013 Convertible Notes

The following table sets forth the components of interest expense recognized in the accompanying Consolidated Statements of Operations for the 2013 Convertible Notes for the years ended December 31, 2018, 2017, and 2016:



	Year Ended December 31,
	2018			2017			2016
Contractual coupon interest expense	$	981		$	2,615		$	3,288
Amortization of debt issuance costs	220			567			696
Accretion of debt discount	1,931			4,890			5,710
Total	$	3,132		$	8,072		$	9,694
Effective interest rate	8.41		%	8.41		%	8.65		%