NOTE 8—STOCKHOLDERS’ EQUITY

Common Stock

On October 29, 2010, the Company entered into an at market issuance sales agreement, or sales agreement, with MLV & Co., LLC, formerly McNicoll, Lewis & Vlak LLC (“MLV”), pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $15.0 million from time to time through MLV as sales agent. Subject to the terms and conditions of the sales agreement, MLV will use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay MLV an aggregate commission rate of 3.0% of the gross proceeds of the sales price per share of any common stock sold under the sales agreement. Under certain circumstances, sales of the stock under the at market issuances sales agreement could result in an adjustment to the exercise price of certain of our outstanding warrants. In 2011, the Company sold an aggregate of 971,037 shares of its common stock at an average price of $2.66 pursuant to the sales agreement. Net proceeds from the sale of stock were $2.3 million. The sale of stock did not result in an adjustment to the exercise price of certain of its outstanding warrants.

Pursuant to an amendment to the at the market issuance sales agreement and a prospectus supplement the Company filed on January 20, 2012 and pursuant to a new registration statement filed with the Securities and Exchange Commission, the Company may sell shares of its common stock having an aggregate offering price of up to $15.0 million from time to time through MLV as its sales agent. In 2012, the Company sold 2,022,144 shares of its common stock at an average price of $6.29 pursuant to the at market issuance sales agreement. Net proceeds from the sale of stock were $12.3 million. The sale of stock did not result in an adjustment to the exercise price of certain of our outstanding warrants. In 2013, there were no shares sold pursuant to the at market issuance sales agreement. As of December 31, 2013, shares of the Company’s common stock having an aggregate offering price of up to $2.7 million was still available for sale under the at market issuance sales agreement.

On March 16, 2011, the Company sold to certain investors an aggregate of 14,313,081 shares of its common stock for a purchase price equal to $2.05 per share and, for a purchase price of $0.05 per share, warrants exercisable for a total of 5,725,227 shares of its common stock for aggregate gross proceeds equal to $30.1 million in connection with the offering. Net proceeds generated from the offering were approximately $27.8 million which includes underwriter discounts and estimated offering costs. The warrants have a five-year term and an exercise price equal to $2.46 per share of common stock. The number of shares issuable upon exercise of the warrants and the exercise price are subject to adjustment for subdivisions and stock splits, stock dividends, combinations, reorganizations, reclassifications, consolidations, mergers or sales of properties and assets and upon the issuance of certain assets or securities to holders of our common stock, as applicable.

 

On October 5, 2009, the Company sold to certain investors an aggregate of 18,324,599 shares of its common stock for a purchase price equal to $1.86 per share and, for a purchase price of $0.05 per share, warrants exercisable for a total of 7,329,819 shares of its common stock for aggregate gross proceeds equal to $35.0 million in connection with the offering. Net proceeds generated from the offering were $33.1 million. The warrants have a five-year term and an exercise price equal to $2.23 per share of common stock. The exercise price of the warrants may be adjusted in certain circumstances, including certain issuances of securities at a price equal to less than the then current exercise price. In addition, the number of shares issuable upon exercise of the warrants and the exercise price are subject to adjustment for subdivisions and stock splits, stock dividends, combinations, reorganizations, reclassifications, consolidations, mergers or sales of properties and assets and upon the issuance of certain assets or securities to holders of our common stock, as applicable. As a result of the offering on March 16, 2011, the exercise price of the warrants exercisable for a total of 7,329,819 shares of common stock sold to investors in October 2009 that had an original exercise price of $2.23 per share, was subsequently reduced to $2.05 per share pursuant to the terms of such warrants.

On August 29, 2008, the Company sold to certain investors an aggregate of 8,970,574 shares of its common stock for a purchase price equal to $2.04 per share for aggregate gross proceeds equal to $18.3 million in connection with the offering. Net proceeds generated from the offering were $16.8 million. As part of the sale of common stock, the Company also issued warrants exercisable for a total of 3,588,221 shares of its common stock to the investors. The warrants had a five-year term and an exercise price equal to $2.34 per share of common stock. The exercise price and/or the number of shares of common stock issuable upon exercise of the warrants were subject to adjustment in certain circumstances, including certain issuances of securities at a price equal to less than the then current exercise price, subdivisions and stock splits, stock dividends, combinations, reorganizations, reclassifications, consolidations, mergers or sales of properties and assets and upon the issuance of certain assets or securities to holders of our common stock, as applicable. As a result of the offering on October 5, 2009, the exercise price of the warrants exercisable for a total of 3,588,221 shares of common stock sold to investors in August 2008 that had an original exercise price of $2.34 per share, was subsequently reduced to $1.86 per share pursuant to the terms of such warrants. As of August 29, 2013, all such warrants had been fully exercised.

Common Stock Warrants

The Company accounts for its common stock warrants under guidance now codified in ASC 815 that clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify for classification as liabilities. The guidance required the Company’s outstanding warrants to be classified as liabilities and to be fair valued at each reporting period, with the changes in fair value recognized as other income (expense) in the Company’s consolidated statements of operations.

In 2013, warrants to purchase 2,367,636 shares of common stock were cashless exercised for 1,555,043 shares of common stock. In addition, warrants to purchase 933,475 shares of common stock were exercised for net proceeds of approximately $1.9 million. In 2012, warrants to purchase 999,895 shares of common stock were cashless exercised for 666,793 shares of common stock. In addition, warrants to purchase 4,060,538 shares of common stock were exercised for net proceeds of approximately $8.8 million. As of the date of exercise of the warrants, the Company transferred the fair value of the warrants of approximately $11.5 million and $27.9 million from warrant liability into stockholders’ equity in 2013 and 2012, respectively.

At December 31, 2013 and 2012, the Company had warrants outstanding to purchase 0 and 3,058,811 shares of common stock, respectively, from the August 2008 offering. The fair value of these warrants on December 31, 2013 and 2012 was determined using a Black Scholes valuation model with the following Level 3 inputs:

 

		December 31, 2013				December 31, 2012
Risk-free interest rate			—				0.16	%
Expected life (in years)			—				0.66
Dividend yield			—				—
Volatility			—				118	%
Stock price			—			$	4.21

During the years ended December 31, 2013, 2012 and 2011, a change in fair value of $2.4 million non-cash expense, $9.9 million non-cash income and $1.1 million non-cash income related to the August 2008 warrants was recorded as other income (expense) in the Company’s consolidated statements of operations, respectively.

 

At December 31, 2013 and 2012, the Company had warrants outstanding to purchase 4,287,940 and 4,287,940 shares of common stock, respectively, from the October 2009 offering. The fair value of these warrants on December 31, 2013 and 2012 was determined using a Black Scholes valuation model with the following Level 3 inputs:

 

		December 31, 2013				December 31, 2012
Risk-free interest rate			0.13	%			0.25	%
Expected life (in years)			0.76				1.76
Dividend yield			—				—
Volatility			49	%			98	%
Stock price		$	4.67			$	4.21

During the years ended December 31, 2013, 2012 and 2011, a change in fair value of $0.6 million of non-cash income, $24.2 million of non-cash expense and $1.4 million of non-cash income related to the October 2009 warrants was recorded as other income (expense) in the Company’s consolidated statements of operations, respectively.

At December 31, 2013 and 2012 the Company had warrants outstanding to purchase 3,993,783 and 4,236,083 shares of common stock, respectively, from the March 2011 offering. The fair value of these warrants on December 31, 2013 and 2012 was determined using a Black Scholes valuation model with the following Level 3 inputs:

 

		December 31, 2013				December 31, 2012
Risk-free interest rate			0.78	%			0.72	%
Expected life (in years)			2.21				3.21
Dividend yield			—				—
Volatility			88	%			94	%
Stock price		$	4.67			$	4.21

During the years ended December 31, 2013 and 2012, a change in the fair value of $0.5 million of non-cash expense, $17.1 million of non-cash income and $1.9 million of non-cash income related to the March 2011 warrants was recorded as other income (expense) in the Company’s consolidated statements of operations, respectively.

The following table sets forth the Company’s financial liabilities, related to warrants issued in the August 2008, October 2009 and March 2011 offerings, subject to fair value measurements as of December 31, 2013 and 2012:

 

(in thousands)		Fair Value as of December 31, 2013				Basis of Fair Value Measurements
						Level 1				Level 2				Level 3
October 2009 warrants		$	11,320			$	—			$	—			$	11,320
March 2011 warrants			12,101				—				—				12,101
Total common stock warrants		$	23,421			$	—			$	—			$	23,421

 

(in thousands)		Fair Value as of December 31, 2012				Basis of Fair Value Measurements
						Level 1				Level 2				Level 3
August 2008 warrants		$	8,014			$	—			$	—			$	8,014
October 2009 warrants			11,963				—				—				11,963
March 2011 warrants			12,581				—				—				12,581
Total common stock warrants		$	32,558			$	—			$	—			$	32,558

 

The following table is a reconciliation of the warrant liability measured at fair value using level 3 inputs (in thousands):

 

		Warrant Liability
Balance at December 31, 2011		$	9,209
Exercise of common stock warrants during 2012			(27,867	)
Change in fair value of common stock warrants during 2012			51,216
Balance at December 31, 2012		$	32,558
Exercise of common stock warrants during 2013			(11,462	)
Change in fair value of common stock warrants during 2013			2,325
Balance at December 31, 2013		$	23,421