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COMMON STOCK AND WARRANTS
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2010
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| Stockholders' Equity Note Disclosure [Text Block] |
On
October 6, 2010, as part of the Convertible Note financing,
the Company issued Warrants which are immediately exercisable
and entitle the holders of the Warrants to purchase up to an
aggregate of 2,941,178 shares of the Company’s common
stock until October 6, 2017 at an exercise price of $5.95 per
share (“Warrant Exercise Price”), which price is
subject to adjustment. The Warrants include both cash and
cashless exercise provisions.
The
Warrant Exercise Price is subject to adjustment for stock
splits, combinations or similar events, and, in such event,
the number of shares issuable upon the exercise of the
Warrants will also be adjusted so that the aggregate Warrant
Exercise Price shall be the same immediately before and
immediately after the adjustment. In addition, the Warrant
Exercise Price is also subject to a “full
ratchet” anti-dilution adjustment where if the Company
issues or is deemed to have issued securities at a price
lower than the then applicable Warrant Exercise Price, the
Warrant Exercise Price will immediately decline to equal the
price at which the Company issues or is deemed to have issued
its common stock.
If
the Company sells or issues any securities with
“floating” conversion prices based on the market
price of its common stock, a holder of a Warrant has the
right to substitute the “floating” conversion
price for the Warrant Exercise Price upon exercise of all or
part of the Warrant.
Similar
to the Convertible Notes, the Warrants require payments to be
made by the Company for failure to deliver the shares of
common stock issuable upon exercise.
The
Warrants may not be converted if, after giving effect to the
conversion, the investor together with its affiliates would
beneficially own in excess of 4.99% or 9.99% (which
percentage has been established at the election of each
selling security holder) of the Company’s outstanding
shares of common stock. The blocker applicable to the
exercise of the Warrants may be raised or lowered, subject to
an advance notice period, to any other percentage not in
excess of 9.99%.
If
the Company issues options, convertible securities, warrants,
stock, or similar securities to holders of its common stock,
each holder of a Warrant has the right to acquire the same as
if the holder had exercised its Warrant. The Warrants
prohibit the Company from entering into specified
transactions involving a change of control, unless the
successor entity is a publicly traded corporation that
assumes all of the Company’s obligations under the
Warrants under a written agreement approved by all of the
holders of the Warrants before the transaction is completed.
When there is a transaction involving a permitted change of
control, a holder of a Warrant will have the right to force
the Company to repurchase the holder’s Warrants for a
purchase price in cash equal to the Black Scholes value of
the then unexercised portion of the Warrants.
If
at any time after the date the Company has initially
satisfied certain specified conditions, and (i) its
common stock trades at a price equal to or greater than
$14.84 per share for 20 trading days in any 30 consecutive
trading day period (“Mandatory Exercise Measuring
Period”), (ii) the average daily dollar trading
volume of the Company’s common stock for each trading
day during the Mandatory Exercise Measuring Period exceeds
$250,000 per day, and (iii) all such conditions are then
satisfied, the Company will have the right to require the
holders of the Warrants to fully exercise all, but not less
than all, of the Warrants (subject to the blocker).
The
initial number of shares of the Company’s common
stock issuable upon exercise of the Warrants is 2,941,178,
which is based on the current exercise price of $5.95 per
share. The exercise price is subject to adjustments as
noted above, and therefore, there is no maximum number of
shares of the Company’s common stock that may be
issued, or if any, prior to the end of the term of the
Warrants.
The
Company has determined that the Warrants did not meet the
conditions for classification in shareholders’ equity
and as such, has recorded them as a liability at fair
value. The Company must revalue the Warrants at each
reporting period. Accordingly, the Company recorded fair
value adjustments of $7,445,000 for their initial
recognition and a gain of $1,727,000 for subsequent changes
in fair value, which is attributed to term shortening and
reduction in the market value of the Company’s common
stock, resulting in the Warrants becoming out of the money
at December 31, 2010. See Note 13 for the Company’s
fair value assumptions.
In
March 2008, the Company issued warrants to purchase an
aggregate of 439,560 shares of common stock at an exercise
price of $49.00 per share, which expire in 2018. In May
2008, the Company issued warrants to purchase an aggregate
of 63,186 shares of common stock at an exercise price of
$49.00 per share, which expire in 2018. See Note
9—Preferred Stock. In March 2008, the Company also
issued warrants to purchase 14,286 shares of common stock
at an exercise price of $56.00 per share, which expired
unexercised in 2009.
In
May 2008, the Company issued warrants to purchase an
aggregate of 428,571 shares of common stock at an exercise
price of $49.70 per share, which expire in 2013.
The
following table summarizes warrant activity for the years
ended December 31, 2010 and 2009 (number of shares in
thousands):
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