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10. COMMON STOCK AND WARRANTS.
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2011
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| Stockholders' Equity Note Disclosure [Text Block] |
Private
Placement –
On December 13, 2011, the Company raised $7,364,000, net of
$642,000 of issuance costs, through the issuance of 7,625,000
shares of common stock and warrants to purchase an aggregate
of 4,956,250 shares of common stock (“2011
Warrants”). The 2011 Warrants are immediately
exercisable and entitle the holders of the 2011 Warrants to
purchase up to an aggregate of 4,956,250 shares of the
Company’s common stock until December 13, 2016 at an
exercise price of $1.50 per share (“2011 Warrant
Exercise Price”), which price is subject to adjustment.
The 2011 Warrants include both cash and cashless exercise
provisions.
The
2011 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
2011 Warrants will also be adjusted so that the aggregate
2011 Warrant Exercise Price shall be the same immediately
before and immediately after the adjustment. In addition, the
2011 Warrant Exercise Price is also subject to a
“weighted-average” anti-dilution adjustment if
the Company issues or is deemed to have issued securities at
a price lower than the then applicable 2011 Warrant Exercise
Price.
The
2011 Warrants require payments to be made by the Company for
failure to deliver the shares of common stock issuable upon
exercise.
The
2011 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% of the
Company’s outstanding shares of common stock. The
blocker applicable to the exercise of the 2011 Warrants may
be raised or lowered to any other percentage not in excess of
9.99%, except that any increase will only be effective upon
61-days’ prior notice to the Company.
If
the Company issues options, convertible securities, warrants,
stock, or similar securities to holders of its common stock,
each holder of a 2011 Warrant has the right to acquire the
same as if the holder had exercised its 2011 Warrant. The
2011 Warrants prohibit the Company from entering into
specified transactions involving a change of control, unless
the successor entity assumes all of the Company’s
obligations under the 2011 Warrants under a written
agreement.
The
Company accounted for the net proceeds of the private
placement by first allocating the fair value of the 2011
warrants to a liability and then recorded the remaining
amount to equity.
Registration
Rights Agreement –
In connection with the sale of the shares of common stock and
the 2011 Warrants, the Company entered into a registration
rights agreement with all of the investors to file a
registration statement on Form S-1 with the Securities and
Exchange Commission by December 23, 2011 for the resale by
the purchasers of the 7,625,000 shares of common stock and
the 4,956,250 shares of common stock issuable upon exercise
of the 2011 Warrants issued on December 13, 2011.
Subject
to grace periods, the Company is required to keep the
registration statement (and the prospectus contained in that
registration statement available for use) for resale by the
investors on a delayed or continuous basis at then-prevailing
market prices at all times until the earlier of (i) the date
as of which all of the investors may sell all of the shares
of common stock required to be covered by the registration
statement without restriction under Rule 144 under the
Securities Act (including volume restrictions) and without
the need for current public information required by Rule
144(c)(1), if applicable) or (ii) the date on which the
investors shall have sold all of the shares of common stock
covered by the registration statement.
The
Company must pay registration delay payments of 2% of each
investor’s initial investment per month if the
registration statement ceases to be effective prior to the
expiration of deadlines provided for in the registration
rights agreement. The initial registration statement became
effective by the stated deadline and the Company did not
record any liability associated with any registration delay
payments under the registration rights agreement.
Convertible
Note Warrants –
On October 6, 2010, as part of the Initial Notes issuance,
the Company issued the Initial 2010 Warrants which were
immediately exercisable and entitled the holders of the
Initial 2010 Warrants to purchase up to an aggregate of
2,941,178 shares of the Company’s common stock until
October 6, 2017 at an original exercise price of $5.95 per
share, which price was subject to adjustment. The Initial
2010 Warrants were subsequently exchanged for the 2010
Warrants having substantially the same terms. The 2010
Warrants include both cash and cashless exercise provisions.
Upon the Company’s consummation of the private
placement on December 13, 2011, the original exercise price
of the 2010 Warrants was reduced to $0.45 per share
(“2010 Warrant Exercise Price”), which is also
subject to adjustment.
The
2010 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
2010 Warrants will also be adjusted so that the aggregate
2010 Warrant Exercise Price shall be the same immediately
before and immediately after the adjustment. In addition, the
2010 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 2010 Warrant Exercise Price,
the 2010 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 2010 Warrant has the
right to substitute the “floating” conversion
price for the 2010 Warrant Exercise Price upon exercise of
all or part the 2010 Warrant.
The
2010 Warrants require payments to be made by the Company for
failure to deliver the shares of common stock issuable upon
exercise.
The
2010 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
investor) of the Company’s outstanding shares of common
stock. The blocker applicable to the exercise of the 2010
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 2010 Warrant has the right to acquire the
same as if the holder had exercised its 2010 Warrant. The
2010 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 2010
Warrants under a written agreement approved by all of the
holders of the 2010 Warrants before the transaction is
completed. When there is a transaction involving a permitted
change of control, a holder of a 2010 Warrant will have the
right to force the Company to repurchase the holder’s
2010 Warrants for a purchase price in cash equal to the Black
Scholes value of the then unexercised portion of the 2010
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 2010 Warrants to fully exercise all, but not
less than all, of the 2010 Warrants (subject to the
blocker).
In
February 2012, certain holders of the 2010 Warrants exercised
their 2010 Warrants with respect to 252,101 shares of common
stock on a cashless exercise basis, resulting in 172,269 net
shares of common stock issued by the Company.
Accounting
for 2011 and 2010 Warrants –
The Company has determined that both the 2011 Warrants and
the 2010 Warrants did not meet the conditions for
classification in stockholders’ equity and as such, the
Company has recorded them as a liability at fair value. The
Company will revalue them at each reporting period.
Accordingly, the Company recorded fair value adjustments
quarterly, with total fair value adjustments of $4,451,000
and $1,727,000 for the years ended December 31, 2011 and
2010, respectively, which is largely attributed to warrant
term shortening and reduction in the market value of the
Company’s common stock. See Note 13 for the
Company’s fair value assumptions. As noted above, the
exercise price of the 2010 Warrants declined to $0.45 as a
result of anti-dilution adjustments due to the
Company’s December 2011 equity financing. At that time,
the Company recorded an aggregate $1,100,000 expense to fair
value adjustments on convertible debt and warrants in its
consolidated statements of operations.
Other
Warrant Issuances –
In March 2008, the Company issued warrants to purchase an
aggregate of 439,561 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
63,189 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 428,573 shares of common stock at an exercise
price of $49.70 per share, which expire in 2013.
Warrant
Summary –
The following table summarizes warrant activity for the years
ended December 31, 2011 and 2010 (number of shares in
thousands):
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