CONVERTIBLE SUBORDINATED NOTES

On March 19, 2014, we issued $143.75 million aggregate principal amount of 2.75% convertible subordinated notes due March 15, 2021 (the “Convertible Notes”). The Convertible Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered only to “qualified institutional buyers” in compliance with Rule 144A under the Securities Act. The Convertible Notes are governed by an indenture dated as of March 19, 2014 between Wilmington Trust, National Association, as Trustee, and us (the “Indenture”). The Convertible Notes bear interest at 2.75%. Interest on the Convertible Notes began to accrue on March 19, 2014 and is payable semi-annually in arrears on March 15 and September 15 of each year.

The Convertible Notes are general unsecured obligations and are subordinated in the right of payment to all of our existing and future senior indebtedness and equal in right of payment with our other existing and future subordinated indebtedness. The initial conversion rate of the Convertible Notes was 44.3169 shares of our common stock per $1,000 principal amount of the Convertible Notes, equivalent to an initial conversion price of approximately $22.56 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of certain events, as described in the Indenture. During the year ended December 31, 2017, an adjustment to the conversion rate of the Convertible Notes was triggered when our Board increased the dividends declared per common share from $0.05 per share to $0.075 per share. At December 31, 2017, the adjusted conversion rate of the Convertible Notes is 44.6266 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of approximately $22.41 per share of common stock.

The Convertible Notes mature on March 15, 2021, unless earlier converted or purchased by us. The conversion option of the Convertible Notes is not an embedded derivative. Holders of the Convertible Notes may convert their Convertible Notes at their option at any time prior to December 15, 2020, if certain conditions are met. We may not redeem the Convertible Notes prior to maturity. However, in the event of a fundamental change (as defined in the Indenture), subject to certain conditions, a holder of the Convertible Notes will have the option to require us to purchase all or a portion of its Convertible Notes for cash. The fundamental change purchase price will equal 100% of the principal amount of the Convertible Notes to be purchased, plus any accrued and unpaid interest up to, but excluding, the fundamental change purchase date.

The unamortized discount and the unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 38 months of the Convertible Notes. The effective interest rate on the unamortized discount and the debt issuance costs for the years ended December 31, 2016 and 2017 was 6.75% and 2.75%, respectively.

Equity issuance costs are included in Additional paid-in capital (“APIC”) on our Consolidated Balance Sheets and are not amortized. Additionally, the recognition of the Convertible Notes as two separate components results in a basis difference associated with the liability component which represents a temporary tax difference. As a result, we recognized a deferred tax liability of $12.7 million related to this temporary difference which was recorded as a reduction to APIC and an increase to our deferred tax liability. The deferred tax liability is being amortized over the seven year term of the Convertible Notes. At December 31, 2017, the balance of our deferred tax liability related to our Convertible Notes was $4.1 million.

The carrying values of the liability and equity components of the Convertible Notes at December 31, 2016 and 2017 are reflected on our Consolidated Balance Sheets as follows (in thousands):



	December 31, 2016			December 31, 2017
Long-term liabilities:
Principal amount	$	143,750		$	143,750
Unamortized discount of liability component	(21,887		)	(17,559		)
Convertible Notes issuance costs, net of accumulated amortization of $1,359 and $1,877, respectively	(2,268		)	(1,750		)
Carrying value of the liability component	$	119,596		$	124,441

Carrying value of the equity component	$	17,973		$	17,973

The Carrying value of the liability component and the Carrying value of the equity component are recorded in Convertible subordinated notes due 2021 and Additional paid-in capital, respectively, on our Consolidated Balance Sheets at December 31, 2016 and 2017.

The fair value of the Convertible Notes, which are Level 2 measurements, was approximately $180.3 million at December 31, 2017.

Interest expense on the Convertible Notes included contractual coupon interest expense of $4.0 million for both the years ended December 31, 2016 and 2017. Accretion of the discount on the Convertible Notes was approximately $3.9 million and $4.3 million for the years ended December 31, 2016 and 2017, respectively. Amortization of debt issuance costs related to our Convertible Notes was approximately $0.5 million for both the years ended December 31, 2016 and 2017.

The aggregate maturities of our Convertible Notes for the five years subsequent to December 31, 2017 are as follows (in thousands):



	Principal Maturity		Discount Amortization			Present Value
Years ending December 31,
2018	$	—	$	(4,844	)	$	(4,844	)
2019	—		(5,422		)	(5,422		)
2020	—		(6,068		)	(6,068		)
2021	143,750		(1,225		)	142,525
2022	—		—			—
	$	143,750	$	(17,559	)	$	126,191