Stockholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity

Stockholders' Equity

Note 10. Stockholders' Equity

Series B Preferred Stock

Fenwal holds 3,327 shares of the Company's Series B preferred stock. The holder of Series B preferred stock has no voting rights, except with respect to the authorization of any class or series of stock having preference or priority over the Series B preferred stock as to voting, liquidation or conversion or with respect to the determination of fair market value of non-publicly traded shares received by the holder of Series B preferred stock in the event of a liquidation, or except as required by Delaware law. At any time, the holder may convert each share of Series B preferred stock into 100 shares of the Company's common stock. If all shares of Series B preferred stock were converted to common stock, 332,700 shares of common stock would be issued, which represents approximately 1% of the outstanding common stock of the Company at September 30, 2011. The Company has the right to redeem the Series B preferred stock prior to conversion for a payment of $9.5 million.

Common Stock and Associated Warrant Liability

In August 2009, the Company received net proceeds of approximately $12.1 million, after deducting placement agent's fees and stock issuance costs of approximately $1.1 million, from a registered direct offering of 6.0 million units. Each unit sold consisted of one share of common stock and a warrant to purchase 4/10 of a share of common stock. Each unit was sold for $2.20, resulting in the issuance of 6.0 million shares of common stock and warrants to purchase 2.4 million shares of common stock ("2009 Warrants"), exercisable at an exercise price of $2.90 per share. The warrants issued in August 2009 ("2009 Warrants") are exercisable for a period of five years from the issue date. The fair value on the date of issuance of the 2009 Warrants was determined to be $2.8 million using the binomial-lattice option valuation model and applying the following assumptions: (i) a risk-free rate of 2.48%, (ii) an expected term of 5.0 years, (iii) no dividend yield and (iv) a volatility of 77%. At September 30, 2011, the fair value of the 2009 Warrants was determined to be approximately $1.7 million using the binomial-lattice option valuation model and applying the following assumptions: (i) a risk-free rate of 0.42%, (ii) an expected term of 2.90 years, (iii) no dividend yield and (iv) a volatility of 65%.

In November 2010, the Company received net proceeds of approximately $19.7 million, after deducting underwriting discounts and commissions and stock issuance costs of approximately $1.3 million, from an underwritten public offering of 7.4 million units. Each unit sold consisted of one share of common stock and a warrant to purchase 1/2 of a share of common stock. Each unit was sold for $2.85, resulting in the issuance of 7.4 million shares of common stock and warrants to purchase 3.7 million shares of common stock, exercisable at an exercise price of $3.20 per share. The warrants issued in November 2010 ("2010 Warrants") became exercisable on May 15, 2011 and are exercisable for a period of five years from the issue date. The fair value on the date of issuance of the 2010 Warrants was determined to be $5.8 million using the binomial-lattice option valuation model and applying the following assumptions: (i) a risk-free rate of 1.23%, (ii) an expected term of 5.0 years, (iii) no dividend yield and (iv) a volatility of 85%. At September 30, 2011, the fair value of the 2010 Warrants was determined to be approximately $2.9 million using the binomial-lattice option valuation model and applying the following assumptions: (i) a risk-free rate of 0.69%, (ii) an expected term of 4.12 years, (iii) no dividend yield and (iv) a volatility of 63%.

The fair value of the 2009 Warrants and 2010 Warrants was recorded on the consolidated condensed balance sheets as a liability pursuant to "Accounting for Derivative Instruments and Hedging Activities" and "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" Topics of ASC and will be adjusted to fair value at each financial reporting date thereafter until the earlier of exercise or expiration, at which time, these warrants would be reclassified into stockholders' equity. The Company classified the 2009 Warrants and 2010 Warrants as a liability as these warrants contain certain provisions that, under certain circumstances, which may be out of the Company's control, could require the Company to pay cash to settle the exercise of the warrants or may require the Company to redeem the warrants.

These offerings were made pursuant to the Company's shelf registration statement on Form S-3.

For the three months ended September 30, 2011 and 2010, due to the changes in fair value of the warrants, the Company recorded gains of $5.4 million and losses of $0.7 million, respectively, on its condensed consolidated statement of operations within non-operating income (expense), net. For the nine months ended September 30, 2011 and 2010, due to the changes in fair value of the warrants, the Company recorded gains of $3.8 million and losses of $2.3 million, respectively, on its condensed consolidated statement of operations within non-operating income (expense), net. At September 30, 2011, no warrants had been exercised.

At-the-Market Agreement

In June 2011, the Company entered into an At-The-Market Issuance Sales Agreement (the "Sales Agreement") with McNicoll, Lewis & Vlak LLC ("MLV"), which allows the Company to issue and sell shares of its common stock having an aggregate offering price of up to $20.0 million through MLV. In conjunction with the Sales Agreement, MLV will act as the Company's sales agent and will receive compensation based on an aggregate of 3% of the gross proceeds on the sale price per share of its common stock. Any sales made pursuant to the Sale Agreement are deemed an "at-the-market" offering and would be made pursuant to the effectiveness of the Company's shelf registration statements on Form S-3, initially filed with the SEC in October 2008 and August 2009. The Company did not place any common stock under the Sales Agreement during the three and nine months ended September 30, 2011.

Stockholder Rights Plan

In October 2009, the Company's Board of Directors adopted an amendment to its 1999 stockholder rights plan, commonly referred to as a "poison pill," to reduce the exercise price, extend the expiration date and revise certain definitions under the plan. The stockholder rights plan is intended to deter hostile or coercive attempts to acquire the Company. The stockholder rights plan enables stockholders to acquire shares of the Company's common stock, or the common stock of an acquirer, at a substantial discount to the public market price should any person or group acquire more than 15% of the Company's common stock without the approval of the Board of Directors under certain circumstances. The Company has designated 250,000 shares of Series C Junior Participating preferred stock for issuance in connection with the stockholder rights plan.