Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity

Note 9—Stockholders’ Equity

On May 9, 2012, the Company issued warrants in connection with the issuance of its 2019 Notes and a debt exchange transaction between the Company and certain holders of its 2018 Convertible Notes, described more fully in Note 7. Pursuant to the terms of the transactions, the Company issued warrants to purchase an aggregate of 4.0 million shares of the Company’s common stock at an exercise price equal to $1.863 per share. The Company may, at its or the warrant holder’s election, issue net shares in lieu of a cash payment of the exercise price by the warrant holder upon exercise.

Due to an exercise price adjustment clause within the warrant agreement, in accordance with ASC 815, the Company is required to record the fair value of the warrants as a liability. The Company’s warrant liability is marked-to-market each reporting period with the change in fair value recorded as a gain or loss within other income or expense, net on the Company’s consolidated statement of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.

The Company determines the fair value of its warrant liability based on the Black-Sholes pricing model. Historical information is the primary basis for the selection of the expected volatility. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected term of the warrants. The expected term is derived from the remaining contractual term of the warrant. At the date of the transaction, the Company recorded the warrant liability at its fair value of $5.3 million with a corresponding decrease to additional-paid-in capital. At December 31, 2012 the fair value of the warrant liability was $2.9 million. For the year ended December 31 2012, the Company recorded an unrealized gain of $2.3 million, within other income (expense), net in its consolidated statement of operations to reflect a decrease in the fair value of the warrants.

In February 2011, the Company issued $230 million principal amount of the 2018 Convertible Notes at par that becomes due on February 1, 2018. As part of the accounting for the 2018 Convertible Notes, the Company bifurcated the conversion feature and recorded $35.6 million to additional paid-in-capital, net of a deferred tax liability of $22.7 million and equity issuance costs of $1.9 million. See Note 7 to the consolidated financial statements for further discussion of the 2018 Convertible Notes.

On April 8, 2009, the Company raised $31.0 million from a registered direct offering, which yielded approximately $29.0 million in cash, net of approximately $2.0 million of offering costs which were charged to additional paid-in-capital. The Company issued 5,927,343 shares of its common stock to existing and new institutional investors as part of the offering. The investors also received warrants to purchase up to 5,038,237 shares of its common stock at an initial exercise price of $10.46 per share.

The warrants were exercisable at any time on or after the date of issuance and expired on November 2, 2010. Pursuant to the terms of the warrants, the exercise price per share for the warrants was $10.46, which was equal to the dollar volume weighted-average price of the Company’s common stock for the five trading days immediately preceding August 17, 2009. The Company could, at its or the warrant holder’s election, issue net shares in lieu of a cash payment of the exercise price by the warrant holder upon exercise.

In the event that the Company entered into a merger or change of control transaction, the holders of the warrants would have been entitled to receive consideration as if they had exercised the warrant immediately prior to such transaction, or they could have required the Company to purchase the warrant at the Black-Scholes value of the warrant on the date of such transaction. As a result, the Company accounted for the warrants as a liability.

The Company’s warrant liability was marked-to-market each reporting period with the change in fair value recorded as a gain or loss within other income (expense), net until the warrants were exercised, expire or other facts and circumstances led the warrant liability to be reclassified as an equity instrument. The fair value of the warrant liability was determined at each reporting period by utilizing a Monte Carlo simulation model. At the date of the transaction, April 8, 2009, the fair value of the warrant liability was $12.6 million.

During the year ended December 31, 2010, the Company recorded a charge of $16.8 million within other income (expense), net to reflect the net increase in the valuation of the warrants, prior to being exercised.

During the year ended December 31, 2010, holders of the Company’s warrants exercised warrants to purchase an aggregate of 5,038,237 shares of the Company’s common stock, either through a cashless exercise or cash exercise. The Company received an aggregate of $8.5 million of cash proceeds from the cash exercises of warrants to purchase an aggregate of 812,617 shares of common stock. The remainder of the warrants were exercised via a cashless net share settlement process, whereby warrants to purchase an aggregate of 4,225,620 shares of common stock were exercised, resulting in the forfeiture of 1,997,657 shares in satisfaction of the warrant exercise price, and the issuance of 2,227,963 shares of common stock. As of December 31, 2010, all of the warrants had been exercised and no warrants to purchase shares of the Company’s common stock remained outstanding. As all of the warrants have been exercised and are no longer outstanding, the Company’s warrant liability has been completely converted into stockholders’ equity as of December 31, 2010.

Stockholder Rights Plan

On August 6, 2012, the Company’s Board of Directors adopted a stockholder rights plan, which authorized and declared a dividend of one preferred stock purchase right for each outstanding share of the Company’s common stock, $0.01 par value per share, to stockholders of record at the close of business on August 17, 2012. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of a Series A Junior Participating Preferred Stock, $0.01 par value per share, at a purchase price of $2.50, subject to adjustment. The rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Company’s Board of Directors and could, therefore, have the effect of delaying or preventing change in control of the Company. The Rights will not be exercisable until a specified Distribution Date and will expire upon the earlier of (i) the close of business on August 6, 2015 or (ii) the close of business on August 6, 2013 if shareholder approval of the Rights Plan has not been obtained as of the close of business on such date, unless earlier redeemed or exchanged. No rights have been exercised as of December 31, 2012.