Our offices are located at 701 Park of Commerce Boulevard, Boca Raton, Florida 33487 and consist of approximately 21,000 square feet of leased office space. We consider our facilities to be adequate for our current operations.
The selected historical income statement data for the years ended December 31, 2013, 2012, 2011, 2010, and 2009, and balance sheet data as of December 31, 2013, 2012, 2011, 2010, and 2009 were derived from our audited consolidated financial statements and reflect the retroactive revision to reflect the classification of our structured settlement business as discontinued operations.
The year 2013 began with the Company anticipating a liquidity shortfall and arranging a $45.0 million bridge financing (the “Bridge Facility”) from affiliates of certain of its shareholders. This infusion of capital provided the Company with the liquidity it needed to pay premiums on its portfolio of life insurance policies while trying to secure longer term financing. Ultimately, the Company did secure longer term capital in the form of a 15-year revolving credit facility, with available proceeds used to pay premiums on the majority of its portfolio. The Company ended 2013 with a portfolio consisting of 612 life insurance policies with an aggregate death benefit of $3.0 billion, a nearly threefold increase from the 214 policies it owned at December 31, 2012. In the fourth quarter of 2013, the Company sold substantially all of the operating assets comprising its structured settlement business for $12.0 million, which allows management to focus on the core life finance business.
Given the Company’s own experiences in securing long term financing, as well as our knowledge of the life finance market, we believe there is currently an opportunity to serve as a secured lender to undercapitalized life settlement portfolios whose owners are seeking alternatives to selling all or portions of their portfolios at distressed prices. Historically, many banks and traditional lenders have been reluctant to provide loans to life settlement owners. The result of this lack of credit is that policy owners have been and may be forced to sell policies at distressed prices or simply allow their policies to lapse.
We believe that, in light of our experience in the premium finance and life settlement businesses, we are qualified to identify attractive portfolio lending opportunities. In February 2014, the Company issued $70.7 million in aggregate principal amount of Notes. We plan to use a portion of the proceeds to strategically lend against portfolios of life settlements owned by institutional investors and anticipate that we will be able to enter
On April 29, 2013, White Eagle Asset Portfolio, LLC, a subsidiary of the Company, entered into a 15-year revolving credit facility providing for up to $300.0 million in borrowings (the “Revolving Credit Facility”) to pay premiums on the policies pledged as collateral under the facility, debt service and for the fees and expenses of certain service providers. The initial advance under the Revolving Credit Facility was approximately $83.0 million, with a portion of such borrowings used to retire the debt outstanding under an 18 month bridge facility. In addition, proceeds of the initial advance were used to pay transaction fees and expenses, a distribution to the Company and to fund a $48.5 million release payment under a termination agreement (the “Termination Agreement”) to the Company’s lender protection insurance coverage provider (the “LPIC Provider”) who released all of its salvage and subrogation rights in 323 policies that the Company has historically treated as contingent assets and described as “Life Settlements with Subrogation rights, net” as well as in 93 policies that were owned by CTL Holdings, LLC (“CTL”). On April 30, 2013, the Company acquired CTL and its 93 policies. At December 31, 2013 the Company’s portfolio consists of 612 policies, with an aggregate death benefit of $3.0 billion compared to 214 policies, with an aggregate death benefit of $1.1 billion at December 31, 2012.
457 policies owned by White Eagle, with an aggregate death benefit of $2.3 billion, and an estimated fair value of approximately $254.5 million at December 31, 2013 have been pledged as collateral under the Revolving Credit Facility and the Company can use subsequent draws to pay premiums on these policies. The procurement of the $300.0 million 15-year Revolving Credit Facility and the retirement of the $45.0 million bridge debt served to effectively recapitalize the Company and significantly reduce liquidity risk. While the Revolving Credit Facility provides the lender with a significant interest in the policies pledged as collateral, the initial borrowings under the facility allowed the Company to opportunistically increase the size of its portfolio through the extinguishment of subrogation rights in policies that were historically considered contingent assets and through the acquisition of the CTL policies.
At June 30, 2013, the Company or its subsidiaries owned 402 policies that were acquired through the acquisition of CTL or that were considered contingent assets prior to the effectiveness of the Termination Agreement, with an aggregate death benefit of $1.9 billion and an estimated fair value of approximately $139.7 million. The addition of these policies resulted in a $65.2 million unrealized gain on life settlement during the quarter ended June 30, 2013. At December 31, 2013, the Company held 392 of the 402 policies, with an aggregate death benefit of $1.8 billion and an estimated fair value of approximately $161.1 million. Policy acquisitions similar in scale and in transaction price to those made during the period should not be anticipated in future periods.
During the year ended December 31, 2013, the Company lapsed 20 policies. The Company also surrendered two policies for gross proceeds of $1.0 million and sold eight policies that were not pledged as collateral under the Revolving Credit Facility for gross proceeds of $5.8 million. Additionally, the Company collected $12.0 million in death benefits from policies that matured during 2013.
The preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. We base our judgments, estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for the loan impairment valuation, income taxes, valuation of structured settlements, the valuation of investments in life settlements, the valuation of securities available for sale and the valuation of its note payable owing under the Revolving Credit Facility have the greatest potential impact on our financial statements and accordingly believe these to be our critical accounting estimates. Below we discuss the critical accounting policies associated with the estimates as well as selected other critical accounting policies. For further information on our critical accounting policies, see the discussion in Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements.
We account for life insurance policies that we own as investments in life settlements (life insurance policies) in accordance with ASC 325-30, Investments in Insurance Contracts, which requires us to use either the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is irrevocable. We have elected to account for these life insurance policies as investments using the fair value method.
Our valuation of insurance policies is a critical component of our estimate for the value of our investments in life settlements (life insurance policies). We currently use a probabilistic method of valuing life insurance policies, which we believe to be the preferred valuation method in the industry. The most significant assumptions are the Company’s estimate of the life expectancy of the insured and the discount rate.
The probability of mortality for an insured is then calculated by applying the blended life expectancy estimate to a mortality table. The mortality table is created based on the rates of death among groups categorized by gender, age, and smoking status. By measuring how many deaths occur during each year, the table allows for a calculation of the probability of death in a given year for each category of insured people. The probability of mortality for an insured is found by applying the mortality rating from the life expectancy assessment to the probability found in the actuarial table for the insured’s age, sex and smoking status. The Company has historically applied an actuarial table developed by a third party. However, beginning in the quarter ended September 30, 2012, the Company transitioned to a table developed by the U.S. Society of Actuaries known as the 2008 Valuation Basic Table, or the 2008 VBT. However, because the 2008 VBT table does not account for anticipated improvements in mortality in the insured population, the table was modified in conjunction with outside consultants to reflect these expected mortality improvements. The Company believes that the change in mortality table does not materially impact the valuation of its life insurance policies and that its adoption of a modified 2008 VBT table is consistent with modified tables used by market participants and third party medical underwriters.
During the first quarter of 2013, 21st Services announced revisions to its underwriting methodology that, according to 21st Services, have generally been understood to lengthen the average reported life expectancy furnished by this life expectancy provider by 19%. To account for the impact of the revisions and based off of market responses to the methodology change, the Company initially lengthened the life expectancies furnished by 21st Services by 13% prior to blending them with the life expectancy reports furnished by AVS. Since that time, the Company has received a significant amount of life expectancy reports from 21st Services that utilize its revised methodology and has, based on the results of those reports, lengthened the life expectancies on the remaining policies in its portfolio.
As is the case with most market participants, the Company used a blend of life expectancies that are provided by two third-party LE providers. These are estimates of an insured’s remaining years. If all of the insured lives in the Company’s life settlement portfolio live six months shorter or longer than the life expectancies provided by these third parties, the change in estimated fair value at December 31, 2013 would be as follows (dollars in thousands):
Prior to the second quarter of 2013, the Company would adjust its average, or blend, of the two life expectancy reports when the difference in the probability of mortality between the reports was greater than 150%. In those instances, the Company would cap the higher mortality factor at an amount that was 150% above the lower mortality factor, which ultimately reduced the mortality factor inputted into the Company’s fair value model. The Company ceased applying such a cap as part of the valuation adjustments implemented in connection with 21st Services’ revised underwriting methodology.
At the end of each reporting period we re-value the life insurance policies using our valuation model in order to update our estimate of fair value for investments in policies held on our balance sheet. This includes reviewing our assumptions for discount rates and life expectancies as well as incorporating current information for premium payments and the passage of time.
We have elected to account for the note payable under the Revolving Credit Facility, which includes the lender’s interest in policy proceeds, using the fair value method. The fair value of the debt is the amount the Company would have to pay to transfer the debt to a market participant in an orderly transaction. We calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the Revolving Credit Facility and probabilistic cash flows from the pledged policies. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.
The discount rate incorporates current information about market interest rates, credit exposure to insurance companies and our estimate of the return a lender lending against the policies would require.
The extent to which the fair value of the note payable could vary in the near term has been quantified by evaluating the effect of changes in the weighted average discount rate. If the weighted average discount rate were increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value remained the same, the change in estimated fair value of the note payable as of December 31, 2013 would be as follows (dollars in thousands):
Future changes in the discount rates could have a material effect on the fair value of our note payable, which could have a material adverse effect on our business, financial condition and results of our operations.
Our primary source of income from continuing operations are in the form of change in fair value of life settlements, gains on life settlements, net, interest income and servicing income. Our income recognition policies for this source of income is as follows:
Change in Fair Value of Life Settlements-When the Company acquires certain life insurance policies we initially record these investments at the transaction price, which is the fair value of the policy for those acquired upon relinquishment or the amount paid for policies acquired for cash. The fair value of the investment in insurance policies is evaluated at the end of each reporting period. Changes in the fair value of the investment based on evaluations are recorded as changes in fair value of life settlements in our consolidated statement of operations. The fair value is determined on a discounted cash flow basis that incorporates current life expectancy assumptions. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. The Company recognizes income from life settlement maturities upon receipt of death notice or verified obituary of insured. This income is the difference between the death benefits and fair values of the policy at the time of maturity.
Interest Income-Interest income on life finance loans is recognized when it is realizable and earned, in accordance with ASC 605, Revenue Recognition.
Our primary source of income from discontinued operations are in the form realized gains on sales of structured settlements.
Realized Gains on Sales of Structured Settlements-Realized gains on sales of structured settlements are recorded when the structured settlements have been transferred to a third party and we no longer have continuing involvement, in accordance with ASC 860, Transfers and Servicing.
Deferred costs include costs incurred in connection with acquiring and maintaining credit facilities. These costs are amortized over the life of the related loan using the effective interest method and are classified as amortization of deferred costs in the accompanying consolidated statement of operations. These deferred costs related to the Company’s previous credit facility which was fully repaid in December 2012. The Company did not recognize any deferred cost on its current credit facility given all costs were expensed due to electing the fair value option in valuing the credit facility.
In prior periods, the Company experienced maturities in respect of policies that were subject to subrogation claims of the LPIC Provider. These maturities were accounted for as contingent gains in accordance with ASC 450, Contingencies and the Company recognized gains only when all contingencies were resolved. Upon the execution of the Termination Agreement, the LPIC Provider released any and all subrogation claims and related salvage rights in the life insurance policies that had been characterized as “Life Settlements with Subrogation rights, net.” The Company did not reports any gains on maturities, net of subrogation in 2013 and, as a result of the Termination Agreement, the Company will no longer have any gains on maturities of life settlements with subrogation rights, net.
The Company reports a business as held-for-sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year and certain other specified criteria are met. A business classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Depreciation is not recorded on assets of a business classified as held-for-sale. Assets and liabilities related to a business classified as held-for-sale are segregated in the Consolidated Balance Sheet and major classes are separately disclosed in the notes to the Consolidated Financial Statements commencing in the period in which the business is classified as held-for-sale. The Company reports the results of operations of a business as discontinued operations if the business is classified as held-for-sale, the operations and cash flows of the business have been or will be eliminated from the ongoing operations of the Company as a result of a disposal transaction and the Company will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Operations for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.
Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements discusses accounting standards adopted in 2013, as well as accounting standards recently issued but not yet required to be adopted and the expected impact of these changes in accounting standards. Any material impact of adoption is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements.
Origination Fee Income. Origination fee income was zero for the year ended December 31, 2013, compared to $500,000 in 2012. Origination fee income decreased due to a decline in the balance of loans receivable, net, as noted above. As a result of the voluntary termination of our premium finance business, we did not originate any loans nor generate any origination fees during 2013 or 2012. We have ceased accruing origination fee income.
Change in Fair Value of Life Settlements. Change in fair value of life settlements was a gain of approximately $88.7 million for the year ended December 31, 2013 compared to a loss of $5.7 million for the year ended December 31, 2012, an increase of $94.3 million. This increase was a result of a $71.5 million unrealized gain in investment in life settlements primarily associated with the 416 polices that were acquired during the quarter ended June 30, 2013. The loss in 2012 was primarily driven by increased life expectancy inputs to the Company’s fair value model reflected in the updated life expectancy reports procured by the Company in respect to 149 insured lives. These reports showed that, in the aggregate, there was less health impairment and thus longer life expectancies relative to the original life expectancy reports inputted into the Company’s fair value model.
As of December 31, 2013, the Company owned 612 policies with an estimated fair value of $303.0 million compared to $113.4 million at December 31, 2012, an increase of $189.6 million or 167%. Of the 612 policies, 457 policies were pledged to the Revolving Credit Facility and 155 policies were not pledged. During the year ended December 31, 2013, the Company acquired 432 life insurance policies compared to 31 policies during the same period in 2012. Of the 432 policies acquired during 2013, 16 were as a result of certain of the Company’s borrowers defaulting on premium finance loans and relinquishing the underlying policy to the Company, compared to 29 policies acquired in the same manner for 2012. Of the remaining 416 policies, 323 policies were acquired upon the effectiveness of the Termination Agreement with the LPIC Provider and were previously held
off balance sheet as contingent assets for financial reporting purposes in the prior period, with the remaining 93 acquired through the Company’s acquisition of CTL, for a total purchase price of $55.5 million. As of December 31, 2013, the aggregate death benefit of the Company’s investment in life settlements is $3.0 billion.
Other Income. Other income was $2.0 million for the year ended December 31, 2013 compared to $748,000 in 2012, an increase of $1.3 million. The amount for 2013 is attributable to a write off of liabilities which were payable to a third party. The amount for 2012 was primarily related to insurance recovery from the Company’s insurance carrier associated with the USAO Investigation.
Change in fair value of note payable. Change in fair value of note payable was approximately $9.4 million for the year ended December 31, 2013 compared to zero for the year ended December 31, 2012. This change is associated with the adoption of the fair value option in accounting for the note payable and the lengthening of life expectancy estimates for the policies in the Revolving Credit Facility. The Revolving Credit Facility is valued at December 31, 2013 using a discount rate of 24.04%. See Note 13, “Fair Value Measurements,” to the accompanying consolidated financial statements.
Provision for Losses on Loans Receivable. Provision for losses on loans receivable was zero for the year ended December 31, 2013 compared to $515,000 in 2012. This provision records loan impairments on existing loans in order to adjust the carrying value of the loan receivable to the fair value of the underlying policy.
Amortization of Deferred Costs. Amortization of deferred costs was $7,000 during the year ended December 31, 2013 as compared to $1.9 million in 2012. Lender protection insurance related costs accounted for zero and $1.5 million of total amortization of deferred costs during the years ended December 31, 2013 and 2012, respectively. As described previously, the lender protection insurance program was terminated as of December 31, 2010 and no loans with lender protection insurance remained outstanding as of December 31, 2013.
Selling, General and Administrative Expenses. SG&A expenses were $29.0 million for the year ended December 31, 2013 compared to $43.4 million in 2012. This was primarily a result of a $1.3 million reduction in personnel cost, $377,000 reduction in D&O insurance expense, $12.3 million reduction in legal fees and $479,000 reduction in other SG&A expenses.
Interest Income. Interest income was $1.7 million for the year ended December 31, 2012 compared to $7.8 million for 2011, a decrease of $6.1 million, or 78%. During the years ended December 31, 2012 and December 31, 2011, the Company originated zero and 55 loans respectively. Interest income declined as the balance of loans receivable, net decreased from $29.4 million as of December 31, 2011 to $3.0 million as of December 31, 2012 due to significant loan maturities. Loans outstanding declined from 138 to 22 at December 31, 2012. There were no significant changes in interest rates. The weighted average per annum interest rate for life finance loans outstanding as of December 31, 2012 and 2011 was 13.4% and 12.3%, respectively. As a result of the voluntary termination of our premium finance business, we ceased earning interest income once our outstanding premium finance loans mature.
In 2012, two updated life expectancy reports showed discrepancies with the previously reviewed and relied upon medical records of two insureds, resulting in significant extensions to the insureds’ life expectancies. Change in fair value of life settlements for these two policies accounted for approximately $3.3 million of the $5.7 million loss for the year ended December 31, 2012.
relinquishing the underlying policy to the Company, compared to 14 policies acquired in the same manner for 2011. As of December 31, 2012, the aggregate death benefit of the Company’s investment in life settlements was $1.1 billion. During the year ended December 31, 2012, we sold 6 policies and wrote off 1 policy.
Gain on Maturities of Life Settlements with Subrogation Rights, net. During 2011, two individuals covered under policies that were subject to subrogation claims unexpectedly passed away. The Company collected the death benefit on one of these polices in the amount of $3.2 million, net of subrogation expenses. In 2012, the Company negotiated a settlement in respect to the larger policy and collected approximately $6.1 million, net of subrogation expenses. The gain was reported in accordance with ASC 450, Contingencies in the consolidated statement of operations for the year ended December 31, 2012.
Provision for Losses on Loans Receivable. Provision for losses on loans receivable was $515,000 during the year ended December 31, 2012, compared to $7.6 million during 2011, a decrease of $7.1 million or 93%. This provision recorded impairments on existing loans in order to adjust the carrying value of the loan receivable to the fair value of the underlying policy or when collectability of the LPIC claim payment was uncertain. See Note 7, “Loans Receivable” and Note 13, “Fair Value Measurements,” to the accompanying consolidated financial statements.
Loss on Loan Payoffs and Settlements, net. Loss on loan payoffs and settlements, net, was $125,000 for the year ended December 31, 2012 compared to $3.8 million in 2011, a decrease of $3.7 million, or 97%. In the year ended December 31, 2012, we wrote off zero loans compared to 15 loans written off in 2011, all of which were included in the Acorn settlement. Excluding the impact of the Acorn settlements, we had a loss of $125,000 and a gain of $772,000 on loan payoffs and settlements, net, for the years ended December 31, 2012 and 2011, respectively.
Legal expenses for 2012 were $24.0 million compared to $9.9 million for 2011; of the total legal expense for 2012, approximately $14.3 million was associated with the USAO Investigation compared to $6.0 million for the year ended December 31, 2011. Legal expense also included approximately $5.1 million associated with the class action litigation and derivative action for the year ended December 31, 2012.
Adjustments to our allowance for doubtful accounts for past due agency fees were charged to bad debt expense during 2011. There was no charge to bad debt expense for agency fee receivable for the year ended December 31, 2012. Our determination of the allowance was based on an evaluation of the agency fee receivable, prior collection history, current economic conditions and other inherent risks. The allowance for doubtful accounts for past due agency fees was $260,000 as of December 31, 2012 and 2011, respectively.
Net loss from our discontinued structured settlement operations for the year ended December 31, 2012 was $2.6 million as compared to $5.4 million for the year ended December 31, 2011, an improvement of $2.8 million. Total income from our discontinued structured settlement operations was $14.0 million for the year ended December 31, 2012 compared to $11.9 million in 2011, an increase of $2.1 million. During the year ended
December 31, 2012, our discontinued structured settlement operations sold 1,235 structured settlements for a gain of $11.5 million compared to 979 structured settlements sold for a gain of $5.8 million during the same period in 2011, a reduction of $5.7 million or 98%. Unrealized change in fair value of structured settlements receivable was $1.8 million for the year ended December 31, 2012 compared to $5.3 million for the year ended December 31, 2011, a decrease of $3.5 million, or 66%.
Our consolidated financial statements have been prepared assuming the realization of assets and the satisfaction of liabilities in the normal course, as well as continued compliance with the covenants contained in the Revolving Credit Facility and other financing arrangements.
On February 21, 2014, the Company issued $70.7 million in aggregate principal amount of 8.50% senior unsecured notes due 2019. We intend to use the majority of the proceeds to lend against portfolios of policies with underwriting and cash flow characteristics that are satisfactory to the Company with the remainder of the proceeds used to strategically acquire life insurance policies in the secondary and tertiary markets, to pay the premiums on certain life insurance policies that we own and for general corporate purposes, including working capital.
Effective April 29, 2013, White Eagle entered into a 15-year Revolving Credit Facility with LNV Corporation, as initial lender, Imperial Finance & Trading, LLC, as servicer and portfolio manager and CLMG Corp., as administrative agent (the “Agent”).
Interest. Borrowings under the Revolving Credit Facility bear interest at a rate equal to LIBOR or, if LIBOR is unavailable, the base rate, in each case plus an applicable margin of 4.00% and subject to the rate floor described above. The base rate under the Revolving Credit Facility equals the sum of (i) the weighted average of the interest rates on overnight federal funds transactions or, if unavailable, the average of three federal funds quotations received by the Agent plus 0.75% and (ii) 0.5%. The effective rate at December 31, 2013 is 5.5%. The Company’s policy is to record interest expense for the cash portion of interest paid during the period. Accrued interest is reflected as a component of the estimated fair value of the note payable.
Maturity. The term of the Revolving Credit Facility expires April 28, 2028, which is also the scheduled commitment termination date (though the lenders’ commitments to fund borrowings may terminate earlier in relation to an event of default). The lenders’ interests in and rights to a portion of the proceeds of the policies does not terminate with the repayment of the principal borrowed and interest accrued thereon, the termination of the Revolving Credit Facility or expiration of the lenders’ commitments.
At December 31, 2013, the fair value of the debt under the Revolving Credit Facility was $123.8 million and the outstanding principal was approximately $133.2 million as of December 31, 2013. See Note 13, “Fair Value Measurements.”
In February 2014, we closed on a private offering for an aggregate $70.7 million of 8.50% senior unsecured convertible notes due 2019. The Notes were sold to certain accredited investors pursuant to Regulation D under the Securities Act of 1993 and to an initial purchaser who then sold the Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933. The Notes were issued pursuant to an indenture dated February 21, 2014, between us and U.S. Bank National Association, as trustee (“the Indenture”). Certain entities affiliated with shareholders of the Company who individually hold in excess of 5% of our common stock purchased Notes in the offering, including entities affiliated with two members of our Board of Directors.
The Notes are general senior unsecured obligations and rank equally in right of payment with all of our other existing and future senior unsecured indebtedness. The Notes are effectively subordinate to all of our secured indebtedness to the extent of the value of the assets collateralizing such indebtedness. The Notes are not guaranteed by our subsidiaries.
The Company may not redeem the Notes prior to February 15, 2017. On and after February 15, 2017, and prior to the maturity date, the Company may redeem for cash all, but not less than all, of the Notes if the last reported sale price of the Company’s common stock equals or exceeds 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date the Company delivers notice of the redemption. The redemption price will be equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, if we call the Notes for redemption, a make-whole fundamental change will be deemed to occur. As a result, we will, in certain circumstances, increase the conversion rate by a number of additional shares of common stock for holders who convert their notes prior to the redemption date.
The following table summarizes our contractual obligations as of December 31, 2013 (in thousands):
(3) Represents the estimated fair value of 2.0 million warrants to be issued in connection with the class action settlement. The Company expects to issue the warrants by April 15, 2014.
At December 31, 2013, there are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.