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PREFERRED STOCK
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9 Months Ended | 12 Months Ended | ||||
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Sep. 30, 2011
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Dec. 31, 2010
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| Preferred Stock [Text Block] |
For
the nine months ended September 30, 2011, 528,982
shares of the Company’s Series B Preferred Stock
were converted into 443,589 shares of the
Company’s common stock.
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The
Company has 6,205,853
undesignated shares of authorized and unissued preferred
stock, which may be designated and issued in the future on
the authority of the Company’s Board of Directors. As
of December 31, 2010, the Company had the following
designated preferred stock:
Series
A Preferred Stock – The Company has authorized
1,684,375 shares of Series A Cumulative Redeemable
Convertible Preferred Stock (“Series A Preferred
Stock”), with none outstanding at December 31, 2010 and
2009. Shares of Series A Preferred Stock that are converted
into shares of the Company’s common stock revert to
undesignated shares of authorized and unissued preferred
stock.
Upon
any issuance, the Series A Preferred Stock would rank senior
in liquidation and dividend preferences to the
Company’s common stock. Holders of Series A Preferred
Stock would be entitled to quarterly cumulative dividends
payable in arrears in cash in an amount equal to 5% per annum
of the purchase price per share of the Series A Preferred
Stock. The holders of the Series A Preferred Stock would have
conversion rights initially equivalent to two shares of
common stock for each share of Series A Preferred Stock,
subject to customary antidilution adjustments. Certain
specified issuances will not result in antidilution
adjustments. The shares of Series A Preferred Stock would
also be subject to forced conversion upon the occurrence of a
transaction that would result in an internal rate of return
to the holders of the Series A Preferred Stock of 25% or
more. Accrued but unpaid dividends on the Series A Preferred
Stock are to be paid in cash upon any conversion of the
Series A Preferred Stock.
The
holders of Series A Preferred Stock would have a liquidation
preference over the holders of the Company’s common
stock equivalent to the purchase price per share of the
Series A Preferred Stock plus any accrued and unpaid
dividends on the Series A Preferred Stock. A liquidation
would be deemed to occur upon the happening of customary
events, including transfer of all or substantially all of the
Company’s capital stock or assets or a merger,
consolidation, share exchange, reorganization or other
transaction or series of related transaction, unless holders
of 66 2/3% of the Series A Preferred Stock vote affirmatively
in favor of or otherwise consent to such transaction.
Series
B Preferred Stock – The Company has
authorized 2,109,772 shares of Series B Preferred Stock,
with 1,455,924 and 2,346,152 outstanding at December 31, 2010
and 2009, respectively. Shares of Series B Preferred Stock
that are converted into shares of the Company’s common
stock revert to undesignated shares of authorized and
unissued preferred stock.
On
March 18, 2008, the Company entered into a Securities
Purchase Agreement (the “Purchase Agreement”)
with Lyles United. The Purchase Agreement provided for the
sale by the Company and the purchase by Lyles United of (i)
2,051,282 shares of the Company’s Series B Preferred
Stock, all of which were initially convertible into an
aggregate of 879,121 shares of the Company’s common
stock based on an initial three-for-one conversion ratio, and
(ii) a warrant to purchase an aggregate of 439,560 shares of
the Company’s common stock at an exercise price of
$49.00 per share. On March 27, 2008, the Company consummated
the purchase and sale of the Series B Preferred Stock. Upon
issuance, the Company recorded $39,898,000, net of issuance
costs, in stockholders’ equity (deficit). The warrant
has an exercise period of ten years from the date of
issuance.
On
May 20, 2008, the Company entered into a Securities
Purchase Agreement (the “May Purchase
Agreement”) with Neil M. Koehler, William L. Jones,
Paul P. Koehler and Thomas D. Koehler (the “May
Purchasers”). The May Purchase Agreement provided for
the sale by the Company and the purchase by the May
Purchasers of (i) an aggregate of 294,870 shares of the
Company’s Series B Preferred Stock, all of which were
initially convertible into an aggregate of 126,373 shares
of the Company’s common stock based on an initial
three-for-one conversion ratio, and (ii) warrants to
purchase an aggregate of 63,186 shares of the
Company’s common stock at an exercise price of $49.00
per share. On May 22, 2008, the Company consummated the
purchase and sale under the May Purchase Agreement. Upon
issuance, the Company recorded $5,745,000, net of issuance
costs, in stockholders’ equity (deficit). The
warrants have an exercise period of ten years from the date
of issuance.
The
Series B Preferred Stock ranks senior in liquidation and
dividend preferences to the Company’s common stock.
Holders of Series B Preferred Stock are entitled to
quarterly cumulative dividends payable in arrears in cash
in an amount equal to 7.00% per annum of the purchase price
per share of the Series B Preferred Stock; however, subject
to the provisions of the Letter Agreement described below,
such dividends may, at the option of the Company, be paid
in additional shares of Series B Preferred Stock based
initially on liquidation value of the Series B Preferred
Stock. The holders of Series B Preferred Stock have a
liquidation preference over the holders of the
Company’s common stock initially equivalent to $19.50
per share of the Series B Preferred Stock plus any accrued
and unpaid dividends on the Series B Preferred Stock. A
liquidation will be deemed to occur upon the happening of
customary events, including the transfer of all or
substantially all of the capital stock or assets of the
Company or a merger, consolidation, share exchange,
reorganization or other transaction or series of related
transaction, unless holders of 66 2/3% of the Series B
Preferred Stock vote affirmatively in favor of or otherwise
consent that such transaction shall not be treated as a
liquidation. The Company believes that such liquidation
events are within its control and therefore has classified
the Series B Preferred Stock in stockholders’ equity
(deficit).
The
holders of the Series B Preferred Stock have conversion
rights initially equivalent to three shares of common stock
for each share of Series B Preferred Stock. The conversion
ratio is subject to customary antidilution adjustments. In
addition, antidilution adjustments are to occur in the event
that the Company issues equity securities at a price
equivalent to less than the then conversion ratio, initially
$6.50 per share, including derivative securities convertible
into equity securities (on an as-converted or as-exercised
basis). The shares of Series B Preferred Stock are also
subject to forced conversion upon the occurrence of a
transaction that would result in an internal rate of return
to the holders of the Series B Preferred Stock of 25% or
more. The forced conversion is to be based upon the
conversion ratio as last adjusted. Accrued but unpaid
dividends on the Series B Preferred Stock are to be paid in
cash upon any conversion of the Series B Preferred
Stock.
The
holders of Series B Preferred Stock vote together as a single
class with the holders of the Company’s common stock on
all actions to be taken by the Company’s stockholders.
Each share of Series B Preferred Stock entitles the holder to
the number of votes equal to the number of shares of common
stock into which each share of Series B Preferred Stock is
convertible on all matters to be voted on by the stockholders
of the Company. Notwithstanding the foregoing, the holders of
Series B Preferred Stock are afforded numerous customary
protective provisions with respect to certain actions that
may only be approved by holders of a majority of the shares
of Series B Preferred Stock.
In
connection with the closing of the above mentioned sales of
its Series B Preferred Stock, the Company entered into Letter
Agreements with Lyles United and the May Purchasers under
which the Company expressly waived its rights under the
Certificate of Designations to make dividend payments in
additional shares of Series B Preferred Stock in lieu of cash
dividend payments without the prior written consent of Lyles
United and the May Purchasers.
Registration
Rights Agreement –
In connection with the closing of the sale of its Series B
Preferred Stock, the Company entered into a Registration
Rights Agreement with Lyles United. The Registration Rights
Agreement is to be effective until the holders of the Series
B Preferred Stock, and their affiliates, as a group, own less
than 10% for each of the series issued, including common
stock into which such Series B Preferred Stock has been
converted. The Registration Rights Agreement provides that
holders of a majority of the Series B Preferred Stock,
including common stock into which such Series B Preferred
Stock has been converted, may demand and cause the Company,
at any time after the first anniversary of the Closing, to
register on their behalf the shares of common stock issued,
issuable or that may be issuable upon conversion of the
Preferred Stock and as payment of dividends thereon, and upon
exercise of the related warrants (collectively, the
“Registrable Securities”). The Company is
required to keep such registration statement effective until
such time as all of the Registrable Securities are sold or
until such holders may avail themselves of Rule 144 for sales
of Registrable Securities without registration under the
Securities Act of 1933, as amended. The holders are entitled
to two demand registrations on Form S-1 and unlimited demand
registrations on Form S-3; provided, however, that the
Company is not obligated to effect more than one demand
registration on Form S-3 in any calendar year. In addition to
the demand registration rights afforded the holders under the
Registration Rights Agreement, the holders are entitled to
unlimited “piggyback” registration rights. These
rights entitle the holders who so elect to be included in
registration statements to be filed by the Company with
respect to other registrations of equity securities. The
Company is responsible for all costs of registration, plus
reasonable fees of one legal counsel for the holders, which
fees are not to exceed $25,000 per registration. The
Registration Rights Agreement includes customary
representations and warranties on the part of both the
Company and the holders and other customary terms and
conditions.
The
Company recorded preferred stock dividends of $2,847,000 and
$3,202,000 for the years ended December 31, 2010 and 2009,
respectively.
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