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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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