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9. PREFERRED STOCK
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12 Months Ended | ||
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Dec. 31, 2011
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| Preferred Stock [Text Block] |
The
Company has 6,734,835 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, 2011, 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, 2011 and
2010. 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
1,580,790 shares of Series B Preferred Stock, with 926,942
and 1,455,924 outstanding at December 31, 2011 and 2010,
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.
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 the 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.
The
holders of the Series B Preferred Stock have conversion
rights initially equivalent to 0.43 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, including
derivative securities convertible into equity securities (on
an as-converted or as-exercised basis), at a price less than
the conversion price then in effect. 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
three votes 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
2008, the Company entered into Letter Agreements with Lyles
United LLC (“Lyles United”) and other purchasers
under which the Company expressly waived its rights under the
Certificate of Designations relating to the Series B
Preferred Stock 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 other purchasers.
Registration
Rights Agreement –
In connection with 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 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 $1,265,000 and
$2,847,000 for the years ended December 31, 2011 and 2010,
respectively. As of December 31, 2011, the Company had
accrued and unpaid dividends of $7,315,000.
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