Subsequent Events

On October 24, 2014, the Company and SIC III entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") pursuant to which SIC III agreed to purchase certain securities issued by the Company for a total of $30,000. Pursuant to the Securities Purchase Agreement, the Company issued a Line of Credit Promissory Note (the “Note”), which provides for a $20,000 line of credit to the Company. In addition, SIC III agreed to purchase 10,000 shares (the “Shares”) of a new class of Series C Convertible Preferred Stock for a total of $10,000. The Company also agreed to issue to SIC III warrants to purchase 1,500,000 shares of the Company’s common stock. The Company will issue Warrants to purchase 50,000 shares of the Company’s common stock for every $1,000 advanced under the Note or every $1,000 of purchase price paid for the Shares. The warrants will be issued in proportion to the amounts the Company draws under the Note and amounts paid for the Shares. The exercise price of the warrants will be 10% above the closing price of the Company’s shares on the date prior to the issuance of the warrants. Exercise of the warrants will be subject to approval of the Company’s stockholders.

Line of Credit Note

On October 24, 2014, the Company issued SIC III the Note. The Note provides a right for the Company to request advances under the Note from time to time. On October 24, 2014, SIC III made an initial advance under the Note of $4,500. The Note provides that the Company may request additional advances of up to $15,500, provided that additional advances bringing the total of advances to amount in excess of $5,000 may be made only after December 15, 2014 and to pay off amounts outstanding under the DB Line (see Note 7, Loans Payable for a complete discussion of the DB Line). The Note bears interest at a rate of 12% per annum, payable in cash on a quarterly basis. In addition, the Note provides for a 3% discount, such that the amount advanced by SIC III will be 3% less than the associated principal amount of the advance. From and after the occurrence and during the continuance of any event of default under the Note, the interest rate is automatically increased to seventeen percent (17%) per annum.

In connection with the first drawdown of $4,500 under the Note, the Company issued to SIC III warrants to purchase 225,000 shares of the Company’s common stock. These warrants have an exercise price of $3.51, representing a price equal to 10% above the closing price of the Company’s common stock on the day prior to issuance. The Warrants are exercisable for a period of five years from issuance. The Company has not determined the stock compensation expense related to the issuance of warrants to SIC III, however such amount will be recorded during the Company's second fiscal quarter.

The Note is not convertible into equity securities of the Company.

The Note also contains certain covenants and restrictions, including, among others, that, for so long as the Note is outstanding, the Company will not, without the consent of the holder of the Note, (i) make any loan or advance in excess of $500 to any officer, director, employee of affiliate of the Company (except advances and similar expenditures : (a) under the terms of employee stock or option plans approved by the Board of Directors, (b) in the ordinary course of business, consistent with past practice or (c) to its subsidiaries), (ii) incur any indebtedness that exceeds $1,000 in the aggregate other than indebtedness outstanding under the Note, (iii) guaranty any indebtedness of any unaffiliated third party, (iv) change the principal business of the Company or exit the Company's current business, provided that the foregoing is subject to the Board's compliance with its fiduciary duties, (v) sell, assign, or license material technology or intellectual property of the Company except (a) in the ordinary course of business, consistent with past practice, (b) sales and assignments thereof in any 12 month period that do not have a fair market value in excess of $500 or (c) in connection with a change of control transaction, (vi) enter into any corporate strategic relationship involving the payment, contribution or assignment by the Company of its assets that have a fair market value in excess of $1,000 or (vii) liquidate or dissolve the Company or wind up the business of the Company, except in connection with changes of control or merger, acquisition or similar transactions or as approved by the Company’s Board in compliance with their fiduciary duties.

Series C Convertible Preferred Stock

The Company created a new class of Series C Convertible Preferred Stock (the “Series C Convertible Preferred Stock”) by filing a Certificate of Designations of the Series C Convertible Preferred Stock of the Company (the "Series C Certificate of Designation") with the Secretary of State of the State of Delaware. The Company authorized the issuance of up to 100,000 shares of the Series C Convertible Preferred Stock. The rights, preferences, privileges and restrictions of the shares of Series C Convertible Preferred Stock and the qualifications, limitations and restrictions thereof are contained in the Series C Certificate of Designation and are summarized as follows:


•	The shares of Series C Convertible Preferred Stock have a stated value of $1,000 per share (the "Stated Value").

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Each holder of a share of Series C Convertible Preferred Stock shall be entitled to receive dividends (“Dividends”) on such share equal to twelve percent (12%) per annum (the “Dividend Rate”) of the Stated Value before any Dividends shall be declared, set apart for or paid upon any junior stock or parity stock. Dividends on a share of Series C Convertible Preferred Stock shall accrue daily at the Dividend Rate, commence accruing on the issuance date thereof, compound annually, be computed on the basis of a 360-day year consisting of twelve 30-day months and be convertible into common stock in connection with the conversion of such share of Series C Convertible Preferred Stock.


•	Each share of Series C Convertible Preferred Stock is convertible, at the option of the holders, on the basis of its State Value and accrued, but unpaid Dividends, into shares of Company common stock at a conversion price of $4.00 per common share.


•	The Company may redeem any or all of the outstanding Series C Convertible Preferred Stock at any time at the then current Stated Value plus accrued Dividends thereon plus a redemption premium equal to the Stated Value multiplied by 6%. However, no premium shall be due on the use of up to 33% of proceeds of a public offering of common shares at a price of $5.00 or more per share.

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The Company is required to redeem each Series C Convertible Preferred Stock on the tenth (10th) business day immediately following the fifth anniversary of its issuance. However, the Company shall have no obligation to mandatorily redeem any shares of Series C Convertible Preferred Stock at any time that (x) the Company does not have surplus under Section 154 of the Delaware General Corporation Law (the “DGCL”) or funds legally available to redeem all shares of Series C Convertible Preferred Stock, (y) the Company's capital is impaired under Section 160 of the DGCL or (z) the redemption of any shares of Series C Convertible Preferred Stock would result in an impairment of the Company's capital under Section 160 of the DGCL; provided, that if the Company is prohibited from redeeming the Shares due to those limitations, the Company will redeem the Shares as soon as possible after such restrictions are no longer applicable.

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Upon a change of control of the Company, each holder of Series C Convertible Preferred Stock shall be entitled to require the Company to redeem from such holder all of such Holder's shares of Series C Convertible Preferred Stock so long as such holder requests such redemption in writing at least one (1) business day prior to the consummation of such change of control. The redemption amount per share equals the Stated Value thereof plus accrued Dividends plus a change of control premium equal to the Stated Value multiplied 6%.


•	The shares of Series C Convertible Preferred Stock are senior in liquidation preference to all shares of capital stock of the Company unless otherwise consented to by a majority of the holders of shares of Series C Convertible Preferred Stock.


•	The shares of Series C Convertible Preferred Stock shall have no voting rights except as required by law.


•	The consent of the holders of a majority of the shares of Series C Convertible Preferred Stock is necessary for the Company to amend the Series C Certificate of Designation.

Pursuant to the Securities Purchase Agreement, SIC III will acquire 10,000 Shares of Series C Convertible Preferred Stock for $10,000. The purchase of such Shares is subject to certain conditions, including (a) the accuracy of the Company’s representation and warranties set forth in the Securities Purchase Agreement, (b) the delivery of various closing certificates, and (c) approval by the Company’s shareholders of the exercise of the warrants issuable pursuant to the Securities Purchase Agreement.

Amendment to Term Loan Agreement

As discussed in Note 7, Loans Payable, the Company is party to a Term Loan Agreement with Deutsche Bank (the "DB Line"). The DB Line provides that the Company will use the proceeds of any debt or equity capital raises to prepay amounts outstanding under the DB Line. In connection with the transactions contemplated by the Securities Purchase Agreement, the Company entered into an amendment (the “Amendment”) with Deutsche Bank pursuant to which the prepayment provision was removed, allowing the Company to issue the Shares and request advances under the Note without having to prepay those amounts to Deutsche Bank. Deutsche Bank and SIC III entered into a Subordination Agreement (the “Subordination Agreement”) pursuant to which the repayment of amounts under the Note is subordinated to repayment of amounts under the DB Line.

Special Committee Action

Because the transactions described in the foregoing sections were between the Company and Robert F.X. Sillerman or an affiliate of Robert F.X. Sillerman, who is the Executive Chairman and Chief Executive Officer of the Company, the Company formed a special committee of independent directors to review the proposed transactions. Such special committee reviewed and unanimously approved such transactions. The Committee engaged an independent financial advisor in connection with its determination.