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Preferred Stock
9 Months Ended
Sep. 30, 2013
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]  
Preferred Stock
Preferred Stock
Our Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock. As of September 30, 2013, there were: 100 shares of Series B-1 Preferred Stock authorized, and 5 shares issued and outstanding; 7,500 shares of Series A-2 Preferred Stock authorized and 53 shares issued and outstanding; and 4,000 shares of Series D Preferred Stock authorized and no shares issued or outstanding.

Each share of Series B-1 Preferred Stock has a stated value of $100,000 per share (the “Series B-1 Stated Value”), and a liquidation preference equal to the Series B-1 Stated Value plus all accrued and unpaid dividends (the “Series B-1 Liquidation Preference”). A holder of Series B-1 Preferred Stock shall have no right to exchange or convert such shares into any other securities without the written approval or consent of the Company, and the affirmative vote or consent of the holders of at least 90% of the shares of the issued and outstanding Series B-1 Preferred Stock. The Series B-1 Preferred Stock is senior to all other classes of equity and, commencing on January 1, 2013, is entitled to cumulative dividends at a rate of 4% per annum, payable quarterly, based on the Series B-1 Stated Value. Commencing January 1, 2014, the cumulative dividend rate increases to 6% per annum, payable quarterly, based on the Series B-1 Stated Value. The Company may, at its option at any time, redeem all or a portion of the outstanding shares of Series B-1 Preferred Stock by paying the Series B-1 Liquidation Preference.

On August 9, 2013, the Company entered into a Series B-1 Preferred Exchange Agreement (the “GPI Agreement”), by and between the Company and GP Investment Holdings, LLC (“GPI”), whereby, the Company exchanged (the “GPI Exchange Transaction”) 95 shares (the “Shares”) of the Company’s Series B-1 Preferred Stock (the “Preferred Stock”) for 6,333,333 shares of the Company’s Common Stock.  Each share of Preferred Stock has a stated value of $100,000 per share and a liquidation preference equal to the stated value plus all accrued and unpaid dividends.  As of August 9, 2013, the liquidation preference for the Shares was approximately $9,736,000, representing an effective conversion price for the Common Stock issued in the GPI Exchange Transaction of $1.54 per share. In connection with the GPI Agreement, GPI waived its claim to accrued dividends on its Shares in the approximate amount of $236,000 as of August 9, 2013. The Company recorded the reversal of these accrued dividends as a reduction to Preferred Stock Dividends on the accompanying condensed consolidated statement of operations. The Company incurred approximately $289,000 of costs in connection with the GPI Exchange Transaction, which were recorded as a reduction to additional paid-in capital. The GPI Exchange Transaction was recorded through stockholders' equity.

The GPI Agreement contains customary representations and warranties and indemnification provisions. In connection with the GPI Agreement, the Company entered into a Registration Rights Agreement (the “Registration Agreement”), by and between the Company and GPI, whereby, the Company agreed to use its best efforts to file a registration statement, covering 6,333,333 shares of Common Stock, with the SEC no later than ninety days after August 9, 2013.  Pursuant to the Registration Agreement, GPI agreed not to sell any shares of Common Stock held by it for a period of one year after the execution of the Registration Agreement, with some customary exceptions. The Registration Agreement contains customary representations and warranties and indemnification provisions.

As of September 30, 2013, the Company has recorded approximately $10,000 in accrued dividends on the accompanying balance sheet related to the 5 shares of Series B-1 Preferred Stock that were issued and outstanding as of such date.

Each share of Series A-2 Preferred Stock has a stated value of $7,500 per share (the “A-2 Stated Value”), a liquidation preference equal to the Series A-2 Stated Value, and is convertible at the holder’s election into Common Stock at a conversion price per share of $3.00. Therefore, each share of Series A-2 Preferred Stock is convertible into 2,500 shares of Common Stock. The Series A-2 Preferred Stock is subordinate to the Series B-1 Preferred Stock but senior to all other classes of equity, has weighted average anti-dilution protection and, commencing on January 1, 2013, is entitled to cumulative dividends at a rate of 5% per annum, payable quarterly, based on the Series A-2 Stated Value. Once dividend payments commence, all dividends are payable at the option of the holder in cash or through the issuance of a number of additional shares of Series A-2 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. As of September 30, 2013, the Company has recorded approximately $15,000 in accrued dividends on the accompanying balance sheet related to the Series A-2 Preferred Stock.

In accordance with ASC Topic 815, we evaluated whether our convertible preferred stock contains provisions that protect holders from declines in our stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective preferred stock agreements based on a variable that is not an input to the fair value of a “fixed-for-fixed” option and require a derivative liability. The Company determined no derivative liability is required under ASC Topic 815 with respect to our convertible preferred stock. A contingent beneficial conversion amount is required to be calculated and recognized when and if the adjusted $3.00 conversion price of the convertible preferred stock is adjusted to reflect a down round stock issuance that reduces the conversion price below the $1.16 fair value of the Common Stock on the issuance date of the convertible preferred stock.