| Equity |
Note 6: Equity
December 2011 Equity Issuance
On December 12, 2011, the Board approved, and the Company entered
into, a Securities Purchase Agreement (the “Purchase
Agreement”) with each of Isaac Capital Group LLC
(“ICG”), John Kocmur (“Kocmur”), Kingston
Diversified Holdings LLC (“Kingston”), Augustus
Gardini, L.P. (“Augustus”) and Lausanne LLC
(“Lausanne” and collectively with ICG, Kocmur, Kingston
and Augustus, the “Purchasers” and each a
“Purchaser”) providing for the Company’s issuance
and sale of an aggregate of 1,612,899 shares (the
“Shares”) of the Company’s common stock, par
value $0.001 per share (“Common Stock”), for an
aggregate purchase price equal to $2.0 million. Each of ICG, Kocmur
and Kingston (the “Lead Purchasers”) invested $500,000
in the Company and were issued 403,225 shares of Common Stock, and
each of Augustus and Lausanne invested $250,000 in the Company and
were issued 201,612 shares of Common Stock. The transactions
contemplated by the Purchase Agreement were consummated on December
12, 2011.
Pursuant to the Purchase Agreement:
- The per
share purchase price ($1.24, which was the closing bid price of the
Common stock, as reported by the NASDAQ Capital Market, on December
12, 2011) for the Shares was equal to the greater of the book or
market value of such shares, in accordance with applicable NASDAQ
rules.
- The
cash proceeds from the transactions were deposited and will be
maintained in a designated account (the “Proceeds
Account”) which is subject to certain restrictions pursuant
to the New Bylaws (as defined and described below).
- Each
Lead Purchaser was given the right, until the date such Lead
Purchaser beneficially owns less than five percent (5%) of the
issued and outstanding Common Stock, to (i) designate one director
(a “New Director” and together, the “New
Directors”) prior to the closing to serve on the Board on and
after the closing, (ii) nominate one director for election by the
Company’s stockholders at each meeting of the stockholders at
which directors are to be elected, and (iii) designate a
replacement director to fill any vacancy if the director previously
designated or nominated by such Lead Purchaser ceases for any
reason to be a director.
- The
Company agreed not to take certain Restricted Corporate Actions (as
defined in the Purchase Agreement) prior to the completion of its
next annual meeting without the approval of both (i) a majority of
the Board and (ii) a majority of the New Directors.
- The
Company agreed to have the Board establish an ad hoc special
committee (the “Restructuring Committee”) to evaluate
the potential restructuring of the Company. The Board appointed
each of the New Directors, and well as two of the existing
directors, to serve on the Restructuring Committee.
- The
Company made customary representations and warranties to the
Purchasers, including (without limitation) with respect to the
Company’s organization and qualification, no conflicts,
capitalization matters, litigation, labor relations, regulatory
permits, title to assets, intellectual property, affiliate
transactions, insurance, listing requirements, tax matters,
compliance with Sarbanes-Oxley Act of 2002, filings with the
securities and exchange Commission, independent accountants,
internal controls and lack of undisclosed liabilities. Such
representations and warranties were qualified in several reports by
the Company’s disclosures in its filings with the Securities
and Exchange Commission, so such representations and warranties
should not be construed as statements of fact, nor do they speak as
of any date subsequent to December 12, 2011.
- The
Purchasers made customary representations and warranties to the
Company, including (without limitation) with respect to their
status as accredited investors and investment intent pertaining to
the Shares.
As previously disclosed, the Company consummated the transactions
contemplated by the Purchase Agreement to regain compliance with
the requirement that the Company have stockholders’ equity of
at least $2.5 million for continued listing on the NASDAQ Capital
Market.
In connection with their execution and delivery of the Purchase
Agreement, the parties also entered into a Registration Rights
Agreement (the “Registration Rights Agreement”) on
December 12, 2011, pursuant to which the Company agreed to provide
the Purchasers with the customary resale and piggyback registration
rights pertaining to the Shares.
The Company offered and sold the Shares without registration under
the Securities Act of 1933, as amended (the “Securities
Act”), to a limited number of accredited investors in
reliance upon the exemption provided by Rule 506 of Regulation D
promulgated by the Securities and Exchange Commission under the
Securities Act. The Shares may not be offered or sold in the United
States in the absence of an effective registration statement or
exemption from the registration requirements under the Securities
Act. An appropriate legend will be placed on the Shares unless
registered under the Securities Act prior to issuance.
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