If I owned this stock, I would want to be aware of all this....
The 8% Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on the earlier of five years from date of issuance or upon the occurrence of an Event of Default (as defined in the 8% Notes). We may prepay the 8% Notes, in whole or in part, upon 60 calendar days prior written notice to the holders thereof. Interest accrues on the 8% Notes at a rate of 8.0% per annum, payable during the first three years that the 8% Notes are outstanding in shares of common stock, valued at the weighted average price of a share of common stock for the twenty consecutive trading days prior to the interest payment date, pursuant to the terms of the 8% Notes. During the fourth and fifth years that the 8% Notes are outstanding, interest that accrues under the 8% Notes shall be payable in cash.
The 8% Note Warrants are exercisable at an exercise price of $0.60 per share of common stock, subject to adjustment as provided for by the terms thereof, for a period commencing on the date of issuance and ending on the earlier to occur of the date that is (i) three years after the date upon which the weighted average price of a share of Common Stock for the 90 consecutive trading days prior to such date is at least $2.00 per share, and (ii) five years after the date on which the 8% Notes to which the applicable 8% Note Warrant is related has been repaid in full.
In connection with the entry into the Purchase Agreement, pursuant to the terms thereof, on August 24, 2012, we granted to the Note Purchase Agreement Investors: (i) certain demand and piggyback registration rights with respect to the registration of certain Company securities under the Securities Act and the rules and regulations promulgated thereunder, and (ii) a security interest and lien in all of our assets and rights to secure our obligations under the 8% Notes.
Revolving Credit and Letter of Credit Support Agreement. During the year ended December 31, 2013, we entered into a Revolving Credit and Letter of Credit Support Agreement (the “Revolving Loan Agreement”) pursuant to which Mr. Rose along with MLTM Lending LLC (the “Lenders”) have agreed to lend us up to $1.0 million each on a revolving basis. Each revolving loan made under the Revolving Loan Agreement bears interest at 12% per annum, of which 4% is payable by us in cash on the first business day of each month, and 8% is payable by us in shares of common stock on the first business day of each calendar quarter, valued at a price equal to the average of the Weighted Average Price (as such term is defined in the Revolving Loan Agreement) of a share of common stock for 20 consecutive trading days prior to the interest payment date. The maturity date of the Revolving Loan Agreement is December 31, 2015 (the “Maturity Date”). As of March 31, 2014, Mr. Rose had provided $1.0 million pursuant to the Revolving Loan Agreement.
Under the terms of the Revolving Loan Agreement, we may prepay the revolving loans at any time, in whole or in part, together with all accrued and unpaid interest, without premium or penalty. The Lenders may accelerate all amounts due under the Revolving Loan Agreement, together with accrued and unpaid interest, upon the occurrence of an Event of Default, as defined in the Revolving Loan Agreement.
As consideration for the revolving loans extended under the Revolving Loan Agreement, we agreed to issue to the Lenders an aggregate of 200,000 shares of common stock, of which Mr. Rose was to receive 100,000 at the signing of the Revolving Loan Agreement and prior to December 31, 2014 and December 31, 2015, for up to a total of 600,000 shares of Common Stock.
In connection with the entry into the Revolving Loan Agreement, pursuant to the terms thereof, we entered into a Security Agreement pursuant to which we granted a security interest and lien in all of our accounts receivable and inventory to secure the Lenders’ obligations under the Revolving Loan Agreement.
Through March 31, 2014, we issued to Mr. Rose approximately 4,100 shares of common stock as payment of interest and issued the 100,000 shares of common stock due at signing.
TM Investments, LP
TM Investments, LP beneficially owns in excess of 5% of our outstanding stock.
10% Convertible Redeemable Preferred Stock. During the year ended December 31, 2011, we sold to TM Investments, LP, 150,000 shares of our Preferred Stock for $1,500,000. The Preferred Stock may be converted into shares of our common stock at any time by TM Investments, LP at conversion price of $1.00 per share, as adjusted. TM Investments, LP is entitled to receive dividends at the rate of 10% per annum payable quarterly, at our option, in cash or in additional shares of common stock, and has the right to vote the Preferred Stock with our common stockholders on any matter. The Preferred Stock is redeemable for cash by TM Investments, LP any time after the three-year anniversary from the initial purchase. Since certain revenue targets for the twelve months ended December 31, 2011 were not achieved, in addition to the adjustment of the conversion price to $1.00, TM Investments, LP received a warrant to purchase 500,000 shares of our common stock which expires December 31, 2015, has an initial exercise price of $1.00 per share and provides for cashless exercise at any time the underlying shares of common stock have not been registered for resale under the Securities Act or are issuable without restriction pursuant to Rule 144 of the Securities Act. As of March 31, 2014, TM Investments, LP has received an aggregate of 692,537 shares of common stock as dividend payments on the Preferred Stock that it holds.
MLTM Lending, LLC and the ML Dynasty Trust
MLTM Lending, LLC and the ML Dynasty Trust beneficially own in excess of 5% of our outstanding stock. Pursuant to the Schedule 13D filings made by MLTM Lending, LLC and the ML Dynasty Trust, the ML Dynasty Trust shares with MLTM the power to vote or direct the vote of, and to dispose or direct the disposition of, greater than 5% of our outstanding stock. Thomas Bowersox, a member of our board of directors, is a trustee of the ML Dynasty Trust.
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8% Convertible Promissory Notes. Pursuant to the MOU, we issued to MLTM Lending, LLC a Demand Note (the “MLTM Demand Note”) in the principal amount of $1,426,667. Interest accrued on the unpaid principal balance of the MLTM Demand Note at a rate of 8.0% per annum. Pursuant to the Purchase Agreement, as of March 31, 2014, we have issued and sold to MLTM Lending, LLC an aggregate principal amount of $4,888,444 of our 8% Notes and associated 8% Note Warrants to purchase, in the aggregate, 12,221,112 shares of common stock, subject to adjustment as provided on the terms of the 8% Note Warrants. In consideration for the issuance of the 8% Notes and the 8% Note Warrants, MLTM Lending, LLC converted the aggregate principal amount outstanding, together with all accrued and unpaid interest, under the MLTM Demand Note and paid us in cash for the balance. As of March 31, 2014, MLTM Lending, LLC has received an aggregate of 510,830 shares of common stock as interest payments under the 8% Notes that it holds.
The terms of the 8% Notes and the 8% Note Warrants are described above.
Revolving Credit and Letter of Credit Support Agreement. During the year ended December 31, 2013, we entered into a Revolving Credit and Letter of Credit Support Agreement (the “Revolving Loan Agreement”) pursuant to which MLTM Lending LLC and Mr. Rose (the “Lenders”) have agreed to lend us up to $1.0 million each on a revolving basis. In addition, the Revolving Loan Agreement provides that MLTM Lending, LLC will provide letter of credit support to us of up to $500,000 (the “LC Sublimit”). Each revolving loan made under the Revolving Loan Agreement bears interest at 12% per annum, of which 4% is payable by us in cash on the first business day of each month, and 8% is payable by us in shares of common stock on the first business day of each calendar quarter, valued at a price equal to the average of the Weighted Average Price (as such term is defined in the Revolving Loan Agreement) of a share of common stock for 20 consecutive trading days prior to the interest payment date. The maturity date of the Revolving Loan Agreement is December 31, 2015 (the “Maturity Date”).
Under the terms of the Revolving Loan Agreement, we may prepay the revolving loans at any time, in whole or in part, together with all accrued and unpaid interest, without premium or penalty. The Lenders may accelerate all amounts due under the Revolving Loan Agreement, together with accrued and unpaid interest, upon the occurrence of an Event of Default, as defined in the Revolving Loan Agreement.
As consideration for the revolving loans extended under the Revolving Loan Agreement, we agreed to issue to the Lenders an aggregate of 200,000 shares of common stock, of which MLTM Lending, LLC will receive 100,000, at signing of the Revolving Loan Agreement and also prior to December 31, 2014 and December 31, 2015 for up to a total of 600,000 shares of Common Stock. As consideration for MLTM Lending, LLC providing letter of credit support, we are required to pay a letter of credit commission fee on the date of the Revolving Loan Agreement, and on each one year anniversary of the date of the Revolving Loan Agreement prior to the Maturity Date, in the amount equal to (i) 2% of the LC Sublimit in cash and (ii) shares of common stock, with an aggregate value of 4% of the LC Sublimit, with each such share of common stock valued at a price equal to the average of the Weighted Average Price of a share of Common Stock for the 20 consecutive trading days prior to the date of payment.
In connection with the entry into the Revolving Loan Agreement, pursuant to the terms thereof, we entered into a Security Agreement pursuant to which we granted a security interest and lien in all of our accounts receivable and inventory to secure the Lenders’ obligations under the Revolving Loan Agreement.
Through March 31, 2014, we issued approximately 4,400 shares of common stock as payment of interest, issued the 100,000 shares of common stock due at signing and approximately 20,100 shares of common stock as the LC Sublimit commission fee.
Allen Kronstadt
Allen Kronstadt beneficially owns in excess of 5% of our outstanding stock, and was appointed to our board of directors on September 11, 2012 pursuant to the terms of the Purchase Agreement.
8% Convertible Promissory Notes. Pursuant to the MOU, we issued to Mr. Kronstadt a demand promissory note (the “Kronstadt Demand Note”) in the principal amount of $1,666,667. Interest accrued on the unpaid principal balance of the Kronstadt Demand Note at a rate of 8.0% per annum. Pursuant to the Purchase Agreement, as of March 31, 2014, we have issued and sold to Mr. Kronstadt an aggregate principal amount of $4,359,297 of our 8% Notes and 8% Note Warrants to purchase, in the aggregate, 10,898,243 shares of common stock, subject to adjustment as provided on the terms of the 8% Note Warrants. At the initial closing under the Purchase Agreement, in consideration for the issuance of the 8% Notes and the 8% Note Warrants at such closing, Mr. Kronstadt converted the aggregate principal amount outstanding, together with all accrued and unpaid interest, under the Kronstadt Demand Note and paid us in cash for the balance. As of March 31, 2014, Mr. Kronstadt has received an aggregate of 549,441 shares of common stock as interest payments under the 8% Notes that he holds.
The terms of the 8% Notes and the 8% Note Warrants are described above.
Southern Management Corporation
Southern Management Corporation beneficially owns in excess of 5% of our outstanding stock.
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8% Convertible Note. Through March 31, 2014, we issued and sold to Southern Management Corporation an aggregate principal amount of $1,000,000 of our 8% convertible note which is initially convertible into shares of our common stock, at a conversion price equal to $0.74 per share of common stock, subject to adjustment as provided on the terms of the 8% convertible note, and associated warrants to purchase, in the aggregate, 900,901 shares of common stock, subject to adjustment as provided on the terms of the warrant.
The 8% convertible note, including all outstanding principal and accrued and unpaid interest, are due and payable on the earlier of November 25, 2018 or upon the occurrence of an Event of Default (as defined in the 8% convertible note). We may prepay the 8% convertible note, in whole or in part, upon 60 calendar days prior written notice to the holder thereof. Interest accrues on the 8% convertible note at a rate of 8.0% per annum, payable during the first three years that the 8% convertible note is outstanding in shares of common stock, valued at the weighted average price of a share of common stock for the twenty consecutive trading days prior to the interest payment date, pursuant to the terms of the 8% convertible note. During the first three years that the 8% convertible note is outstanding, interest that accrues under the 8% convertible note shall be payable in shares of common stock.
The related warrant is exercisable at an exercise price of $1.11 per share of common stock, subject to adjustment as provided for by the terms thereof, for a period commencing on the date of issuance and ending on the earlier to occur of the date that is (i) three years after the date upon which the weighted average price of a share of common stock for the 90 consecutive trading days prior to such date is at least $2.00 per share, and (ii) five years after the date on which the 8% convertible note to which the applicable warrant is related has been repaid in full.
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