On May 18, 2012, we entered into a Purchase Agreement, together with a Registration Rights Agreement, with Lincoln Park Capital Fund, LLC. Pursuant to the terms of the Purchase Agreement, we have the right (at our discretion and subject to certain limitations) to sell to Lincoln Park up to a maximum $10.2 million of our common stock as described below. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the shares that have been issued or may be issued and sold to Lincoln Park under the Purchase Agreement.
Upon signing the Purchase Agreement, we sold $50,000 of common stock to Lincoln Park as an initial purchase of 192,308 shares of common stock at a price of $0.26 per share. Upon filing of the registration statement that contains this prospectus, we will sell an additional $50,000 of shares of common to Lincoln Park. After the SEC has declared effective the registration statement that contains this prospectus, Lincoln Park will purchase an additional $100,000 of shares of common stock. The prices of these additional sales of shares will be equal to the lower of the initial purchase price of $0.26 per share, or a price based off the then prevailing market prices with no discount.
After the registration statement has become effective, we will have the right, but not the obligation, exercisable in our sole discretion, to sell up to an additional $10.0 million shares of common stock to Lincoln Park, subject to satisfaction of certain conditions as set forth in the Purchase Agreement. Generally, we can sell up to 250,000 shares of common stock to Lincoln Park, not more frequently than every three business days, the total value of which cannot exceed $1.0 million per purchase. There are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of our common stock to Lincoln Park. It is anticipated that shares registered in this offering will be sold over a period of up to 36 months from the date of this prospectus. Each time we direct Lincoln Park to purchase, subject to the terms of the Purchase Agreement, Lincoln Park will be obligated to purchase such amounts directed by us. Lincoln Park does not have the right to require us to sell any shares of common stock to them under the Purchase Agreement. We have no obligation to sell any shares under the Purchase Agreement and the actual proceeds that we receive from sales to Lincoln Park could be substantially less than the maximum $10.2 million.
The purchase price of the shares sold to Lincoln Park under the Purchase Agreement will be based on the market price of our common stock immediately preceding the time of sale as computed under the Purchase Agreement without any fixed discount. Specifically, the price will equal the lesser of (a) the average of the three closing sale prices of the common stock during the 12 trading days prior to the purchase, or (b) the lowest sale price of the common stock on the date we direct Lincoln Park to purchase. We also have the right to accelerate the pricing period under certain circumstances. However, we cannot sell, and Lincoln Park will not be obligated to purchase, any shares if the calculated purchase price would be less than $0.10 per share.
We have agreed to issue up to a total of 1,795,775 shares of common stock as a commitment fee to Lincoln Park in consideration for its entering into the Purchase Agreement with us. Of this total, we issued 718,310 shares of common stock as an initial commitment fee upon entering into the Purchase Agreement. The remaining 1,077,465 commitment shares are issuable to Lincoln Park on a pro rata basis as it purchases shares of common stock under the Purchase Agreement. For example, in connection with the initial $50,000 shares of common stock that we sold to Lincoln Park, we issued 5,282 shares as the pro rata additional commitment fee. These pro rata additional commitment shares were calculated as the product of $50,000 (the amount we sold), divided by $10.2 million (the total maximum amount we can sell to Lincoln Park under the Purchase Agreement), multiplied by 1,077,465 (the total number of additional commitment shares). Similarly, for the $50,000 of shares that we will sell to Lincoln Park upon filing of the registration statement, we will issue an additional 5,282 shares as the pro rata commitment fee for such sale, and upon the registration statement being declared effective, we will issue an additional 10,563 commitment shares in connection with our sale to Lincoln Park of $100,000 of shares. In the event that the registration statement is not declared effective by October 15, 2012, we will be required to issue to Lincoln Park the entire remaining balance of the commitment shares.
Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty or cost.
"My well came in big, so big, Bick and there's more down there and there's bigger wells. I'm rich, Bick. I'm a rich 'un. I'm a rich boy." - Jett Rink
