NOTES PAYABLE | 12 Months Ended |
Dec. 31, 2013 |
Debt Disclosure [Abstract] | ' |
Debt Disclosure [Text Block] | ' |
2. NOTES PAYABLE |
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Notes payable as of December 31, 2013 and 2012, respectively consisted of the following: |
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Notes Payable | | 2013 | | 2012 | |
Senior Secured Convertible Notes | | $ | 3,124,403 | | $ | 3,134,415 | |
Senior Secured Promissory Notes | | | 692,922 | | | 508,557 | |
Subordinated Secured Convertible Note | | | 271,100 | | | 251,000 | |
Total | | $ | 4,088,425 | | $ | 3,893,972 | |
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Senior Secured Convertible Notes and Senior Secured Promissory Notes |
As of December 31, 2013, Notes payable on the balance sheet includes $3,817,325 ($3,642,972 at December 31, 2012) for senior secured convertible and non-convertible promissory notes. As further described below, the Company has defaulted on certain provisions of the notes. Platinum Long Term Growth and Merit Consulting, LLC (to whom Platinum Advisors has assigned their ownership interest in notes receivable from the Company) have granted waivers of default on their outstanding principal balance of $3,188,399 through June 30, 2014. Alpha Capital Anstalt (to whom Longview Special Finance has assigned its ownership interest in notes receivable to the Company) has granted a waiver of default on their outstanding principal of $628,926 through March 31, 2014. |
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The Loan and Security Agreement and the related underlying convertible notes issued in accordance with the Initial Note agreement had the original conversion price of $3.74 (as cited in the March 7, 2007 agreement) which was adjusted to a conversion price of $0.085 in accordance with the anti-dilution provisions of this loan and security agreement. This conversion price adjustment was triggered as a result of the issuance of the 2008 Promissory Notes (described below) on September 29, 2008 thereby resulting in a reset of (a) the conversion price of the Initial Notes, (b) the exercise price of the warrants related to the Initial Notes and (c) the number of shares that may be purchased by such warrants. As compensation for forbearance from the lenders in 2012, the conversion rate was further adjusted to 75% of the lowest VWAP for the 1, 5 or 10 days immediately prior to the conversion. |
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During the year ended December 31, 2013, the Company issued 9,500,000 shares of common stock to Alpha Capital Anstalt (to whom Longview Special Finance has assigned its ownership interest in notes receivable to the Company) upon the conversion of $10,013 of outstanding principal due on the 8% Senior Secured Convertible Notes held by Longview Special Finance. During the year ended December 31, 2013, the Company also issued 129,000,000 shares of common stock to Alpha Capital Anstalt upon the conversion of $139,508 of interest due on the 8% Senior Secured Convertible Notes held by Longview Special Finance. |
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During the year ended December 31, 2013, the Company issued 45,882,335 shares of common stock to Merit Consulting, LLC upon the conversion of $28,981 of interest due on the 8% Senior Secured Convertible Notes. |
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During 2012 the Company issued an aggregate of 11,053,941 shares of our common stock to Platinum in satisfaction of $939,585 of principal and an aggregate of 5,697,038 shares of our common stock to Platinum in satisfaction of $172,393 of interest due on the 8% Senior Secured Convertible Notes. |
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The Initial Notes March 7, 2007 |
On March 7, 2007, we entered into a Loan and Security Agreement (the “Purchase Agreement”) for $3,347,500 (the “Initial Notes”) consisting of $3,250,000 8% senior secured convertible notes and a note for $97,500 as partial consideration of due diligence fees with Platinum Partners Long Term Growth IV (“Platinum”), Longview Special Financing, Inc. (“Longview”) and Platinum Advisors LLC (the “Agent”). The shares underlying these notes represented an aggregate of 895,054 common shares issuable upon the conversion of the principal amount of the notes at the original fixed conversion price of $3.74 per share at the time of the agreement. Longview Special Financing, Inc. and Platinum Advisors LLC subsequently assigned their notes to Alpha Capital Anstalt and Merit Consulting, LLC, respectively. |
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Loan and Security Agreement with Platinum Partners Long Term Growth IV and Longview Special Financing, Inc. |
Pursuant to the Purchase Agreement, the Company issued $3,250,000 face amount of 8% Senior Secured Promissory Notes (the “Notes”) to Platinum and Longview. The holders of the Notes may elect to convert the Notes at any time into shares of the Company’s common stock at an original price of $3.74 per share (the “Conversion Price”). The Notes contain anti-dilution protection that will automatically adjust the Conversion Price should the Company issue equity or equity-linked securities (with certain specified exceptions including option grants made in accordance with the Company’s existing benefit plans) at a price per common share below the Conversion Price to the price at which the Company issued such equity or equity-linked securities. This anti-dilution provision was triggered in the third quarter of 2008 when the Conversion Price was modified to $0.085. |
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Interest on the outstanding principal amount under the Notes is payable quarterly at a rate of 8% per annum, payable at the Company’s option in cash or in shares of its common stock registered for resale under the Securities Act of 1933 (the “Securities Act”). If the Company elects to make an interest payment in common stock, the number of shares issuable will be based upon 85% of the 20-day trailing volume weighted average price per share as reported on Bloomberg LP (the “VWAP”). Principal on the Notes was originally due and payable on March 7, 2009 and has been extended numerous times to the currently payable date of April 16, 2013 under a forbearance agreement entered into in 2013. If the closing price of the Company’s common stock on the principal market or exchange on which its stock is traded is at least $17.00 for twenty consecutive trading days, it can compel conversion of the Notes at the Conversion Price. |
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During 2012 the conversion terms for both principal and interest were adjusted to 75% of the lowest VWAP for the 1, 5 or 10-day period immediately prior to conversion. |
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The Company’s obligations under the Notes are secured by first priority security interests in substantially all of the Company’s assets and substantially all of the assets of its wholly-owned subsidiary, NaturalNano Research, Inc. (“NN Research”). In connection with the grant of these security interests, on March 7, 2007, the Company entered into a Pledge Agreement (the “Pledge Agreement”) with the Agent and the other investors, pursuant to which it granted to the investors and the Agent a security interest in all of the outstanding shares of the common stock of NN Research. In connection with the grant of these security interests, on March 7, 2007, NN Research entered into the Patent Security Agreement (the “Patent Security Agreement”) with the Agent and the other investors, pursuant to which NN Research granted to the investors and the Agent a security interest in all of NN Research’s patent interests. |
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Warrant Agreements with Platinum Partners Long Term Growth IV and Longview Special Financing, Inc. |
As further consideration, on March 7, 2007 the Company issued to Platinum and Longview two series of warrants, for the purchase at any time on or before March 7, 2011, of an aggregate of 1,303,476 shares of the Company’s common stock. The first series of warrants (the “Series A Warrants”) covered the purchase of an aggregate of 651,738 shares of the Company’s common stock at an exercise price of $3.74 per share. The second series of warrants (the “Series B Warrants”) covered the purchase of an additional aggregate of 651,738 shares of the Company’s common stock at an exercise price of $5.61 per share. Each series of Warrants contained anti-dilution protection that automatically adjusted the exercise price of such series of Warrants when the Company issued equity or equity-linked securities at a price per common share below the exercise price of such series to the price at which it issued such equity or equity-linked securities. This anti-dilution provision was triggered in the third quarter of 2008 when the conversion price was modified to $0.085. On September 29, 2008 Platinum and Longview agreed to exchange these warrants for 5,000,000 shares of preferred stock (see Note 5). |
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Due Diligence Fees and Related Agreements with Platinum Advisors, LLC (the “Agent”) |
On March 7, 2007, as consideration for due diligence services in connection with the Purchase Agreement, the Company paid to the Agent a cash fee of $97,500 and issued to that firm (i) a Note (identical in form to the Notes issued to the other investors) in the principal amount of $97,500, (ii) Series A Warrants for the purchase of 19,552 shares of the Company’s common stock at $3.74 per share, (iii) Series B Warrants for the purchase of 86,681 shares of the Company’s common stock at $5.61 per share, and (iv) a warrant (the “Series C Warrant”) for the purchase at any time on or before March 7, 2011 of 67,129 shares of the Company’s common stock at an exercise price of $3.74 per share. Each series of Warrants contained anti-dilution protection that automatically adjusted the exercise price of such series of Warrants when the Company issued equity or equity-linked securities at a price per common share below the exercise price of such series to the price at which it issued such equity or equity-linked securities. This anti-dilution provision was triggered in the third quarter of 2008 and the conversion price was modified to $0.085 and the number of warrants was modified to be 9,534,936. As of December 31, 2010 there were 9,534,936 of these warrant rights, held by Platinum Advisors, LLC, to purchase shares of common stock at $0.085 per share. These warrants expired unexercised during the second quarter of 2011 resulting in the elimination of the liability as of June 30, 2011. |
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The Platinum Advisors Note provides a limitation on the conversion of such note, such that the number of shares of Common Stock that may be acquired by the holder upon conversion of such note shall be limited to the extent necessary to ensure that following such conversion the total number of shares of Common Stock then beneficially owned by the holder does not exceed 4.99% of the total number of issued and outstanding shares of Common Stock. |
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Registration Rights Agreement |
On March 7, 2007, the Company entered into a Registration Rights Agreement with the Agent and the other investors, pursuant to which the Company agreed to prepare and file within 60 days of the March 7, 2007 agreement, a registration statement for resale under the Securities Act of 1933, the common stock issuable upon the exercise of the Warrants, in payment of interest on, or upon conversion of, the Notes. The Company further agreed to use its best efforts to cause the Registration Statement to be declared effective 120 days following the March 7, 2007 agreement date, or within 150 days if the Company receives a comment letter from the SEC, and to maintain such Registration Statement for the two year period following this date. This agreement allows for liquidated damages based on a daily amount of 0.0333% of the principal amount of the notes relating to the common stock issuable upon conversion of the Notes included in the Registration Statement. |
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The Company recorded a total of $146,028 in such liquidated damages as of December 17, 2007, the date the registration statement was declared effective. As of December 31, 2007, $63,539 of this obligation was paid in cash and $82,489 was recorded as an accrued liability. The lender has the option to settle the liquidated damages in common stock valued at the average price for the five days prior to the end of a payment period. At December 31, 2013 and 2012 the outstanding balance for this obligation was $82,489. |
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As of the December of 2013, the registration statement had not been updated with the requisite SEC filings and as such, the Company was in default of this provision of the Registration Rights Agreement. The lenders have provided the Company a forbearance agreement related to this default through June 30, 2014. |
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September 29, 2008 Senior Convertible Promissory Notes |
On September 29, 2008, the Company entered into a Loan and Security Agreement (the “2008 Promissory Notes”), by and among Platinum and Longview allowing for borrowing of up to $2,500,000. During the year ended December 31, 2008, the Company received an aggregate of $475,000 and in turn issued 8% senior secured promissory notes originally due January 31, 2010 to the Lenders and extended multiple times to the current date of April 16, 2013 during the first quarter of 2013. This agreement provided for additional advances, subject to performance milestones being achieved by the Company. These milestones were not achieved and as a result this agreement was terminated. |
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The 2008 Promissory Notes are convertible into common stock of the Company at the same 75% of the lowest VWAP for the 1, 5 or 10-day period immediately prior to conversion as the previously mentioned convertible notes. |
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The 2008 Promissory Notes are secured on a pari-passu basis with the Initial Notes and (i) senior to all other current and future indebtedness, (ii) secured by all of the assets of the Company and each of the Company’s subsidiaries and (iii) unconditionally guaranteed by all of the Company’s subsidiaries. The Company and the Lenders (and their affiliates) entered into Forbearance Agreements for the purpose of making the maturity for the Existing Debt coterminous with the maturity date for the New Notes and that they will not enforce their rights provided for in the loan documents. |
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Longview Special Financing, Inc. subsequently assigned these notes to Alpha Capital Anstalt. |
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As of December 31, 2013 and 2012, there is $3,124,403 and $3,134,415 respectively outstanding related to the Initial and 2008 Notes convertible into an aggregate of 826,248,501 common shares as of December 31, 2013 upon the conversion of the principal amount of these Notes. |
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2009 Senior Secured Promissory Notes |
During 2009, the Company entered into various Senior Secured Promissory Notes aggregating to $181,376 and $74,750, respectively, with Platinum and Longview (“the 2009 Senior Secured Promissory Notes”). The 2009 Senior Secured Promissory Notes are secured by, among other things, (i) the continuing security interest in certain assets of the Company pursuant to the terms of the Initial Notes dated March 7, 2007, (ii) the Pledge Agreement, as defined in the Initial Notes, and (iii) the Patent Security Agreement, dated as of March 6, 2007. The proceeds from the 2009 Senior Secured Promissory Notes were available for general working capital purposes and cannot be used to redeem or make any payment on account of any securities due to the Lenders. The outstanding principal and all accrued and unpaid interest was originally due and payable in full on June 30, 2009 (the maturity date of the notes). These notes have been extended numerous times through forbearance agreements and are now due and payable on April 16, 2013. The 2009 Senior Secured Promissory Notes bear interest, in arrears, at a rate of 8% or 16% per annum. In the event of a default (as defined in the agreement), interest will be charged at 16% during the period of the default and until such default has been cured. The Company repaid $110,415 on these borrowings in the third quarter of 2009 upon the receipt of $253,000 from the QETC Facilities, Operations, and Training rebate (“the QETC rebate”) from the State of New York related to the 2008 tax year as required in the debt agreement. Longview Special Financing, Inc. subsequently assigned these notes to Alpha Capital Anstalt. |
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2010 Senior Secured Promissory Notes |
During 2010, the Company entered into various Senior Secured Promissory Notes aggregating to $87,923 and $15,923, respectively, with Platinum and Longview (“the 2010 Senior Secured Promissory Notes”). The 2010 Senior Secured Promissory Notes are secured by, among other things, (i) the continuing security interest in certain assets of the Company pursuant to the terms of the Initial Notes dated March 7, 2007, (ii) the Pledge Agreement, as defined in the Initial Notes, and (iii) the Patent Security Agreement, dated as of March 6, 2007. The proceeds from the 2010 Senior Secured Promissory Notes are available for general working capital purposes and cannot be used to redeem or make any payment on account of any securities due to the Lenders. The outstanding principal and all accrued and unpaid interest was originally due and payable in full on January 1, 2011 (the maturity date of the notes). The 2010 Senior Secured Promissory Notes bear interest, in arrears, at a rate of 8% or 16% per annum and were payable in cash on January 1, 2011. These notes have been extended through forbearance agreements and are now due and payable on June 30, 2014. Longview Special Financing, Inc. subsequently assigned these notes to Alpha Capital Anstalt. |
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2011 Senior Secured Promissory Notes |
During 2011, the Company entered into various Senior Secured Promissory Notes aggregating to $87,750 and $37,250, respectively, with Platinum and Longview (“the 2011 Senior Secured Promissory Notes”). The 2011 Senior Secured Promissory Notes are secured by, among other things, (i) the continuing security interest in certain assets of the Company pursuant to the terms of the Initial Notes dated March 7, 2007, (ii) the Pledge Agreement, as defined in the Initial Notes, and (iii) the Patent Security Agreement, dated as of March 6, 2007. The proceeds from the 2011 Senior Secured Promissory Notes are available for general working capital purposes and cannot be used to redeem or make any payment on account of any securities due to the Lenders. The 2011 Senior Secured Promissory Notes bear interest, in arrears, at a rate of 8% per annum and were payable in cash on January 1, 2011. These notes have been extended through forbearance agreements and are now due and payable on June 30, 2014. Longview Special Financing, Inc. subsequently assigned these notes to Alpha Capital Anstalt. |
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2012 Senior Secured Promissory Notes |
During 2012, the Company entered into various Senior Secured Promissory Notes aggregating to $105,000 and $29,000, respectively, with Platinum and Longview (“the 2012 Senior Secured Promissory Notes”). The 2012 Senior Secured Promissory Notes are secured by, among other things, (i) the continuing security interest in certain assets of the Company pursuant to the terms of the Initial Notes (see Note 2) dated March 7, 2007, (ii) the Pledge Agreement, as defined in the Initial Notes, and (iii) the Patent Security Agreement, dated as of March 6, 2007. The proceeds from the 2011 Senior Secured Promissory Notes are available for general working capital purposes and cannot be used to redeem or make any payment on account of any securities due to the Lenders. The 2012 Senior Secured Promissory Notes bear interest, in arrears, at a rate of 8% per annum and were payable in cash on January 1, 2013. These notes have been extended through forbearance agreements and are now due and payable on June 30, 2014. Longview Special Financing, Inc. subsequently assigned these notes to Alpha Capital Anstalt. |
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2013 Senior Secured Promissory Notes |
During 2013, the Company entered into various Senior Secured Promissory Notes aggregating to $184,365 with Platinum and Alpha (“the 2013 Senior Secured Promissory Notes”). The 2013 Senior Secured Promissory Notes are secured by, among other things, (i) the continuing security interest in certain assets of the Company pursuant to the terms of the Initial Notes dated March 7, 2007, (ii) the Pledge Agreement, as defined in the Initial Notes, and (iii) the Patent Security Agreement, dated as of March 6, 2007. The proceeds from the 2013 Senior Secured Promissory Notes are available for general working capital purposes and cannot be used to redeem or make any payment on account of any securities due to the Lenders The 2013 Senior Secured Promissory Notes bear interest, in arrears, at a rate of 8% per annum and are payable in cash as follows: $21,000 due on June 30, 2013, $12,000 due July 25, 2013, $30,005 due on July 30, 2013, $49,400 due on September 30, 2013, $2,500 due October 30, 2013, $24,000 due November 30, 2013, $29,930 due January 30, 2014 and $15,530 due February 28, 2014. Past due amounts have been extended through forbearance agreements with the principal and interest now due on June 30, 2014. |
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Forbearance |
During 2012, the Company entered into various forbearance agreements which extended the due date of all the outstanding principal and interest balances. As consideration for these forbearances, the lenders will be paid $255,000 which was added to the principal balance of the Initial Notes and resulted in a loss on modification of debt of $255,000 for the year ending December 31, 2012 reported in the statement of operations. Also as consideration for forbearance in 2012, the conversion rate of the Initial Notes and 2008 Senior Convertible Promissory Notes was adjusted from $0.085 to 75% of the lowest VWAP for the 1, 5 or 10-day period immediately prior to the conversion and the conversion rate of Preferred B and C shares held by the lenders was adjusted from 9.4:1 to 160:1. The value of the adjustments to the conversion rates of debt and preferred stock (combined with the adjustment to the conversion rate of the Cape One debt described below) was determined to be $163,566 and was recorded as a loss on modification of debt during the year ended December 31, 2012. There was no consideration related to forbearance agreements entered into on Senior Notes during the year ended December 31, 2013. |
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Subordinated Secured Convertible Note |
Convertible Notes |
On December 4, 2009, the Company received net proceeds of $197,500 pursuant to the terms of a subscription agreement dated as of November 30, 2009 with Cape One an accredited investor. Pursuant to the terms of the Subscription Agreement the Company issued (i) a 10% Subordinated Secured Convertible Promissory Note (“the 10% Convertible Note”) in the principal amount of $225,000 and (ii) a five-year common stock purchase warrant to purchase 2,647,059 shares, subject to certain anti-dilution provisions in the agreement of the Company’s common stock, par value $0.001 per share at an exercise price of $0.425 per share. |
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The 10% Convertible Note had a 15-month term, bears interest at 10% per annum and is secured by certain assets of the Company pursuant to a security agreement, dated November 30, 2009. The 10% Convertible Note is convertible into Common Stock at any time prior to maturity (provided that such conversion does not result in the holder and its affiliates beneficially owning in excess of 4.99% (9.99% upon 61 days’ prior written notice) of the issued and outstanding Common Stock at $0.085 per share (the “Conversion Price”), subject to adjustment upon the occurrence of certain anti-dilution events. Interest under the Note is due quarterly in cash or if registered, in the Company’s common stock at a 20% discount in accordance with a formula set forth in the 10% Note. The 10% Note and security interest is subordinate to certain outstanding senior indebtedness of the Company held by Platinum Long Term Growth IV, LLC, Merit Consulting and Alpha Capital Anstalt (“Senior Lenders”). Upon the occurrence of Events of Default as set forth in the Note, the principal and interest due under the Note may be accelerated and the interest rate payable may be increased to 18%. |
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During 2011, various forbearance agreements were entered into between Cape One and the Company which extended the due date. As consideration for these forbearances, Cape One will be paid $60,000 which was added to the principal balance of the note and resulted in a loss on modification of debt of $60,000 for the year ended December 31, 2011 reported in the statement of operations. In addition, the interest rate on the outstanding amount during the forbearance periods was adjusted from 10% to 18%. During 2012, the Company entered into various forbearance agreements which extended the due date of all the outstanding principal and interest balances. As consideration for these forbearances, Cape One will be paid $55,000 which was added to the principal balance of the note and resulted in a loss on modification of debt of $55,000 for the year ending December 31, 2012 reported in the statement of operations. Also as consideration for forbearance in 2012, the conversion rate of the note was adjusted from $0.085 to 75% of the lowest VWAP for the 1, 5 or 10-day period immediately prior to the conversion. During 2013, various forbearance agreements were entered into between Cape One and the Company which extended the due date. As consideration for these forbearances, Cape One will be paid $55,000 which was added to the principal balance of the note and resulted in a loss on modification of debt of $30,000 for the year ended December 31, 2013 reported in the statement of operations. This note has been extended through forbearance agreements and is now due and payable on March 31, 2014. |
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During 2012 the Company issued 6,164,559 shares of common stock to Cape One in payment of $44,000 of principal and $44,550 of interest expense obligations on the Subordinated Secured Convertible Note. During 2011 the Company issued 736,318 shares of common stock to Cape One in payment of $45,000 of principal and $17,587 of interest expense obligations on the Subordinated Secured Convertible Notes. |
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Warrant Agreement and Debt Discount |
As further consideration, the Company issued to Cape One 2,647,059 warrants for the purchase of the Company’s common stock any time prior to November 31, 2014 at an exercise price of $0.425 per share. The Warrant provides for cashless exercise and contains full ratchet and other anti-dilution provisions. The Warrant is convertible by the Investor into Common Stock at any time during the term of the Warrant (provided that such exercise does not result in the holder and its affiliates beneficially owning in excess of 4.99% (9.99% upon 61 days’ prior written notice) of the issued and outstanding Common Stock. |
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The warrant and conversion terms related to the transaction were considered to be derivatives as a result of the anti-dilution provisions. The fair value of the Cape One derivatives was determined by estimating the total enterprise value of the Company based upon trending the firm value and considering company specific factors thereafter including the changes in forward estimated revenues and market factors. An option pricing model was then used to allocate $12,603 to the Cape One derivatives, recorded as a note discount. This discount was fully amortized prior to 2012. |
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Convertible Note Covenants and Other Agreements |
The proceeds from the 10% Convertible Note, after taking into account expenses related to the Offering including a $20,000 commitment fee paid to the Investor and $7,500 paid to the Investor’s counsel was $197,000. The proceeds from the 10% Convertible Note were restricted for general working capital purposes. |
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The Subscription Agreement provides for mandatory redemption in certain circumstances: (i) The Company is prohibited from issuing Conversion Shares or Warrant Shares, (ii) redeemed securities junior to the Note, or (iii) if an Event of Default as defined in the Note and Subscription Agreement has occurred which is not cured in 7 days. In addition, upon a Change of Control (as defined in the Subscription Agreement), the Company may be required to pay the Investor an amount equal to the principal outstanding amount under the Note multiplied by 125%, plus unpaid interest. |
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The Conversion Shares and Warrant Shares granted in connection with the 10% Convertible Note have piggyback registration rights as described in the Subscription Agreement. Except for certain excepted issuances, if during the term of the Note, the Company consummates a certain new equity or financing transaction, the Investor has the right to exchange the Note for securities issued in such new transaction. The Investor is entitled to liquidated damages of $100 per business day for each $10,000 of principal under the Note for Conversion Shares or purchase price of Warrant Shares or the Mandatory Redemption Amount that is not timely paid or delivered or for Unlegended Shares (as defined in the Subscription Agreement) not timely delivered. In addition, the Company may be required to redeem the Conversion Shares at a price per share equal to the greater of 120% or the Unlegended Redemption Amount for failure to deliver Unlegended Shares for 30 days in any 360 day period. The issuances of the Note and Warrant were made pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), and/or Rule 506 of Regulation D promulgated under the Act, pursuant to the terms of the Subscription Agreement. |
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