Debt Conversion and Recapitalization Agreement
 9 Months Ended
Sep. 30, 2012
Debt Conversion And Recapitalization Agreement [Abstract]  
Debt Conversion and Recapitalization Agreement

Note 2. Debt Conversion and Recapitalization Agreement

 

During the three months ended September 30, 2012 the Company completed a series of transactions involving the Company’s long-term debt, preferred stock and common stock as summarized and outlined below.

 

In August 2012 a group of investors including three of the Company’s directors, Roger Kanne, Joseph Schwaller and Thomas Burlin, as well as the Company’s CEO, Lincoln Zehr, formed IST Holdings, LLC, (“Holdings”) a Nebraska based limited liability company.

 

On August 29, 2012, Holdings acquired the following:

 

· $2,000,000 Note Payable (“Original Note”) held by Crestpark LP, Inc including all accrued interest, and

 

· 1,470,799 shares of the Series C 8% Cumulative, Compounding, Exchange Preferred Stock (“Series C Preferred Stock”) from MH Imports constituting approximately 85% of all outstanding Series C Preferred and the related warrants to purchase 564,251 shares of common stock, and

 

· 1,438,359 shares of the Series D 8% Cumulative Compounding, Exchangeable Preferred Stock (“Series D Preferred Stock”) from Crestpark, LP, Inc constituting 100% of all outstanding Series D Preferred.

 

 

On September 28, 2012 the Company entered into a Debt Conversion and Recapitalization Agreement (“Conversion Agreement”) with Holdings and certain individual holders of the Series C Preferred. Pursuant to that agreement:

 

· $1,475,000 of the $2,000,000 long-term debt plus $241,722 of accrued interest thereon was converted into 156,066 additional shares of the Company’s Series D Preferred, and

 

· The repayment terms of the remaining $525,000 of long-term debt were revised to reduce the interest rate from 9.5% to 6.0%, requiring interest only payments for 12 months and then equal principal and interest payments through maturity on March 31, 2017, and

 

· 37,862,484 shares of common stock were issued in exchange for all outstanding shares of the Company’s Series D Preferred, including the 156,066 issued above, and 1,701,146 of the 1,715,216 outstanding shares of the Company’s Series C Preferred. The exchange of Series C Preferred and Series D Preferred were made in accordance with the terms of their respective Amended and Restated Certificate of Designation, Preferences and Rights except that the issuance of warrants for the purchase of common stock issuable upon exchange of the Series C Preferred was waived by the holders of the Series C Preferred, and

 

· All warrants for the purchase of common stock, held by the individuals who were a party to the Conversion Agreement, were cancelled.

 

The exchange of all but 14,070 shares of the Series C Preferred Stock and all shares of the Series D Preferred Stock for shares of the Company’s common stock has eliminated the liquidation preference that would have been payable to the holders of such exchanged shares of Series C Preferred Stock and Series D Preferred Stock in the event of a sale or similar strategic transaction by the Company as well as future accrual of dividends on the exchanged shares of Series C Preferred Stock and Series D Preferred Stock. In addition, the right of the holders of the Series C Preferred Stock and Series D Preferred Stock to collectively appoint a majority of the Company’s directors has terminated as a result of the exchange transaction since the remaining shares of Series C Preferred Stock outstanding do not have this right under the terms of the Series C Certificate of Designation.

 

The shares of common stock were issued pursuant to the terms of the Conversion Agreement and were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption from such registration requirements. Holdings and the Company have entered into a Registration Rights Agreement, dated September 28, 2012, pursuant to which Holdings has been granted certain rights to have the shares of common stock issued to Holdings under the Conversion Agreement registered for sale pursuant to the Securities Act.