Preferred Stock

9 Months Ended

Sep. 30, 2011

Preferred Stock

Preferred Stock

NOTE 6:   Preferred Stock

On December 15, 2006, in connection with the repayment of a $55.0 million subordinated loan, the Company issued 228,683 shares of its Series B-1 Preferred Stock, $10.00 par value, pursuant to the terms of the Securities Purchase Agreement dated September 8, 2006, with Avista, an affiliate of Avista and another institutional investor.  Effective December 18, 2009, the holders of the Series B-1 Preferred Stock and the Company agreed to revised terms including (i) an extension of the redemption date to December 16, 2015; (ii) a reduction of the conversion rate to $17.436; (iii) an option to pay dividends in kind until December 15, 2015; and (iv) an increase in the dividend rate to 9.75%.

The Series B-1 Preferred Stock contains certain anti-dilution provisions.  Under these provisions, if the Company issues certain equity securities at a price lower than the conversion price of the Series B-1 Preferred Stock, initially the conversion price is adjusted to the price per share of the newly issued equity securities.  However, if prior to the issuance of new equity securities, the Company has issued certain equity securities valued at over $50.0 million, the conversion price is adjusted downward pursuant to a specific formula.  In connection with the issuance of the Series D Preferred Stock on December 14, 2010, the conversion price of the Series B-1 Preferred Stock was reset to $16.40.  In connection with the issuance of the Advisory Shares on August 29, 2011, associated with the Whitebox Revolving Credit Facility, the conversion price of the Series B-1 Preferred Stock was reset to $15.95.

Each holder of Series B-1 Preferred Stock is entitled to receive cumulative dividends at the rate of 9.75% per annum on the liquidation preference of $250 per share, compounded quarterly.  At the Company’s option through December 16, 2015, dividends may be paid in additional shares of Series B-1 Preferred Stock.  After such date, dividends are required to be paid in cash if declared.  Dividends on the Series B-1 Preferred Stock have been accrued or paid in kind exclusively to date.  At September 30, 2011 and December 31, 2010, the Series B-1 preferred stock is presented as mezzanine equity.

At each issuance of the Series B-1 Preferred Stock, including accrued share dividends, the fair value of the Series B-1 Preferred Stock conversion feature is bifurcated and recorded as a derivative liability.  The fair value of the Series B-1 Preferred Stock conversion feature which was bifurcated and recorded as a derivative liability during the nine months ended September 30, 2011 was $0.7 million.  The difference between the fair value of the conversion feature and the liquidation preference amount is recorded as additional discount of the Series B-1 Preferred Stock.  The accretion of the additional discount to the preferred stock resulting from bifurcating the Series B-1 conversion feature was $0.4 million and $0.8 million for the three and nine months ended September 30, 2011, respectively.  The accretion of the additional discount to the preferred stock resulting from bifurcating the Series B-1 conversion feature was $0.2 million and $0.7 million for the three and nine months ended September 30, 2010, respectively.

The following table sets forth the changes in the carrying value of the Company’s Series B-1 Preferred Stock for the period ended September 30, 2011:

	Shares	$ (thousands)
	(Unaudited)
Balance at December 31, 2010	319,174	$	74,987
Accrued dividends	23,908	5,977
Fair value of bifurcated conversion feature	—	(751		)
Accretion of issuance costs and additional discount	—	782
Balance at September 30, 2011	343,082	$	80,995