Related Party Transactions

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Note 14 - Related Party Transactions

Allen Kronstadt

Allen Kronstadt beneficially owns in excess of 5% of our outstanding voting securities and was appointed to our Board of Directors on September 11, 2012 pursuant to the terms of the Purchase Agreement. Effective April 25, 2012, we entered into a Memorandum of Understanding with Mr. Kronstadt and several other investors and accordingly we issued to Mr. Kronstadt a demand promissory note in the principal amount of $1,666,667 with interest at a rate of 8.0% per annum. At the initial closing under the Purchase Agreement, in consideration for the issuance of the 8% convertible promissory note, (the “8% Notes”) and associated warrants to purchase Common Stock (the “8% Note Warrants”) at such closing, Mr. Kronstadt converted the aggregate principal amount outstanding, together with all accrued and unpaid interest, under the demand note and paid us in cash for the balance.

Pursuant to the Purchase Agreement, as of September 30, 2013, we have issued and sold to Mr. Kronstadt an aggregate principal amount of $2,959,297 of our 8% Notes and 8% Note Warrants to purchase, in the aggregate, 7,398,243 shares of Common Stock, subject to adjustment as provided on the terms of the 8% Note Warrants. As of September 30, 2013, Mr. Kronstadt has received an aggregate of 353,547 shares of Common Stock as interest payments under the 8% Notes that he holds.

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 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 (including a security interest in all of the assets and rights of our subsidiary, Axion International, Inc.) to secure our obligations under the 8% Notes.