Sale of Common Stock to Elkhorn
The sale by the Company to Elkhorn of the 6,250,000 shares of common stock was made concurrently with and as a condition to the making by Elkhorn of the loan to the Company. The purchase price of $0.16 per share paid by Elkhorn for those shares was determined by arms-length negotiations between Elkhorn and the members of a special committee of the Company's Board of Directors, comprised of three of the directors who have no affiliation with Elkhorn and no financial interest, other than their interests solely as shareholders of the Company, in either the loan or share transactions with Elkhorn. That per share purchase price was determined based on a number of factors, including the inability of the Company, notwithstanding its best efforts, to raise additional capital from other prospective institutional investors during the six months ended January 25, 2013 and the recent trading prices of the Company's shares in the over-the-counter market, which averaged $0.14 per share during the five trading days immediately preceding the sale of the shares to Elkhorn, and $0.158 per share over the 29 trading days that that began on January 2, 2013 and ended on February 8, 2013.
The Elkhorn loan and the shares of common stock sold to Elkhorn by the Company may not be sold or otherwise transferred in the United States by Elkhorn, except in compliance with the registration requirements of the Securities Act of 1933, as amended, or an available exemption from such requirements.
The foregoing summaries of the Elkhorn debt and equity transactions with the Company are not intended to be complete and those summaries are qualified in their entirety by reference to a Secured Loan Agreement, Security Agreement, Pledge Agreement and a Stock Purchase Agreement, each dated February 11, 2013, between the Company and Elkhorn, copies of which Agreements are attached as exhibits to a Current Report on Form 8-K which the Company expects to file today with the Securities and Exchange Commission.