Attached files
Exhibit
3.1
CERTIFICATE
OF DESIGNATIONS, PREFERENCES
AND
OTHER RIGHTS AND QUALIFICATIONS OF
SERIES
A CONVERTIBLE PREFERRED STOCK
Charleston
Basics, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the “Corporation”),
DOES HEREBY
CERTIFY:
That pursuant
to authority conferred upon the Board of Directors of the Corporation (the
“Board”) by the
Certificate of Incorporation of said Corporation, and pursuant to the provisions
of Section 151(g) of the Delaware General Corporation Law, the Board has duly
determined that 5,453,100 shares of preferred stock, $0.0001 par value per
share, shall be designated “Series A Convertible Preferred
Stock,” and to that end the Board has adopted a resolution providing for
the designation, preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions, of the Series A
Convertible Preferred Stock, which resolution is as follows:
RESOLVED,
that the Certificate of Designations, Preferences and Other Rights and
Qualifications of Series A Convertible Preferred Stock (“Certificate of Designations”)
be, and hereby is, authorized and approved, which Certificate of Designations
shall be filed with the Secretary of State of the State of Delaware in the form
as follows:
1. Designation and
Amount. Five Million Four Hundred Fifty-Three Thousand One
Hundred (5,453,100) shares of the preferred stock of the Corporation, par value
$0.0001 per share, shall constitute a class of preferred stock designated as
“Series A Convertible Preferred Stock” (the “Series A Preferred
Stock”).
2. Dividends.
(a) Each
share of Series A Preferred Stock shall accrue dividends at the rate per annum
equal to 12% of the Series A Original Issue Price (as hereinafter defined)
beginning on the date of issuance of any shares of Series A Preferred Stock and
continuing through the date at which no shares of Series A Preferred Stock
remain outstanding (subject to appropriate adjustment in the event of any stock
dividend, forward or reverse stock split, reclassification, combination or other
similar recapitalization affecting such shares) (the “Series A Accruing
Dividends”). Series A Accruing Dividends shall be cumulative,
compound quarterly and accrue whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends; provided however, that
dividends paid in cash shall not compound or accrue.
(b) Subject
to Sections 3(a),
5 and 12 hereof, Series A Accruing Dividends shall be payable quarterly
and may, at the discretion of the Board, be paid in cash or in additional shares
of Series A Preferred Stock valued at the Series A Original Issue
Price (subject to appropriate adjustment in the event of any stock
dividend, forward or reverse stock split, reclassification, combination or other
similar recapitalization affecting such shares) (the “Dividend Value”), provided however, that if the
Conversion Price (as hereinafter defined) is reduced prior to the Corporation’s
issuance of the additional shares of Series A Preferred Stock, then the Dividend
Value shall be reduced by a percentage equal to the then applicable percentage
reduction in Conversion Price.
(c) The
Corporation shall not declare, pay or set aside any dividends on any other
shares of capital stock of the Corporation unless the holders of the Series A
Preferred Stock then outstanding shall first receive, or simultaneously receive,
a dividend on each outstanding share of Series A Preferred Stock in an amount at
least equal to (i) the amount of the aggregate Series A Accruing Dividends then
accrued, if any, on such share of Series A Preferred Stock and not previously
paid plus (ii) (A) in the case of a dividend on Common Stock or any class or
series that is convertible into Common Stock, that dividend per share of Series
A Preferred Stock as would equal the product of (1) the dividend payable on each
share of such class or series determined, if applicable, as if all such shares
of such class or series had been converted into Common Stock and (2) the number
of shares of Common Stock issuable upon conversion of a share of Series A
Preferred Stock, in each case calculated on the record date for determination of
holders entitled to receive such dividend or (B) in the case of a dividend on
any class or series that is not convertible into Common Stock, at a rate per
share of Series A Preferred Stock determined by dividing the amount of the
dividend payable on each share of such class or series of capital stock by the
original issuance price of such class or series of capital stock and multiplying
such fraction by an amount equal to the Series A Original Issue Price (as
hereinafter defined).
3. Rights on Liquidation,
Merger, Sale, Etc.
(a) In the
event of any voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation or any significant subsidiary of the Corporation that results in
the termination of the Corporation’s business (each, a "Liquidation Event"), the
assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, shall be distributed in the following
order of priority:
(i) The
holders of Series A Preferred Stock shall be entitled to receive prior and in
preference to any distribution to the holders of Common Stock, any other series
or class of preferred stock or any other class of the Corporation's capital
stock, whether now existing or hereafter created, a liquidation preference
amount on a per share basis equal to the sum of (A) two times the Series A
Original Issue Price and (B) an amount equal to all accrued but unpaid Series A
Accruing Dividends as of the date such liquidation preference amount is payable
(the amount in the aggregate, the “Liquidation Preference
Amount”).
(ii) After the
payment of the entire Liquidation Preference Amount, to the extent assets of the
Corporation remain available for distribution to holders of the Corporation’s
Common Stock, the holders of Series A Preferred Stock shall participate ratably
in any distributions to the holders of the Corporation’s Common Stock, on an as
converted basis with respect to the Series A Preferred Stock held by them (the
“Common Participating
Distribution”).
(b) The
following shall apply in the event of any Intervening Transaction:
(i) In the
event an Intervening Transaction (as such term is defined in Section 13(d)
hereafter), other than any Intervening Transaction described in clause (i) of
Section 13(d) occurs, the Corporation shall provide the Lead Investor (as such
term is defined in Section 13(g) hereafter) with an Intervening Transaction
Notice (as such term is defined in Section 13(e) hereafter) within 5 Business
Days (as such term is defined in Section 13(a) hereafter) following the
Intervening Transaction. Upon the Lead Investor’s receipt of any such
Intervening Transaction Notice, the Lead Investor shall have 10 Business Days in
which to deliver to the Corporation a Liquidation Election Notice (as such term
is defined in Section 13(h) hereafter), electing to treat such Intervening
Transaction as a Liquidation Event, or such right shall be forfeited with
respect to that Intervening Transaction only. Upon receipt of a
Liquidation Election Notice, the Corporation shall, within 5 Business Days after
such receipt, deliver a copy of the Liquidation Election Notice to all holders
of Series A Preferred Stock. Each holder of Series A Preferred Stock
shall then have 10 Business Days, after receipt of the Liquidation Election
Notice to exercise its right to be paid the Liquidation Preference Amount, and
the Corporation shall pay or cause to be paid to the Lead Investor, and to any
other holder of Series A Preferred Stock that elects to be paid, the Liquidation
Preference Amount and, if applicable, the Common Participating
Distribution.
(ii) In the
event of any Intervening Transaction of the type described in clause (i) of
Section 13(e) hereafter, the Corporation shall provide the Lead Investor with an
Intervening Transaction Notice at least 30 days prior to the proposed closing of
the Intervening Transaction. Upon the Lead Investor’s receipt of any
such Intervening Transaction Notice, the Lead Investor shall have 10 days in
which to deliver to the Corporation a Liquidation Election Notice, electing to
treat such Intervening Transaction as a Liquidation Event, or such right shall
be forfeited with respect to that Intervening Transaction only. Upon
receipt of a Liquidation Election Notice, the Corporation shall, within 5
Business Days after such receipt, deliver a copy of the Liquidation Election
Notice to all holders of Series A Preferred Stock. Each holder of
Series A Preferred Stock shall then have 10 days, after receipt of the
Liquidation Election Notice to exercise its right to be paid the Liquidation
Preference Amount and, if applicable, the Common Participating
Distribution.
(iii) Those
holders of Series A Preferred Stock who do not elect to be paid the Liquidation
Preference Amount following the delivery of an Liquidation Election Notice may
elect to be paid the then applicable Liquidation Preference Amount in the event
of a subsequent Intervening Transaction followed by the delivery of a
Liquidation Election Notice. To the extent cash, if any, is received
by the Corporation in connection with the Intervening Transaction in an amount
at least equal to the Liquidation Preference Amounts payable pursuant to this
Section 3(b), after deduction for the payment to third party creditors as
required by law, the Liquidation Preference Amounts payable pursuant to this
Section 3(b) shall be payable in full to the holders of the Series A Preferred
Stock within 5 Business Days following the date that the funds are received by
the Corporation, notwithstanding any delay in the receipt of any other portion
of the proceeds from the Intervening Transaction, if any, or any part thereof by
virtue of any escrow arrangement, promissory note, deferred payment of proceeds
or otherwise. To the extent that the Corporation does not receive any
funds, in connection with the Intervening Transaction, or the amount of funds
received by the Corporation in connection with the Intervening Transaction is
less than the Liquidation Preference Amounts payable pursuant to this Section
3(b), the Liquidation Preference Amounts shall be payable in full to the holders
of Series A Preferred Stock (who elected to be paid the Liquidation Preference
Amount) as soon as reasonably practicable, but in any event within (a) 30 days
following the delivery by the Corporation to the holders of Series A Preferred
Stock of a Liquidation Election Notice relating to an Intervening Transaction
other than an Intervening Transaction described in clause (i) of Section 13(d)
or (b) 30 days following the date of an Intervening Transaction described in
clause (i) of Section 13(d).
(c) In the
event that the Liquidation Preference Amount has not been paid to those holders
of Series A Preferred Stock who have elected to be paid the Liquidation
Preference Amount, within (a) 60 days following the following the delivery by
the Corporation to the holders of Series A Preferred Stock of a Liquidation
Election Notice relating to an Intervening Transaction other than an Intervening
Transaction described in clause (i) of Section 13(d) or (b) 60 days following
the date of an Intervening Transaction described in clause (i) of Section 13(d),
then each such holder of Series A Preferred Stock who elected to be paid the
Liquidation Preference Amount may instead elect, in its sole discretion, to
cause the Corporation to issue to such Series A Preferred Stock holder, in
exchange for all of such holder’s shares of Series A Preferred Stock and in lieu
of payment of the Liquidation Preference Amount such number of shares of Common
Stock valued at the then applicable Conversion Price, the aggregate value of
which shall be equal to the applicable Liquidation Preference Amount, including
then accrued but unpaid dividends through the date of issuance of such Common
Stock.
(d) If the
Liquidation Preference Amount is not paid, in full, within one (1) year of the
Liquidation Event, then the Conversion Price, as adjusted pursuant to Section 5,
shall be reduced 50%.
4. Voting
Rights.
(a) So long
as any shares of Series A Preferred Stock remain outstanding, the holders of
shares of Series A Preferred Stock shall be entitled (i) voting separately as a
class (with no other stockholders voting) and in accordance with the manner
described in the first sentence of Section 4(c) hereof, to approve all matters
that affect the rights, value, or ranking of the Series A Preferred Stock, (ii)
voting separately as a class (with no other stockholders voting) to elect one
(1) director to the Board, as provided in Section 4(b) hereof, and (iii) subject
to the limitations set forth hereafter, to cast such number of votes in respect
of such shares of Series A Preferred Stock as shall equal the largest whole
number of shares of Common Stock into which such shares of Series A Preferred
Stock are then convertible pursuant to Section 5 hereof on all matters on which
holders of Common Stock shall be entitled to vote, voting together as one class
with, and in the same manner and with the same effect as, such holders of Common
Stock. Notwithstanding anything to the contrary contained herein, to
the extent that any holder’s shares of Series A Preferred Stock are subject to
the conversion limitations set forth in Section 5(i) hereafter, the holder of
such shares shall not have the right to vote such shares of Series A Preferred
Stock, on an as converted basis with the holders of shares of Common Stock, with
respect to such number of shares of Common Stock that would not be available for
conversion, as a result of the conversion limitations set forth in Section
5(i).
(b) The
holders of the Series A Preferred Stock, voting separately as one class, shall
have the exclusive and special right at all times to elect one (1) director (the
"Series A Director") to the Board provided, however, that so long as any shares
of Series A Preferred Stock are outstanding, the Board shall not consist of more
than six (6) members. The Series A Director shall be elected by the
vote of the holders of a majority, and removed by the vote of the holders of
two-thirds (2/3), of the shares of Series A Preferred Stock then
outstanding. The right of holders of the Series A Preferred Stock
contained in this Section 4(b) may be exercised either at a special meeting of
the holders of Series A Preferred Stock or at any annual or special meeting of
the stockholders of the Corporation, or by written consent of such holders in
lieu of a meeting. Upon the written request of the holders of record
of at least a majority of the Series A Preferred Stock then outstanding, the
Secretary of the Corporation shall call a special meeting of the holders of
Series A Preferred Stock for the purpose of (i) removing any Series A Director
elected pursuant to this Section 4(b) and/or (ii) electing a director to fill a
vacancy of the directorship authorized to be filled by the holders of Series A
Preferred Stock pursuant to this Section 4(b). Such meeting shall be
held at the earliest practicable date. At any meeting held for the
purpose of electing or removing a Series A Director, the presence, in person or
by proxy, of the holders of record of a majority of the Series A Preferred Stock
then outstanding shall be required to constitute a quorum of the Series A
Preferred Stock for such election. A vacancy in the directorship to be elected
by the holders of Series A Preferred Stock pursuant to this Section 4(b) may be
filled only by vote or written consent in lieu of a meeting of the holders of a
majority of the shares of Series A Preferred Stock then outstanding and may not
be filled by the remaining directors.
(c) Except as
otherwise provided in this Section 4(c), the Corporation shall not, so long as
any shares of Series A Preferred Stock remain outstanding, without the
affirmative consent or approval of the holders of at least a majority of the
shares of the Series A Preferred Stock then outstanding (which must include the
consent of the Lead Investor, in the event that the Lead Investor then holds any
shares of Series A Preferred Stock), voting separately as a class, given at a
meeting called for such purpose for which notice shall have been given to the
holders of Series A Preferred Stock, or by written consent:
(i) in any
manner alter or change the designations, powers, preferences or rights, or the
qualifications, limitations or restrictions of the Series A Preferred Stock or
increase the authorized number of shares of Series A Preferred
Stock;
(ii) reclassify
the shares of Common Stock or any other shares or any class or series of capital
stock hereafter created junior to the Series A Preferred Stock into shares of
any class or series of capital stock (A) ranking, either as to payment of
dividends, distribution of assets or redemptions, senior to or pari passu with the Series
A Preferred Stock, or (B) which in any manner adversely affects the holders of
Series A Preferred Stock;
(iii) in any
manner authorize, create or issue any class or series of capital stock (A)
ranking, in any respect including, without limitation, as to payment of
dividends, or distribution of assets, senior to or pari passu with the Series
A Preferred Stock or (B) which in any manner adversely affects the holders of
Series A Preferred Stock; or authorize, create or issue any shares of any class
or series of any bonds, debentures, notes or other obligations convertible into
or exchangeable for, or having optional rights to purchase, or any options,
warrants or other rights to acquire, any shares having any such preference or
priority or so adversely affecting the holders of Series A Preferred
Stock;
(iv) make or
declare, directly or indirectly, any dividend (in cash, return of capital, or
any other form of assets) on, or make any other payment or distribution on
account of, or set aside assets for a sinking or other similar fund for the
purchase, redemption, or retirement of, or redeem, purchase, retire, or
otherwise acquire any shares of its Common Stock, or of any other capital stock
of the Corporation ranking junior to the Series A Preferred Stock as to the
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, whether now or hereafter outstanding;
(v) enter
into any material transaction or agreement, including but not limited to any
indenture, loan or credit agreement, note, deed of trust, mortgage, security
agreement or other material agreement, lease, license or other instrument,
commitment, obligation or arrangement which is not in the ordinary course of
business and by which any of its properties, assets or rights are bound or
affected.
(vi) liquidate,
dissolve or wind up its affairs;
(vii) effect or
permit, or offer or agree to effect or permit, an Intervening Transaction;
and
(viii) amend or
modify any of the provisions of this Certificate of Designations.
5. Conversion.
(a) Right to Convert.
Subject to the limitations set forth in Section 5(i) hereafter, the holder of
any share or shares of Series A Preferred Stock shall have the right at any
time, at such holder’s option, to convert all or any lesser portion of such
holder’s shares of Series A Preferred Stock into such number of fully paid and
non-assessable shares of Common Stock as is determined by (i) multiplying the
number of shares of Series A Preferred Stock to be converted by the Series A
Original Issue Price (as hereafter defined) and (ii) dividing the result by the
Conversion Price (as hereafter defined) of such Series A Preferred Stock, or, in
case an adjustment of such Conversion Price has taken place pursuant to this
Section 5 or amendments hereto, then by the Conversion Price as last adjusted
and in effect at the date any shares of Series A Preferred Stock are surrendered
for conversion. No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any Series A Preferred Stock. With
respect to any fraction of a share of Common Stock called for upon any
conversion, the Corporation shall pay to the holder an amount in cash equal to
such fraction multiplied by the then Current Market Price (as hereinafter
defined) per share of the Common Stock.
(b) Automatic
Conversion. If the Corporation’s combined Earnings (as
hereafter defined) for fiscal years 2010 and 2011 equals $19,000,000 or greater
and the Common Stock into which the Series A Preferred Stock is converted is
then traded on a U.S. national securities exchange, Nasdaq or the OTC Bulletin
Board (the “Automatic
Conversion Time”), the Series A Preferred Stock shall be converted
automatically into such number of fully paid and non-assessable shares of Common
Stock as is determined by (i) multiplying the number of shares of Series A
Preferred Stock so to be converted by the Series A Original Issue Price and (ii)
dividing the result by the Conversion Price as last adjusted and in effect at
the date any shares or shares of Series A Preferred are automatically converted
(the “Automatic
Conversion”). Nothing in this Section 5(b) shall be construed so as to
limit the right of a holder of Series A Preferred Stock to convert pursuant to
Section 5(a) at any time.
(c) Mechanics of
Conversion.
(i) Such
right of conversion (other than Automatic Conversion) shall be exercised by the
holder of shares of Series A Preferred Stock by delivering to the Corporation a
conversion notice in the form attached hereto as Exhibit A (the “Conversion Notice”),
appropriately completed and duly signed and specifying the number of shares of
Series A Preferred Stock that the holder elects to convert (the “Converting Shares”) into
shares of Common Stock, and by surrender not later than two (2) business days
thereafter of the certificate or certificates representing such Converting
Shares. The Conversion Notice shall also contain a statement of the name or
names (with addresses and tax identification or social security numbers) in
which the certificate or certificates for Common Stock shall be issued, if other
than the name in which the Converting Shares are registered. Promptly after the
receipt of the Conversion Notice, the Corporation shall issue and deliver, or
cause to be delivered, to the holder of the Converting Shares or such holder’s
nominee, a certificate or certificates for the number of shares of Common Stock
issuable upon the conversion of such Converting Shares. Such conversion shall be
deemed to have been effected as of the close of business on the date of receipt
by the Corporation of the Conversion Notice (the “Conversion Date”), and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the holder or holders of record
of such shares of Common Stock as of the close of business on the Conversion
Date.
(ii) The
Corporation shall issue certificates representing the shares of Common Stock to
be received upon conversion of the Series A Preferred Stock (the “Conversion Shares”) (and
certificates for unconverted Series A Preferred Stock) within ten (10) business
days of the Conversion Date and shall transmit the certificates by messenger or
reputable overnight delivery service to reach the address designated by such
holder within ten (10) business days after the receipt by the Corporation of
such Conversion Notice. If certificates evidencing the Conversion Shares are not
received by the holder within fifteen (15) business days of the Conversion
Notice, then the holder will be entitled to revoke and withdraw its Conversion
Notice, in whole or in part, at any time prior to its receipt of those
certificates.
(iii) The
Corporation’s obligation to issue Common Stock upon conversion of Series A
Preferred Stock shall be absolute, is independent of any covenant of any holder
of Series A Preferred Stock, and shall not be subject to: (A) any offset or
defense; or (B) any claims against the holders of Series A Preferred Stock
whether pursuant to this Certificate of Designation or otherwise.
(iv) In the
event that the Automatic Conversion has occurred, all the shares of Series A
Preferred Stock shall be converted at the Automatic Conversion Time, as if the
holders thereof had delivered a Conversion Notice with respect to such shares on
such date or at such time. Promptly thereafter, the holders of the
Series A Preferred Stock shall deliver their certificates evidencing the Series
A Preferred Stock to the Corporation or its duly authorized transfer agent, and
upon receipt thereof, the Corporation shall issue or cause its transfer agent to
issue and deliver the certificates evidencing the Common Stock into which the
shares of Series A Preferred Stock have been converted in accordance with
Section 5(c)(ii).
(d) Conversion Price. The
initial conversion price for the Series A Preferred Stock shall be $0.11, such
value to be subject to adjustment in accordance with the provisions of this
Section 5. Such conversion price in effect from time to time, as adjusted
pursuant to this Section 5, is referred to herein as a “Conversion Price.” All of the
remaining provisions of this Section 5 shall apply separately to each Conversion
Price in effect from time to time with respect to Series A Preferred
Stock.
(e) Conversion Price
Adjustment. In the event that the Corporation fails to achieve
or is otherwise unable to report either or both of the minimum performance
thresholds for fiscal years 2010 and 2011 set forth below (the “Performance Thresholds”) then
the then applicable Conversion Price shall reset lower by the percentage
difference by which the Corporation’s Earnings are below the applicable
Performance Threshold. The Performance Thresholds for fiscal years
2010 and 2011 are:
|
·
|
Fiscal
Year 2010 Earnings Performance Threshold: $5,000,000;
and
|
|
·
|
Fiscal
Year 2011 Earnings Performance Threshold:
$14,000,000.
|
By way of
example, and for illustrative purposes only, in the event the Corporation
reports 2010 fiscal Earnings of $4,500,000, the Conversion Price shall be reset
at 10% below the then applicable Conversion Price. Should the Corporation then
report 2011 fiscal Earnings of $13,000,000, then the Conversion Price Reset
shall be reset to 7% below the then applicable Conversion Price.
(f) Stock Dividends,
Subdivisions and Combinations. If at any time while the Series A
Preferred Stock is outstanding, the Corporation shall:
(i) cause the
holders of its Common Stock to be entitled to receive a dividend payable in, or
other distribution of, additional shares of Common Stock,
(ii) subdivide
its outstanding shares of Common Stock into a larger number of shares of Common
Stock, or
(iii) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock,
then in
each such case the Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
Section 5(f) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clauses (ii) or (iii) of this Section 5(f) shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.
(g) Common Stock
Reserved. The Corporation shall at all times reserve and keep available
out of its authorized but unissued Common Stock, solely for issuance upon the
conversion of shares of Series A Preferred Stock as herein provided, such number
of shares of Common Stock as shall from time to time be issuable upon the
conversion of all the shares of Series A Preferred Stock at the time
outstanding.
(h) Adjustment Upon Issuance of
Additional Shares of Common Stock.
(i) Adjustment to Conversion
Price. If at any time while any Series A Preferred Stock is outstanding
the Corporation shall issue or sell any additional shares of Common Stock
(“Additional Common
Stock”) in exchange for consideration in an amount per share of
Additional Common Stock less than the Conversion Price at the time the shares of
Additional Common Stock are issued or sold (the “Adjusted Price”), then,
subject to Section 5(h)(v) below, the Conversion Price immediately prior to such
issue or sale shall be reduced to an amount equal to such lower Adjusted
Price.
(ii) Issuance of Common Stock
Equivalents. If at any time while the Series A Preferred Stock is
outstanding the Corporation shall issue or sell any warrants or other rights to
subscribe for or purchase any additional shares of Common Stock (regardless of
the number of shares of Common Stock that the Corporation is then authorized to
issue) or any securities convertible, directly or indirectly, into shares of
Common Stock (collectively, “Common Stock Equivalents”),
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the effective price per share for which Common Stock is
issuable upon the exercise, exchange or conversion of such Common Stock
Equivalents (the “Common Stock
Equivalent Price”) shall be less than the current Conversion Price in
effect immediately prior to the time of such issue or sale, then the current
Conversion Price immediately prior to such issue or sale shall be reduced to an
amount equal to such lower Common Stock Equivalent Price. No further
adjustments to the current Conversion Price shall be made under this Section
5(h) upon the actual issue of such Common Stock upon the exercise, conversion or
exchange of such Common Stock Equivalents at the Common Stock Equivalent
Price.
(iii) Certain Issues of Common
Stock or Common Stock Equivalents Excepted. The provisions of Section
5(h) shall not apply to any issuance of Additional Common Stock for which an
adjustment is provided under Section 5(f). The Corporation shall not be required
to make any adjustment of the Conversion Price pursuant to Section 5(h) in the
case of the issuance (each, an “Exempt Issuance”) of (A) shares of Common Stock
or Series A Preferred Stock issued as dividends with respect to the Series A
Preferred Stock, (B) shares of Common Stock issued or issuable upon conversion
or exercise of any convertible debt or equity securities or warrants outstanding
as of the Second Issuance Date, or as of the Original Issuance Date if there is
no Second Issuance Date, and in accordance with the terms thereof on such date,
(C) shares of Common Stock or Common Stock Equivalents (or Common Stock issued
upon exercise, exchange or conversion of Common Stock Equivalents) issued in
connection with any stock-based compensation plans of the Corporation approved
by the stockholders of the Corporation and the Board, (D) shares of Common Stock
issued pursuant to a firm commitment underwritten public offering, the terms of
which are approved by the Board (including a majority of the independent
directors serving on the Board), (E) securities or rights to acquire securities
issued to financial institutions in connection with commercial credit
arrangements, equipment financings, service agreements or similar transactions
approved by the Board and the primary purpose of which is not equity financing,
(F) securities or rights to acquire securities issued in connection with
strategic acquisitions, collaborations, development agreements, joint ventures
or licensing transactions or to consultants or other service providers of the
Corporation, the terms of which are approved by the Board (including a majority
of the independent directors serving on the Board), or (G) Series A Preferred
Stock issued on or prior to December 31, 2009.
(iv) Superseding
Adjustment. If, at any time after any adjustment to the current
Conversion Price shall have been made pursuant to Section 5(h) as the result of
any issuance of Common Stock Equivalents, (x) the right to exercise, exchange or
convert all of the Common Stock Equivalents shall expire unexercised, or (y) the
conversion rate or consideration per share for which shares of Common Stock are
issuable pursuant to such Common Stock Equivalents shall be increased solely by
virtue of provisions therein contained for an automatic increase in such
conversion rate or consideration per share, as the case may be, upon the
occurrence of a specified date or event, then, unless any of such Common Stock
Equivalents have previously been converted or exercised at the original price,
any such previous adjustments to the Conversion Price shall be rescinded and
annulled and the additional shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Upon the occurrence of an event set forth in this
Section 5(h)(iv) above, there shall be a recomputation made of the effect of
such Common Stock Equivalents on the basis of treating any such Common Stock
Equivalents which then remain outstanding as having been granted or issued
immediately after the time of such increase of the conversion rate or
consideration per share for which shares of Common Stock or other property are
issuable under such Common Stock Equivalents; whereupon a new adjustment to the
current Conversion Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
(v) If an
adjustment to the Conversion Price pursuant to the formula set forth in Section
5(h)(i) above would result in a Conversion Price of less than $0.0001 (as
adjusted for forward or reverse stock splits, stock dividends and the like),
then the Conversion Price shall be $0.0001 (as adjusted for forward or reverse
stock splits, stock dividends and the like).
(i) Conversion
Limitations. The Corporation shall not effect any conversion of Series A
Preferred Stock, and a holder of Series A Preferred Stock shall not have the
right to convert any of its shares of Series A Preferred Stock, to the extent
that after giving effect to such issuance after conversion, such holder
(together with its Affiliates, and any other Person as a group together with
such holder or any of such holder’s Affiliates), would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below). For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by such holder and its Affiliates shall include the number of
shares of Common Stock issuable upon conversion the Shares of Series A Preferred
Stock which the holder elects to convert and with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) conversion of any other shares of Series
A Preferred Stock which no election for conversion has been made which are
beneficially owned by such holder or any of its Affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Corporation (including, without limitation, any other Common
Stock Equivalents) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by such holder or any of
its Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 5(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the rules and regulations promulgated thereunder, it
being acknowledged by such holder that the Corporation is not representing to it
that such calculation is in compliance with Section 13(d) of the Exchange Act
and such holder is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation
contained herein applies, the determination of whether any shares of Series A
Preferred Stock are convertible (in relation to other securities owned by such
holder together with any Affiliates), subject to the Beneficial Ownership
Limitation, shall be in the sole discretion of such holder, and the Corporation
shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 5(i), in determining the
number of outstanding shares of Common Stock, a holder may rely on the number of
outstanding shares of Common Stock as reflected in (A) the Corporation’s most
recent periodic or annual report, as the case may be, (B) a more recent public
announcement by the Corporation or (C) any other notice by the Corporation or
its transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of any holder of shares of
Series A Preferred Stock, the Corporation shall within two Business Days confirm
orally and in writing to such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Corporation, including the shares of Series A Preferred Stock
being converted, by such holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership
Limitation” shall be 4.99% (or 9.99% if such holder’s then existing
beneficial ownership is equal to greater than 5% but less than 10%) of the
number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon conversion of the shares
of Series A Preferred Stock being converted. A holder of Series A
Preferred Stock, upon not less than 61 days’ prior notice to the Corporation,
may waive the Beneficial Ownership Limitation provisions of this Section
5(i). Any such waiver will not be effective until the 61st day
after such notice is delivered to the Corporation. Additionally, the
limitations contained in this Section 5(i) shall be automatically terminated in
the event that the Automatic Conversion described in Section 5(b) becomes
applicable. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with any other
provisions contained herein to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation.
(j) First Refusal
Right.
(i) If, at
anytime there remains shares of Series A Preferred Stock issued and outstanding,
the Corporation or any of its Subsidiaries proposes to issue, sell, transfer or
exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange (in each case a “Subsequent Issuance”): (A) any
shares of Common Stock, (ii) any other equity securities of the Corporation or
any subsidiary, including, without limitation, shares preferred stock other than
Series A Preferred Stock, (iii) any option, warrant or other right to subscribe
for, purchase or otherwise acquire any equity securities of the Corporation or
any subsidiary, or (iv) any debt or other securities directly or indirectly
convertible into capital stock of the Corporation or any subsidiary
(collectively, “Covered Securities”), it shall not do so until the Corporation
or its applicable shall have first complied with this Section 5(j).
(ii) If the
Corporation or any subsidiary wishes to issue any Covered Securities, it shall
deliver written notice (hereinafter referred to as the “Notice of Offer”) to
each holder of Series A Preferred Stock which Notice of Offer shall specify (i)
a description of the Covered Securities the Corporation or such subsidiary
proposes to issue and sell, (ii) the number of such Covered Securities which the
Corporation or such subsidiary wishes to sell (the “Offer Securities”); (iii)
the proposed cash purchase price per share or unit for the Offer Securities (the
“Offer Price”); and (iv)
all other material terms and conditions of the offer. The Notice of
Offer shall constitute an irrevocable offer by the Corporation or such
subsidiary to sell, to the holders of the Series A Preferred Stock, Offer
Securities at the Offer Price, as hereinafter provided.
(iii) Within
fifteen (15) days following receipt of the Notice of Offer, each holder of
Series A Preferred Stock shall notify the Corporation or applicable subsidiary
as to the number of Offer Securities, if any, it is electing to purchase (any
such notification is hereinafter referred to as the “Offer Securities
Acceptance” and any such holder electing to purchase Offer Securities is
hereinafter referred to as an “Electing Holder”). If a holder of
Series A Preferred Stock does not provide an Offer Securities Acceptance to the
Corporation or such subsidiary within such period, such holder shall be deemed
to have declined to purchase any of the Offer Securities. An Offer
Securities Acceptance shall be deemed to be an irrevocable commitment to
purchase from the Corporation or such subsidiary the number of Offer Securities
which such Electing Holder has elected to purchase pursuant to its Offer
Securities Acceptance, subject to allocation of the Offer Securities among
Electing Holders accepting the Notice of Offer, as hereinafter
provided.
(iv) If the
Electing Holders have elected to purchase a number of Offer Securities that in
the aggregate exceeds the total number of Offer Securities, the Offer
Securities shall be allocated among the Electing Holders as
follows: (x) first, among the Electing Holders as nearly as possible
in proportion to the number of shares of Series A Preferred Stock then held by
such Electing Holders and (y) second, among those Electing Holders that elected
to purchase more Offer Securities than the number to which they are entitled
under clause (x), as nearly as possible in proportion to the number of shares of
Series A Preferred Stock held by such Electing Holders. This Section
5(j)(iv) shall be construed and given effect in such manner that no Electing
Holder shall be required or entitled to purchase a number of Offer Securities
greater than the number set forth in its Offer Securities
Acceptance. The Corporation or applicable subsidiary shall promptly
notify each Electing Holder, if any, of the number of securities allocated to
it, and each such Electing Holder shall be obligated to purchase at the Offer
Price such securities at a closing as set forth in Section
5(j)(vi).
(v) If the
Electing Holders do not elect to purchase all of the Offer Securities available
for purchase under this Section 5(j), the Corporation or the applicable
subsidiary, as the case may be, may, within a period of five (5) months from the
date of the Notice of Offer, sell the remaining Offer Securities not subject to
an Offer Securities Acceptance to one or more third parties (each a “Third Party
Purchaser”) for cash at a price per share not less than the Offer Price, and on
such other terms and conditions as are no more favorable to the proposed Third
Party Purchaser than those specified in the Notice of Offer. If the
Corporation or applicable subsidiary does not complete the sale of the Offer
Securities within such five (5) month period, the provisions of this Section
5(j) shall again apply, and no sale of such Offer Securities by the Corporation
or such subsidiary shall be made otherwise than in accordance with the terms of
this Section 5(j).
(vi) The
closing of purchases of Offer Securities by Electing Holders pursuant to this
Section 5(j) shall take place no later than sixty (60) days after the date of
the Notice of Offer, at 10:00 A.M. local time at the principal offices of the
Corporation or the applicable subsidiary, or at such other date, time or place
as the parties to the sale may agree. At least five (5) business days
prior to such closing, the Corporation or the applicable subsidiary shall notify
the Electing Holders, in writing, of the names of purchasers and the portion of
the Offer Securities to be purchased by each Electing Holder. At such
closing, the Corporation or such subsidiary shall sell, transfer and deliver to
each purchaser the Offer Securities so purchased by such purchaser and shall
deliver to each purchaser a certificate or other evidence representing the Offer
Securities sold to such purchaser. Simultaneously with delivery of
such certificates, each purchaser of the Offer Securities shall deliver to the
Corporation or applicable subsidiary, by wire transfer of immediately available
funds to such bank account as the Corporation or such subsidiary shall
designate, a cash amount equal to the product of the Offer Price and the number
of Offer Securities being acquired by such purchaser, in full payment of the
purchase price of the Offer Securities purchased.
(k) Subsequent Conversion
Right. If the Corporation effects any debt or equity financing
prior to the second year anniversary of the Second Issuance Date (or the second
anniversary of the Original Issuance Date if there is no Second Issuance Date),
each holder of the Series A Preferred Stock who did not exercise its right of
first refusal pursuant to Section 5(j), may elect, in its sole discretion, to
convert all, or any portion of the Series A Preferred Stock then held by such
holder, into securities of the same class issued in such subsequent debt or
equity financing transaction based on the effective price at which such
securities, if any, were sold in such subsequent transaction. For the
purpose of effecting this exchange, the fair market value ascribed to the Series
A Preferred Stock shall be the same fair market value used to determine dividend
payments pursuant to Section 2.
(l) Merger Transaction.
The consummation of a merger between the Corporation and a wholly owned
subsidiary of the Corporation shall not be considered, reflected in, or
otherwise be applicable to adjusting the number of shares of Common Stock into
which the Series A Preferred Stock is convertible or with respect to any other
rights of Series A Preferred Stock holders set forth in Sections 5(h), (j) and
(k).
6. Other Provisions Applicable
to Adjustments. The following provisions shall be applicable to the
making of adjustments of the number of shares of Common Stock into which the
Series A Preferred Stock is convertible and the current Conversion Price
provided for in Section 5:
(a) When Adjustments to Be
Made. The adjustments required by Section 5 shall be made whenever and as
often as any specified event requiring an adjustment shall occur, except that
any adjustment to the Conversion Price that would otherwise be required may be
postponed (except in the case of a subdivision or combination of shares of the
Common Stock, as provided for in Section 5(f)) up to, but not beyond the
Conversion Date if such adjustment either by itself or with other adjustments
not previously made adds or subtracts less than 1% of the shares of Common Stock
into which the Series A Preferred Stock is convertible immediately prior to the
making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by Section 5 and not previously made, would result in a minimum
adjustment or on the Conversion Date. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(b) Fractional Interests.
In computing adjustments under Section 5, fractional interests in Common Stock
shall be taken into account to the nearest 1/100th of a share.
7. Other Action Affecting
Common Stock. In case at any time or from time to time the Corporation
shall take any action in respect of its Common Stock, other than the payment of
dividends permitted by Section 5 or any other action described in Section 5,
then, unless such action will not have a materially adverse effect upon the
rights of the holder of Series A Preferred Stock, the number of shares of Common
Stock or other stock into which the Series A Preferred Stock is convertible
and/or the purchase price thereof shall be adjusted in such manner as may be
equitable in the circumstances.
8. Certain Limitations.
Notwithstanding anything herein to the contrary, the Corporation agrees not to
enter into any transaction or take any other action which, by reason of any
adjustment hereunder, would cause the current Conversion Price to be less than
the par value per share of Common Stock.
9. Stockholder Notices.
The Corporation covenants and agrees that, so long as shares of Series A
Preferred Stock are outstanding, it will distribute to the holders of the Series
A Preferred Stock all communications sent by the Corporation to the holders of
the Common Stock.
10. Certificate as to
Adjustments. Upon the occurrence of each adjustment or readjustment of
the Conversion Price, the Corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series A Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price at the time in
effect for the Series A Preferred Stock and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Series A Preferred Stock owned by such
holder.
11. Notices of Record
Date. In the event of any fixing by the Corporation of a record date for
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any shares of Common Stock or other securities, or any right to subscribe for,
purchase or otherwise acquire, or any option for the purchase of, any shares of
stock of any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Series A Preferred Stock at
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or rights, and the amount and character of such dividend,
distribution or right.
12. Redemption.
(a) Redemption of Series A
Preferred Stock. Shares of Series A Preferred Stock shall be
redeemed by the Corporation out of funds lawfully available therefor at a price
(the “Series A Redemption
Price”) equal to the then applicable Liquidation Preference Amount, plus
an amount equal to all accrued but unpaid dividends thereon (whether or not
declared), upon receipt by the Corporation at any time on or after the third
anniversary of the Second Issuance Date (or the third anniversary of the
Original Issuance Date if there is no Second Issuance Date), of a written notice
from the Lead Investor (the “Series A Redemption Notice”)
requesting redemption of all shares of Series A Preferred Stock. The
Redemption Price shall be payable in one lump sum on the date no later than
60 days after the
date of receipt by the Corporation of the Series A Redemption Notice (the date
of such payment being referred to as a “Series A Redemption
Date”). On the Series A Redemption Date, the Corporation shall
redeem all outstanding shares of Series A Preferred Stock. If the
Corporation does not have sufficient funds legally available to redeem on the
Series A Redemption Date, all shares of Series A Preferred Stock and of any
other class or series of stock to be redeemed on such Series A Redemption Date,
the Corporation shall redeem a pro rata portion of each holder’s redeemable
shares of such stock out of funds legally available therefor, based on the
respective amounts which would otherwise be payable in respect of the shares to
be redeemed if the legally available funds were sufficient to redeem all such
shares, and shall redeem the remaining shares to have been redeemed as soon as
practicable after the Corporation has funds legally available
therefor. Nothing in this Section 6(a) shall be construed so as to
limit the right of a holder of Series A Preferred Stock to convert pursuant to
Section 5(a) prior to the Series A Redemption Date.
(b) Ranking. No
securities of the Corporation junior to the Series A Preferred Stock (with
respect to redemption rights) may be redeemed unless the Series A Preferred
Stock has been redeemed and all redemption amounts in connection therewith have
been paid in full. The Series A Preferred Stock may not be redeemed unless
securities of the Corporation senior to the Series A Preferred Stock (with
respect to redemption rights) have been redeemed and all redemption amounts in
connection therewith have been paid in full, then the Series A Preferred Stock
may be redeemed pro rata with any other class of securities of the Corporation
with redemption rights pari passu with Series A Preferred Stock.
(c) Preferred Redemption
Notice. Written notice of any redemption (the “Preferred Redemption Notice”)
shall be mailed, postage prepaid, to each holder of record of Series A Preferred
Stock, at its post office address last shown on the records of the Corporation,
or given by electronic communication in compliance with the provisions of the
General Corporation Law, not less than 30 days prior to the Series A Redemption
Date. Each Preferred Redemption Notice shall state:
|
·
|
the
number of shares of Series A Preferred Stock held by the holder that the
Corporation shall redeem on the Series A Redemption
Date;
|
|
·
|
the
Series A Redemption Date and the Series A Redemption
Price;
|
|
·
|
the
date upon which the holder’s right to convert such shares terminates;
and
|
|
·
|
that
the holder is to surrender to the Corporation, in the manner and at the
place designated, his, her or its certificate or certificates representing
the shares of the Series A Preferred Stock to be
redeemed.
|
(d) Surrender of Certificates;
Payment. On or before the Series A Redemption Date, each
holder of shares of the Series A Preferred Stock to be redeemed on such Series A
Redemption Date, unless such holder has exercised his, her or its right to
convert such shares as provided in Section 5 hereof, shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Preferred Redemption Notice, and
thereupon the Series A Redemption Price for such shares shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled and
retired. In the event less than all of the shares of a Series A
Preferred Stock represented by a certificate are redeemed, a new certificate
representing the unredeemed shares of such Series A Preferred Stock shall
promptly be issued to such holder.
(e) Rights Subsequent to
Redemption. If a Preferred Redemption Notice shall have been
duly given, and if on the Series A Redemption Date the Series A Redemption Price
payable upon redemption of the shares of the Series of Preferred Stock to be
redeemed on such Series A Redemption Date is paid or tendered for payment or
deposited with an independent payment agent so as to be available therefor, then
notwithstanding that the certificates evidencing any of the shares of the Series
A Preferred Stock so called for redemption shall not have been surrendered,
dividends with respect to such shares of Series A Preferred Stock shall cease to
accrue after such Series A Redemption Date and all rights with respect to such
shares shall forthwith after the Series A Redemption Date terminate, except only
the right of the holders to receive the Series A Redemption Price without
interest upon surrender of their certificate or certificates
therefor.
(f) Redeemed or Otherwise
Acquired Shares. Any shares of Series A Preferred Stock which
are redeemed or otherwise acquired by the Corporation or any of its subsidiaries
shall be automatically and immediately canceled and shall not be reissued, sold
or transferred. Neither the Corporation nor any of its subsidiaries
may exercise any voting or other rights granted to the holders of a share of a
Series A Preferred Stock following redemption.
13. Certain
Definitions
(a) “Business
Day” means any day except Saturday, Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
(b) “Current
Market Price” shall mean, in respect of any share of Common Stock on any date
herein specified:
(1) if
there shall be a public market for the Common Stock, the closing price of such
Common Stock on the securities exchange in the United Sates on which the Common
Stock may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted by the
Pink Sheets, LLC as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted by the Pink Sheets, LLC, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar or
successor organization.
(2) if
there shall not be a public market for the Common Stock, the higher of (a) the
book value per share of Common Stock at such date, and (b) the fair market value
per share of Common Stock as determined in good faith by the Board.
(c) “Earnings”
shall mean earnings before interest, taxes, depreciation and non-cash expenses
related to financings, as reported in the Corporation’s consolidated financial
statements for the applicable fiscal year, which have been prepared in
accordance with GAAP and audited by the Corporation’s independent public
accountants.
(d) “Force
Majeure Event” shall mean conditions beyond the Corporation’s control,
including, but not limited to, acts of God, government restrictions, wars,
insurrections and/or any other cause beyond the reasonable control of the party
whose performance is affected.
(e) “Intervening
Transaction” shall mean (i) any merger or consolidation or a sale or transfer of
all or substantially all of the assets of the Corporation or any of its material
subsidiaries; (ii) the dissolution, liquidation and/or winding up of any of the
Corporation’s material subsidiaries which results in a material reduction in the
Corporation’s business, (iii) a change of control of the Corporation, (iv) a
material default by the Corporation in its obligations to holders of Series A
Preferred Stock that remains uncured or (v) the date that all events have
occurred resulting in the right of redemption pursuant to Section
12. Neither the issuance of Series A Preferred Stock on or prior to
December 31, 2009, nor the merger of the Corporation with a wholly owned
subsidiary of the Corporation shall constitute an Intervening
Transaction.
(f) “Intervening
Transaction Notice” shall mean a notice to be sent by the Corporation to the
Lead Investor notifying it of the occurrence or planned occurrence, as
applicable, of an Intervening Transaction.
(g) “Lead
Investor” shall mean Paragon Capital LP.
(h) “Liquidation
Election Notice” shall mean a notice to be sent by the Lead Investor to the
Corporation, at Lead Investor’s sole discretion, upon an Intervening
Transaction, indicating the Lead Investor’s decision to treat an Intervening
Transaction as a Liquidation Event.
(i) “Original
Issuance Date” shall mean that date on which the Corporation completes the
issuance of the first 2,726,550 shares of Series A Preferred Stock.
(j) “Person”
or “person” shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature, including, as appropriate, the Corporation or any subsidiary
thereof.
(k) “Second
Issuance Date” shall mean that date on which the Corporation completes the
issuance of up to 2,726,550 additional shares of Series A Preferred Stock, which
may occur concurrently with the Original Issuance Date, but in event shall not
be later than December 31, 2009.
(l) “Series A
Original Issue Price” shall mean $0.55 per share, subject to appropriate
adjustment in the event of any stock dividend, forward or reverse stock split,
reclassification, combination or other similar recapitalization affecting the
Series A Preferred Stock.
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of Designations
this 21st day
of December, 2009.
CHARLESTON
BASICS, INC.
By:
/s/ Alan P. Donenfeld
Name: Alan P. Donenfeld
Title President