Attached files
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EX-3.2 - ELITE PHARMACEUTICALS INC /NV/ | v189686_ex3-2.htm |
EX-10.1 - ELITE PHARMACEUTICALS INC /NV/ | v189686_ex10-1.htm |
EX-10.3 - ELITE PHARMACEUTICALS INC /NV/ | v189686_ex10-3.htm |
EX-10.2 - ELITE PHARMACEUTICALS INC /NV/ | v189686_ex10-2.htm |
EX-99.1 - ELITE PHARMACEUTICALS INC /NV/ | v189686_ex99-1.htm |
8-K - ELITE PHARMACEUTICALS INC /NV/ | v189686_8k.htm |
AMENDED
CERTIFICATE
OF DESIGNATIONS
OF
THE
SERIES D
8 % CONVERTIBLE PREFERRED STOCK
OF
ELITE
PHARMACEUTICALS, INC.
__________________________________________________
PURSUANT
TO SECTION 151 OF THE
DELAWARE
GENERAL CORPORATION LAW
__________________________________________________
ELITE
PHARMACEUTICALS, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the “Corporation”), does
hereby certify as follows:
First:
The Corporation filed a Certificate of Designation of Preferences, Rights and
Limitations of the Series D 8% Convertible Preferred Stock, par value US$0.01
per share (the “Series
D Preferred Stock”), with the Secretary of State of the State of Delaware
on September 15, 2008 (the “Original Series D
Certificate of Designation”).
Second: The
Board of Directors of the Corporation (the “Board”) duly adopted
the following resolutions setting forth amendments to the Original Series D
Certificate of Designation:
“WHEREAS,
the Corporation filed a Certificate of Designation of Preferences, Rights and
Limitations of the Series D 8% Convertible Preferred Stock with the Secretary of
State of the State of Delaware on September 15, 2008;
WHEREAS,
it is the desire of the Board of Directors of the Corporation, pursuant to its
authority as aforesaid and with the requisite consent of the holders of the
outstanding shares of Series B 8% Convertible Preferred Stock, par value $0.01
per share, Series C 8% Convertible Preferred Stock, par value $0.01 per share,
and Series D 8% Convertible Preferred Stock, par value $0.01 per share, to
amend, in its entirety, the Certificate of Designation of Preferences, Rights
and Limitations of the Series D 8% Convertible Preferred Stock as
follows:
NOW,
THEREFORE, BE IT RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors by the provisions of the Amended Certificate of
Incorporation of the Corporation, the Board of Directors hereby amends in its
entirety the Certificate of Designation of the Series D 8% Convertible Preferred
Stock, dated September 15, 2008, as follows:
1
TERMS
OF SERIES D 8% CONVERTIBLE PREFERRED STOCK
Section 1. Definitions.
Capitalized terms used and not otherwise defined herein that are defined in the
Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. For the purposes hereof, the following terms shall have the following
meanings:
“Alternate
Consideration” shall have the meaning set forth in Section
7(e).
“Amendment” means the
amendment to the Corporation’s articles of incorporation, and a restatement
thereof, that increases the number of authorized shares of Common Stock from
150,000,000 shares to 200,000,000 shares.
“Authorized Share
Approval” means the vote by the shareholders of the Corporation to
approve the Amendment and the filing by the Corporation of the Amendment with
the Secretary of State the State of Delaware and the acceptance of the Amendment
by the Secretary of State the State of Delaware.
“Authorized Share Approval
Date” means the date when all of the actions set forth in the definition
of the Authorized Share Approval have been completed.
“Bankruptcy Event”
means any of the following events: (a) the Corporation or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Corporation or
any Significant Subsidiary thereof; (b) there is commenced against the
Corporation or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 60 days after commencement; (c) the Corporation or
any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered;
(d) the Corporation or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 calendar days after such
appointment; (e) the Corporation or any Significant Subsidiary thereof makes a
general assignment for the benefit of creditors; (f) the Corporation or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (g) the
Corporation or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.
“Base Conversion
Price” shall have the meaning set forth in Section 7(b).
“Beneficial Ownership
Limitation” shall have the meaning set forth in Section
6(c).
“Bushido” shall have
the meaning set forth in Section 4.
2
“Business Day” means
any day except Saturday, Sunday, any day which shall be 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.
“Buy-In” shall have
the meaning set forth in Section 6(e)(iii).
“Cash Redemption Triggering
Events” shall have the meaning set forth in Section 9(b).
“Change of Control
Transaction” means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual, legal entity or “group” (as
described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital stock of the
Corporation, by contract or otherwise) of in excess of 40% of the voting
securities of the Corporation (other than by means of conversion or exercise of
Preferred Stock and the Securities issued together with the Preferred Stock), or
(ii) the Corporation merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Corporation and, after giving effect
to such transaction, the stockholders of the Corporation immediately prior to
such transaction own less than 60% of the aggregate voting power of the
Corporation or the successor entity of such transaction, or (iii) the
Corporation sells or transfers all or substantially all of its assets to another
Person and the stockholders of the Corporation immediately prior to such
transaction own less than 60% of the aggregate voting power of the acquiring
entity immediately after the transaction, or (iv) a replacement at one time or
within a one year period of more than one-half of the members of the
Corporation’s board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), or
(v) the execution by the Corporation of an agreement to which the
Corporation is a party or by which it is bound, providing for any of
the events set forth in clauses (i) through (iv) above; provided that any
transaction between the Corporation and Epic Pharma (as defined below) or any of
its Affiliates shall not constitute a “Change of Control Transaction” under
clause (i) above.
“Closing Date” means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto and all conditions precedent to (i)
the Holders’ obligations to pay the Subscription Amount and (ii) the
Corporation’s obligations to deliver the Securities have been satisfied or
waived.
“Commission” means the
Securities and Exchange Commission.
3
“Common Stock” means
the Corporation’s common stock, par value $0.001 per share, and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed into.
“Common Stock
Equivalents” means any securities of the Corporation or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Conversion Amount”
means the sum of the Stated Value at issue.
“Conversion Date”
shall have the meaning set forth in Section 6(a).
“Conversion Price”
shall have the meaning set forth in Section 6(b).
“Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of the
shares of Series D Preferred Stock in accordance with the terms
hereof.
“Conversion Shares
Registration Statement” means a registration statement required pursuant
to Section 4.19 of the Purchase Agreement that registers the resale of all
Conversion Shares of the Holder, who shall be named as a “selling stockholder”
therein.
“Dilutive Issuance”
shall have the meaning set forth in Section 7(b).
“Dilutive Issuance
Notice” shall have the meaning set forth in Section 7(b).
“Dividend Payment
Date” shall have the meaning set forth in Section 3(a).
“Dividend Share
Amount” shall have the meaning set forth in Section 3(a).
“Effective Date” means
the earlier of (a) the effective date of a Conversion Shares Registration
Statement registering the resale of all of the Conversion Shares and (b) the
date on which the Conversion Shares issuable pursuant to the Transaction
Documents may be sold under Rule 144 without (i) the requirements for the
Corporation to be in compliance with the current public information
required under Rule 144 as to such Conversion Shares and (ii) volume or
manner-of-sale restrictions, as determined by the counsel to the Corporation
pursuant to a written opinion letter to such effect, if such opinion letter is
required by the Transfer Agent, addressed and acceptable to the Transfer Agent
and the Purchasers.
4
“Equity Conditions”
means, during the period in question, as to a Holder, (i) after June 25, 2010, the Corporation
shall have duly honored all conversions scheduled to occur or occurring by
virtue of one or more Notices of Conversion of the applicable Holder on or prior
to the dates so requested or required, if any, (ii) the Corporation shall
have paid all liquidated damages and other amounts owing to such Holder in
respect of the Series D Preferred Stock, (iii) (a) there is an effective
Conversion Shares Registration Statement pursuant to which such Holder is
permitted to utilize the prospectus thereunder to resell all of the shares of
Common Stock issuable to such Holder pursuant to the Transaction Documents (and
the Corporation believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future) or (b) the Conversion Shares issuable
to such Holder pursuant to the Transaction Documents may be resold pursuant to
Rule 144 without volume or manner-of-sale restrictions as determined by the
counsel to the Corporation pursuant to a written opinion letter to such effect,
if such opinion letter is required by the Transfer Agent, addressed and
acceptable to the Transfer Agent, (iv) the Common Stock is trading on a Trading
Market and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on such Trading Market (and the Corporation believes, in good
faith, that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a sufficient number of
authorized, but unissued and otherwise unreserved, shares of Common Stock for
the issuance in connection with the Company obligation to be satisfied by such
issuance (such as the payment in kind of dividends) for which Equity Conditions
are required to exist, (vi) after June 25, 2010, there is no existing Triggering
Event or no existing event which, with the passage of time or the giving of
notice, would constitute a Triggering Event, (vii) the issuance of the shares in
question (or, in the event of an Optional Redemption, of the issuance of all the
Conversion Shares underlying the Series D Preferred Stock) to such Holder would
not violate the limitations set forth in Section 6(c) herein, (viii) except with respect to Section
8(b), there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has not been
consummated, and (ix) such Holder is not in possession of any information that
constitutes material non-public information as a result of the disclosure of such information to such
Holder by the Corporation or any of its Affiliates.
“Excess
Preferred” shall have the meaning set forth in
Section 6(d).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
5
“Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Corporation pursuant to any stock or option plan
duly adopted by a majority of the non-employee members of the Board of Directors
of the Corporation or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued pursuant to the Purchase
Agreement and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of the Purchase
Agreement, provided that such securities have not been amended since the date of
the Purchase Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of any such securities, (c)
securities issued pursuant to acquisitions or strategic transactions approved by
a majority of the disinterested directors, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, an operating
company in, or an individual that operates, a business synergistic with the
business of the Corporation and in which the Corporation receives benefits in
addition to the investment of funds, but shall not include a transaction in
which the Corporation is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities (each
such transaction, a “Strategic
Transaction”), (d) up to a maximum of 1,500,000 shares of Common Stock or
Common Stock Equivalents (subject to adjustment for reverse and forward stock
splits and the like) in any rolling 12 month period issued to consultants,
vendors, financial institutions or lessors in connection with
services provided by such Persons referred to in this clause (d), but
shall not include a transaction in which the Corporation is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities, and provided that none of such shares may
be registered for sale or resale by any of such holders; (e) securities issued
as a dividend or distribution any of the Securities pursuant to the terms of the
Transaction Documents; and (f) securities issued in connection with any stock
split, stock dividend or recapitalization of the Common Stock. As
used herein, the term “Strategic Transaction” shall expressly include the
transactions set forth in, and the securities issued, or to be issued, to Epic
Investments, LLC (“Epic Investments”)
and Epic Pharma, LLC (“Epic Pharma”)
pursuant to, that certain Strategic Alliance Agreement, dated March 18, 2009, as
amended through the fourth amendment thereof dated June 25, 2010 (such agreement
through the fourth amendment thereof, the “Epic SAA”); provided
that the designation of the transactions set forth in the Epic SAA as
a “Strategic Transaction” shall have no effect on whether (x) any future
transaction between the Corporation and either Epic Investments or Epic Pharma
shall constitute a “Strategic Transaction” (and any such future transaction
shall be evaluated on a stand-alone basis as to whether such transaction is, or
is not, a “Strategic Transaction”) or (y) any securities issued pursuant to an
amendment or modification to the Epic SAA made following the date of the fourth
amendment thereto or the above-referenced June 25, 2010 amendment shall
constitute an Exempt Issuance.
“Forced Conversion
Amount” means the sum of (i) 100% of the aggregate Stated Value then
outstanding, (ii) accrued but unpaid dividends and (iii) all liquidated damages
and other amounts due in respect of the Series D Preferred Stock.
“Forced Conversion
Date” shall have the meaning set forth in Section 8(a).
“Forced Conversion
Notice” shall have the meaning set forth in Section 8(a).
“Forced Conversion Notice
Date” shall have the meaning set forth in Section 8(a).
“Fundamental
Transaction” shall have the meaning set forth in Section
7(e).
“Holder” or “Holders” means the
holder or holders, as the case may be, of Series D Preferred Stock.
6
“Indebtedness” means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Corporation’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods
involved.
“Issuable
Maximum” shall have the meaning set forth in
Section 6(d).
“Junior Securities”
means the Common Stock and all other Common Stock Equivalents of the
Corporation, other than those securities which are explicitly senior or pari passu to the Series D
Preferred Stock in dividend rights or liquidation preference, including but not
limited to the Series B Preferred Stock and Series C Preferred
Stock.
“Liquidation” shall
have the meaning set forth in Section 5.
“Midsummer” shall have
the meaning set forth in Section 4.
“New York Courts”
shall have the meaning set forth in Section 11(d).
“Non-Cash Redemption
Triggering Events” shall have the meaning set forth in Section
9(b).
“Notice of Conversion”
shall have the meaning set forth in Section 6(a).
“Optional Redemption”
shall have the meaning set forth in Section 8(b).
“Optional Redemption
Amount” means the sum of (i) prior to September 15, 2011, 115% of the aggregate
Stated Value then outstanding or after such date, 100% of the aggregate Stated
Value then outstanding, (ii) accrued but unpaid dividends and (iii) all
liquidated damages and other amounts due in respect of the Preferred
Stock..
“Optional Redemption
Date” shall have the meaning set forth in Section 8(b).
“Optional Redemption
Notice” shall have the meaning set forth in Section 8(b).
“Optional Redemption Notice
Date” shall have the meaning set forth in Section 8(b).
“Original Issue Date”
means the date of the first issuance of any shares of the Series D Preferred
Stock regardless of the number of transfers of any particular shares of Series D
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series D Preferred Stock.
7
“Permitted
Indebtedness” means (a) the Indebtedness existing on the Original Issue
Date as set forth on the Disclosure Schedules attached to the Purchase Agreement
and (b) non-equity linked lines of credit or term loans from a regulated
financial institution, lease obligations and purchase money indebtedness of up
to $3,000,000 in the aggregate.
“Permitted Lien” means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Corporation) have been established
in accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Corporation’s business, such as carriers’, warehousemen’s
and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens
arising in the ordinary course of the Corporation’s business, and which (x) do
not individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of the
business of the Corporation and its consolidated Subsidiaries or (y) which are
being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing for the foreseeable future the forfeiture or sale of
the property or asset subject to such Lien, and (c) Liens incurred in connection
with Permitted Indebtedness under clause (b) thereunder, provided that such
Liens are not secured by assets of the Corporation or its Subsidiaries other
than the assets so acquired or leased, except that any line of credit or term
loan from a regulated financial institution may be secured by a general Lien on
all assets of the Corporation.
“Preferred Stock”
means the Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock collectively.
“Purchase Agreement”
means the Securities Purchase Agreement, dated as of the Original Issue Date, to
which the Corporation and the original Holders are parties, as amended, modified
or supplemented from time to time in accordance with its terms.
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Series B Certificate”
means the Certificate of Designation of Preferences, Rights and Limitations of
Series B 8% Convertible Preferred Stock of the Corporation filed with the
Secretary of State of the State of Delaware on March 16, 2006, as amended by the
Amendment to the Certificate of Designation of Preferences, Rights and
Limitations of Series B 8% Convertible Preferred Stock of the Corporation filed
with the Secretary of State of the State of Delaware on April 24,
2007.
“Series B Preferred
Stock” means the Series B 8% Convertible Preferred Stock, par value $0.01
per share, of the Corporation.
8
“Series C Certificate”
means the Certificate of Designation of Preferences, Rights and Limitations of
Series C 8% Convertible Preferred Stock of the Corporation filed with the
Secretary of State of the State of Delaware on April 24, 2007, as amended by the
Certificate of Correction Relating to the Certificate of Designation of
Preferences, Rights and Limitations of Series C 8% Convertible Preferred Stock
of the Corporation filed with the Secretary of State of the State of Delaware on
April 25, 2007.
“Series C Preferred
Stock” means the Series C 8% Convertible Preferred Stock, par value $0.01
per share, of the Corporation.
“Series D Preferred
Stock” shall have the meaning set forth in Section 2.
“Share Delivery Date”
shall have the meaning set forth in Section 6(e).
“Shareholder Approval”
shall have the meaning set forth in Section 6(d).
“Stated Value” shall
have the meaning set forth in Section 2.
“Subscription Amount”
means, as to each Purchaser, the amount in United States Dollars and in
immediately available funds to be paid for the Series D Preferred Stock
purchased pursuant to the Purchase Agreement as specified below such Purchaser’s
name on the signature page of the Purchase Agreement and next to the heading
“Subscription Amount.”
“Subsidiary” shall
have the meaning set forth in the Purchase Agreement.
“Threshold Period”
shall have the meaning set forth in Section 8(a).
“Trading Day” means a
day on which the principal Trading Market is open for business.
“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents” shall have the meaning set forth in the Purchase
Agreement.
“Triggering Event”
shall have the meaning set forth in Section 9(a).
“Triggering Redemption
Amount” means, for each share of Series D Preferred Stock, the sum of
(a)(i) as to Cash Redemption Triggering Event, the greater of (A) 130% of the
Stated Value and (B) the product of (y) the VWAP on the Trading Day immediately
preceding the date of the Triggering Event and (z) the Stated Value divided by
the then Conversion Price and, (ii) as to Non-Cash Redemption Triggering Events,
130% of the Stated Value, (b) all accrued but unpaid dividends thereon and (c)
all liquidated damages and other costs, expenses or amounts due in respect of
the Series D Preferred Stock.
9
“Triggering Redemption
Payment Date” shall have the meaning set forth in Section
9(b).
“VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holders and reasonably
acceptable to the Corporation.
Section 2. Designation, Amount and Par
Value. This series of preferred stock shall be designated as its Series D
8% Convertible Preferred Stock (the “Series D Preferred
Stock”) and the number of shares so designated shall be 30,000 (which
shall not be subject to increase without the requisite affirmative vote of the
Holders as set forth in Section 4). Each share of Series D Preferred Stock shall
have a par value of $0.01 per share and a stated value equal to $1,000 (the
“Stated
Value”).
Section 3. Dividends.
10
a) Dividends in Cash or in
Kind. Other than in the case of shares of Dividend Payment Preferred
Stock, the Holders shall be entitled to receive, and the Corporation shall pay,
cumulative dividends at the rate per share (as a percentage of the Stated Value
per share) of 8% per annum, payable quarterly on January 1, April 1, July 1 and
October 1, beginning on the first such date after the Original Issue Date and on
each Conversion Date (except that, if such date is not a Trading Day, the
payment date shall be the next succeeding Trading Day) (each such date, a “Dividend Payment
Date”) in (i) cash, (ii) duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock as set forth in this Section 3(a) (the
amount to be paid in shares of Common Stock, the “Dividend Share
Amount”), (iii) duly authorized, validly issued, fully paid and
non-assessable shares of Series D Preferred Stock (such shares of Series D
Preferred Stock issued in satisfaction of dividends hereunder, the “Dividend Payment Preferred
Stock”) or (iv) a combination of (i), (ii) and (iii). The form
of dividend payments to each Holder shall be determined in the following order
of priority: (i) if funds are legally available for the payment of dividends and
the Equity Conditions have not been met during the 20 consecutive Trading Days
immediately prior to the applicable Dividend Payment Date, in cash only; (ii) if
funds are legally available for the payment of dividends and the Equity
Conditions have been met during the 20 consecutive Trading Days immediately
prior to the applicable Dividend Payment Date, at the sole election of the
Corporation, in cash or shares of Common Stock which shall be valued solely for
such purpose at 95% of the average of the VWAPs for the 20 consecutive Trading
Days ending on the Trading Day that is immediately prior to the Dividend Payment
Date; (iii) if funds are not legally available for the payment of dividends and
the Equity Conditions have been met during the 20 consecutive Trading Days
immediately prior to the applicable Dividend Payment Date, in shares of Common
Stock which shall be valued solely for such purpose at 95% of the average of the
VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is
immediately prior to the Dividend Payment Date; (iv) if funds are not legally
available for the payment of dividends and the Equity Conditions relating to an
effective Conversion Shares Registration Statement has been waived by
such Holder, as to such Holder only, in unregistered shares of Common Stock
which shall be valued solely for such purpose at 95% of the average of the VWAPs
for the 20 consecutive Trading Days ending on the Trading Day that is
immediately prior to the Dividend Payment Date; (v) at the option of the
Corporation, regardless of whether or not the “Equity Conditions” are then
satisfied, in shares of Dividend Payment Preferred Stock having a Stated Value
equal to the aggregate cash value of such dividend payment; and (vi) if funds
are not legally available for the payment of dividends and the Equity Conditions
have not been met during the 20 consecutive Trading Days immediately prior to
the applicable Dividend Payment Date, then such dividends shall accrue to the
next Dividend Payment Date. The Holders shall have the same rights
and remedies with respect to the delivery of any such shares as if such shares
were being issued pursuant to Section 6. Upon the request of the
Corporation, each Holder shall provide to the Corporation, a customary Rule 144
representation letter relating to all shares of Common Stock to be issued as
payment in kind dividends. On the Closing Date the Corporation shall
have notified the Holders whether or not it may legally pay cash dividends as of
the Closing Date. Absent prior written notice from the Corporation as
provided for below and subject to the Equity Conditions being met, the default
method of payment shall be in shares of Common Stock. In the event
the Corporation determines to pay in Dividend Payment Preferred Stock or cash or
the Corporation determines that the Equity Conditions are not met, the
Corporation shall provide at least 20 Trading Day’s prior notice to the Holder
of such its election to pay in Dividend Payment Preferred Stock or cash;
provided, that the failure to notify the Holders that the Equity Conditions are
not met shall not constitute a “Trigger Event” under Section 9(a) hereof.
Dividends on the Series D Preferred Stock shall be calculated on the basis of a
360-day year, shall accrue daily commencing on the Original Issue Date, and
shall be deemed to accrue from such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. Except as otherwise
provided herein, if at any time the Corporation pays dividends partially in cash
and partially in shares, then such payment shall be distributed ratably among
the Holders based upon the number of shares of Series D Preferred Stock held by
each Holder on such Dividend Payment Date. Any dividends, whether
paid in cash, Dividend Payment Preferred Stock or shares of Common Stock, that
are not paid within five Trading Days following a Dividend Payment Date shall
continue to accrue and shall entail a late fee, which must be paid in cash, at
the rate of 18% per annum or the lesser rate permitted by applicable law (such
fees to accrue daily, from the Dividend Payment Date through and including the
date of payment); provided that any such late fee which may have accrued prior
to June 25, 2010 is irrevocably waived by all Holders. Dividend
Payment Preferred Stock shall have the same rights, privileges, preferences as
the other Series D Preferred Stock, except that such Dividend Payment Preferred
Stock shall not be entitled to, nor accrue, any dividends pursuant to this
Section 3(a) and each certificate evidencing any shares of Dividend Payment
Preferred Stock shall bear a legend substantially to the following effect (in
addition to any other legends required by law or by contract):
11
“THE
SHARES OF SERIES D PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE WERE ISSUED
AS “DIVIDEND PAYMENT PREFERRED STOCK” UNDER THE TERMS OF CERTIFICATE OF
DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES D 8% CONVERTIBLE
PREFERRED STOCK, FILED WITH SECRETARY OF STATE OF THE STATE OF DELAWARE ON
SEPTEMBER 15, 2008, AS MAY BE AMENDED (THE “CERTIFICATE OF DESIGNATION”) AND, AS
SUCH, DO NOT ENTITLE THE HOLDER HERETO TO ANY DIVIDENDS PURSUANT TO SECTION 3(A)
OF THE CERTIFICATE OF DESIGNATION.
If at any
time, the Corporation determines that creation of a separate series of Preferred
Stock is necessary or advisable for purposes of issuing shares of Dividend
Payment Preferred Stock pursuant to this Section 3(a), the Corporation shall be
authorized, without any further consent or approval of the Holders, to create
such additional series of Preferred Stock (the “Series D-1 Preferred
Stock”) having the same rights, privileges, preferences as the Series D
Preferred Stock, except that such Series D-1 Preferred Stock shall not be
entitled to, nor accrue, any dividends pursuant to this Section
3(a). Upon creation of such series of Series D-1 Preferred Stock, all
references herein to Dividend Payment Preferred Stock shall be deemed to refer
to such Series D-1 Preferred Stock and no shares of Series D-1 Preferred Stock
shall be issued by the Corporation for any purposes other than the payment of
dividends to the Holders, at the option of the Corporation, under this Section
3(a) in the form of Dividend Payment Preferred Stock.
b) So
long as any Series D Preferred Stock shall remain outstanding, neither the
Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities except as expressly
permitted by Section 9(a)(vi). So long as any Series D Preferred Stock shall
remain outstanding, (i) neither the Corporation nor any Subsidiary thereof shall
directly or indirectly pay or declare any dividend or make any distribution upon
(other than a dividend or distribution described in Section 6 or dividends due
and paid in the ordinary course on preferred stock of the Corporation at such
times when the Corporation is in compliance with its payment and other
obligations hereunder), (ii) nor shall any distribution be made in respect of,
any Junior Securities as long as any dividends due on the Series D Preferred
Stock remain unpaid, (iii) nor shall any monies be set aside for or applied to
the purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari
passu with the Series D Preferred Stock (other than in the case of a
purchase or redemption of any shares of Series B Preferred Stock or Series C
Preferred Stock that occurs simultaneous with the purchase or redemption of
shares of Series D Preferred Stock provided that the Series D Preferred Stock is
redeemed in full).
12
c) The
Corporation acknowledges and agrees that the capital of the Corporation (as such
term is used in Section 154 of the Delaware General Corporation Law) in respect
of the Series D Preferred Stock and any future issuances of the Corporation’s
capital stock shall be equal to the aggregate par value of such Series D
Preferred Stock or capital stock, as the case may be, and that, on or after the
date of the Purchase Agreement, it shall not increase the capital of the
Corporation with respect to any shares of the Corporation’s capital stock issued
and outstanding on such date. The Corporation also acknowledges and
agrees that it shall not create any special reserves under Section 171 of the
Delaware General Corporation Law without the prior written consent of each
Holder.
d) The
Series D Preferred Stock shall rank senior with respect to all dividend payments
to any other preferred stock of the Corporation, including but not limited to
the Series B Preferred Stock and Series C Preferred Stock.
Section 4. Voting Rights. Except
as otherwise provided herein or as otherwise required by law, the Series D
Preferred Stock shall have no voting rights. However, as long as any shares of
Series D Preferred Stock are outstanding, the Corporation shall not, without the
affirmative vote of Holders holding at least 50.1%, in the aggregate, of the
then outstanding shares of Preferred Stock (which, for the avoidance of doubt,
shall include Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, voting as a single class), which such affirmative vote shall
include the vote of Midsummer Investment, Ltd. (together with any of its
Affiliates, “Midsummer”) and
Bushido Capital Master Fund LP (together with any of its Affiliates, “Bushido”) (so long as
Midsummer or Bushido, as the case may be, holds in excess of $2,000,000, in the
aggregate, Stated Value of Preferred Stock), (a) alter or change adversely the
powers, preferences or rights given to any Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends, redemption or distribution of assets upon a Liquidation
(as defined in Section 5) senior to or otherwise pari passu with the Preferred
Stock, (c) amend its certificate of incorporation or other charter documents in
any manner that adversely affects any rights of the holders of Preferred Stock,
(d) increase the authorized number of shares of any series of Preferred Stock,
or (e) enter into any agreement or understanding with respect to any of the
foregoing. Notwithstanding the above, this Section 4 shall not apply
to any security issued in connection with a Strategic Transaction that ranks as
to dividends, redemption or distribution of assets upon a Liquidation that is
pari passu with or junior to the Series D Preferred Stock.
Section 5. Liquidation. Upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary (a “Liquidation”), the
Holders shall be entitled to receive out of the assets, whether capital or
surplus, of the Corporation an amount equal to the Stated Value, plus any
accrued and unpaid dividends thereon (other than in the case of Dividend Payment
Preferred Stock), and any other fees or liquidated damages owing thereon for
each share of Series D Preferred Stock before any distribution or payment shall
be made to the holders of any Junior Securities, and if the assets of the
Corporation shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be ratably distributed among the
holders of all outstanding shares of Series D Preferred Stock in accordance with
the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. A Fundamental Transaction or
Change of Control Transaction shall not be deemed a Liquidation. The Corporation
shall mail written notice of any such Liquidation, not less than 45 days prior
to the payment date stated therein, to each Holder. The Series D
Preferred Stock shall rank senior to the Series B Preferred Stock and the Series
C Preferred Stock with respect to distributions upon a Liquidation.
13
Section 6. Conversion.
a) Conversions at Option of
Holder. Each share of Series D Preferred Stock shall be convertible at
the option of the Holder, at any time and from time to time from and after the
Original Issue Date into that number of shares of Common Stock (subject to the
limitations set forth in Section 6(c) and Section 6(d)) determined by dividing
the Stated Value of such share of Series D Preferred Stock by the Conversion
Price. Holders shall effect conversions by providing the Corporation with the
form of conversion notice attached hereto as Annex A (a “Notice of
Conversion”). Each Notice of Conversion shall specify the number of
shares of Series D Preferred Stock to be converted, the number of shares of
Series D Preferred Stock owned prior to the conversion at issue, the number of
shares of Series D Preferred Stock owned subsequent to the conversion at issue
and the date on which such conversion is to be effected, which date may not be
prior to the date the Holder delivers by facsimile such Notice of Conversion to
the Corporation (the “Conversion Date”). If
no Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion to the Corporation is deemed
delivered hereunder. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical
error. To effect conversions, as the case may be, of shares of Series
D Preferred Stock, a Holder shall not be required to surrender the
certificate(s) representing such shares of Series D Preferred Stock to the
Corporation unless all of the shares of Series D Preferred Stock represented
thereby are so converted, in which case the Holder shall deliver the certificate
representing such shares of Series D Preferred Stock promptly following the
Conversion Date at issue. Shares of Series D Preferred Stock
converted into Common Stock or redeemed in accordance with the terms hereof
shall be canceled and shall not be reissued.
b) Conversion
Price. The conversion price for the Series D Preferred Stock
shall equal $0.07, subject to adjustment herein (the “Conversion
Price”).
14
c) Beneficial Ownership
Limitation. The Corporation shall not effect any conversion of
the Series D Preferred Stock, and a Holder shall not have the right to convert
any portion of the Series D Preferred Stock, to the extent that, after giving
effect to the conversion set forth on the applicable Notice of Conversion, such
Holder (together with such Holder’s Affiliates, and any other Person or entity
acting 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 of
the Series D Preferred Stock with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which are issuable
upon (A) conversion of the remaining, unconverted Stated Value of Series D
Preferred Stock beneficially owned by such Holder or any of its Affiliates and
(B) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Corporation subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including
the Warrants) beneficially owned by such Holder or any of its Affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
6(c), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this
Section 6(c) applies, the determination of whether the Series D Preferred Stock
is convertible (in relation to other securities owned by such Holder together
with any Affiliates) and of how many shares of Series D Preferred Stock are
convertible shall be in the sole discretion of such Holder, and the submission
of a Notice of Conversion shall be deemed to be such Holder’s determination of
whether the shares of Series D Preferred Stock may be converted (in relation to
other securities owned by such Holder together with any Affiliates) and how many
shares of the Series D Preferred Stock are convertible, in each case subject to
such aggregate percentage limitations. To ensure compliance with this
restriction, each Holder will be deemed to represent to the Corporation each
time it delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph 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 6(c), in determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as stated in
the most recent of the following: (A) the Corporation’s most recent Form 10-Q or
Form 10-K, as the case may be, (B) a more recent public announcement by the
Corporation or (C) a more recent notice by the Corporation or the Corporation’s
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Corporation
shall within two Trading 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
Series D Preferred Stock, 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 9.99% 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 Series D Preferred Stock held by the
Holder. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 6(c) 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. The limitations contained in this
paragraph shall apply to a successor holder of Series D Preferred Stock.
15
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d)
|
Reserved.
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e)
|
Reserved.
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f)
|
Mechanics of
Conversion
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i. Delivery of Certificate Upon
Conversion. Not later than three Trading Days after each Conversion Date
(the “Share Delivery
Date”), the Corporation shall deliver, or cause to be delivered, to the
Holder (A) a certificate or certificates which, on or after the Effective Date,
shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Series D
Preferred Stock, and (B) a bank check in the amount of accrued and unpaid
dividends (if the Corporation has elected or is required to pay accrued
dividends in cash). The Corporation shall deliver any certificate or
certificates required to be delivered by the Corporation under this Section 6
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions. If in the case of any Notice
of Conversion such certificate or certificates are not delivered to or as
directed by the applicable Holder by the fifth Trading Day after the Conversion
Date, the Holder shall be entitled to elect by written notice to the Corporation
at any time on or before its receipt of such certificate or certificates, to
rescind such Notice of Conversion by written notice to the Corporation, in which
event the Corporation shall promptly return to the Holder any original Series D
Preferred Stock certificate delivered to the Corporation and the Holder shall
promptly return any Common Stock certificates representing the shares of Series
D Preferred Stock tendered for conversion to the Corporation.
ii. Obligation Absolute; Partial
Liquidated Damages. The Corporation’s obligation to issue and
deliver the Conversion Shares upon conversion of Series D Preferred Stock in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Corporation or any violation
or alleged violation of law by the Holder or any other Person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the Holder in connection with the issuance of such Conversion
Shares; provided, however, that such
delivery shall not operate as a waiver by the Corporation of any such action
that the Corporation may have against the Holder. In the event a
Holder shall elect to convert any or all of the Stated Value of its Series D
Preferred Stock, the Corporation may not refuse conversion based on any claim
that such Holder or any one associated or affiliated with the Holder has been
engaged in any violation of law, agreement or for any other reason, unless an
injunction from a court, on notice to Holder, restraining and/or enjoining
conversion of all or part of the Series D Preferred Stock of the Holder shall
have been sought and obtained. In the absence of such injunction, the
Corporation shall issue Conversion Shares and, if applicable, cash, upon a
properly noticed conversion. If the Corporation fails to deliver to the Holder
such certificate or certificates pursuant to Section 6(e)(i) on the second
Trading Day after the Share Delivery Date applicable to such conversion, the
Corporation shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each $1,000 of Stated Value of Series D Preferred Stock being
converted, $10 per Trading Day (increasing to $20 per Trading Day on the third
Trading Day after such damages begin to accrue) for each Trading Day after such
second Trading Day after the Share Delivery Date until such certificates are
delivered. Nothing herein shall limit a Holder’s right to pursue actual damages
or declare a Triggering Event pursuant to Section 9 for the Corporation’s
failure to deliver Conversion Shares within the period specified herein and such
Holder shall have the right to pursue all remedies available to it hereunder, at
law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief. The Exercise (as defined in the Warrant) of
any such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
16
iii. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. If the
Corporation fails to deliver to the Holder such certificate or certificates by
the Share Delivery Date pursuant to Section 6(e)(i), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the Holder
was entitled to receive upon the conversion relating to such Share Delivery Date
(a “Buy-In”),
then the Corporation shall (A) pay in cash to the Holder (in addition to any
other remedies available to or elected by the Holder) the amount by which (x)
the Holder’s total purchase price (including any brokerage commissions) for the
shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue (if
surrendered) the shares of Series D Preferred Stock equal to the number of
shares of Series D Preferred Stock submitted for conversion or deliver to the
Holder the number of shares of Common Stock that would have been issued if the
Corporation had timely complied with its delivery requirements under Section
6(e)(i). For example, if the Holder purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Series D Preferred Stock with respect to which the
actual sale price (including any brokerage commissions) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Corporation shall be required to pay the Holder $1,000.
The Holder shall provide the Corporation written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of the
Corporation, evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Series D Preferred Stock as required pursuant to the terms
hereof.
17
iv. Reservation of Shares
Issuable Upon Conversion. Prior to the Authorized Share
Approval Date, the Corporation covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of Common Stock for the
sole purpose of issuance upon conversion of the Series D Preferred Stock and
payment of dividends on the Series D Preferred Stock and shares issuable upon
exercise of the Warrants, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of Persons other than the Holders
of the Series D Preferred Stock, 87,059,562 shares of the Common Stock, subject
to adjustment for reverse and forward stock splits and the
like. After the Authorized Share Approval Date, the Corporation
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance
upon conversion of the Series D Preferred Stock and payment of dividends on the
Series D Preferred Stock, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of Persons other than the Holders
of the Series D Preferred Stock, not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions in the
Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 7) upon the conversion of all outstanding shares of
Series D Preferred Stock and payment of dividends hereunder. The
Corporation covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable.
v. Fractional Shares.
Upon a conversion hereunder, the Corporation shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the VWAP at such time. If the Corporation elects not,
or is unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common
Stock.
vi. Transfer
Taxes. The issuance of certificates for shares of the Common
Stock on conversion of this Series D Preferred Stock shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificates, provided
that the Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
shares of Series D Preferred Stock so converted and the Corporation shall not be
required to issue or deliver such certificates unless or until the Person or
Persons requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
18
Section 7. Certain
Adjustments.
a) Stock Dividends and Stock
Splits. If the Corporation, at any time while this Series D
Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any other Common Stock Equivalents (which, for avoidance of
doubt, shall not include any shares of Common Stock or Dividend Payment
Preferred Stock issued by the Corporation upon conversion of, or payment of a
dividend on, the Preferred Stock); (B) subdivides outstanding shares of Common
Stock into a larger number of shares; (C) combines (including by way of a
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares; or (D) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Corporation, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding any treasury shares of the
Corporation) 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 this
Section 7(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity
Sales. If the Corporation or any Subsidiary thereof, at any
time while this Series D Preferred Stock is outstanding, sells or grants any
option to purchase or sells or grants any right to reprice its securities (other
than a reduction in the Exercise Price (as defined in the Warrant) of the
Warrants issued to the Holders on the Original Issue Date), or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or
other disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock at an effective price per share that is
lower than the then applicable Conversion Price (such lower price, the “Base Conversion
Price”, and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the then applicable Conversion Price, such
issuance shall be deemed to have occurred for less than the then applicable
Conversion Price on such date of the Dilutive Issuance), then the then
applicable Conversion Price shall be reduced to equal the Base Conversion
Price. Notwithstanding
the foregoing, no adjustment will be made under this Section 7(b) in respect of
an Exempt Issuance. The Corporation shall notify the Holder in
writing, no later than the Business Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 7(b), indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the “Dilutive Issuance
Notice”). For purposes of clarification, whether or not the
Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b),
upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive
a number of Conversion Shares based upon the adjusted Conversion Price on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the adjusted Conversion Price in the Notice of
Conversion.
19
c) Subsequent Rights
Offerings. If the Corporation, at any time while this Series D
Preferred Stock is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share that is lower than the VWAP
on the record date referenced below, then the Conversion Price shall be
multiplied by a fraction of which the denominator shall be the sum of (A) the
number of shares of Common Stock issued and outstanding on the date of issuance
of such rights, options or warrants plus (B) the number of shares of Common
Stock issuable upon conversion or exercise of Common Stock Equivalents issued
and outstanding on the date of issuance of such rights, options or warrants plus
(C) the number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the sum of (X) the number of
shares of the Common Stock issued and outstanding on the date of issuance of
such rights, options or warrants plus (Y) the number of shares of Common Stock
issuable upon conversion or exercise of Common Stock Equivalents issued and
outstanding on the date of issuance of such rights, options or warrants plus (Z)
the number of shares which the aggregate offering price of the total number of
shares so offered (assuming delivery to the Corporation in full of all
consideration payable upon exercise of such rights, options or warrants) would
purchase at such VWAP. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants. If any such rights, options or warrants expire
without having been exercise, the Conversion Price as adjusted upon the issuance
of such rights, options or warrants shall be readjusted to the Conversion Price
which would have been in effect had an adjustment been made on the basis that
only additional shares of Common Stock so issued were the additional shares of
Common Stock, if any, actually issued or sold on the exercise of such rights,
options or warrants and such additional shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation upon
such exercise, plus the consideration, if any, actually received by the
Corporation for the granting of all such rights, options or warrants, whether or
not exercised, provided that such readjustment shall not apply to
prior conversions of the Series D Preferred Stock.
20
d) Pro Rata
Distributions. If the Corporation, at any time while the Series D
Preferred Stock is outstanding, distributes to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than Common Stock, which shall be subject to Section 7(b)), then in each
such case the Conversion Price shall be adjusted by multiplying such Conversion
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets, evidence of
indebtedness or rights or warrants so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors of the
Corporation in good faith. In either case the adjustments shall be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
e) Fundamental
Transaction. If, at any time while this Series D Preferred Stock is
outstanding, (A) the Corporation effects any merger or consolidation of the
Corporation with or into another Person, (B) the Corporation effects any sale of
all or substantially all of its assets in one transaction or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Corporation
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Corporation effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Series D
Preferred Stock, the Holder shall have the right to receive, for each Conversion
Share that would have been issuable upon such conversion immediately prior to
the occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock (the
“Alternate
Consideration”). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Corporation shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders
of Common Stock are given any choice as to the securities, cash or property to
be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any conversion of
this Series D Preferred Stock following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Corporation or surviving entity in such
Fundamental Transaction shall file a new Certificate of Designation of the
Series D Preferred Stock with the same terms and conditions and issue to the
Holder new preferred stock consistent with the foregoing provisions and
evidencing the Holder’s right to convert such preferred stock into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 7(e) and insuring
that this Series D Preferred Stock (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
21
f) Calculations. All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Corporation) issued and
outstanding.
g) Notice to the
Holders.
i. Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 7, the Corporation shall promptly mail to each
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.
ii. Notice to Allow Conversion
by Holder. If (A) the Corporation shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the
Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property, or (E)
the Corporation shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Corporation, then, in each case, the Corporation shall cause to
be filed at each office or agency maintained for the purpose of conversion of
this Series D Preferred Stock, and shall cause to be delivered to each Holder at its last
address as it shall appear upon the stock books of the Corporation, at least 20 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange,
provided that the failure to deliver such notice or any defect therein or in the
delivery thereof shall not affect the validity of the corporate action required
to be specified in such notice. The Holder is entitled to convert the
Conversion Amount of this Series D Preferred Stock (or any part hereof) during
the 20-day period commencing on the date of such notice through the effective
date of the event triggering such notice.
22
Section
8.
a) Forced
Conversion. Notwithstanding anything herein to the contrary,
if after the later of the Effective Date and the date that Shareholder Approval
is obtained and deemed effective, one of the following conditions are
met:
(i)(y)
the VWAP for each of any 20 consecutive Trading Day period, which 20 consecutive
Trading Day period shall have commenced only after the later of the Effective
Date and the date that Shareholder Approval is obtained and deemed effective
(such 20 consecutive Trading Day period, the “Threshold Period”),
exceeds $1.00 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like) and (z) the daily trading
volume for each Trading Day during such Threshold Period exceeds 250,000 shares
of Common Stock (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like);
(ii)(y)
the VWAP during the Threshold Period exceeds $1.25 (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and the
like) and (z) the daily trading volume for each Trading Day during such
Threshold Period exceeds 200,000 shares of Common Stock (subject to adjustment
for forward and reverse stock splits, recapitalizations, stock dividends and the
like);
(iii)(y)
the VWAP during the Threshold Period exceeds $1.50 (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and the
like) and (z) the daily trading volume for each Trading Day during such
Threshold Period exceeds 150,000 shares of Common Stock (subject to adjustment
for forward and reverse stock splits, recapitalizations, stock dividends and the
like); or
(iv)(y)
the VWAP during the Threshold Period exceeds $1.75 (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and the
like) and (y) the daily trading volume for each Trading Day during such
Threshold Period exceeds 100,000 shares of Common Stock (subject to adjustment
for forward and reverse stock splits, recapitalizations, stock dividends and the
like),
23
then the
Corporation may, within two Trading Days after the end of any such Threshold
Period, deliver a written notice to all Holders (a “Forced Conversion
Notice” and the date such notice is delivered to all Holders, the “Forced Conversion Notice
Date”) to cause each Holder to convert all or part of such Holder’s
Series D Preferred Stock (as specified in such Forced Conversion Notice) plus
all accrued but unpaid dividends thereon (other than in the case of
Dividend Payment Preferred Stock) and all liquidated damages and other amounts
due in respect of the Series D Preferred Stock pursuant to Section 6, it being
agreed that the “Conversion Date” for purposes of Section 6 shall be deemed to
occur on the third Trading Day following the Forced Conversion Notice Date (such
third Trading Day, the “Forced Conversion
Date”). The Corporation may not deliver a Forced Conversion
Notice, and any Forced Conversion Notice delivered by the Corporation shall not
be effective, unless (y) a forced conversion of the Series B Preferred Stock and
the Series C Preferred Stock in accordance with the Series B Certificate and the
Series C Certificate, respectively, occurs simultaneously with the forced
conversion of the Series D Preferred Stock in accordance with this Section 8,
and (z) all of the Equity Conditions have been met on each Trading Day occurring
during the applicable Threshold Period through and including the later of the
Forced Conversion Date and the Trading Day after the date that the Conversion
Shares issuable pursuant to such conversion are actually delivered to the Holder
pursuant to the Forced Conversion Notice. Any Forced Conversion
Notices shall be applied ratably to all of the holders of Preferred Stock based
the number of shares of Preferred Stock held by each holder of Preferred Stock
as of the forced Conversion Date, provided that any voluntary conversions by a
Holder shall be applied against such Holder’s pro-rata allocation, thereby
decreasing the aggregate amount forcibly converted hereunder if less than all
shares of the Preferred Stock are forcibly converted. For purposes of
clarification, a Forced Conversion shall be subject to all of the provisions of
Section 6, including, without limitation, the provisions requiring payment of
liquidated damages and limitations on conversions.
b) Optional Redemption at
Election of Corporation. Subject to the provisions of this
Section 8, at any time after the later of the Effective Date and the date that
Shareholder Approval is
obtained and deemed effective, the Corporation may deliver a notice to the Holders (an
“Optional
Redemption Notice” and the date such notice is deemed
delivered hereunder, the “Optional
Redemption Notice Date”) of its irrevocable election to redeem some or all of the then
outstanding Series D Preferred Stock, for cash in an amount equal to the
Optional Redemption Amount on the 20th Trading Day following the Optional
Redemption Notice Date (such date, the “Optional
Redemption Date” and such redemption, the “Optional
Redemption”). The Optional Redemption
Amount is payable in full on the Optional Redemption Date. The
Corporation may only effect
an Optional Redemption if each of the Equity Conditions shall have been met on
each Trading Day occurring
during the period commencing on the Optional Redemption Notice Date through to
the Optional Redemption Date and through and including the date payment
of the Optional Redemption Amount is actually made. If any of the Equity
Conditions shall cease to
be satisfied at any time during such 20 Trading Day period, then a Holder may
elect to nullify the Optional Redemption Notice as to such Holder by notice to
the Corporation within 3
Trading Days after the first day on which any such Equity Condition has not been met (provided that if,
by a provision of the Transaction Documents, the Corporation is obligated to notify the Holders of
the non-existence of an Equity Condition, such notice period shall be extended
to the third Trading Day after proper notice from the Corporation) in which case the Optional Redemption
Notice shall be null and void, ab
initio. Additionally, the
Corporation may only effect an Optional Redemption if a similar redemption of
the Series B Preferred Stock and the Series C Preferred Stock, in accordance with the
Series B Certificate and the Series C Certificate, respectively, occurs
simultaneously with the Optional Redemption of the Series D Preferred Stock in
accordance with this Section 8(b). The Corporation covenants and agrees that it will honor all Notices of
Conversion tendered from the time of delivery of the Optional Redemption Notice
through the date the Optional Redemption Amount is paid in
full. Any Optional Redemption Notices shall be applied ratably
to all of the holders of Preferred Stock based the number of shares of Preferred
Stock held by each holder of Preferred Stock as of the Optional Redemption Date,
provided that any voluntary conversions by a Holder shall be applied against
such Holder’s pro-rata allocation, thereby decreasing the aggregate amount
redeemed hereunder if less than all shares of the Preferred Stock are
redeemed.
24
c) Automatic Monthly
Conversions. Subject to the terms herein, on each Monthly
Conversion Date (as defined below), a number of shares of Series D Preferred
Stock equal to each Holder’s pro-rata portion (based on the shares of Series D
Preferred Stock held by each Holder on June 25, 2010) of the Monthly Conversion
Amount (as defined below) shall automatically convert into shares of Common
Stock at the then-effective Conversion Price (each such conversion, a (the
“Monthly
Conversion”). Each Holder may convert, pursuant to Section 6(a), all or a
portion of its Series D Preferred Stock subject to a Monthly Conversion at any
time prior to a Monthly Conversion Date. Any Series D
Preferred Stock converted (other than pursuant to a Monthly Conversion) during
the calendar month immediately prior to a Monthly Conversion Date shall be
applied to such Holder’s pro rata portion of such Monthly Conversion Amount (up
to such Holder’s pro rata portion for such month). Notwithstanding
anything to the contrary set forth herein, the Corporation shall not be
permitted to effect a Monthly Conversion on a Monthly Conversion Date unless (i)
the Common Stock shall be listed or quoted for trading on a Trading Market, (ii)
there is a sufficient number of authorized shares of Common Stock for issuance
of all Common Stock to be issued upon such Monthly Conversion, (iii) as to any
Holder, the issuance of the shares shall not cause a breach of any provision of
Section 6(c) herein, (iv) if requested by the Holder and a Rule 144 Rep Letter
(as defined below) shall have been provided by such Holder after request from
the Corporation, the Conversion Shares are delivered electronically through the
Depository Trust Company or another established clearing corporation performing
similar functions, may be resold by the Holder pursuant to an exemption under
the Securities Act and are otherwise free of restrictive legends and trading
restrictions on the Holder, (v)
there has been no public announcement of
a pending or proposed Fundamental Transaction or Change of Control Transaction
that has not been consummated, (vi) the applicable Holder is not in possession
of any information provided
to the applicable Holder by the Corporation that constitutes material non-public
information, and (vii) the average VWAP for the 20 Trading
Days immediately prior to the applicable Monthly Conversion Date equals or
exceeds the then-effective Conversion Price. Shares of the Series D Preferred
Stock issued to the Holders as Dividend Payment Preferred Stock shall be the
last shares of Series D Preferred Stock to be subject to Monthly Conversion. As
used herein, the following terms shall have the following meanings: (i) “Monthly Conversion
Date” means the first day of each month, commencing on August 1, 2010,
and terminating on the date the Series D Preferred Stock is no longer
outstanding; (ii) “Monthly Conversion
Amount” means an aggregate Stated Value of Series D Preferred Stock among
all Holders that is equal to 25% of aggregate dollar trading volume of the
Common Stock during the 20 Trading Days immediately prior to the applicable
Monthly Conversion Date (such 20 Trading Day period, the “Measurement Period”),
increasing to 35% of the aggregate dollar trading volume during the
Measurement Period if the average VWAP during such Measurement Period equals or
exceeds $0.12 (subject to adjustment for forward and reverse stock splits and
the like that occur after June 25, 2010) and further increasing to 50% of the
aggregate dollar trading volume during such Measurement Period if the average
VWAP during such Measurement Period equals or exceeds $0.16 (subject to
adjustment for forward and reverse stock splits and the like that occur after
June 25, 2010). All shares of Common Stock issued on a Monthly
Conversion Date shall be delivered otherwise in accordance with the procedures
and time frames set forth in Section 6 above. Upon the request of the
Corporation, each Holder shall provide to the Corporation, a customary Rule 144
representation letter relating to all shares of Common Stock to be issued upon
each Monthly Conversion (a “Rule 144 Rep
Letter”).
25
Section 9. Redemption Upon Triggering
Events.
a) “Triggering Event”
means any one or more of the following events (whatever the reason and whether
it shall be voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or regulation
of any administrative or governmental body):
i. the
Corporation shall fail to deliver certificates representing Conversion Shares
issuable upon a conversion hereunder that comply with the provisions hereof
prior to the twelfth Trading Day after such shares are required to be delivered
hereunder, or the Corporation shall provide written notice to any Holder,
including by way of public announcement, at any time, of its intention not to
comply with requests for conversion of any shares of Series D Preferred Stock in
accordance with the terms hereof;
ii. the
Corporation shall fail for any reason to pay in full the amount of cash due
pursuant to a Buy-In within thirty calendar days after notice therefor is
delivered hereunder;
iii. at
any time after the Authorized Share Approval Date, the Corporation shall fail to
have available a sufficient number of authorized and unreserved shares of Common
Stock to issue to such Holder upon a conversion hereunder and such failure shall
continue for a period in excess of 75 calendar days;
26
iv. unless
specifically addressed elsewhere in this Certificate of Designation as a
Triggering Event, the Corporation shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach of
the Transaction Documents, such failure or breach may be cured by the
Corporation, and such failure or breach shall not, if subject to the possibility
of a cure by the Corporation, have been cured within 30 calendar days after the
date on which written notice of such failure or breach shall have been
delivered, or, if such cure is not possible within 30 calendar days, such cure
shall have been commenced within 30 calendar days and be diligently pursued to
completion;
v. any
breach of the agreements delivered to the initial Holders at the Closing
pursuant to Section 2.2(a)(vii) of the Purchase Agreement;
vi. the
Corporation shall redeem more than a de minimis number of Junior
Securities other than as to repurchases of Common Stock or Common Stock
Equivalents from departing officers, directors, employees and consultants of the
Corporation, provided that, while any of the Series D Preferred Stock remains
outstanding, such repurchases shall not exceed an aggregate of $150,000 from all
officers, directors and employees;
vii. the
Corporation shall be party to a Change of Control Transaction;
viii. there
shall have occurred a Bankruptcy Event;
ix. the
Common Stock shall fail to be listed or quoted for trading on a Trading Market
for more than thirty Trading Days, which need not be consecutive Trading
Days; or
x. any
monetary judgment, writ or similar final process shall be entered or filed
against the Corporation, any Subsidiary or any of their respective property or
other assets for greater than $200,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.
27
b) Upon
the occurrence of a Triggering Event, each Holder shall (in addition to all
other rights it may have hereunder or under applicable law) have the right,
exercisable at the sole option of such Holder, to require the Corporation to,
(A) with respect to the Triggering Events set forth in Sections 9(a)(i), (iii),
(vi) and (viii) (as to voluntary filings only) (collectively, “Cash Redemption Triggering
Events”), redeem all of the Series D Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the Triggering Redemption
Amount or (B) at the option of the Holder and with respect to the Triggering
Events set forth in Sections 9(a)(ii), (iv), (v), (vii), (viii) (as to
involuntary filings only), (ix) and (x), (collectively, “Non-Cash Redemption
Triggering Events”) redeem all of the Series D Preferred Stock then held
by such Holder for a redemption price, in shares of Common Stock, equal to a
number of shares of Common Stock equal to the Triggering Redemption Amount
divided by 85% of the average of the 10 VWAPs immediately prior to the date of
election hereunder (provided, however, if the issuance of shares of Common Stock
pursuant to clause B of this Section 9(b) would violate the limitations set
forth in Sections 6(d) and 6(e) hereof, each Holder that exercises its option to
have its Series D Preferred Stock redeemed pursuant to clause B shall be issued
its pro-rata portion of the lesser of the Issuable Maximum or Authorized Share
Maximum (calculated as of the Original Issue Date), and the remaining shares of
Common Stock shall be issued upon Shareholder Approval, provided, further that
the issuance of such shares shall be based on the lower of the price at which
shares would have been issued if not for Sections 6(d) and 6(e) and 85% of the
average of the 10 VWAPs immediately prior to the date that Shareholder Approval
is obtained and deemed effective. The Triggering Redemption Amount,
in cash or in shares, shall be due and payable or issuable, as the case may be,
within ten Trading Days of the date on which the notice for the payment therefor
is provided by a Holder (the “Triggering Redemption
Payment Date”). If the Corporation fails to pay in full the
Triggering Redemption Amount hereunder on the date such amount is due in
accordance with this Section (whether in cash or shares of Common Stock), the
Corporation will pay interest thereon at a rate equal to the lesser of 18% per
annum or the maximum rate permitted by applicable law, accruing daily from such
date until the Triggering Redemption Amount, plus all such interest thereon, is
paid in full. For purposes of this Section, a share of Series D
Preferred Stock is outstanding until such date as the Holder shall have received
Conversion Shares upon a conversion (or attempted conversion) thereof that meets
the requirements hereof or has been paid the Triggering Redemption Amount in
cash. Notwithstanding anything herein the contrary, the term “Triggering Event”
shall not include any transactions contemplated under the Epic SAA”, including,
without limitation, the issuance of any shares of Common Stock or Common Stock
Equivalents.
c) It
is understood that the Series D Preferred Stock is intended to be included under
a general heading “stockholders’ equity” in the Corporation’s future balance
sheets prepared in compliance with Regulation S-X of the Exchange Act.
Accordingly, notwithstanding Section 9(b), in the event that (i) the
Corporation’s auditors, in a written opinion letter, (ii) the Commission, in
writing, (iii) any Trading Market, in writing or (iv) any other governmental or
regulatory body, in writing, having actual jurisdiction over the financial
reporting of the Corporation shall determine, at any time, that any Cash
Redemption Triggering Event constitutes a condition for redemption which is not
solely within the control of the Corporation (as set forth in Item 28 of Rule
5-02 of Regulation S-X of the Exchange Act, as it may be amended or supplemented
from time to time, or any successor rule thereto (“Rule 5-02”)) or that
as a result of any Cash Redemption Triggering Event, the Series D Preferred
Stock shall not be included in the Corporation’s balance sheet under a general
heading “stockholders’ equity”, the Holders shall not have the right to receive
any cash payment from the Corporation upon the occurrence of such Cash
Redemption Triggering Event and shall, instead, have the right to receive the
remedy that would otherwise be received by the Holders upon the occurrence of a
Non-Cash Redemption Triggering Event.
28
Section 10. Negative
Covenants. So
long as any shares of Series D Preferred Stock are outstanding, the Corporation
shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, without the affirmative
written consent of Holders holding at least 50.1%, in the aggregate, of the then
outstanding shares of Preferred Stock (which, for the avoidance of doubt, will
include the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock, voting as a single class), which such consent shall include the consent
of Midsummer and Bushido (so long as Midsummer or Bushido, as the case
may be, holds in excess of $2,000,000, in the aggregate, Stated Value the then
outstanding shares of Preferred Stock):
a) other than Permitted Indebtedness, until
September 15, 2011, enter into, create, incur, assume, guarantee or suffer to
exist any indebtedness for borrowed money of any kind, including but not limited
to, a guarantee, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
b) other than Permitted Liens, until
September 15, 2011, enter into, create, incur, assume or suffer to exist any
Liens of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
c) repay, repurchase or offer to repay,
repurchase or otherwise acquire more than a de
minimis number of shares of
its Common Stock, Common Stock Equivalents or Junior Securities, except for the
Conversion Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;
d) enter into any agreement or
understanding with respect to any of the foregoing; or
e) pay cash dividends or distributions on
Junior Securities of the Corporation.
Section 11. Miscellaneous.
a) Notices. Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Corporation, at the
address set forth above, facsimile number 201-750-2755, Attn: Chief
Executive Officer, or such other facsimile number or address as the Corporation
may specify for such purposes by notice to the Holders delivered in accordance
with this Section 11. Any and all notices or other communications or
deliveries to be provided by the Corporation hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
such Holder appearing on the books of the Corporation, or if no such facsimile
number or address appears on the books of the Corporation, at the principal
place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section 11 prior to 5:30
p.m. (New York City time) on any date, (ii) the date immediately following the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section 11 between 5:30 p.m. and 11:59
p.m. (New York City time) on any date, (iii) the second Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given.
29
b) Absolute
Obligation. Except as expressly provided herein, no provision
of this Certificate of Designation shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay liquidated damages,
accrued dividends and accrued interest, as applicable, on the shares of Series D
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
c) Lost or Mutilated Series D
Preferred Stock Certificate. If a Holder’s Series D Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Series D Preferred Stock so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such certificate, and
of the ownership hereof reasonably satisfactory to the Corporation.
d) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated by any
of the Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state and federal courts sitting in the City of New
York, Borough of Manhattan (the “New York
Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Certificate
of Designation and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by applicable law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Certificate of
Designation or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Certificate
of Designation, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys’ fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.
30
e) Waiver. Any
waiver by the Corporation or the Holder of a breach of any provision of this
Certificate of Designation shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Certificate of Designation. The failure of the Corporation or
the Holder to insist upon strict adherence to any term of this Certificate of
Designation on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Certificate of Designation. Any waiver by
the Corporation or the Holder must be in writing.
f) Severability. If
any provision of this Certificate of Designation is invalid, illegal or
unenforceable, the balance of this Certificate of Designation shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it
shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law.
g) Next Business
Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
h) Headings. The
headings contained herein are for convenience only, do not constitute a part of
this Certificate of Designation and shall not be deemed to limit or affect any
of the provisions hereof.
i) Status of Converted or
Redeemed Series D Preferred Stock. Shares of Series D
Preferred Stock may only be issued pursuant to the Purchase
Agreement. If any shares of Series D Preferred Stock shall be
converted, redeemed or reacquired by the Corporation, such shares shall resume
the status of authorized but unissued shares of preferred stock and shall no
longer be designated as Series D 8% Convertible Preferred Stock.
31
RESOLVED, FURTHER, that the Chairman,
the president or any vice-president, and the secretary or any assistant
secretary, of the Corporation be and they hereby are authorized and directed to
prepare and file a Certificate of Designation of the Series D 8% Convertible
Preferred Stock in accordance with the foregoing resolution and the provisions
of Delaware law.”
[remainder of this page is
intentionally blank]
32
IN WITNESS WHEREOF, the
Corporation has caused this Amended Certificate of Designations of the Series D
8% Convertible Preferred Stock to be signed by Jerry Treppel, its Chief
Executive Officer, made to be effective as of June 29, 2010.
ELITE
PHARMACEUTICALS, INC.
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By:
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/s/
Jerry Treppel
|
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Name: | Jerry Treppel | ||
Title: | Chief Executive Officer |
Attest: | |||||
By: |
/s/ Carter J. Ward
|
||||
Name: |
Carter
J. Ward
|
||||
Title: |
Chief
Financial Officer
|
33
ANNEX
A
NOTICE OF
CONVERSION
(TO BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES D
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series D
8% Convertible Preferred Stock indicated below into shares of common stock, par
value $0.001 per share (the “Common Stock”), of
Elite Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a Person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as may be required by the Corporation in
accordance with the Purchase Agreement. No fee will be charged to the Holder for
any conversion, except for any such transfer taxes.
Conversion
calculations:
Date
to Effect Conversion:
|
|
Number
of shares of Series D Preferred Stock owned prior to
Conversion:
|
Number
of shares of Series D Preferred Stock to be Converted:
|
|
Stated
Value of shares of Series D Preferred Stock to be
Converted:
|
|
Number
of shares of Common Stock to be Issued:
|
|
Applicable
Conversion Price:
|
|
Number
of shares of Series D Preferred Stock subsequent to
Conversion:
|
|
[HOLDER]
|
|||
By:
|
|||
Name: | |||
Title: |
34