Attached files
Exhibit
4.1
CERTIFICATE
OF DESIGNATIONS,
PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES
A CONVERTIBLE PREFERRED STOCK
1. Designation
and Rank. The designation of the series of preferred stock created hereby
shall be "Series A Preferred Stock" (the "Series A
Preferred") and the number of shares
constituting the Series A Preferred shall be 3,000,000 shares, par value $0.001
per share.
2. Redemption:
Liquidation Preference. The Series A Preferred
shall, in respect of the right to participate in distributions or payments in
the event of any liquidation, dissolution or winding up, voluntary or
involuntary, of the Company (a "Liquidation Event"),
rank (a) senior to the Company's common stock, par value $0.001 per share (the
"Common
Stock"), and
to any other class or series of stock issued by the Company not designated as
ranking senior to or pari
passu with the Series A Preferred in respect of the right to participate
in distributions or payments upon a Liquidation Event (the "Junior Stock"); and
(b) pari passu with any other class or
series of stock of the Company, the terms of which specifically provide that
such class or series shall rank pari passu with the Series A
Preferred in respect of the right to participate in distributions or payments
upon a Liquidation Event. No shares of Series A Preferred may be redeemed by the
Company without the express written consent of each holder of such shares (all
references herein to “holder” or “Holder” meaning a holder of shares of Series A
Preferred Stock, unless otherwise specified), provided or withheld in such
holder's sole discretion. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, whether voluntary or involuntary, the
holders of shares of Series A Preferred then outstanding shall be entitled to
receive, out of the assets of the Company available for distribution to its
stockholders, an amount equal to $4.40 per share (such amount, the "Liquidation Preference
Amount") before any payment shall be made or any assets distributed to
the holders of the Common Stock or Junior Stock. In the event of such a
liquidation, dissolution or winding up, the Company shall provide to each holder
of shares of the Series A Preferred notice of such liquidation, dissolution or
winding up, which notice shall (i) be sent at least
fifteen (15) days prior to the termination of the Conversion Rights (or, if the
Company obtains lesser notice thereof, then as promptly as possible after the
date that it has obtained notice thereof) and (ii) state the amount per share of
the Series A Preferred that will be paid or distributed on such liquidation,
dissolution or winding up, as the case may be. If the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. In the event
the assets of the Company available for distribution to the holders of shares of
Series A Preferred upon the occurrence of a Liquidation Event shall be
insufficient to pay in full all amounts to which such holders are entitled
pursuant to this Section 2, no such distribution shall be made on account of any
shares of any other class or series of capital stock of the Company ranking on a
parity with the shares of Series A Preferred upon the occurrence of such
Liquidation Event unless proportionate distributive amounts shall be paid on
account of the shares of Series A Preferred, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon the occurrence of such Liquidation
Event. At the election of a Holder made by written notice delivered
to the Company at least two (2) business days prior to the effective date of the
subject transaction, as to the shares of Series A Preferred Stock held by such
Holder, a Reorganization shall be treated as a Liquidation Event as to such
Holder.
3. Dividends.
(a) Dividends
on the Series A Preferred Stock shall accrue and be cumulative from and after
the date of the initial issuance of the Series A Preferred Stock (the “Issuance Date”). For
each outstanding share of Series A Preferred Stock, dividends shall be payable
semiannually, at the rate of 5% per annum, on or before each date that is thirty
(30) days (or if such thirtieth (30th) day
does not fall on a business day, the next following date that is a business day)
following the last day of each June and December of each year (each, a "Dividend Payment
Date"), with the first Dividend Payment Date to occur promptly following
the quarter ended June 30, 2010, and continuing until such share is fully
converted. The Company shall have the right, at its sole and exclusive
option, to pay all or any portion of each and every semiannual dividend that is
payable on each Dividend Payment Date, either (i) in cash, or (ii) by issuing to
the Holder of Series A Preferred Stock such number of additional Series A
Preferred Stock which, when multiplied by $4.40 would equal the amount of such
semiannual dividend not paid in cash.
(b) Subject
to Section 2(a) above, Dividends are payable semiannually in arrears commencing
on three (3) business days following the Issuance Date, as contemplated by that
certain Securities Purchase Agreement, dated on or about the date hereof (the
“Dividend Commencement
Date”), by and among the Company and the other Parties thereto, including
Purchasers named therein (the "Securities Purchase
Agreement"), pursuant to which the Company issued, and such Purchasers
purchased, inter alia,
the Series A Preferred Stock upon the terms and conditions stated therein. Such
initial dividend shall be prorated from the Dividend Commencement Date to the
first Dividend Payment Date.
4. Conversion.
(a) Conversion by the
Holders. The
holders of the Series A Preferred shall have the following conversion rights
(the "Conversion
Rights"):
(i) Right to Convert. At
any time on or after the issuance of the Series A Preferred, each share of the
Series A Preferred will be convertible into a number of fully paid and
nonassessable shares of Common Stock equal to: (i) the Liquidation Preference
Amount of such share divided by (ii) the Conversion Price (as defined below) in
effect as of the date of the conversion (the “Conversion Rate”). The
"Conversion
Price" means
$4.40 per share, initially, which may be adjusted from time to time pursuant to
Section 5. At any time on or after the issuance of the Series A Preferred, any
holder of the Series A Preferred may, at such holder's option, subject to the
limitation set forth in Section 7 herein, elect to convert all or any portion of
the shares of the Series A Preferred pursuant to this Section 4(a)(i) (a "Conversion"). In the
event of a liquidation, dissolution or winding up of the Company, the Conversion
Rights shall terminate at the close of business on the last full day preceding
the date fixed for the payment of any amounts distributable on such event to the
holders of the Series A Preferred.
(ii) Mechanics of
Conversion. The Conversion of the Series A Preferred shall be conducted
in the following manner.
(A) Holder's Delivery
Requirements. To convert the Series A Preferred into full shares of
Common Stock on any date (a "Conversion
Date"), the
holder thereof shall (x) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 5:00 p.m., New York time on such date, a copy
of a fully executed notice of conversion in the form attached hereto as Exhibit
I (the "Conversion
Notice"), in accordance with the notice provisions set forth in Section
12 hereof, to the Company at Eco Building International,
c/o City Zone Holdings
Limited, Unit 106, Tern
Centre, Tower II, 251
Queen’s Road. Central Hong
Kong, Attention: Jianming Hao, Telephone
No.:861-3828824414, Fax No.: 86-354-257-1345, with a copy (such a
copy shall not constitute notice) to Anslow & Jaclin LLP, 195 Route 9 South,
Suite 204, Manalapan, New Jersey 07726, Attention: Richard I. Anslow, Esq. and
Eric M. Stein, Esq., and (y) surrender to a common carrier for delivery to the
Company as soon as practicable following such Conversion Date the original
certificates representing the shares of the Series A Preferred being converted
(or an indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "Preferred Stock
Certificates") and the originally
executed Conversion Notice.
(B) Company's Response.
Upon receipt by the Company of a facsimile copy of a Conversion Notice, the
Company shall send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder. The Company or its designated transfer agent (the "Transfer
Agent"), as
applicable, shall, within five (5) business days following the date of such
receipt, issue and deliver to the holder
one or more certificates in the name of the holder or its designees representing
the number of shares of Common Stock to which the holder shall be
entitled.
(C) Converted Common Stock Held
in Book-Entry Form. If the holder specifies in the Conversion Notice that
instead of receiving certificates representing Common Stock as described above
in this Section 4(a)(ii)(B), it prefers to receive the shares due to it upon
conversion in book-entry form, then instead of issuing such certificates, the
Company or the Transfer Agent shall issue and deliver to the Depository Trust
Company ("DTC")
account on the holder's behalf, via the Deposit Withdrawal Agent Commission
System ("DWAC"), registered in
the name of the holder or its designee, the number of shares of Common Stock to
which the holder shall be entitled, according to instructions received in or
with the Conversion Notice. Notwithstanding the foregoing, the Company or its
Transfer Agent shall only be obligated to issue and deliver shares to DTC on a
holder's behalf via DWAC if a registration statement providing for the resale of
the shares of Common Stock issuable upon conversion of the Series A Preferred (a
"Registration
Statement") is
effective.
If the
number of shares of the Series A Preferred represented by the Preferred Stock
Certificate(s) submitted by a holder for conversion is greater than the number
of shares of the Series A Preferred being converted, then the Company shall, as
soon as practicable and in no event later than five (5) business days after
receipt of the Preferred Stock Certificate(s) and at the Company's expense,
issue and deliver to the holder a new Preferred Stock Certificate representing
the number of shares of the Series A Preferred not converted.
(D) Dispute Resolution.
In the case of a dispute as to the arithmetic calculation of the
number of shares of Common Stock to be issued upon conversion, the Company
shall, or shall cause its Transfer Agent to promptly issue to the holder the
number of shares of Common Stock that is not disputed and shall submit the
arithmetic calculations to the holder via facsimile as soon as possible, but in
no event later than three (3) business days after receipt of such holder's
originally executed Conversion Notice. If such holder and the Company are unable
to agree upon the arithmetic calculation of the number of shares of Common Stock
to be issued upon such conversion within one (1) business day of such disputed
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company's independent, outside accountant. The Company shall
cause the accountant to perform the calculations and notify the Company and the
holder of the results no later than seventy-two (72) hours from the time the
accountant received the disputed calculations. Such accountant's calculation
shall be binding upon all parties absent manifest error. The reasonable expenses
of such accountant in making such determination shall be paid by the Company.
The period of time in which the Company is required to effect conversions or
redemptions under this Certificate of Designations shall be tolled with respect
to the subject conversion or redemption pending resolution of any dispute by the
Company made in good faith and in accordance with this Section
4(a)(ii)(D).
(E) Record Holder. The
person or persons entitled to receive the shares of Common Stock issuable upon a
conversion of the Series A Preferred shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date;
except that in the case of a dispute as to the arithmetic calculation of the
number of shares of Common Stock to be issued upon a Conversion, such person or
persons will not be treated as the record holder or record holders of such
shares unless the dispute is resolved in their favor in accordance with Section
4(a)(ii)(D) above.
(F) Company's Failure to Timely
Convert. Subject to the terms and conditions of this Certificate of
Designations, if within five (5) business days of the Company's receipt of the
facsimile copy of the executed Conversion Notice (the fifth of such five days,
the "Delivery
Date") the
Company fails (x) to issue and deliver to a holder, in accordance with Section
4(a)(ii)(B) hereof, the number of shares of Common Stock to which such holder is
entitled upon such holder's conversion of the Series A Preferred or (y) to issue
a new Preferred Stock Certificate representing the number of shares of the
Series A Preferred to which such holder is entitled pursuant to Section 4(a)
(the "Conversion
Failure"), then in addition to all
other available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (the "Purchase Agreement")
to be entered into among the Company and the initial holders of the Series A
Preferred (including indemnification pursuant to Section 6 thereof), the Company
shall pay additional damages to such holder on each business day after the
Delivery Date (until such shares of Common Stock and a Preferred Stock
Certificate, as applicable, are delivered) in an amount equal to 1.0% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
holder on a timely basis pursuant to Section 4(a) to which such holder is
entitled and, in the event the Company has failed to deliver a Preferred
Stock Certificate to the holder on a timely basis pursuant to Section
4(a)(ii)(B) the number of shares of Common Stock issuable upon Conversion of the
shares of the Series A Preferred represented by such Preferred Stock
Certificate, as of the last possible date which the Company could have issued
such Preferred Stock Certificate to such holder without violating Section
4(a)(ii)(B) and (B) the Closing Bid Price (as defined below) of the Common Stock
on the last possible date which the Company could have issued such
Common
Stock or such Preferred Stock Certificate, as the case may be, to such holder
without violating Section 4(a)(ii)(B). The term "Closing Bid Price"
shall mean, for any security as of any date, the last
closing bid price of such security on the Nasdaq Capital Market, the Nasdaq
Global Market, the Nasdaq Global Select or any successor market thereto
(collectively, “Nasdaq”), AMEX or any
successor market thereto, NYSE or any successor market thereto (together with
Nasdaq and AMEX, each a “National Stock
Exchange”), OTC Bulletin Board or other principal exchange on which such
security is traded as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on any date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined by
the Company and the holders of a majority of the outstanding shares of the
Series A Preferred.
(G) Buy-In Rights. In
addition to any other rights available to the holders of the Series A Preferred,
if the Company fails to issue to a holder, on or before the Delivery Date and in
accordance with Section 4(a)(ii)(B) hereof, the shares of Common Stock issuable
upon a Conversion of the Series A Preferred to which such holder is
entitled, and if after such date the holder is required by its broker to
purchase (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the holder of the shares of Common Stock
issuable upon a Conversion which the holder anticipated receiving upon such a
Conversion (a "Buy-In"), then the Company shall
(1) pay in cash to the holder the amount by which (x) the holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon a Conversion that the
Company was required to deliver to the holder in connection with the Conversion
at issue by (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) not honor the conversion request and reinstate
the shares of the Series A Preferred to such holder which were previously
presented to the Company for Conversion. For example, if the holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted Conversion of 10,000 shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence, the Company may choose to pay
to the holder $1,000, at which point, under clause (2), the Company's obligation
to issue such 10,000 shares of Common Stock being converted shall terminate and
the Company shall be further obligated to reinstate the shares of Series A
Preferred that would convert into the 10,000 shares of Common Stock. The holder
shall provide the Company written notice indicating the amounts payable to the
holder in respect of the Buy-In, together with applicable confirmations and
other evidence reasonably requested by the Company. 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 Company's failure to timely deliver
certificates representing shares of Common Stock upon Conversion as required
pursuant to the terms hereof.
5. Adjustments
to Conversion Price; Conversion Rate; and Certain Other Adjustments. The Conversion Rate for
the number of shares of Common Stock into which the Series A Preferred shall be
converted shall be subject to adjustment from time to time as hereinafter set
forth, notice of which shall be promptly provided to the Series A Preferred
holders:
(a) Stock Dividends,
Recapitalization, Reclassification, Split-Up. If, prior to or on the date
of a Conversion, the number of outstanding shares of Common Stock is increased
by a stock dividend payable in shares of Common Stock or any right to acquire
Common Stock or by a split-up, recapitalization or reclassification of shares of
Common Stock or other similar event, then, on the effective date thereof, the
Conversion Rate will be adjusted so that the number of shares of Common Stock
issuable on such Conversion shall be increased in proportion to such increase in
outstanding shares of Common Stock.
(b) Aggregation of
Shares. If prior to or on the date of a Conversion, the number of
outstanding shares of Common Stock is decreased by a consolidation, combination
or reclassification of shares of Common Stock or other similar event, then, upon
the effective date thereof, the number of shares of Common Stock issuable on
Conversion shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
(c) Mergers or
Consolidations. If at any time or from time to time prior to the date of
a Conversion there is a merger, consolidation or similar capital reorganization
of the Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for in Section
5(a) or 5(b) above) (each a "Reorganization"), then as a part of such
capital reorganization, provision shall be made so that each holder of
outstanding Series A Preferred at the time of such Reorganization
shall thereafter be entitled to receive, upon a Conversion, the number of shares
of stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon Conversion by such holder
would be entitled on such capital reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof. In any such case, the
resulting or surviving corporation (if not the Company) shall expressly assume
the obligations to deliver, upon the exercise of the conversion privilege, such
securities or property as the holders of the Series A Preferred remaining
outstanding (or of other convertible preferred stock received by such holders in
place thereof) shall be entitled to receive pursuant to the provisions hereof,
and to make provisions for the protection of the conversion rights as provided
above. If this Section 5(c) applies to a Reorganization, Sections 5(a) and 5(b)
shall not apply to such Reorganization. In addition to all other rights of the
holders of the Series A Preferred contained herein, simultaneous with the
occurrence of a Reorganization, each holder of the Series A Preferred shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's shares of the Series A Preferred at a price per share
of the Series A Preferred equal to one hundred ten percent (110%) of the
Liquidation Preference Amount.
(d)
Successive
Changes. The provisions of this Section shall similarly apply to
successive reclassifications, reorganizations, mergers or consolidations, sales
or other transfers.
(e)
Adjustments for
Issuance of Additional Shares of Common Stock. In the event
the Company shall, at any time within two (2) years following the initial
issuance date of the Series A Preferred, issue or sell any additional shares of
Common Stock ("Additional Shares of Common
Stock") or issue any securities convertible into or exchangeable for,
directly or indirectly, Common Stock (the "Convertible
Securities"), or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities (collectively, the "Common Stock
Equivalents") at a price per share
less than $4.40 or without consideration (subject to appropriate adjustment in
the event of any dividend, stock split, combination or other similar
recapitalization affecting such shares, other than as part of an "Exempt
Issuance," as listed under Section 5(f)), then and in such event, the Conversion
Price upon each such issuance shall be reduced, concurrently with such
issue or sale, to
such lesser price paid for such Additional Shares of Common Stock or Convertible
Securities and the Conversion Rate then in effect immediately prior to such
adjustment, shall be adjusted based on the Conversion Price so adjusted in
accordance with the foregoing.
(f)
Restriction on
Conversion Rate and Conversion Price Adjustment. Notwithstanding anything
to the contrary set forth in Sections 5(a) and 5(e), no adjustment shall be made
to the Conversion Price and/or the Conversion Rate with regard to (i) securities
issued pursuant to a bona fide firm underwritten public offering of the
Company's securities, provided such underwritten public offering has been
approved in advance by Maxim Group, LLC (the "Placement Agent"),
(ii) securities issued (other than for cash) in connection with a strategic
merger, acquisition, or consolidation provided that the issuance of such
securities in connection with such strategic merger, acquisition or
consolidation has been approved in advance by the Placement Agent, (iii)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital and provided that the issuance of such securities in
connection with such bona fide strategic license, agreements or other partnering
arrangements has been approved in advance by the Placement Agent, (iv) the
issuance or grants of Common Stock or options to purchase Common Stock to
employees, officers or directors of the Company pursuant to any equity incentive
plan duly adopted by the Board or a committee thereof established for such
purpose so long as such issuances in the aggregate do not exceed ten percent
(10%) of the total number of then issued and outstanding shares of Common Stock
and such issuances shall not be granted at a price less than the fair market
value of the Common Stock at the date of such issuance, (v) any warrants, shares
of Common Stock or other securities issued to a placement agent and its
designees in connection with the transactions contemplated by the Purchase
Agreement which have previously been disclosed to the Holder, and (vi) any
warrants issued to any advisor or consultant to the Company which are
outstanding as of the date of the Purchase Agreement, or are to be issued
pursuant to the terms of an engagement letter or other contractual arrangement
as of the date of the Purchase Agreement which have previously been disclosed to
the Holder (the "Exempt
Issuance").
6. Voting
Rights. The
holders of shares of the Series A Preferred shall be entitled to the following
voting rights:
(a)
Holders of the Series A Preferred shall vote together as a separate class on all
matters which impact the rights, value, or ranking of the Series A Preferred, as
provided herein.
(b)
Whenever holders of the Series A Preferred are required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken and signed by the holders of the Series A
Preferred having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. When voting as a separate
class, each share of the Series A Preferred shall entitle the holder thereof to
one vote.
(c)
Holders of the Series A Preferred shall vote on an "as converted" basis,
together with the Common Stock, as a single class, in connection with any
proposal submitted to stockholders to: (i) increase the number of authorized
shares of capital stock, (ii) to approve the sale of any capital stock of the
Company, (iii) adopt an employee stock option plan, or (iv) effect any merger,
consolidation, sale of all or substantially all of the assets of the Company, or
related consolidation or combination transaction.
(d)
So long as any shares of the Series A Preferred are outstanding, the
Company shall not without first obtaining the approval (by vote or written
consent, as provided by law) of a
majority of the then outstanding shares of the Series A Preferred, voting as a
separate class:
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(i)
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in
any manner authorize, issue or create (by reclassification or otherwise)
any new class or series of shares having rights, preferences or privileges
equal or senior to the Series A
Preferred;
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(ii)
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adversely
alter or change the rights, preferences, designations or privileges of the
Series A Preferred;
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(iii)
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amend
the Company's Certificate of Incorporation or By-laws in a manner that
adversely affects the rights, preferences, designations or privileges of
the holders of the Series A
Preferred;
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(iv)
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increase
or decrease the authorized number of shares of capital stock of the
Company or otherwise reclassify the Company's outstanding
securities;
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(v)
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redeem,
purchase or otherwise acquire (or pay into or set funds aside for a
sinking fund for such purpose) any share or shares of preferred stock or
Common Stock (other than in connection with a share repurchase program
that has previously been disclosed to the holders of Series A Preferred
and approved by the Board of Directors of the Company, which at such time
of approval was an independent board and comprised of at least three (3)
independent directors); provided,
however, that this restriction shall not apply to the de minimus repurchases
of shares of Common Stock from employees, officers, directors, consultants
or other persons performing services for the Company or any subsidiary
pursuant to agreements under which the Company has the option to
repurchase such shares at cost upon the occurrence of certain events, such
as the termination of employment, or through the exercise of any right of
first refusal; and provided
further that this restriction shall not apply to any Conversion,
redemption or other acquisition of shares of the Series A Preferred
pursuant to this Certificate of Designations;
or
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(vi)
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voluntarily
file for bankruptcy, liquidate the Company's assets or make an assignment
for the benefit of the Company's
creditors.
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(e)
Except as set forth in this Certificate of Designations, the Series A Preferred
shall have no other voting rights or other rights to consent to any matter to
which stockholders of the Company may vote upon or consent to.
7. Conversion
Restriction. Notwithstanding anything
to the contrary set forth in this Certificate of Designations, at no time may a
holder of shares of the Series A Preferred convert shares of the Series A
Preferred if the number of shares of Common Stock to be issued pursuant to such
Conversion would cause the number of shares of Common Stock owned by such holder
and its affiliates at such time to equal or exceed, when aggregated with all
other shares of Common Stock beneficially owned by such holder and its
affiliates at such time, the number of shares of Common Stock which would result
in such holder and its affiliates beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 4.9% of the then issued and
outstanding shares of Common Stock at such time; provided, however, that upon a
holder of the Series A Preferred providing the Company with sixty-one (61) days
notice (the "Waiver
Notice") that such holder wishes
to waive Section 7 of this Certificate of Designations with regard to any or all
shares of Common Stock issuable upon a Conversion, this Section 7 shall be of no
force or effect with regard to those shares of the Series A Preferred referenced
in the Waiver Notice.
8. Inability
to Fully Convert.
(a) Holder's Option if Company
Cannot Fully Convert.
(i) If,
upon the Company's receipt of a Conversion Notice after the initial issuance of
the Series A Preferred, the Company cannot issue shares of Common Stock upon a
Conversion because the Company does not have a sufficient number of shares of
Common Stock authorized and available, then the Company shall issue as many
shares of Common Stock as it is able to issue in accordance with such holder's
Conversion Notice and, with respect to the unconverted Series A Preferred, the
holder, solely at such holder's option, may (x) elect, within five (5) business
days after receipt of notice from the Company thereof to: (A) require the
Company to redeem from such holder those shares of Series A Preferred for which
the Company is unable to issue Common Stock in accordance with such holder's
Conversion Notice (such shares of the Series A Preferred, the "Nonconvertible
Shares"; such redemption right, the "Mandatory
Redemption") at a price per share payable in cash equal to one hundred
thirty percent (130%) of the Liquidation Preference Amount (the "Mandatory Redemption
Price"); or (B) void its Conversion Notice and retain or have returned,
as the case may be, the shares of the Series A Preferred that were to be
converted pursuant to such holder's Conversion Notice (provided that a holder's
voiding its Conversion Notice shall not affect the Company's obligations to make
any payments which have accrued prior to the date of such notice); or if
applicable, (y) exercise its Buy-In rights pursuant to and in accordance with
the terms and provisions of Section 4(b)(vii) hereof.
(ii) If,
upon the Company's receipt of a Conversion Notice after the initial issuance of
the Series A Preferred, the Company cannot issue shares of Common Stock upon a
Conversion because the Company, subsequent to the effective date of a
Registration Statement, fails to have a sufficient number of shares of Common
Stock registered for resale under the Registration Statement, then with respect
to the shares of Series A Preferred that cannot be converted into registered
shares of Common Stock, within five (5) business days after receipt of notice
from the Company thereof, the holder may (i) void its Conversion Notice and
retain or have returned, as the case may be, the shares of the Series A
Preferred that were to be converted pursuant to such holder's Conversion Notice
(provided that a holder's voiding its Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior to the date
of such notice), or (ii) require the Company to issue unregistered shares of
Common Stock in accordance with such holder's Conversion Notice and demand the
Company file a registration statement to register the restricted shares in
accordance with the terms of the Registration Statement.
(b) Mechanics of Fulfilling
Holder's Election. The Company shall immediately send via facsimile to a
holder of the Series A Preferred, upon receipt of a facsimile copy of a
Conversion Notice from such holder which cannot be fully satisfied as described
in Section 8(a) above, a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "Inability to Fully Convert
Notice"). Such Inability to Fully
Convert Notice shall indicate (i) the reason why the Company is unable to fully
satisfy such holder's Conversion Notice, (ii) the number of shares of the Series
A Preferred that cannot be converted and (iii) the applicable Mandatory
Redemption Price, if applicable, pursuant to Sections 8(a)(i)(x) above. If
applicable, such holder shall notify the Company of its election pursuant to
Section 8(a) above by delivering written notice via facsimile to the Company
("Notice in Response
to Inability to Convert").
(c) Payment of Redemption
Price. If a holder shall elect to have its shares redeemed pursuant to
Section 8(a)(i)(x) above, the Company shall pay the Mandatory
Redemption Price to such holder within thirty (30) days of the Company's receipt
of the holder's Notice in Response to Inability to Convert, provided, however, that prior
to the Company's receipt of the holder's Notice in Response to Inability to
Convert the Company has not delivered a notice to such holder stating, to the
satisfaction of the holder, that the event or condition resulting in the
Mandatory Redemption has been cured and all shares of Common Stock issuable to
such holder can and will be delivered to the holder in accordance with the terms
of Section 4. Until the full Mandatory Redemption Price is paid to such holder,
such holder may (i) void the Mandatory Redemption with respect to those shares
of the Series A Preferred for which the full Mandatory Redemption Price has not
been paid, and (ii) receive back such shares.
(d) Pro-rata Conversion and
Redemption. In the event the Company receives a Conversion Notice from
more than one holder of the Series A Preferred on the same day and the Company
is able to convert and redeem some, but not all, of the Series A Preferred
pursuant to this Section 8, the Company shall convert and redeem from each
holder of the Series A Preferred electing to have the Series A Preferred
converted and redeemed at such time an amount equal to such holder's pro-rata
amount (based on the number shares of the Series A Preferred held by such holder
relative to the number shares of the Series A Preferred outstanding) of all
shares of the Series A Preferred being converted and redeemed at such
time.
9. No
Impairment. The Company will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Certificate of Designations and in the taking of all such
action as may be necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred against impairment.
10. No
Fractional Shares and Certificate as to Adjustments. No fractional shares
shall be issued upon a Conversion, and the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole share. The number of shares
issuable upon a Conversion shall be determined on the basis of the total number
of shares of the Series A Preferred the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate Conversion.
11. Notices
of Record Date. In the event of any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or any other right, the Company shall mail to
each holder of the Series A Preferred, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
12. Notices. All notices, demands,
consents, requests, instructions and other communications to be given or
delivered or permitted under or by reason of the provisions of this Certificate
of Designations shall be in writing and shall be deemed to be delivered and
received by the intended recipient as follows: (i) if personally delivered, on
the business day of such delivery (as evidenced by the receipt of the personal
delivery service), (ii) if mailed certified or registered mail return receipt
requested, two (2) business days after being mailed, (iii) if delivered by
overnight courier (with all charges having been prepaid), on the business day of
such delivery (as evidenced by the receipt of the overnight courier service of
recognized standing), or (iv) if delivered by facsimile transmission, on the
business day of such delivery if sent by 5:00 p.m. in the time zone of the
recipient, or if sent after that time, on the next succeeding business day (as
evidenced by the printed confirmation of delivery generated by the sending
party’s telecopier machine). If any notice, demand, consent, request,
instruction or other communication cannot be delivered because of a changed
address of which no notice was given (in accordance with this Section 12), or
the refusal to accept same, the notice, demand, consent, request, instruction or
other communication shall be deemed received on the third business day the
notice is sent (as evidenced by a sworn affidavit of the sender). Any
notice to be given to the holders of shares of the Series A Preferred shall be
addressed to each such holder at its address appearing on the books of the
Company.
13. No Charge
for Conversion. The issuance of
certificates for shares of Common Stock upon a Conversion shall be made without
charge to the converting holders for such certificates and without any tax in
respect of the issuance of such certificates.
14. Reservation
of Shares. On and after the initial
issuance of the Series A Preferred, the Company shall at all times reserve and
keep available out of any stock held as treasury stock or out of its authorized
but unissued Common Stock, or both, solely for the purpose of effecting a
Conversion, no less than one hundred twenty-five percent (125%) of the aggregate
number of shares of Common Stock then issuable upon the Conversion of all
outstanding shares of the Series A Preferred. The Company shall, as promptly as
possible, in accordance with the laws of the State of Nevada and the federal
securities laws, increase the authorized amount of its Common Stock if, at any
time, the authorized amount of its Common Stock remaining unissued shall not be
greater than 125% of the aggregate number of shares of Common Stock issuable
upon the Conversion of all outstanding shares of the Series A
Preferred.
15. Return of
Status as Authorized
Shares. Upon
a Conversion or any other redemption or extinguishment of the Series A
Preferred, the shares converted, redeemed or extinguished will be cancelled (and
may not be reissued as shares of the Series A Preferred) and automatically
returned to the status of authorized and unissued shares of preferred stock,
available for future designation and issuance pursuant to the terms of the Certificate of
Incorporation.
16. Amendment. This Certificate of
Designations constitutes an agreement between the Company and the holders of the
Series A Preferred. For as long as any shares of the Series A Preferred are
outstanding, the terms hereof may be amended, modified, repealed or waived only
by the affirmative vote or written consent of a majority of the then outstanding
shares of the Series A Preferred, voting together as a class and
series.