UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
June
25, 2010
Date of
Report (Date of earliest event reported)
ELITE
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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001-15697
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22-3542636
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
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of
incorporation)
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File
Number)
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Identification
No.)
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165
Ludlow Avenue, Northvale, NJ 07647
(Address
of principal executive offices)
(201)
750-2646
(Company’s
telephone number, including area code)
(Former
name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (
see
General Instruction A.2.
below):
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Item
1.01
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Entry
into a Material Definitive Agreement
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Item
3.02
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Unregistered
Sale of Equity Securities
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Item
3.03
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Material
Modification to Rights of Security Holders
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Item
5.03
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Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year
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Item
8.01
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Other
Events
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On or
about September 22, 2009, Midsummer Investments, Ltd. (“
Midsummer
”) and
Bushido Capital Master Fund, LP (“
Bushido
”, and
together with Midsummer, the “
Plaintiffs
”) filed a
complaint against Elite Pharmaceuticals, Inc., a Delaware corporation (the
“
Company
”), in
the United States District Court, Southern District of New York (Case No. 09 CIV
8074) (the “
Action
”). The
Plaintiffs asserted claims for breach of contract (injunctive relief and
damages), anticipatory breach of contract (injunctive relief), conversion
(injunctive relief and damages), and attorneys’ fees, arising out of a
Securities Purchase Agreement, dated September 15, 2008, by and among the
Company and certain purchasers of the Company’s securities (including the
Plaintiffs) and the Certificate of Designation of Preferences, Rights and
Limitations of Series D 8% Convertible Preferred Stock, filed with the Secretary
of State of the State of Delaware on September 15, 2009 (the “
Series D
Certificate
”). Plaintiffs claimed that they were entitled to a
reduced conversion price for their Series D 8% Convertible Preferred Stock, par
value US$0.01 per share (the “
Series D Preferred
Stock
”), as a result of the Strategic Alliance Agreement, dated
March 18, 2009, as amended (the “
Epic SAA
”), by and
among the Company, on the one hand, and Epic Pharma, LLC (“
Epic
”) and Epic
Investments, LLC (“
Epic Investments
”,
and together with Epic, the “
Epic
Parties
”). With their complaint, the Plaintiffs
concurrently filed a request for preliminary injunction. Pursuant to
an order of the Court entered into on October 16, 2009, the Plaintiffs’ request
for a preliminary injunction was denied. Thereafter, Plaintiffs filed
an amended complaint (the “
Complaint
”),
asserting claims for breach of contract (injunctive relief and damages),
anticipatory breach of contract (injunctive relief), conversion (damages) and
attorneys’ fees, seeking compensatory damages of $7,455,363.00, delivery of
1,000,000 shares of the Company’s common stock, par value $0.001 per share (the
“Common Stock”), a declaration that all future conversions of the Series D
Preferred Stock, held by Plaintiffs is at a conversion price of $0.05,
attorneys’ fees, interest and costs.
The
Company disputed the claims in the Complaint, believing the lawsuit to be
without merit, and vigorously defended against them. The Company
moved for summary judgment on the Complaint and the judge in the case did not
issue an order on such motion. The Company proceeded with extensive,
time-consuming and costly discovery. The court scheduled the trial to
commence on June 28, 2010.
In order
to avoid the delays, expense and risks inherent in litigation, after extensive
negotiations, the Company entered into (i) a Stipulation of Settlement and
Release, dated June 25, 2010 (the “
Settlement
Agreement
”), with the Plaintiffs and the Epic Parties, (ii) an Amendment
Agreement, dated June 25, 2010 (the “
Series D Amendment
Agreement
”), with the Plaintiffs and (iii) an Amendment Agreement, dated
June 25, 2010 (the “
Series E Amendment
Agreement
”) with the Epic Parties. As part of the Settlement Agreement,
the Action will be dismissed with prejudice.
Series D Amendment
Agreement
Pursuant
to the Series D Amendment Agreement, the Company and Plaintiffs agreed to amend
the Series D Certificate. The holders of at least 50.1%, in the
aggregate, of the Company’s outstanding Series B Preferred 8% Convertible
Preferred Stock, par value US$0.01 per share, Series C 8% Convertible Preferred
Stock, par value US$0.01 per share, and Series D Preferred Stock, voting as one
class, consented to the filing of the Amended Certificate of Designations of the
Series D 8% Convertible Preferred Stock (the “
Amended Series D
Certificate
”) with the Secretary of State of the State of
Delaware. On June 29, 2010, pursuant to the authority of its Board of
Directors, the Company filed with the Secretary of State of the State of
Delaware the Amended Series D Certificate.
Pursuant
to the terms of the Amended Series D Certificate, the terms of the Series D
Preferred Stock have been amended as follows:
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·
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Dividends
: The
Series D Preferred Stock will continue to accrue dividends at the rate of
8% per annum on their stated value of US$1,000 per share, payable
quarterly on January 1, April 1, July 1 and October 1 and such rate shall
not increase to 15% per annum as previously provided prior to giving
effect to the Series D Amendment Agreement. In addition to
being payable in cash and shares of Common Stock, as provided in the
Series D Certificate, such dividends may also be paid in shares of Series
D Preferred Stock (the “
Dividend Payment
Preferred Stock
”) or a combination of cash, Common Stock and
Dividend Payment Preferred Stock. Dividend Payment Preferred
Stock will have the same rights, privileges and preferences as the Series
D Preferred Stock, except that such Dividend Payment Preferred Stock will
not be entitled to, nor accrue, any dividends pursuant to the Amended
Series D Certificate.
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·
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Conversion
Price
: The conversion price of the Series D Preferred
Stock shall be reduced from US$0.20 per share to US$0.07 per share
(subject to adjustment as provided in the Amended Series D
Certificate).
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·
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Automatic Monthly
Conversion
: 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) will automatically convert into shares of Common Stock at
the then-effective conversion price (each such conversion, a “
Monthly
Conversion
”). Notwithstanding the foregoing, the Company
will 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 of Series D
Preferred Stock, the issuance of the shares will not cause a breach of the
beneficial ownership limitations set forth in the Amended Series D
Certificate, (iv) if requested by a holder of Series D Preferred Stock and
a customary Rule 144 representation letter relating to all shares of
Common Stock to be issued upon each Monthly Conversion is provided by such
holder after request from the Company, the shares of Common Stock issued
upon such Monthly Conversion are delivered electronically through the
Depository Trust Company or another established clearing corporation
performing similar functions (“
DTC
”), may be
resold by such holder pursuant to an exemption under the Securities Act
and are otherwise free of restrictive legends and trading restrictions on
such Holder,
(v)
there has been no public
announcement of a pending or proposed Fundamental Transaction or Change of
Control Transaction (as such terms are defined in the Amended Series D
Certificate) that has not been consummated, (vi) the applicable holder of
Series D Preferred Stock is not in possession of any information provided
to such holder by the Company that constitutes material non-public
information, and
(vii) the average VWAP (as defined in the Amended
Series D Certificate) for the 20 trading days immediately prior to the
applicable Monthly Conversion Date equals or exceeds the then-effective
conversion price of the Series D Preferred Stock. Shares of the
Series D Preferred Stock issued to the holders of Series D Preferred Stock
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 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).
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·
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Change of Control
Transaction
: Epic and its affiliates were expressly
excluded from any event which would otherwise constitute a “Change of
Control Transaction” due to the acquisition in excess of 40% of the
Company’s voting securities.
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Pursuant
to the Series D Amendment Agreement, the exercise price of the Warrants (the
“
Series D
Warrants
”) to purchase shares of Common Stock issued to the holders of
Series D Preferred Stock pursuant to the Securities Purchase Agreement, dated as
of September 15, 2008, by and among the Company and the purchasers of Series D
Preferred Stock will be reduced from $0.25 per share to US$0.125. In
addition, the exercise price of the Series D Warrants may be reduced as
follows:
(i) by
20%, if on September 15, 2011, the holder of such Warrant still beneficially
owns more than 50% of the Series D Preferred Stock beneficially owned by such
holder as of June 25, 2010 (“
Base Ownership
”);
and
(ii) by
20%, if (a) on September 15, 2011, such holder then beneficially owns more than
25% of the Base Ownership and 50% or less of the Base Ownership and (b) on
September 15, 2012, such holder then beneficially owns more than 25% of the Base
Ownership.
Notwithstanding
the foregoing, (x) in no event will the exercise price of the Series D Warrants
be reduced more than once as a result of the amendments to such Series D
Warrants, and (y) in the event that on September 15, 2011 or, if the condition
of clause (ii)(a) above is met, on September 15, 2012, the Holder beneficially
owns 25% or less of the Base Ownership, then no adjustment shall occur pursuant
to the Series D Warrants, as amended by the Series D Amendment
Agreement. Additionally, there will be no corresponding increase in
the number of shares of Common Stock issuable upon exercise of the Warrants
solely as a result of the foregoing adjustments.
To the
extent such issuance does not cause the breach of the beneficial ownership
limitations set forth in the Amended Series D Certificate (any excess shares
will be issued to the affected holder of Series D Preferred Stock upon written
notice from such holder when such holder’s beneficial ownership is below 9.9% to
the extent that such issuance does not cause such holder to exceed such amount),
the Company agreed to issue certain shares of Common Stock to the Plaintiffs and
their respective affiliates in satisfaction of the Company’s obligation to pay
certain previously accrued but unpaid dividends through March 31, 2010 owing to
the Plaintiffs and their respective affiliates.
Series E Amendment
Agreement
Pursuant
to the Series E Amendment Agreement, the Company agreed to amend the Certificate
of Designation of Preferences, Rights and Limitations of the Series E
Convertible Preferred Stock, filed with Secretary of State of the State of
Delaware on June 3, 2009 (the “
Series E
Certificate
”). The Epic Parties, constituting all holders of
Series E Preferred Stock, consented to the filing of the Amended Certificate of
Designations of the Series E Convertible Preferred Stock (the “
Amended Series E
Certificate
”) with the Secretary of State of the State of
Delaware. On June 29, 2010, pursuant to the authority of its Board of
Directors, Company filed with the Secretary of State of the State of Delaware
the Amended Series E Certificate. Pursuant to the terms of the
Amended Series E Certificate, the conversion price of the Series E Preferred
Stock will be adjusted downward to reflect, on a pro rata basis, the reduction
in the conversion price of the Series D Preferred Stock as the result of the
Series D Amendment Agreement, to the extent shares of Series D Preferred Stock
are converted at the reduced conversion price set forth in the Amended Series D
Certificate.
Pursuant
to the Series E Amendment Agreement, the Epic SAA was amended so that the
purchase of the 750 Additional Shares of Series E Preferred Stock described
therein for an aggregate purchase price of $750,000 would occur in 12
installments of 62.5 shares (for a purchase price of $62,500) (i) on or prior to
November 1, 2009 (which has been satisfied) and (ii) within 10 business days
following the last day of each calendar quarter, beginning with the first
calendar quarter ending on September 30, 2010 and continuing for each of the 10
calendar quarters thereafter.
In
addition, under the Series E Amendment Agreement, the third closing date is
scheduled to occur on or before December 31, 2010, subject to certain conditions
set forth in the Epic SAA (as amended by the Series E Amendment
Agreement).
Under
each of the Series D Amendment Agreement and the Series E Amendment Agreement,
the Company agreed that at its next meeting of shareholders it will seek
shareholder approval to amend its certificate of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
760,000,000.
Settlement
Agreement
Pursuant
to the Settlement Agreement, Elite and the Epic Parties, individually and on
behalf of each of their respective officers, directors, agents, representatives,
successors, affiliated entities, subsidiaries, heirs, employees, administrators
and assigns (the “
Elite Releasors
”)
agreed to release and discharge each of the Plaintiffs, BCMF Trustees LLC, an
affiliate of Bushido (“
BCMF
”), their
respective owners, officers, directors, investors, agents, representatives,
successors, affiliated entities, subsidiaries, heirs, employees, administrators
and assigns (the “
Plaintiffs’
Releasees
”) from any and all actions, causes of action, claims, liens,
suits, debts, accounts, liabilities, expenses, attorneys’ fees, agreements,
promises, charges, complaints and demands (collectively, “
Loses
”) which the
Elite Releasors have or may have against the Plaintiffs’ Releasees that could
have been asserted in the Action or any other court action, based upon any
conduct up to and including the date of the Settlement
Agreement. Notwithstanding the foregoing, the Elite Releasors will
not release any claim of breach of the terms of the Settlement Agreement, breach
of the terms of the Series D Amendment Agreement, or any cause of action arising
from future conduct by the Plaintiffs’ Releasees.
Pursuant
to the Settlement Agreement, the Plaintiffs and BCMF, individually and on behalf
of each of their respective owners, officers, directors, investors, agents,
representatives, successors, affiliated entities, subsidiaries, heirs,
employees, administrators and assigns (the “
Plaintiffs’
Releasors
”) agreed to release and discharge Elite and the Epic Parties
and each of their respective officers, directors, agents, representatives,
successors, affiliated entities, subsidiaries, heirs, employees, administrators
and assigns (the “
Elite Releasees
”),
from any and all Losses which the Plaintiffs’ Releasors have or may have against
the Elite Releasees that could have been asserted in the Action or any other
court action, based upon any conduct up to and including the date of the
Settlement Agreement. Notwithstanding the foregoing, the Plaintiffs’
Releasors did not release any claim of breach of the terms of the Settlement
Agreement, breach of the terms of the Series D Amendment Agreement or any cause
of action arising from future conduct by the Elite Releasees.
In
addition, concurrently with the execution of the Settlement Agreement, legal
counsel for both the Company and the Plaintiffs executed a Stipulation of
Discontinuance of the Action, which such counsel will file once all conditions
precedent to the effectiveness of the Settlement Agreement have been
satisfied.
The
foregoing description of the Amended Series D Certificate, Amended Series E
Certificate, Settlement Agreement, Series D Amendment Agreement and Series E
Amendment Agreement does not purport to be complete and is qualified
in its entirety by reference to the complete text of such documents which are
filed herewith and incorporated herein by reference.
On June
30, 2010, the Company issued a press release announcing the settlement of the
litigation with the Plaintiffs. A copy of such press release is
attached hereto as Exhibit 99.1.
Item
9.01
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Financial
Statements and Exhibits
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Exhibit No.
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Exhibit Description
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3.1
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Amended
Certificate of Designations of the Series D 8% Convertible Preferred Stock
as filed with the Secretary of State of the State of Delaware on June 29,
2010
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3.2
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Amended
Certificate of Designations of the Series E Convertible Preferred Stock as
filed with the Secretary of State of the State of Delaware on June 29,
2010
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10.1
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Form
of Stipulation of Settlement and Release, dated as of June 25, 2010, by
and among the Company, Midsummer Investment, Ltd., Bushido Capital Master
Fund, LP, BCMF Trustees, LLC, Epic Pharma, LLC and Epic Investments,
LLC
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10.2
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Form
of Amendment Agreement, dated as of June 25, 2010, by and among the
Company, and the investors signatory thereto
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10.3
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Form
of Amendment Agreement, dated as of June 2010, by and among the Company,
Epic Pharma, LLC and Epic Investments, LLC
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99.1
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Press
Release dated June 30, 2010
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
July
1, 2010
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ELITE
PHARMACEUTICALS, INC.
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By:
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/s/
Jerry Treppel
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Jerry
Treppel
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Chief
Executive Officer
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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:
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.
“
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.
“
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.
“
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 requ
ired, 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
d
isclosure 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.
“
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.
“
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.
“
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.
“
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.
“
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
.
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):
“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).
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.
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
”).
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
.
|
f)
|
Mechanics of
Conversion
|
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.
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.
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.
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.
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.
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.
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.
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),
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 el
ection 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 20
th
Trading Day following the Optional
Redemption Notice Date (such date, the “
Optional
Redemption Date
”
an
d 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 Conditi
on 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 n
otice 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 Prefe
rred 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 agr
ees 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.
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 informatio
n 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
”).
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;
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.
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.
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 Pref
e
rred 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.
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.
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.
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
]
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.
|
|
|
|
|
|
|
By:
|
/s/
Jerry Treppel
|
|
|
Name:
|
Jerry
Treppel
|
|
|
Title:
|
Chief
Executive Officer
|
|
Attest:
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Carter J. Ward
|
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|
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Name:
|
Carter
J. Ward
|
|
|
|
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Title:
|
Chief
Financial Officer
|
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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:
|
|
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[HOLDER]
|
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By:
|
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Name:
|
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|
|
Title:
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AMENDED
CERTIFICATE
OF DESIGNATIONS
OF
THE
SERIES E
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 E Convertible Preferred Stock, par value US$0.01 per
share (the “
Series E
Preferred Stock
”), with the Secretary of State of the State of Delaware
on June 3, 2009 (the “
Original Series E
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 E
Certificate of Designation:
“WHEREAS,
the Corporation filed a Certificate of Designation of Preferences, Rights and
Limitations of the Series E Convertible Preferred Stock with the Secretary of
State of the State of Delaware on June 3, 2009;
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 E 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 E 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 E Convertible Preferred
Stock, dated June 3, 2009, as follows:
TERMS
OF SERIES E CONVERTIBLE PREFERRED STOCK
Section 1
.
Definitions
.
Capitalized terms used and not otherwise defined herein that are defined in the
Strategic Agreement shall have the meanings given such terms in the Strategic
Agreement. A copy of the Strategic Agreement as in effect on the date hereof
shall be provided without charge to any holder of Common Stock or Preferred
Stock upon written request therefor. For the purposes hereof, the following
terms shall have the following meanings:
“
Adjusted Convertible
Outstanding Amount
” means, for purposes of determining the adjustment to
the Conversion Price under Section 7(i) hereof, as of the time of such
determination, the sum of (i) the number of outstanding shares of Common Stock
(assuming, solely for purposes of such calculation, that all shares of Series D
Preferred Stock which have converted after the date of the Series D Amendment
Agreement shall have converted at the Adjusted Series D Conversion Price), (ii)
the number of shares of Common Stock into which all Series B Preferred Stock are
then convertible at the Original Series B Preferred Stock Conversion Price,
(iii) the number of shares of Common Stock into which all Series C Preferred
Stock are then convertible at the Original Series C Preferred Stock Conversion
Price, and (iv) the number of shares of Common Stock into which all Series D
Preferred Stock are then convertible at the Original Series D Preferred Stock
Conversion Price. For the avoidance of doubt, the Adjusted
Convertible Outstanding Amount shall
not
include any
shares of Common Stock into which the Series E Preferred Stock is
convertible.
“
Adjusted Series D Conversion
Price
” means the conversion price of the Series D Preferred Stock under
the Series D Certificate, as in effect immediately after the date of
the Series D Certificate Amendment (without any future adjustment
under the Series D Certificate other than adjustment under Section 7(a)
thereof), which initially was $0.07.
“
Alternate
Consideration
” shall have the meaning set forth in Section
7(f).
“
Amendment
” means the
amendment to the Corporation’s certificate of incorporation that (i) increases
the number of authorized shares of Common Stock from 210,000,000 shares to
340,000,000 shares
and (ii)
reduces the par value of the authorized shares of Common Stock from $.01 to
$.001 per share
.
“
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.
“
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.
“
Common Stock
” means
the Corporation’s common stock, par value U.S.$0.001 per share (as amended by
the Amendment), 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 exercisable
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 E Preferred Stock in accordance with the terms
hereof.
“
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 Issuance
”
shall have the meaning set forth in Section 7(c).
“
Dividend Issuance
Notice
” shall have the meaning set forth in Section 7(c).
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Exempt
Issuance
” means, subject to
the requirement to obtain the prior consent of the Holder pursuant to Section
4(b), to the extent such requirement exists, the issuance of (a) shares of
Common Stock or options to purchase Common Stock to employees, consultants,
officers or directors of the Corporation pursuant to any stock or option plan
existing on the date hereof and disclosed in the Company Disclosure Schedules or
duly adopted by a majority of the independent members of the Board of Directors
or a majority of a committee of independent members of the Board of Directors
established for such purpose, (b) securities upon the exercise or exchange of or
conversion of any securities of the Corporation outstanding on the date hereof
and disclosed in the Company Disclosure Schedules, including the Existing
Preferred Stock, pursuant to the terms thereof, provided that such securities
have not been amended since the date of this Agreement to increase the number of
securities or to decrease the exercise, exchange or conversion price of any such
securities, except for adjustments required by the terms thereof (c) up to a
maximum of 2,000,000 shares of Common Stock or Common Stock Equivalents 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 (c), 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 such holders, and
provided further that issuances described in this clause (c) are approved by a
majority of the independent members of the Board of Directors, (d) securities as
a dividend or distribution on any of the Securities issued pursuant to the
Strategic Agreement, (e) shares of Common Stock upon the exercise of the
Conversion Warrants and (f) securities in connection with any stock split, stock
dividend or recapitalization of the Common Stock.
“
Existing
Preferred Stock
”
means, as of any date of determination, the then issued and outstanding
shares of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock
.
“
Forced Conversion
”
shall have the meaning set forth in Section 8.
“
Fundamental
Transaction
” shall have the meaning set forth in Section
7(f).
“
Holder
” means Epic
Investments, LLC, a Delaware limited liability company.
“
Junior Securities
”
means the Common Stock, Series B Preferred Stock, Series C Preferred Stock and
all other Common Stock Equivalents of the Corporation, other than (i) the Series
D Preferred Stock and (ii) those securities which are explicitly senior or
pari passu
to the Series E
Preferred Stock in dividend rights or liquidation preference.
“
Liquidation
” shall
have the meaning set forth in Section 5.
“
New York Courts
”
shall have the meaning set forth in Section 10(d).
“
Notice of Conversion
”
shall have the meaning set forth in Section 6(a).
“
Original Issue Date
”
means the date of the first issuance of any shares of the Series E Preferred
Stock regardless of the number of transfers of any particular shares of Series E
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series E Preferred Stock.
“
Original Series B Conversion
Price
” means $1.56, representing the conversion price of the Series B
Preferred Stock under the Series B Certificate in effect immediately prior to
the date of the Series D Amendment Agreement (subject only to adjustment under
Section 7(a) of the Series B Certificate).
“
Original Series C Conversion
Price
” means $1.61, representing the conversion price of the Series C
Preferred Stock under the Series C Certificate in effect immediately prior to
the date of the Series D Amendment Agreement (subject only to adjustment under
Section 7(a) of the Series C Certificate).
“
Original Series D Conversion
Price
” means $0.20, representing the conversion price of the Series D
Preferred Stock under the Series D Certificate in effect immediately prior to
the date of the Series D Certificate Amendment (subject only to
adjustment under Section 7(a) of the Series D Certificate).
“
Preferred Stock
”
means the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock collectively.
“
Redemption Issuance
”
shall have the meaning set forth in Section 7(d).
“
Redemption Issuance
Notice
” shall have the meaning set forth in Section 7(d).
“
Series B Certificate
”
means the Amended Certificate of Designations of the Series B 8% Convertible
Preferred Stock of Elite Pharmaceuticals, Inc. filed with the Secretary of State
of the State of Delaware on September 15, 2008.
“
Series B Preferred
Stock
” means the Series B 8% Convertible Preferred Stock, par value
U.S.$0.01 per share, of the Corporation.
“
Series C Certificate
”
means the Amended Certificate of Designations of the Series C 8% Convertible
Preferred Stock of Elite Pharmaceuticals, Inc. filed with the Secretary of State
of the State of Delaware on September 15, 2008, as corrected by the Certificate
of Correction Relating to the Amended Certificate of Designations of the Series
C 8% Convertible Preferred Stock of Elite Pharmaceuticals, Inc. filed with the
Secretary of State of the State of Delaware on February 13, 2009.
“
Series C Preferred
Stock
” means the Series C 8% Convertible Preferred Stock, par value
U.S.$0.01 per share, of the Corporation.
“
Series D Amendment
Agreement
” means the certain Amendment Agreement, dated as of June 25,
2010, by and among the Corporation, Bushido Capital Master Fund, LP and
Midsummer Investment Ltd.
“
Series D Certificate
”
means the Certificate of Designation of Preferences, Rights and Limitations of
the Series D 8% Convertible Preferred Stock, filed with the Secretary of State
of the State of Delaware on September 15, 2008, as amended by the Series D
Certificate Amendment.
“
Series D Certificate
Amendment
” means the Amended Certificate of Designation of the Series D
8% Preferred Stock filed with the Secretary of State of the State of Delaware on
June 29, 2010.
“
Series D Preferred
Stock
” means the Series D 8% Convertible Preferred Stock, par value
U.S.$0.01 per share, of the Corporation.
“
Series D Warrants
”
means the common stock warrant, as amended, issued to the purchasers of the
Series D Preferred Stock pursuant to a certain Securities Purchase Agreement,
dated September 15, 2008, as amended, among the Corporation and the investors
signatory thereto.
“
Series E Preferred
Stock
” shall have the meaning set forth in Section 2.
“
Share Delivery Date
”
shall have the meaning set forth in Section 6(d)(i).
“
Stated Value
” shall
have the meaning set forth in Section 2.
“
Strategic Agreement
”
means the Strategic Alliance Agreement, dated as of March 18, 2009, to which the
Corporation and the Holder are parties, as amended, modified or supplemented
from time to time in accordance with its terms.
“
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.
“
Transfer
” means any
voluntary or involuntary, direct or indirect sale, transfer, conveyance,
assignment, pledge, hypothecation, gift, delivery or other disposition;
provided, however, (i) the conversion by the Holder of any shares of Series E
Preferred Stock into Conversion Shares shall not be deemed a “Transfer” for
purposes hereof, and (ii) any sale, transfer, conveyance, assignment or other
disposition in connection with a Fundamental Transaction shall not be deemed a
Transfer hereunder.
“
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 Holder and reasonably
acceptable to the Corporation.
Section 2
.
Designation, Amount and Par
Value
. This series of preferred stock shall be designated as its Series E
Convertible Preferred Stock (the “
Series E Preferred
Stock
”) and the number of shares so designated shall be 5,000 (which
shall not be subject to increase without the requisite affirmative vote of the
Holder as set forth in Section 4(b)). Each share of Series E Preferred Stock
shall have a par value of U.S.$0.01 per share and a stated value equal to
U.S.$1,000 (the “
Stated
Value
”).
Section 3
.
Dividends
.
a)
So long
as any Series E Preferred Stock shall remain outstanding, the Corporation shall
not declare, pay or set aside any dividends on shares of any other class or
series of capital stock of the Corporation (other than dividends payable
pursuant to the Series B Certificate, the Series C Certificate and the Series D
Certificate) unless the Holder shall first receive, or simultaneously receive, a
dividend on each outstanding share of Series E Preferred Stock in an amount
equal to the dividend the Holder would have been entitled to receive upon
conversion, in full, of one share of Series E Preferred Stock immediately prior
to the record date for determination of holders entitled to receive such
dividend.
b)
So long
as any Series E Preferred Stock shall remain outstanding, neither the
Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities. So long as any Series E
Preferred Stock shall remain outstanding, neither the Corporation nor any
Subsidiary thereof shall directly or indirectly pay or declare any dividend or
make any distribution upon (other than dividends described in Section 3(a)), 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 E
Preferred Stock (other than in the case of a purchase or redemption of any
shares of Series D Preferred Stock).
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 E Preferred Stock and any future issuances of the Corporation’s
capital stock shall be equal to the aggregate par value of such Series E
Preferred Stock or capital stock, as the case may be, and that, on or after the
date of the Strategic 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.
Section 4
.
Voting Rights
.
(a) On
any matter presented to the stockholders of the Corporation for their action or
consideration at any meeting of stockholders of the Corporation (or by written
consent of stockholders in lieu of meeting), the Holder shall be entitled to
cast the number of votes equal to the number of whole shares of Common Stock
into which the shares of Series E Preferred Stock held by the Holder are
convertible as of the record date for determining the stockholders entitled to
vote on such matter. Except as provided by law or by the other provisions of
this Certificate of Designation, the Holder shall vote together with the holders
of Common Stock, as a single class.
(b) The
Corporation shall not, between the Original Issue Date and
the date which is the earlier of (x) the
date the
Purchaser
Directors
constitute a
majority of the
Board of
Directors
and
(y)
the date that is 90 days following
the fifth (5
th
) anniversary of
the
Original Issue
Date, except as specifically permitted
by any other provision hereof or the other Transaction Documents or as the
Holder shall otherwise agree in writing, directly or
indirectly, do, or agree to do, any of
the following without the prior written consent of the
Holder:
i.
amend or otherwise change
the Corporation
’
s certificate of incorporation or bylaws
so
as to adversely affect
the Holder in a material manner;
ii. (A)
issue, sell, pledge, dispose of, grant, transfer, encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer, or encumbrance of (1) any
shares of Common Stock or Common Stock Equivalents or (2) other shares of
capital stock of the Corporation or securities convertible or exchangeable or
exercisable for any shares of such capital stock, or any options, warrants or
other rights of any kind to acquire any shares of such capital stock or such
convertible or exchangeable securities, or any other ownership interest
(including, without limitation, any such interest represented by contract
right), provided that the prohibitions referred to in clauses (1) and
(2) of this Section 4(b)(ii) shall not be applicable to Exempt
Issuances, or (B) sell, pledge, dispose of, transfer, lease, license, guarantee
or encumber, or authorize the sale, pledge, disposition, transfer, lease,
license, guarantee or encumbrance of, any material property or assets of the
Corporation, except pursuant to existing Contracts or commitments or the sale or
purchase of goods in the ordinary course of business consistent with past
practice, or enter into any commitment or transaction outside the ordinary
course of business consistent with past practice;
iii. declare,
set aside, make or pay any dividend or other distribution (whether payable in
cash, stock, property or a combination thereof) with respect to any of its
capital stock, other than dividends payable on outstanding shares
of Existing Preferred Stock in accordance with the terms thereof as
in effect on the date hereof;
iv.
other than in connection with a reverse
stock split, reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock, Common
St
ock, Common Stock
Equivalents, Preferred Stock or Preferred Stock Equivalents or other
securities
;
v.
(A) acquire (including, without
limitation, by merger, consolidation, or acquisition of stock or assets) any
interest in any Person or any division ther
eof or any assets, other than
acquisitions of inventory or other assets in the ordinary course of business
consistent with past practice; or (B) other than
Permitted Indebtedness
, for a period of three (3) years from
the Initial Closing Date, incur any ind
ebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, except for
indebtedness for borrowed money incurred by the
Corporation
in the
ordinary course of business consistent
with past practice pursuant to the terms of a current Company Material
Contract;
vi.
except as may be required by contractual
commitments or corporate policies with respect to employee severance or
termination pay i
n
existence on the date hereof as disclosed in
the Company Disclosure
Schedules:
(A) increase the
compensation or benefits payable or to become payable to its directors, officers
or employees, except for customary increases to compensation or benefits of
t
he Corporation
’
s employees (other than officers and
directors) of not more than
five percent (
5%
)
in the aggregate per annum made by the
Corporation consistent with past practice and approved by a majority of the
independent members of the Board of Directo
rs; or (B) grant any rights to severance
or termination
pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the
Corporation, or establish, adopt, enter into or amend any collective bargaining,
bonus
,
profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or
e
mployee, except to the extent required
by applicable law and except for such employment, severance or termination
agreements with the Corporation
’
s employees (other than officers and
directors) that are entered into on an arm
’
s length basis and approved
b
y
a majority of the independent members
of the
Board of
Directors
;
vii.
(A) pay, discharge or satisfy any
material claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), except in the ordinary course of business consistent with
p
ast practice and in
accordance with their terms; (B) accelerate or delay collection of any material
notes or accounts receivable in advance of or beyond their regular due dates or
the dates when the same would have been collected in the ordinary course
of
business consistent with past practice,
or (C) delay or accelerate payment of any material account payable in advance of
its due date or the date such liability would have been paid in the ordinary
course of business consistent with past practice;
viii.
make any material change in accounting
policies or procedures, other than in the ordinary course of business consistent
with past practice or except as required by GAAP or by a governmental
entity;
ix.
waive, release, assign, settle or
compromise any mat
erial
claims, or any material litigation or arbitration;
x.
make any material tax election, settle
or compromise any material liability for Taxes, or materially amend any material
Tax Return
;
xi.
be a party to any Change of Control
Transaction or
enter
into any sale, transfer, assignment,
lease, license, mortgage, pledge, exchange or other disposition of all or
substantially all of the assets or property (real or personal, tangible or
intangible) of the Corporation or any merger, consolidation or reorg
a
nization of the Corporation with another
entity;
xii.
take any action or step in connection
with the voluntary liquidation and dissolution of the Corporation or the filing
of a voluntary petition or other institution of proceedings to have the
Corporation
adjudicated as
bankrupt or the consenting to the institution of such proceedings against the
Corporation; or
xiii.
authorize or enter into any agreement or
otherwise make any commitment to do any of the foregoing.
Notwithstanding the anything to the
con
trary con
tained in this Section 4(b
),
(A) the provisions set forth
in clauses (ii) (B), (ix), (x), (xi) and (xii) shall not apply after the
expiration of the Lock-Up Period, if at such time the Holder does not own the
Minimum Share Requirement
and (B)
if a
t any time after the Holder has
acquired
, pursuant to the
Strategic Agreement or other Transaction Documents, a number of shares of Series
E Preferred Stock and/or Conversion Shares representing twenty-five percent
(25%) or more of the shares of the capita
l stock of the Corporation, on an
as-converted basis,
the
Holder
’
s ownership percentage of the shares of
the capital stock of the
Corporation, on an as-converted basis,
falls below
twenty percent (
20%
)
as a result of
Transfers
made by the Holder, then the
prior written consent of
the Holder shall not be required prior to the consummation of any action of the
Corporation
refer
red to under this Section
4(b
).
(d) Except
for the rights expressly set forth herein or in the Transaction Documents,
nothing contained herein or in the other Transaction Documents shall give the
Holder, directly or indirectly, the right to control or direct the operations of
the Corporation and the Corporation shall exercise, consistent with the terms
and conditions hereof and the other Transaction Documents, complete control and
supervision over its operations.
Section 5
.
Liquidation
. Upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary (a “
Liquidation
”), the
Holder shall be entitled to receive out of the assets, whether capital or
surplus, of the Corporation an amount equal to the Stated Value for each share
of Series E Preferred Stock held by the Holder before any distribution or
payment shall be made to the holders of any Junior Securities, including,
without limitation, the Series B Preferred Stock and the Series C Preferred
Stock. Upon a Liquidation, the Series E Preferred Stock will rank (a)
pari passu
with the Series D
Preferred Stock and (b) senior to any Junior Securities, including, without
limitation, the Series B Preferred Stock and the Series C Preferred Stock. If
the assets of the Corporation shall be insufficient to pay in full such amounts,
then the entire assets to be distributed to the Holder and the holders of all
outstanding shares of Series D Preferred Stock shall be ratably distributed
among the Holder and such holders of Series D Preferred Stock in accordance with
the respective amounts that would be payable on the shares of Series E Preferred
Stock owned by the Holder and such shares of Series D Preferred Stock if all
amounts payable thereon were paid in full. The Corporation shall mail written
notice to the Holder of any such Liquidation, not less than 45 calendar days
prior to the payment date stated therein.
Section 6
.
Conversion
.
a)
Conversions at Option of the
Holder
. Subject to Section 6(c) below, each share of Series E 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 determined by dividing the Stated Value of such share of Series
E Preferred Stock by the Conversion Price. The Holder 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 E Preferred Stock to be converted, the number of shares of
Series E Preferred Stock owned by the Holder prior to the conversion at issue,
the number of shares of Series E Preferred Stock owned by the Holder 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 such
Notice of Conversion to the Corporation in accordance with Section 10(a) (such
date, 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 in accordance with Section 10(a). 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 E Preferred Stock, the Holder shall not
be required to surrender the certificate(s) representing such shares of Series E
Preferred Stock to the Corporation unless all of the shares of Series E
Preferred Stock represented thereby are so converted, in which case the Holder
shall deliver the certificate representing such shares of Series E Preferred
Stock promptly following the Conversion Date at issue. Shares of
Series E 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 E Preferred Stock
shall equal U.S.$0.05, subject to adjustment herein (the “
Conversion
Price
”).
c)
Authorized Share
Limitations
. Notwithstanding anything herein to the contrary,
the Holder’s ability to convert Series E Preferred Stock into Conversion Shares
shall be limited to a number of Conversion Shares equal to the difference
between (a) the Company’s total authorized shares of Common Stock as of the
applicable Conversion Date, minus (b) as of the applicable Conversion Date, the
sum of (i) the Company’s total issued and outstanding Common Stock and (ii) the
total number of shares of Common Stock reserved for issuance upon the exercise
or conversion, as applicable, of outstanding Common Stock Equivalents
(including, without limitation, the Warrants, the Series D Preferred Stock and
the Series D Warrants), after giving effect to the Series D Amendment Agreement.
The portion of the Series E Preferred Stock which may not be converted as a
result of this Section 6(c) shall thereafter be unconvertible to such extent
until and unless approval by the Corporation’s stockholders of an increase in
the number of authorized shares of Common Stock of the Corporation is
subsequently obtained; provided, however, the rights and preferences of the
Series E Preferred Stock otherwise set forth in this Certificate of Designation
shall otherwise remain in full force and effect. For the avoidance of doubt, the
voting rights of the Holder under Section 4(a) shall not be affected by the
restrictions of this Section 6(c).
d)
Mechanics of
Conversion
i.
Delivery of Certificate Upon
Conversion
. Not later than three (3)
Trading
Days after each Conversion Date (the “
Share Delivery
Date
”), the Corporation shall deliver, or cause to be delivered, to the
Holder a certificate or certificates representing the number of Conversion
Shares being acquired upon the conversion of shares of Series E Preferred
Stock.
ii.
Obligation Absolute; Partial
Liquidated Damages
. Subject to the limits set forth in Section
6(c), the Corporation’s obligation to issue and deliver the Conversion Shares
upon conversion of Series E 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 the
Holder shall elect to convert any or all of the Stated Value of its shares of
Series E Preferred Stock, the Corporation may not refuse conversion based on any
claim that the 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 the Holder, restraining and/or
enjoining conversion of all or part of the Series E 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. Nothing herein shall limit the
Holder’s right to pursue actual damages for the Corporation’s failure to deliver
Conversion Shares within the period specified herein and the 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.
iii.
Reservation of Conversion
Shares Issuable Upon Conversion
. The Corporation covenants
that it will at all times take all steps necessary to 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 E Preferred Stock, as provided herein,
and shares of Common Stock issuable upon exercise of the Warrants, as provided
in such Warrants, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holder, not less than such aggregate
number of shares of the Common Stock as shall be issuable (taking into account
the adjustments and restrictions of Section 7) upon the conversion of all
outstanding shares of Series E Preferred Stock and upon the exercise of the
Warrants. To the extent that the Amendment does not result in an
increase of the Corporation’s authorized and unissued shares of Common Stock
adequate for the conversion in full of the Series E Preferred Stock and exercise
in full of the Warrants, the Corporation shall undertake to promptly seek
stockholder approval to increase such number of authorized and unissued shares
of Common Stock. 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.
iv.
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.
v.
Transfer
Taxes
. The issuance of certificates for Conversion Shares on
conversion of the Series E 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
E 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.
Section 7
.
Certain
Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Corporation, at any time while the Series E
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 issued by the Corporation
upon conversion of, or payment of a dividend on, the Existing 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 Dilutive
Issuances
. If the Corporation or any Subsidiary thereof, at
any time while this Series E 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
Warrant issued to the Holder 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 in connection with an
Exempt Issuance, for which the Holder’s consent was not required under Section
4(b)
,
entitling any
Person to acquire shares of Common Stock at an effective price per share that is
lower than the then applicable Conversion Price (any such issuance, 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 a price determined by
multiplying the then applicable Conversion Price by a fraction, the numerator of
which is the sum of (i) the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance
plus
(ii) the number of
shares of Common Stock issuable upon conversion or exercise of Common Stock
Equivalents issued and outstanding immediately prior to the Dilutive Issuance
plus
(iii) the number
of shares of Common Stock which the offering price for such Dilutive Issuance
would purchase at the then applicable Conversion Price, and the denominator of
which shall be the sum of (1) the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance
plus
(2) the number of shares
of Common Stock issuable upon conversion or exercise of Common Stock Equivalents
issued and outstanding immediately prior to the Dilutive Issuance
plus
(3) the number of shares
of Common Stock so issued or issuable in connection with the Dilutive
Issuance.
Notwithstanding the foregoing, no
adjustment will be made under this Section 7(b) in respect of any issuance as to
which the Holder has provided its written approval under
Section
4(b)
or
otherwise
. The Corporation shall notify the Holder in writing,
no later than five (5) Business Days following a Dilutive Issuance, indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the “
Dilutive Issuance
Notice
”). Such Dilutive Issuance Notice shall be given by the
Corporation to the Holder in accordance with Section 10(a). 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.
c)
Subsequent Dividend
Issuances
. If the Corporation, at any time while the Series E
Preferred Stock is outstanding, shall issue shares of Common Stock or shares of
Series D Preferred Stock in lieu of cash in satisfaction of its dividend
obligations on shares of outstanding Existing Preferred Stock in accordance with
the Series B Certificate, Series C Certificate and/or Series D Certificate, as
applicable (any such issuance, a “
Dividend Issuance
”),
then the then applicable Conversion Price shall be reduced to a price equal to
(i) the aggregate Stated Value of Series E Preferred Stock then outstanding
divided by (ii) the product of (x) aggregate number of Conversion Shares
issuable upon conversion of the then outstanding Series E Preferred Stock
immediately prior to Dividend Issuance multiplied by (y) the sum of one plus a
fraction with: (A) a numerator equal to (I) the number of outstanding shares of
Common Stock immediately after giving effect to the Dividend Issuance (assuming
conversion of all Existing Preferred Stock in accordance with the Series B
Certificate, Series C Certificate and/or Series D Certificate, as applicable,
but not the Series E Preferred Stock) minus (II) the number of outstanding
shares of Common Stock immediately prior to the Dividend Issuance (assuming
conversion of all Existing Preferred Stock in accordance with the
Series B Certificate, Series C Certificate and/or Series D Certificate, as
applicable, but not the Series E Preferred Stock); and (B) a denominator equal
to the number of outstanding shares of Common Stock immediately prior to the
Dividend Issuance (assuming conversion of all Existing Preferred Stock in
accordance with the Series B Certificate, Series C Certificate and/or Series D
Certificate, as applicable, but not the Series E Preferred Stock). The
Corporation shall notify the Holder in writing following a Dividend Issuance,
indicating therein the occurrence of the applicable Dividend Issuance triggering
such adjustment and the calculation of such adjusted Conversion Price (such
notice, the “
Dividend
Issuance Notice
”). Such Dividend Issuance Notice shall be
given by the Corporation to the Holder in accordance with Section 10(a). For
purposes of clarification, whether or not the Corporation provides a Dividend
Issuance Notice pursuant to this Section 7(c), upon the occurrence of any
Dividend 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
Dividend Issuance, regardless of whether the Holder accurately refers to the
adjusted Conversion Price in the Notice of Conversion.
d)
Subsequent Redemption
Issuances
. If the Corporation, at any time while the Series E Preferred
Stock is outstanding, shall issue shares of Common Stock as a result of any
holder of Series D Preferred Stock exercising its right to require the
Corporation to redeem all of such holder’s shares of Series D Preferred Stock
pursuant to a Non-Cash Redemption Triggering Event (as such term is defined in
the Series D Certificate) (any such issuance, a “
Redemption
Issuance
”), then the then applicable Conversion Price shall be reduced to
a price equal to (i) the aggregate Stated Value of Series E Preferred Stock then
outstanding
divided
by
(ii) the product of (x) aggregate number of Conversion Shares issuable upon
conversion of the then outstanding Series E Preferred Stock immediately prior to
Redemption Issuance multiplied by (y) the sum of one
plus
a fraction with: (A) a
numerator equal to (I) the number of outstanding shares of Common Stock
immediately after giving effect to the Redemption Issuance (assuming conversion
of all Existing Preferred Stock but not the Series E Preferred Stock)
minus
(II) the number of
outstanding shares of Common Stock immediately prior to the Redemption Issuance
(assuming conversion of all Existing Preferred Stock but not the Series E
Preferred Stock); and (B) a denominator equal to the number of outstanding
shares of Common Stock immediately prior to the Redemption Issuance (assuming
conversion of all Existing Preferred Stock but not the Series E Preferred
Stock). The Corporation shall notify the Holder in writing following
a Redemption Issuance, indicating therein the occurrence of the applicable
Redemption Issuance triggering such adjustment and the calculation of such
adjusted Conversion Price (such notice, the “
Redemption Issuance
Notice
”). Such Redemption Issuance Notice shall be given by
the Corporation to the Holder in accordance with Section 10(a). For purposes of
clarification, whether or not the Corporation provides a Redemption Issuance
Notice pursuant to this Section 7(d), upon the occurrence of any Redemption
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 Redemption
Issuance, regardless of whether the Holder accurately refers to the adjusted
Conversion Price in the Notice of Conversion.
e)
Pro Rata
Distributions
. If the Corporation, at any time while the Series E
Preferred Stock is outstanding, distributes to all holders of Common Stock (and
not to the Holder) 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 Sections 7(b), 7(c) or
7(d)), 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.
f)
Fundamental
Transaction
. If, at any time while the Series E Preferred Stock is
outstanding, (A) the Corporation effects any merger or consolidation of the
Corporation with or into another Person (other than the Holder), (B) the
Corporation effects any sale of all or substantially all of its assets in one
transaction or a series of related transactions, other than to the Holder, (C)
any tender offer or exchange offer (whether by the Corporation or another Person
(other than the Holder)) 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 the Series E
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
the Series E 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 E 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(f) and insuring
that the Series E Preferred Stock (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
g)
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.
h)
Notice to the
Holder
.
i.
Adjustment to Conversion
Price
. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 7, the Corporation shall promptly cause to be
delivered to the Holder in accordance with Section 10(a) a written 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 the 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
the Series E Preferred Stock, and shall cause to be
delivered to the Holder in accordance
with Section 10(a), 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, except in respect of the
approval of the stockholders described in the preceding clause (D), 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
the Series E 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.
i)
Special Adjustment relating
to Series D Preferred Stock
. If the Corporation, at any time
while the Series E Preferred Stock is outstanding, shall issue shares of Common
Stock in conversion of shares of outstanding Series D Preferred Stock in
accordance with the Series D Certificate (any such issuance, a “
Series D Conversion
Issuance
”), then the then applicable Series E Conversion Price shall
be reduced to a price equal to (i) the aggregate Stated Value of Series E
Preferred Stock then outstanding divided by (ii) the product of (x) the
aggregate number of Conversion Shares issuable upon conversion of the then
outstanding Series E Preferred Stock immediately prior to the Series D
Conversion Issuance multiplied by (y) the sum of one plus a fraction with: (A) a
numerator equal to (I) the Adjusted Convertible Outstanding Amount immediately
after giving effect to such Series D Conversion Issuance minus (II) the Adjusted
Convertible Outstanding Amount immediately prior to such Series D Conversion
Issuance; and (B) a denominator equal to the Adjusted Convertible Outstanding
Amount immediately prior to such Series D Conversion Issuance. The
Corporation shall notify the Holder in writing on a quarterly basis of all
Series D Conversions which shall have occurred during the preceding calendar
quarter, indicating therein the number of shares of Series D Preferred Stock as
to which a Series D Conversion shall have occurred and the calculation of such
adjusted Conversion Price (such notice, the “
Series D Conversion
Adjustment Notice
”). Such Series D Conversion Adjustment
Notice shall be given by the Corporation to the Holder in accordance with
Section 10(a). For purposes of clarification, whether or not the Corporation
provides a Series D Conversion Adjustment Notice pursuant to this Section 7(c),
upon the occurrence of any Series D Conversion, the Holder is entitled to
receive a number of Conversion Shares based upon the adjusted Conversion Price
on or after the date of such Series D Conversion, regardless of whether the
Holder accurately refers to the adjusted Conversion Price in the Notice of
Conversion.
Section 8
.
Forced
Conversion
. At any time following the date upon which there
are no outstanding shares of Existing Preferred Stock, the Corporation may
automatically convert all of the then outstanding shares of Series E Preferred
Stock into Common Stock at the then effective Conversion Price (such automatic
conversion, the “
Forced Conversion
”),
if, after giving effect to the Forced Conversion, the Conversion Shares issued
to the Holder upon such Forced Conversion
plus
the number of shares of
Common Stock owned by the Holder immediately prior to such Forced Conversion
shall equal a number of shares of Common Stock that is greater than fifty
percent (50%) of the then outstanding Common Stock. The Holder will be given at
least five (5) Business Days' prior written notice of the date fixed and the
place designated for mandatory conversion of all of such shares of Series E
Preferred Stock pursuant to this Section 8. Such written notice shall
be given by the Corporation to the Holder in accordance with Section
10(a). On or before the date fixed for conversion the Holder shall
surrender its certificate or certificates for all such shares to the Corporation
at the place designated in such notice, and shall thereafter receive
certificates for the number of Conversion Shares into which the Holder’s shares
of Series E Preferred Stock are convertible. On the date fixed for
conversion, all rights with respect to the Series E Preferred Stock so converted
will terminate, except only the rights of the Holder, upon surrender of its
certificate or certificates therefor, to receive certificates for the number of
Conversion Shares into which such Series E Preferred Stock has been converted
and payment of any declared and unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the
Holder. All certificates evidencing shares of Series E Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Series E Preferred Stock represented thereby converted into Common
Stock for all purposes, notwithstanding the failure of the Holder to surrender
such certificates on or prior to such date. As soon as practicable
after the date of such mandatory conversion and the surrender of the certificate
or certificates for Series E Preferred Stock as aforesaid, the Corporation shall
cause to be issued and delivered to the Holder, or on or its written order, a
certificate or certificates for the number of Conversion Shares issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Section 6(d)(i) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
Section 9
.
Transfers
. Notwithstanding
anything herein to the contrary, other than with respect to Transfers to
Affiliates of the Holder, the Holder shall not be entitled to Transfer its
shares of Series E Preferred Stock without the prior written consent of the
Corporation; provided, however, that nothing in this Section 9 shall prohibit or
otherwise restrict the Holder’s ability to Transfer the Conversion Shares issued
to it following a conversion of its shares of Series E Preferred Stock in
accordance with the terms hereof following the Lock-Up Period.
Section 10.
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
Operating Officer, or such other facsimile number or address as the Corporation
may specify for such purposes by notice to the Holder delivered in accordance
with this Section 10. 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 the Holder at the facsimile number or address of
the 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 10 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 10 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.
b)
Lost or Mutilated Series E
Preferred Stock Certificate
. If the Holder’s Series E
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 E 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.
c)
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.
d)
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.
e)
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.
f)
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.
g)
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.
h)
Status of Converted or
Redeemed Series E Preferred Stock
. Shares of Series E
Preferred Stock may only be issued pursuant to the Strategic
Agreement. If any shares of Series E 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 E Preferred Stock.
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 Preferences, Rights and
Limitations of the Series E Convertible Preferred Stock in accordance with the
foregoing resolution and the provisions of Delaware law.”
[R
emainder of this page is
intentionally blank; signature page follows
]
IN WITNESS WHEREOF
, the
Corporation has caused this Amended Certificate of Designations of the Series E
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:
|
/s/
Jerry Treppel
|
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Name:
|
Jerry
Treppel
|
|
|
Title:
|
Chief
Executive Officer
|
|
Attest:
|
|
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|
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|
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By:
|
/s/ Carter J. Ward
|
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Name:
|
Carter
J. Ward
|
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Title:
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Chief
Financial Officer
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ANNEX
A
NOTICE OF
CONVERSION
(TO BE
EXECUTED BY THE REGISTERED THE HOLDER IN ORDER TO CONVERT SHARES OF SERIES E
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series E
Convertible Preferred Stock indicated below into shares of common stock, par
value U.S.$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 Strategic 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 E Preferred Stock owned prior to
Conversion:
|
|
Number
of shares of Series E Preferred Stock to be Converted:
|
|
Stated
Value of shares of Series E Preferred Stock to be
Converted:
|
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Number
of shares of Common Stock to be Issued:
|
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Applicable
Conversion Price:
|
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Number
of shares of Series E Preferred Stock subsequent to
Conversion:
|
|
Execution
Version
STIPULATION
OF SETTLEMENT AND RELEASE
This Stipulation of
Settlement and Release (“
Stipulation
”),
entered into as of June 25, 2010 (the “
Effective Date
”), is
by and among Elite Pharmaceuticals, Inc., a Delaware corporation (“
Elite
”), and
Midsummer Investment, Ltd., a Bermuda corporation (“
Midsummer
”) and
Bushido Capital Master Fund, LP, a Cayman Islands limited partnership (“
Bushido
”, and
collectively with Midsummer, the “
Plaintiffs
”), BCMF
Trustees LLC (“
BCMF
”), Epic
Pharma
,
LLC
, a
Delaware limited liability company, and
Epic
Investments, LLC
, a Delaware limited
liability company (Epic Pharma and Epic Investments collectively,
“”Epic”)
. Elite, the Plaintiffs, BCMF and Epic (the “
P
arties
” and each a
“
Party
”)
intending to be legally bound, covenant, agree and represent as
follows:
WHEREAS, the Plaintiffs filed an action
against Elite in the United States District Court, Southern District of New
York, Number 09 CV 8074 (SHS), seeking injunctive relief and monetary damages
relating to the issuance of the Series E Convertible Preferred Stock (the “
Action
”);
WHEREAS, Elite denied all material
allegations asserted in the Action and asserted defenses;
WHEREAS,
to avoid the delays, expense and risks inherent in litigation, the Parties
desire to resolve their dispute under the terms and conditions of this
Stipulation and the Amendment Agreement, dated as of June 25, 2010 among Elite
and the investors signatory thereto (“
Amendment
Agreement
”); and
WHEREAS, the Parties believe that the
terms of this Stipulation are fair and were reached in good faith.
NOW THEREFORE,
in
consideration of the obligations and promises as set forth in this Stipulation,
the full sufficiency of which the Parties hereby acknowledge, and in full
settlement of the Parties’ claims, the Parties agree as follows:
1.
Execution of the Amendment
Agreement
. This Stipulation will only become binding upon the
Parties upon both complete execution of the Amendment Agreement and satisfaction
or waiver of the conditions set forth in Sections 2.12 and 2.13 of the Amendment
Agreement.
2.
Dismissal of
Action
. Concurrent with the execution of this Stipulation,
counsel for the Parties will execute a Stipulation of Discontinuance of the
Action, with prejudice and without costs, substantially in the form annexed
hereto as Exhibit A. Counsel for Plaintiffs will file the Stipulation
of Discontinuance once this Stipulation becomes binding pursuant to the terms of
paragraph 1 herein, and send a stamped copy to counsel for Elite.
3.
Elite
Release
. In exchange for the execution of this Agreement, and
the promises herein, and the execution of the Amendment Agreement, Elite and
Epic, individually and on behalf of each of their respective officers,
directors, agents, representatives, successors, affiliated entities,
subsidiaries, heirs, employees, administrators and assigns (the “
Elite Releasors
”)
hereby releases and forever discharges each of the Plaintiffs, BCMF, their
owners, officers, directors, investors, agents, representatives, successors,
affiliated entities, subsidiaries, heirs, employees, administrators and assigns
(the “
Plaintiffs’
Releasees
”) from any and all actions, causes of action, claims, liens,
suits, debts, accounts, liabilities, expenses, attorneys’ fees, agreements,
promises, charges, complaints and demands whatsoever, known or unknown, whether
in law or equity, which the Elite Releasors may now have or hereafter can have,
shall have, may have, or may have had for, upon, or by reason of any cause or
thing whatsoever including, but not limited to, claims that could have been
asserted in the Action or any other court action, based upon any conduct from
the beginning of the world up to and including the date of this Stipulation;
provided
,
however
, that the
Elite Releasors do not release any claim of breach of the terms of this
Stipulation, breach of the terms of the Amendment Agreement, or any cause of
action arising from future conduct by the Plaintiffs’ Releasees.
4.
Plaintiffs’
Release
. In exchange for the execution of this Agreement, the
promises herein, and the execution of the Amendment Agreement, Plaintiffs and
BCMF, individually and on behalf of each of their respective owners, officers,
directors, investors, agents, representatives, successors, affiliated entities,
subsidiaries, heirs, employees, administrators and assigns (the “
Plaintiffs’
Releasors
”) hereby release and forever discharge Elite and Epic and each
of their respective officers, directors, agents, representatives, successors,
affiliated entities, subsidiaries, heirs, employees, administrators and assigns
(the “
Elite
Releasees
”), from any and all actions, causes of action, claims, liens,
suits, debts, accounts, liabilities, expenses, attorneys’ fees, agreements,
promises, charges, complaints and demands whatsoever, known or unknown, whether
in law or equity, which the Plaintiffs’ Releasors may now have or hereafter can
have, shall have, may have, or may have had for, upon, or by reason of any cause
or thing whatsoever including, but not limited to, claims that could have been
asserted in the Action or any other court action, based upon any conduct from
the beginning of the world up to and including the date of this Stipulation;
provided
,
however
, that the
Plaintiffs’ Releasors do not release any claim of breach of the terms of this
Stipulation, breach of the terms of the Amendment Agreement or any cause of
action arising from future conduct by the Elite Releasees.
5.
Continued Rights and
Obligations
. It is expressly understood and agreed that
nothing herein affects any future rights or obligations of the Parties under the
Transaction Documents, as defined in the Amendment Agreement.
6.
Non-Admission
. Each
of the Parties expressly denies any wrongdoing or liability and nothing in this
Stipulation shall be interpreted as an admission of liability by any of the
Parties to this Stipulation.
7.
Enforceability
. The
Parties understand and acknowledge that this Stipulation is final and binding,
and the Parties agree not to challenge its enforceability.
8.
Governing
Law
. The Parties further agree that this Stipulation will be
governed by the laws of the State of New York.
9.
Severability
. The
Parties further agree that if any of the provisions, terms, clauses, waivers and
releases of claims and rights contained in this Stipulation are declared
illegal, unenforceable, or ineffective in a legal forum of competent
jurisdiction, such provisions, terms, clauses, waivers and releases of claims or
rights shall be modified, if possible, in order to achieve, to the extent
possible, the intentions of the Parties, and, if necessary, such provisions,
terms, clauses, waivers and releases of claims and rights shall be deemed
severable, such that all other provisions, terms, clauses, waivers and releases
of claims and rights contained in this Stipulation shall remain valid and
binding upon all Parties.
10.
Amendments
. The
Parties further agree that this Stipulation may not be altered, amended,
modified, superseded, canceled or terminated except by an express written
agreement duly executed by all the Parties or their attorneys on their behalf,
which makes specific reference to this Stipulation.
11.
Drafting
. The
Parties agree that this Stipulation has been jointly drafted and negotiated with
the assistance of counsel for each Party and that any ambiguity shall not be
construed against any Party as the drafter of the Stipulation.
12.
Counsel
. The
Parties acknowledge and represent that each has been represented by the counsel
of his or its choosing in the negotiation and execution of this Stipulation,
that each Party has read the entire Stipulation, and is fully aware of its legal
effect. Parties shall each pay their own legal fees and costs, except
as otherwise expressly set forth in this Stipulation.
13.
Notices
. Any
notices or other communications to be given in accordance with this Stipulation
shall be made in accordance with the provisions of the Securities Purchase
Agreement, dated September 15, 2008, as amended.
14.
Authority
. The
Parties represent and warrant that they have the power, authority and
authorization to enter into this Stipulation and that they have not transferred,
assigned or hypothecated to any third party any of their rights released in this
Stipulation.
15.
Copies
. This
Stipulation may be executed in one or more counterpart originals, whether by
facsimile or otherwise, all of which, taken together, shall constitute one and
the same instrument.
[THE
REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
To
signify their agreement to the terms of this Stipulation, the Parties have
executed this Stipulation on the date set forth opposite their signatures which
appear below.
Dated: June
25, 2010
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ELITE
PHARMACEUTICALS, INC.
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By:
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Name:
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Title:
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Dated: June
25, 2010
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MIDSUMMER
INVESTMENT, LTD.
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By:
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Name:
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Title:
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Dated: June
25, 2010
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BUSHIDO
CAPITAL MASTER FUND, LP
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By:
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Name:
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Title:
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Dated: June
25, 2010
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BCMF
TRUSTEES LLC
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By:
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Name:
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Title:
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Dated: June
25, 2010
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EPIC
PHARMA, LLC
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By:
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Name:
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Title:
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Dated: June
25, 2010
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EPIC
INVESTMENTS, LLC
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By:
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Name:
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Title:
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EXHIBIT
A
UNITED
STATES DISTRICT COURT
SOUTHERN
DISTRICT OF NEW YORK
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x
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Midsummer
Investment, Ltd., and
Bushido
Capital Master Fund, LP,
Plaintiffs,
-against-
Elite
Pharmaceuticals, Inc.,
Defendant.
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09
CV 8074 (SHS)
STIPULATION
OF DISMISSAL WITH PREJUDICE
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x
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IT IS HEREBY STIPULATED AND AGREED
by and among the parties that the above-captioned action, be dismissed in
its entirety, with prejudice, with no award of counsel fees or costs by the
Court to either side.
Dated:
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New
York, New York
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Law
Offices of Kenneth A. Zitter
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Richardson
& Patel LLP
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Kenneth
A. Zitter (KAZ-3195)
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David
Gordon (DG-0010)
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Attorney
for Plaintiffs
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Attorneys
for Defendant
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260
Madison Avenue, 18
th
floor
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750
Third Avenue, 9
th
floor
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New
York, New York 10016
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New
York, New York 10017
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212-532-8000
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646-755-7315
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AMENDMENT
AGREEMENT
This
Amendment Agreement (the “
Agreement
”), dated as
of June 25, 2010, is by and among Elite Pharmaceuticals, Inc., a Delaware
corporation (the “
Company
”) and the
investors signatory hereto (each, a “
Purchaser
” and
collectively, the “
Purchasers
”).
WHEREAS,
pursuant to a Securities Purchase Agreement, dated September 15, 2008, as
amended (the “
Purchase
Agreement
”), among the Company and the investors signatory thereto, the
Company issued Series D 8% Convertible Preferred Stock (the “
Series D Preferred
Stock
”), pursuant to a 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 (the “
COD
”), and were
issued warrants (the “
Warrants
” and,
together with the Purchase Agreement and the COD, the “
Transaction
Documents
”) exercisable for shares of Common Stock of the
Company;
WHEREAS,
the parties wish to amend certain terms of the Transaction
Documents.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the Purchasers and the Company agree as
follows:
ARTICLE
I
DEFINITIONS
Section
1.1.
Definitions
. Capitalized
terms not defined in this Agreement shall have the meanings ascribed to such
terms in the Purchase Agreement.
ARTICLE
II
AMENDMENTS
AND OTHER AGREEMENTS
Section
2.1.
Warrant
Amendments
.
(i) Section
2(b) of the Warrants is hereby amended and restated in its entirety as follows
(for purposes of clarification, solely as a result of this adjustment, there
will be no corresponding increase in the number of Warrant Shares):
“Exercise
Price
. The exercise price per share of the Common Stock under
this Warrant shall be US
$0.125
, subject to adjustment
hereunder (the “
Exercise
Price
”).”
(ii) The
following is added as new Section 3(h) to each Warrant:
“
Other
Adjustment
. In addition to the
other adjustments herein, the Exercise Price shall be reduced as
follows: (i) by 20% if on September 15, 2011 the Holder still
beneficially owns more than 50% of the Preferred Stock beneficially owned by it
as of the date of that certain Amendment Agreement, dated June 25, 2010,
pursuant to which this provision was amended to this Warrant (“
Base
Ownership
”) (excluding
for purposes of such calculation, shares of Preferred Stock issued on the date
hereof in lieu of dividend payments on the Preferred Stock, if any); and (ii) by
20% if (a) on September 15, 2011, the Holder then beneficially owns more than
25% of the Base Ownership and 50% or less of the Base Ownership and (b) on
September 15, 2012, the Holder then beneficially owns more than 25% of the Base
Ownership; provided that, under this Section 3(h), the reduction in Exercise
Price may only occur once. Notwithstanding anything herein to the
contrary, in the event that on September 15, 2011 or, if the condition of clause
(ii)(a) above is met, on September 15, 2012, the Holder beneficially owns 25% or
less of the Base Ownership, then no adjustment shall occur
hereunder. Additionally, solely as a result of this adjustment, there
will be no corresponding increase in the number of Warrant
Shares”
Section
2.2
Amendment to Certificate of
Designation
. On or prior to the date hereof, the Company shall
deliver evidence of the filing of an Amendment to the Certificate of
Designation, in the form attached hereto as
Exhibit A
(the “
Certificate of
Amendment
”). Each Purchaser hereby consents to terms and
filing of the Certificate of Amendment.
Section
2.3
Amendment to Section 1.1 of
the Purchase Agreement
. The definition of “Exempt Issuance” in
Section 1.1 of the Purchase Agreement is hereby amended to add the following as
the last two sentences of such definition:
“As
used herein, the term “Strategic Transaction” shall expressly include securities
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 Company 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 2010 amendment shall constitute an Exempt
Issuance).”
Section
2.4
SEC
Filings/Misc.
So long as the Purchasers beneficially own, in
the aggregate, at least 15% of the Series D Preferred Stock held by the
Purchasers as of the date hereof (including for purposes of such calculation,
shares of Preferred Stock issued on the date hereof in lieu of dividend payments
on the Preferred Stock), the Company hereby agrees:
(i) to
maintain the registration of the Common Stock under Section 12(b) or 12(g) of
the Exchange Act and to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act;
(ii) not
to engage in a “going-private” transaction subject to Rule 13e-3 of the Exchange
Act; and
(iii) to
use commercially reasonable efforts to obtain analyst coverage from a FINRA
member firm and to have such analyst publish reports on the Company on at least
a semi-annual basis.
Section 2.5
Increase in Authorized
Shares; Reverse Split
.
(i) At
its next meeting of shareholders the Company shall seek shareholder approval to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least 760 million
shares (the “
Authorized Share
Increase
”), subject to downward adjustment if the Company shall effect a
Reverse Split (as defined below), with the recommendation of the Company’s Board
of Directors that such proposal be approved, and the Company shall solicit
proxies from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all management-appointed
proxyholders shall vote their proxies in favor of such proposal.
(ii) Each
Purchaser, severally, and not jointly, hereby agrees to vote all shares of
Common Stock beneficially owned by it on the applicable record date in favor of
(i) the Authorized Share Increase and (ii) a reverse stock split, in the ratio
of no greater than 50 to 1 (the “
Reverse
Split
”). The Company represents, warrants and covenants that
all outstanding securities of the Company (including Common Stock and Common
Stock Equivalents) will proportionally adjust as to the number of shares
issuable and the conversion or exercise prices as a result of any reverse stock
split.
Section 2.6
Future Agreements with other
Preferred Stock Holders
. In the event any holder
of the Company’s preferred stock that is not an Affiliate (as defined in the
Transaction Documents) of a Purchaser takes action against the Company with
respect to the transaction set forth in the Strategic Alliance Agreement, dated
March 18, 2009, between the Company, Epic Investments, LLC and Epic Pharma, LLC
as amended through the fourth amendment dated June 25, 2010 (such agreement
through the fourth amendment thereof, the “
Epic SAA
”), and if
the Company settles any such action, or is forced to settle, on terms more
favorable than the terms hereunder, each Purchaser may within twenty Trading
Days after disclosure of such settlement, cause the Company to amend the terms
of this transaction as to such Purchaser only so as to give such Purchaser the
benefit of such more favorable terms or conditions, on a proportionate
basis.
Section 2.7
Limitation on Consent
Consideration
. In the event that the Company is required to
seek consent from the holders of other classes of its preferred stock to approve
the transactions under this Agreement, the Company shall not offer any
consideration to such security holders without the prior written consent of the
Purchasers and, in the event such consideration is in the form of Common Stock
or Common Stock Equivalents, in no event, if in the form of an option or
warrant, on terms less favorable to the Company than the Warrants.
Section
2.8
Limitation on Future
Security
Acquisitions. Each Purchaser, severally, and not
jointly with the other Purchasers, hereby agrees that it will not acquire
additional shares of Common Stock or preferred stock of the Company, other than
in connection with the conversion or exercise of Common Stock Equivalents held
by it or pursuant to hedging or covering transactions with respect to any Common
Stock Equivalents held by it.
Section
2.9.
Series E Preferred
Stock
. The Purchasers hereby consent to, and the
Company agrees to cause as a condition to the effectiveness of this Agreement,
the Epic Amendments (as defined below) which amend to the terms of the Company’s
Series E Convertible Preferred Stock (the “
Series E Preferred
Stock
”) issued pursuant to a Certificate of Designation of Preferences,
Rights and Limitations of Series E Convertible Preferred Stock, filed with the
Secretary of State of the State of Delaware on June 3, 2009.
Section
2.10
Effect on Purchase
Agreement
.
The
foregoing consents and waivers are given solely in respect of the transactions
described herein.
Except as expressly set forth herein, all of the
terms and conditions of the Transaction Documents shall continue in full force
and effect after the execution of this Agreement, and shall not be in any way
changed, modified or superseded by the terms set forth herein.
This Agreement shall not
constitute a novatio
n or
satisfaction and accord of any Transaction Document.
Section
2.11
Filing of Form
8-K
. Within 2 Trading Days of the date hereof, the Company
shall issue a Current Report on Form 8-K, reasonably acceptable to each
Purchaser disclosing the material terms of the transactions contemplated hereby,
which shall include this Agreement as an attachment thereto.
Section
2.12
Conditions to Purchasers’
Obligations
. The respective obligations of the Purchasers
hereunder in connection with the Closing are subject to the following conditions
being met:
(a)
the
accuracy in all material respects on the date of the Closing of the
representations and warranties of the Company contained herein;
(b)
all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing shall have been performed;
(c)
the
execution and delivery of a settlement and release agreement, by and among the
Company, the Purchaser and the other parties thereto, in the form attached
hereto as
Exhibit
B
;
(d)
In
satisfaction of payment of all accrued but unpaid dividends as of March 31,
2010, to the extent such issuance does not cause the Purchaser’s
beneficial ownership on the date of issuance to exceed 9.9% of the issued and
outstanding shares of Common Stock (any excess shares shall be issued to the
Purchaser upon written notice from such Purchaser when such Purchaser’s
beneficial ownership is below 9.9% to the extent that such issuance does not
cause the Purchaser to exceed such amount), the Company shall have issued the
following newly issued shares of Common Stock, without restrictive legends, on
account of all accrued but unpaid dividends on the Series D Preferred Stock owed
to such Purchaser as of the date hereof (the “
Unpaid Series D
Dividends
”), and delivered such shares to each Purchaser electronically
through the Depository Trust Company (“
DTC
”) to the DTC
account of such Purchaser set forth on the signature page hereto): (i) 543,143
shares of Common Stock to Midsummer Investment, Ltd.; (ii) 105,566 shares of
Common Stock to Bushido Capital Master Fund, LP and (iii) 172,426 shares of
Common Stock to BCMF Trustees LLC;
provided
that such issuance
and delivery shall be conditioned upon the delivery to the Company by each
Purchaser of a Rule 144 Rep Letter (as defined below) with respect to such
shares; and
(e) the
execution and delivery of an amendment to the transaction documents under the
Epic SAA (including the fourth amendment to the Epic SAA) (collectively, the
“
Epic
Amendments
”), in the form attached hereto as
Exhibit
C
.
Section
2.13
Conditions to Company’s
Obligations
. The obligations of the Company hereunder in
connection with the Closing are subject to the following conditions being
met:
(a) the
accuracy in all material respects on the date of the Closing of the
representations and warranties of the Purchasers contained herein;
(b) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing shall have been performed;
(c) the
execution and delivery of a settlement and release agreement, by and among the
Company, the Purchaser and the other parties thereto, in the form attached
hereto as
Exhibit
B
;
(d) any
consent or approval as may be required from the Company’s preferred stockholders
with respect to the transactions contemplated by this Agreement (the “
Shareholder
Approval
”) shall have been obtained;
(e) each
Purchaser shall have provided to the Company a customary Rule 144 representation
letter (a “
Rule 144
Rep Letter
”), in the form previously provided to the Purchasers, to
accompany the legal opinion to be provided by Company’s counsel to its transfer
agent in connection with the issuance of shares of Common Stock in payment of
the Unpaid Series D Dividends in accordance with Section 2.12(d) above;
and
(f) the
execution and delivery of the Epic Amendments.
Section
2.14
Consent
. Each
Purchaser hereby consents, as holders of Series D Preferred Stock, to the filing
with the Secretary of State of the State of Delaware of amendments to the
Company’s certificate of incorporation (including each application certificate
of designation) to effect the amendments set forth herein and in the Epic
Amendment.
Section
2.15
144 Rep
Letters
. As a condition to the issuance by the Company via DTC
of any shares of Common Stock to be issued by the Company without restrictive
legends (including, without limitation, shares to be issued upon voluntary
and/or mandatory conversions of Series D Preferred Stock and upon payment of
dividends on Series D Preferred Stock), the Purchaser to receive such shares
shall provide to the Company a Rule 144 Rep Letter with respect to the issuance
of such shares without restrictive legends pursuant to Rule 144 promulgated
under the Securities Act of 1933, as amended.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
Section
3.1.
Representations and
Warranties of the Company
. The Company hereby make the
representations and warranties set forth below to the Purchasers that as of the
date of its execution of this Agreement:
(a)
Authorization;
Enforcement.
The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, its board of directors or its
stockholders in connection therewith the Shareholder Approval. This
Agreement has been duly executed by the Company and, when delivered in
accordance with the terms hereof will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b)
No
Conflicts
. Subject to the Shareholder Approval, the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby do not and will not: (i)
conflict with or violate any provision of the Company’s certificate or articles
of incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any lien
upon any of the properties or assets of the Company, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any material agreement, credit facility, debt
or other material instrument (evidencing Company debt or otherwise) or other
material understanding to which the Company is a party or by which any property
or asset of the Company is bound or affected, or (iii) conflict with or result
in a violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the Company
is subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected.
Section
3.2.
Representations and
Warranties of the Purchasers.
Each Purchaser, severally, and
not jointly, hereby make the representations and warranties set forth below to
the Company as of the date of its execution of this Agreement:
(a)
Authorization;
Enforcement.
The Purchaser has the requisite corporate,
partnership and/or company power and authority to enter into and to consummate
the transactions contemplated by this Agreement and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Purchaser and no further action is required by such Purchaser, its
board of directors (or equivalent governing body) or its stockholders, member or
partner in connection therewith. This Agreement has been duly
executed by the Purchaser and, when delivered in accordance with the terms
hereof will constitute the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b)
Ownership of Series D
Preferred Stock
.
Schedule I
attached
hereto sets forth to aggregate number of shares of Series D Preferred Stock
owned by such Purchaser and each of its Affiliates as of the date of this
Agreement (and prior to the issuance of any shares of Series D Preferred Stock
as payment in kind dividends). Other than the shares of Common
Stock issued on account of the Unpaid Series D Dividends, there are no accrued
and unpaid dividends owing upon the Series D Preferred Stock owned by such
Purchaser and each of its Affiliates as of the date of this Agreement (it being
understood that the next dividend payment date shall be with respect to the
dividends that accrue for the period of April 1, 2010 through June 30,
2010).
ARTICLE
IV
MISCELLANEOUS
Section
4.1.
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be made in accordance with the provisions of the
Purchase Agreement.
Section
4.2.
Survival
. All
warranties and representations (as of the date such warranties and
representations were made) made herein or in any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be considered to
have been relied upon by the parties hereto and shall survive the execution and
delivery hereof. This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of each of the parties; provided
however that no party may assign this Agreement or the obligations and rights of
such party hereunder without the prior written consent of the other parties
hereto.
Section
4.3.
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
Section
4.4.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section
4.5.
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined pursuant to
the Governing Law provision of the Purchase Agreement.
Section
4.6.
Entire
Agreement
. The Agreement, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
Section
4.7.
Construction
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
Section
4.8
Independent Nature of
Purchasers’ Obligations and Rights
. The obligations of each
Purchaser hereunder are several and not joint with the obligations of any other
Purchasers hereunder, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser hereunder. Nothing
contained herein or in any other agreement or document delivered at any closing,
and no action taken by any Purchaser pursuant hereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Purchaser shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
Section
4.9
Waiver of Late Fees and
Trigger Events
. Each Purchaser, on its own behalf and on
behalf of any Affiliate holding shares of the Company’s preferred stock
(including, without limitation, shares of Series D Preferred Stock) hereby
irrevocably waives (i) any right it may have, as a holder of such preferred
stock, for any interest or late fee under any provision of the COD (including,
without limitation, Section 3(a)) which may have existed on or prior to the date
of this Agreement and (y) any Trigger Event (as defined in the COD) which may
have occurred or existed on or prior to the date of this Agreement.
***********************
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
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ELITE PHARMACEUTICALS,
INC.
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By:
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Name:
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Title:
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[PURCHASER
SIGNATURE PAGES TO ELITE
AMENDMENT
AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Amendment Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
Signature of Authorized
Signatory of Purchaser
:
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Name
of Authorized Signatory:
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Title
of Authorized Signatory:
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Email
Address of Purchaser:
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Address
for Notice of Purchaser:
DTC
Instructions of Purchaser:
SCHEDULE
I
Series
D Holder
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Number
of Shares of Series D
Preferred
Stock held as of June 25, 2010
|
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Midsummer
Investment LTD
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3,956
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Bushido Master
Capital Fund LP
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761.8
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BCMF
Trustees LLC
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1302.6
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EXHIBIT
A
FORM OF
CERTIFICATE OF AMENDMENT TO THE SERIES D CERTIFICATE OF DESIGNATION
1. The
following definitions included in Section 1 of the Certificate of Designation
are hereby amended in their entirety and replaced with the
following:
“
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 .
“
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 Corp
oration 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 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,
(vii
i) except with respect to Section 8(b),
there has been no public announcement of a pending or pr
oposed 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
t
o such Holder
by the Corporation or any of its
Affiliates.
“
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, 2009 (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 2010 amendment shall constitute
an Exempt Issuance).
2. Section
3(a) of the Certificate of Designation is hereby amended in its entirety and
replaced with the following:
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):
“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.
3. The
first sentence of Section 5 of the Certificate of Designation is hereby amended
in its entirety and replaced with the following:
“
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.”
4. Section
6(b) of the Certificate of Designation is hereby amended in its entirety and
replaced with the following:
“Conversion
Price
. The conversion price for the Series D Preferred Stock
shall equal $0.07, subject to adjustment herein (the “
Conversion
Price
”).”
5. The
last four sentences of Section 6(c) of the Certificate of Designation are hereby
amended in their entirety and replaced with the following
three
sentences:
“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.”
6. Section
6(d) of the Certificate of Designation is hereby amended in its entirety and
replaced with the following:
“Reserved”
7. Section
6(e) of the Certificate of Designation is hereby amended in its entirety and
replaced with the following:
“Reserved”
8. The
second sentence of Section 6(f)(i) of the Certificate of Designation is hereby
amended in its entirety and replaced with the following:
“
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.”
9. The
first sentence of Section 7(a) of the Certificate of Designation is hereby
amended in its entirety and replaced with the following:
“
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.”
10. The
first sentence of the final paragraph of Section 8(a) of the Certificate of
Designation is hereby amended in its entirety and replaced with the
following:
“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”).”
11. The
following is hereby added to the Certificate of Designation as new Section
8(c):
“8(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
”).
12. The
following is hereby added as the last sentence of Section 9(b) of the
Certificate of Designation:
“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.
AMENDMENT
AGREEMENT
This
Amendment Agreement (the “
Agreement
”), dated as
of June 25, 2010, by and among Elite Pharmaceuticals, Inc., a Delaware
corporation (the “
Company
”), on the one
hand, and Epic Pharma, LLC, a Delaware limited liability company (the “
Parent
”), and Epic
Investments, LLC, a Delaware limited liability company (including its successors
and assigns, the “
Purchaser
” and
together with the Parent, the “
Epic Parties
”), on
the other hand.
WHEREAS,
pursuant to a Strategic Alliance Agreement, dated March 18, 2009 (as amended,
the “
SAA
”),
among the Company, on the one hand, and the Epic Parties, on the other hand, the
Company issued Series E Convertible Preferred Stock (the “
Series E Preferred
Stock
”), pursuant to a Certificate of Designation of Preferences, Rights
and Limitations of Series E Convertible Preferred Stock, filed with Secretary of
State of the State of Delaware on June 3, 2009 (the “
COD
” and, together
with the SAA, the “
Transaction
Documents
”);
WHEREAS,
the parties wish to amend certain terms of the Transaction Documents and the
amendments to the SAA shall constitute the fourth amendment
thereof.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the Company and the Epic Parties agree as
follows:
ARTICLE
I
DEFINITIONS
Section
1
Definitions
. Capitalized
terms not defined in this Agreement shall have the meanings ascribed to such
terms in the SAA.
ARTICLE
II
AMENDMENTS
AND OTHER AGREEMENTS
Section
2.1
Amendment to
COD
. On or prior to the date hereof, the Company shall deliver
evidence of the filing of an Amendment to the Certificate of Designation, in the
form attached hereto as
Exhibit A
(the “
Certificate of
Amendment
”). Each of the Epic Parties hereby consents to the
terms and the filing of the Certificate of Amendment, including the Purchaser as
the sole holder of Series E Preferred Stock.
Section
2.2
Amendment to Section 1.1 of
the SAA
. The definition of “Third Closing Date” in Section 1.1
of the SAA is hereby amended in its entirety and replaced with the
following:
““
Third Closing Date
”
means the date of the Third Closing, which shall occur on or before December 31,
2010, provided that all conditions precedent to (i) the Purchaser’s obligation
to purchase the Third Closing Shares have been satisfied or waived by the
Purchaser and (ii) the Company’s obligation to issue and deliver the Third
Closing Shares have been satisfied or waived by the Company.”
Section
2.3
Amendment to Section 2.7 of
the SAA
. The first sentence of Section 2.7 of the SAA is hereby amended
in its entirety and replaced with the following:
“
Additional
Shares
. In addition, the Company agrees to issue and sell, and
the Purchaser agrees to purchase, Sixty Two and one-half (62.5) shares of Series
E Preferred Stock on each of the following dates (each such date, an “
Additional Closing
Date
”): (y) on or prior to November 30, 2009 and (x) within
ten (10) Business Days following the last day of each calendar quarter,
beginning with the calendar quarter ending on September 30, 2010 and continuing
for each of the ten (10) calendar quarters thereafter, upon the terms and
subject to the conditions set forth herein.”
Section 2.4
Effect on SAA
.
The
foregoing consents and waivers are given solely in respect of the transactions
described herein.
Except as expressly set forth herein, all of the
terms and conditions of the Transaction Documents shall continue in full force
and effect after the execution of this Agreement, and shall not be in any way
changed, modified or superseded by the terms set forth herein.
This Agreement shall not
constitute a novatio
n or
satisfaction and accord of any Transaction Document.
Section
2.5
Increase in Authorized
Shares; Reverse Split
.
(i) At
its next meeting of shareholders the Company shall seek shareholder approval to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least 760 million
shares (the “
Authorized Share
Increase
”), subject to downward adjustment if the Company shall effect a
Reverse Split (as defined below), with the recommendation of the Company’s Board
of Directors that such proposal be approved, and the Company shall solicit
proxies from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all management-appointed
proxyholders shall vote their proxies in favor of such proposal.
(ii) The
Purchaser hereby agrees to vote all shares of Series E Preferred Stock and
Common Stock beneficially owned by it on the applicable record date in favor of
(i) the Authorized Share Increase and (ii) a reverse stock split, in the ratio
of no greater than 50 to 1 (the “
Reverse
Split
”). The Company represents, warrants and covenants that
all outstanding securities of the Company (including Common Stock and Common
Stock Equivalents) will proportionally adjust as to the number of shares
issuable and the conversion or exercise prices as a result of any reverse stock
split.
Section
2.6.
Series D Preferred
Stock
. The Epic Parties hereby consent to, and the
Company agrees to cause as a condition to the effectiveness of this Agreement,
the amendments set forth in the Series D Amendment Agreement (as defined below),
including, without limitation, the amendment (the “
Series D COD
Amendment
”) of the terms of the Company’s Series D Convertible Preferred
Stock (the “
Series D
Preferred Stock
”) issued pursuant to a Certificate of Designation of
Preferences, Rights and Limitations of Series D 8% Convertible Preferred Stock,
filed with the Secretary of State of the State of Delaware on September 15,
2008.
Section
2.6
Conditions to the Epic
Parties’ Obligations
. The respective obligations of the Epic
Parties hereunder in connection with the Closing are subject to the following
conditions being met:
(a)
the
accuracy in all material respects on the date of the Closing of the
representations and warranties of the Company contained herein;
(b)
all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing shall have been performed;
(c)
the
execution and delivery of the Amendment Agreement, by and among the Company,
Bushido Capital Master Fund, LP and Midsummer Investment Ltd. (the “
Series D Amendment
Agreement
”), in substantially the form attached hereto as
Exhibit B
and the
receipt of all necessary consents to the Series D COD Amendment, and the receipt
by the Epic Parties of true, correct and complete copies thereof (including
evidence of the filing of the Series D COD Amendment); and
(d)
the
execution and delivery of a settlement and release agreement, by and among the
Company, Bushido Capital Master Fund, LP, BCMF Trustees, LLC, Midsummer
Investment Ltd. And the Epic Parties (the “
Settlement
Agreement
”), in substantially the form attached hereto as
Exhibit
C
.
Section
2.7
Conditions to Company’s
Obligations
. The obligations of the Company hereunder in
connection with the Closing are subject to the following conditions being
met:
(a)
the
accuracy in all material respects on the date of the Closing of the
representations and warranties of each of the Epic Parties contained
herein;
(b)
all
obligations, covenants and agreements of each of the Epic Parties required to be
performed at or prior to the Closing shall have been performed;
(c)
the
execution and delivery of the Series D Amendment Agreement; and
(d)
the
execution and delivery of the Settlement Agreement.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
Section
3.1
Representations and
Warranties of the Company
. The Company hereby make the
representations and warranties set forth below to the Epic Parties that as of
the date of its execution of this Agreement:
(a)
Authorization;
Enforcement.
The Company has the requisite corporate
power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, its board of directors or its
stockholders in connection therewith. This Agreement has been duly
executed by the Company and, when delivered in accordance with the terms hereof
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b)
No
Conflicts
. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not: (i) conflict with or violate any
provision of the Company’s certificate or articles of incorporation, bylaws or
other organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any lien upon any of the properties or
assets of the Company, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any material agreement, credit facility, debt or other material instrument
(evidencing Company debt or otherwise) or other material understanding to which
the Company is a party or by which any property or asset of the Company is bound
or affected, or (iii) conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected.
Section
3.2
Representations and
Warranties of the Epic Parties.
Each Epic Party, jointly and
severally, hereby represents and warrants to the Company that, as of the date
hereof, each Epic Party has the requisite corporate, partnership and/or company
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this
Agreement by each Epic Party and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of each Epic Party and no further action is required by either Epic Party,
their respective board of directors (or equivalent governing body) or their
respective stockholders, members or partners in connection
therewith. This Agreement has been duly executed by each Epic Party
and, when delivered in accordance with the terms hereof will constitute the
valid and binding obligation of each Epic Party enforceable against each Epic
Party in accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
ARTICLE
IV
MISCELLANEOUS
Section
4.1
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be made in accordance with the provisions of the
SAA.
Section
4.2
Survival
. All
warranties and representations (as of the date such warranties and
representations were made) made herein or in any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be considered to
have been relied upon by the parties hereto and shall survive the execution and
delivery hereof. This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of each of the parties; provided
however that no party may assign this Agreement or the obligations and rights of
such party hereunder without the prior written consent of the other parties
hereto.
Section
4.3
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile or email transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or email signature
page were an original thereof.
Section
4.4
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section
4.5
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined pursuant to
the Governing Law provision of the SAA.
Section
4.6
Entire
Agreement
. The Agreement, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
Section
4.7
Construction
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
***********************
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
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ELITE PHARMACEUTICALS,
INC.
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Name:
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Title:
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EPIC PHARMA,
LLC
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Name:
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EPIC
INVESTMENTS, LLC
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By:
EPIC PHARMA LLC, its Managing Member
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By:
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EXHIBIT
A
FORM OF
CERTIFICATE OF AMENDMENT TO THE SERIES E CERTIFICATE OF DESIGNATION
1.
(a) The
following definitions shall be added to Section 1 of the Certificate of
Designation in the correct alphabetical order:
““
Adjusted Convertible
Outstanding Amount
” means, for purposes of determining the adjustment to
the Conversion Price under Section 7(i) hereof, as of the time of such
determination, the sum of (i) the number of outstanding shares of Common Stock
(assuming, solely for purposes of such calculation, that all shares of Series D
Preferred Stock which have converted after the date of the Series D Amendment
Agreement shall have converted at the Adjusted Series D Conversion Price), (ii)
the number of shares of Common Stock into which all Series B Preferred Stock are
then convertible at the Original Series B Preferred Stock Conversion Price,
(iii) the number of shares of Common Stock into which all Series C Preferred
Stock are then convertible at the Original Series C Preferred Stock Conversion
Price, and (iv) the number of shares of Common Stock into which all Series D
Preferred Stock are then convertible at the Original Series D Preferred Stock
Conversion Price. For the avoidance of doubt, the Adjusted
Convertible Outstanding Amount shall
not
include any
shares of Common Stock into which the Series E Preferred Stock is
convertible.
““
Adjusted Series D Conversion
Price
” means the conversion price of the Series D Preferred Stock under
the Series D Certificate, as in effect immediately after the date of
the Series D Certificate Amendment (without any future adjustment
under the Series D Certificate other than adjustment under Section 7(a)
thereof), which initially was $0.07.”
““
Original Series B Conversion
Price
” means $1.56, representing the conversion price of the Series B
Preferred Stock under the Series B Certificate in effect immediately prior to
the date of the Series D Amendment Agreement (subject only to adjustment under
Section 7(a) of the Series B Certificate).”
““
Original Series C Conversion
Price
” means $1.61, representing the conversion price of the Series C
Preferred Stock under the Series C Certificate in effect immediately prior to
the date of the Series D Amendment Agreement (subject only to adjustment under
Section 7(a) of the Series C Certificate).”
““
Original Series D Conversion
Price
” means $0.20, representing the conversion price of the Series D
Preferred Stock under the Series D Certificate in effect immediately prior to
the date of the Series D Certificate Amendment (subject only to
adjustment under Section 7(a) of the Series D Certificate).”
““
Series D Amendment
Agreement
” means the certain Amendment Agreement, dated as of June 25,
2010, by and among the Corporation, Bushido Capital Master Fund, LP and
Midsummer Investment Ltd.”
““
Series D Certificate
Amendment
” means the Series D Certificate of Amendment to
Certificate of Designation filed with the Secretary of State of the State of
Delaware on June __, 2010.”
““
Series D Warrants
”
means the common stock warrant, as amended, issued to the purchasers of the
Series D Preferred Stock pursuant to a certain Securities Purchase Agreement,
dated September 15, 2008, as amended, among the Corporation and the investors
signatory thereto.”
(b) The
following definitions set forth in Section 1 of the Certificate of Designation
shall be amended to read as follows:
““
Existing Preferred
Stock
” means, as of any date of determination, the then issued and
outstanding shares of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock.”
““
Series D
Certificate
”
means the
Certificate of Designation of Preferences, Rights and Limitations of the Series
D 8% Convertible Preferred Stock, filed with the Secretary of State of the State
of Delaware on September 15, 2008, as amended by the Series D Certificate
Amendment.”
2. The
first sentence of Section 6(a) of the Certificate of Designation is hereby
amended in its entirety and replaced with the following:
“
Conversions at Option of the
Holder
. Subject to Section 6(c) below, each share of Series E 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 determined by dividing the Stated Value of such share
of Series E Preferred Stock by the Conversion Price.”
3. Section
6(c) of the Certificate of Designation is hereby amended in its entirety and
replaced with the following:
“
Authorized Share
Limitations
. Notwithstanding anything herein to the contrary,
the Holder’s ability to convert Series E Preferred Stock into Conversion Shares
shall be limited to a number of Conversion Shares equal to the difference
between (a) the Company’s total authorized shares of Common Stock as of the
applicable Conversion Date, minus (b) as of the applicable Conversion Date, the
sum of (i) the Company’s total issued and outstanding Common Stock and (ii) the
total number of shares of Common Stock reserved for issuance upon the exercise
or conversion, as applicable, of outstanding Common Stock Equivalents
(including, without limitation, the Warrants, the Series D Preferred Stock and
the Series D Warrants), after giving effect to the Series D Amendment Agreement.
The portion of the Series E Preferred Stock which may not be converted as a
result of this Section 6(c) shall thereafter be unconvertible to such extent
until and unless approval by the Corporation’s stockholders of an increase in
the number of authorized shares of Common Stock of the Corporation is
subsequently obtained; provided, however, the rights and preferences of the
Series E Preferred Stock otherwise set forth in this Certificate of Designation
shall otherwise remain in full force and effect. For the avoidance of doubt, the
voting rights of the Holder under Section 4(a) shall not be affected by the
restrictions of this Section 6(c).”
4. The
first sentence of Section 7(c) of the Certificate of Designation is hereby
amended in its entirety and replaced with the following:
“
Subsequent Dividend
Issuances
. If the Corporation, at any time while the Series E
Preferred Stock is outstanding, shall issue shares of Common Stock or shares of
Series D Preferred Stock in lieu of cash in satisfaction of its dividend
obligations on shares of outstanding Existing Preferred Stock in accordance with
the Series B Certificate, Series C Certificate and/or Series D Certificate, as
applicable (any such issuance, a “
Dividend Issuance
”),
then the then applicable Conversion Price shall be reduced to a price equal to
(i) the aggregate Stated Value of Series E Preferred Stock then outstanding
divided by (ii) the product of (x) aggregate number of Conversion Shares
issuable upon conversion of the then outstanding Series E Preferred Stock
immediately prior to Dividend Issuance multiplied by (y) the sum of one plus a
fraction with: (A) a numerator equal to (I) the number of outstanding shares of
Common Stock immediately after giving effect to the Dividend Issuance (assuming
conversion of all Existing Preferred Stock in accordance with the Series B
Certificate, Series C Certificate and/or Series D Certificate, as applicable,
but not the Series E Preferred Stock) minus (II) the number of outstanding
shares of Common Stock immediately prior to the Dividend Issuance (assuming
conversion of all Existing Preferred Stock in accordance with the
Series B Certificate, Series C Certificate and/or Series D Certificate, as
applicable, but not the Series E Preferred Stock); and (B) a denominator equal
to the number of outstanding shares of Common Stock immediately prior to the
Dividend Issuance (assuming conversion of all Existing Preferred Stock in
accordance with the Series B Certificate, Series C Certificate and/or Series D
Certificate, as applicable, but not the Series E Preferred Stock).
5. The
following is hereby added to the Certificate of Designation as new Section
7(i):
“
Special
Adjustment relating to Series D Preferred Stock
. If the Corporation, at
any time while the Series E Preferred Stock is outstanding, shall issue shares
of Common Stock in conversion of shares of outstanding Series D Preferred Stock
in accordance with the Series D Certificate (any such issuance, a “
Series D
Conversion Issuance
”),
then the then applicable Series E Conversion Price shall be reduced to a
price equal to (i) the aggregate Stated Value of Series E Preferred Stock then
outstanding divided by (ii) the product of (x) the aggregate number of
Conversion Shares issuable upon conversion of the then outstanding Series E
Preferred Stock immediately prior to the Series D Conversion Issuance multiplied
by (y) the sum of one plus a fraction with: (A) a numerator equal to (I) the
Adjusted Convertible Outstanding Amount immediately after giving effect to such
Series D Conversion Issuance minus (II) the Adjusted Convertible Outstanding
Amount immediately prior to such Series D Conversion Issuance; and (B) a
denominator equal to the Adjusted Convertible Outstanding Amount immediately
prior to such Series D Conversion Issuance.
The Corporation shall notify the
Holder in writing on a quarterly basis of all Series D Conversions which shall
have occurred during the preceding calendar quarter, indicating therein the
number of shares of Series D Preferred Stock as to which a Series D Conversion
shall have occurred and the calculation of such adjusted Conversion Price (such
notice, the “
Series D
Conversion Adjustment Notice
”). Such Series D
Conversion Adjustment Notice shall be given by the Corporation to the Holder in
accordance with Section 10(a). For purposes of clarification, whether or not the
Corporation provides a Series D Conversion Adjustment Notice pursuant to this
Section 7(c), upon the occurrence of any Series D Conversion, the Holder is
entitled to receive a number of Conversion Shares based upon the adjusted
Conversion Price on or after the date of such Series D Conversion, regardless of
whether the Holder accurately refers to the adjusted Conversion Price in the
Notice of Conversion.”
ELITE
ANNOUNCES SETTLEMENT OF LITIGATION
NORTHVALE,
N.J. – June 30, 2010 – Elite Pharmaceuticals, Inc. (“Elite”) (OTCBB: ELTP)
announces the settlement of the litigation pending in the United States District
Court for the Southern District of New York between Elite and certain holders of
Elite’s Series D Preferred Stock. The plaintiffs in such
action, Midsummer Investment, Ltd. and Bushido Capital Master Fund, LP, have
entered into a settlement agreement with Elite pursuant to which the lawsuit
will be dismissed with prejudice and the parties provided mutual
releases.
About Elite Pharmaceuticals,
Inc.
Elite
Pharmaceuticals, Inc. develops oral sustained and controlled release products.
Elite's strategy includes assisting partner companies in the life cycle
management of products to improve off-patent drug products and developing
generic versions of controlled release drug products with high barriers to
entry. Two of Elite’s products, Lodrane 24® and Lodrane 24D®, are marketed by a
partner, ECR Pharmaceuticals, for allergy treatment. Elite’s lead pipeline
products are novel sustained release oral formulations of oxycodone for the
treatment of chronic pain, which address two of the limitations of existing oral
opioids: the provision of consistent relief of baseline pain levels and
deterrence of potential abuse. Both products, ELI-216, a once-daily abuse
resistant oxycodone, and ELI-154, a once-daily oxycodone, are in late-stage
development. Elite, with partners, also has an ANDA filed with the FDA for a
generic equivalent of a pain product and has a generic gastrointestinal drug
product in clinical development. Elite operates a GMP and DEA registered
facility for research, development, and manufacturing located in Northvale,
NJ.
This
news release contains forward-looking statements, including those related to the
preliminary nature of the clinical program results and the potential for further
product development, that involve known and unknown risks, delays, uncertainties
and other factors not under the control of Elite, which may cause actual
results, performance or achievements of the companies to be materially different
from the results, performance or other expectations implied by these
forward-looking statements. In particular, because substantial future testing
will be required prior to approval, the results described above may not be
supported by additional data or by the results of subsequent trials. These risks
and other factors, including the timing or results of pending and future
clinical trials, regulatory reviews and approvals by the Food and Drug
Administration and other regulatory authorities, and intellectual property
protections and defenses, are discussed in Elite's filings with the Securities
and Exchange Commission such as the 10K, 10Q and 8K reports. Elite undertakes no
obligation to update any forward-looking statements.
Contact:
For Elite
Pharmaceuticals, Inc.
Dianne
Will, Investor Relations, 518-398-6222
Dianne@elitepharma.com
www.elitepharma.com