Exhibit
4.3
SEQUIAM
CORPORATION
AMENDED
AND RESTATED
CERTIFICATE
OF DETERMINATION OF PREFERENCES,
RIGHTS
AND LIMITATIONS
OF
SERIES
B 10% CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 401 OF THE
CALIFORNIA
GENERAL CORPORATION LAW
The
undersigned, Nicholas VandenBrekel and Mark L. Mroczkowski, do hereby certify
that:
1.
They
are the President and Secretary, respectively, of Sequiam Corporation, a
California corporation (the “Corporation”).
2.
The
Corporation is authorized to issue 50,000,000 shares of preferred stock, 1,575
of which have been previously issued as Series A preferred stock.
3.
The
number of shares of Series B preferred stock shall be 3,105 shares, none of
which have been issued.
4.
The
following resolutions were duly adopted by the Board of Directors:
WHEREAS,
the Certificate of Incorporation of the Corporation provides for a class of
its
authorized stock known as preferred stock, comprised of 50,000,000 shares,
$.001
par value per share, issuable from time to time in one or more
series;
WHEREAS,
the Board of Directors of the Corporation is authorized to fix the dividend
rights, dividend rate, voting rights, conversion rights, rights and terms of
redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any series and the
designation thereof, of any of them; and
WHEREAS,
it is the desire of the Board of Directors of the Corporation, pursuant to
its
authority as aforesaid, to fix the rights, preferences, restrictions and other
matters relating to a series of the preferred stock, which shall consist of
3,105 shares of the Series B preferred stock which the Corporation has the
authority to issue, as follows:
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide
for
the issuance of a series of preferred stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of preferred
stock as follows:
TERMS
OF 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).
“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 as promulgated by
the
Commission) 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).
“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).
“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.
“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 $.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 Preferred Stock in accordance with the terms hereof.
“Conversion
Shares Registration Statement”
means
a
registration statement that registers the resale of all Conversion Shares of
the
Holder, who shall be named as a “selling stockholder” therein and meets the
requirements of the Registration Rights Agreement.
“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 date that the Conversion Shares Registration Statement is declared effective
by the Commission.
“Equity
Conditions”
means,
during the period in question, (i)
the
Corporation shall have duly honored all conversions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the Holder on or
prior to the dates so requested or required, if any, (ii) the Corporation shall
have paid all liquidated damages and other amounts owing to the Holder in
respect of the Preferred Stock, (iii)
there is an effective Conversion Shares Registration Statement pursuant to
which
the Holder is permitted to utilize the prospectus thereunder to resell all
of
the shares of Common Stock issuable pursuant to the Transaction Documents (and
the Corporation believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (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 of all of the shares of Common Stock issuable
pursuant to the Transaction Documents, (vi) 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 case of a redemption, the shares issuable upon conversion
in full of the redemption amount) to the Holder would not violate the
limitations set forth in Section 6(c) herein, (viii)
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) no Holder is in possession of any information that constitutes, or may
constitute, material non-public information.
“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 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 of or conversion of any securities issued
hereunder 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 or conversion price of any such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors, provided that any such issuance shall only
be to
a Person which is, itself or through its subsidiaries, an operating company
in a
business synergistic with the business of the Corporation and shall provide
to
the Corporation additional 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.
“Forced
Conversion Amount”
shall
mean (i) the greater of (A) 20% of the aggregate Stated Value of all Preferred
Stock then outstanding or (B) 25% of the aggregate dollar trading volume of
the
Common Stock for the 15 Trading Days immediately prior to the Forced Conversion
Date, (ii) accrued but unpaid dividends and (iii) all liquidated damages and
other amounts due in respect of the 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”
shall
have the meaning given such term in Section 2.
“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
Preferred Stock in dividend rights or liquidation preference.
“Liquidation”
shall
have the meaning set forth in Section 5.
“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”
shall
mean 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 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 Preferred Stock regardless
of the number of transfers of any particular shares of Preferred Stock and
regardless of the number of certificates which may be issued to evidence such
Preferred Stock.
“Permitted
Indebtedness”
means (a) the
Indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(ff)
attached
to the Purchase Agreement and (b) lease obligations and purchase money
indebtedness of up to $1,000,000, in the aggregate, incurred in connection
with
the acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets.
“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.
“Person”
means
a
corporation, an association, a partnership, an organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
“Preferred
Stock”
shall
have the meaning given such term in Section 2.
“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.
“Purchasers”
means
the original Holders of the Preferred Stock.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, to which the Corporation and the original Holder 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.
“Share
Delivery Date”
shall
have the meaning set forth in Section 6(e).
“Stated
Value”
shall
have the meaning set forth in Section 2.
“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 National Market, the New York Stock Exchange or
the
OTC Bulletin Board.
“Transaction
Documents”
means
this Amended and Restated Certificate of Determination, the Purchase Agreement,
the Warrants, the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated under
the
Purchase Agreement.
“Triggering
Event”
shall
have the meaning set forth in Section 9(a).
“Triggering
Redemption Amount”
means,
for each share of Preferred Stock, the sum of (i) the greater of (A) 130% of
the
Stated Value and (B) the product of (a) the VWAP on the Trading Day immediately
preceding the date of the Triggering Event and (b) the Stated Value divided
by
the then Conversion Price, (ii) all accrued but unpaid dividends thereon and
(iii) all liquidated damages and other costs, expenses or amounts due in respect
of the 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 Sheets, LLC (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 Purchasers and
reasonably acceptable to the Corporation, each as approved by the Board of
Directors of the Corporation.
Section
2.
Designation,
Amount and Par Value.
The
series of preferred stock shall be designated as its Series B 10% Convertible
Preferred Stock (the “Preferred
Stock”)
and
the number of shares so designated shall be 3,105 (which shall not be subject
to
increase without the written consent of all of the holders of the Preferred
Stock (each, a “Holder”
and
collectively, the “Holders”)).
Each
share of Preferred Stock shall have a par value of $.001 per share and a stated
value equal to $1,000, subject to increase set forth in Section 3(a) below
(the
“Stated
Value”).
Section
3.
Dividends.
a) Dividends
in Cash or in Kind.
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 10% per annum (subject to increase pursuant to Section 9(b)),
payable
annually on January 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
cash or duly authorized, validly issued, fully paid and non-assessable shares
of
Common Stock as set forth in this Section 3(a), or a combination thereof (the
amount to be paid in shares of Common Stock, the “Dividend
Share Amount”).
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 10 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 10 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 85% of the average of the VWAPs for the 10
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 10
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
85% of the average of the VWAPs for the 10 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
Condition 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 85% of the average
of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day
that
is immediately prior to the Dividend Payment Date; and (v) if funds are not
legally available for the payment of dividends and the Equity Conditions have
not been met during the 10 consecutive Trading Days immediately prior to the
applicable Dividend Payment Date, then, at the election of such Holder, such
dividends shall accrue to the next Dividend Payment Date or shall be accreted
to, and increase, the outstanding Stated Value. 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. 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. The Corporation shall promptly notify
the
Holders at any time the Corporation shall become able or unable, as the case
may
be, to legally pay cash dividends. If at any time the Corporation has the right
to pay dividends in cash or Common Stock, the Corporation must provide the
Holder with at least 20 Trading Days’ notice of its election to pay a regularly
scheduled dividend in Common Stock (the Corporation may indicate in such notice
that the election contained in such notice shall continue for later periods
until revised by a subsequent notice). Dividends on the 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
Preferred Stock held by each Holder on such Dividend Payment Date. Any
dividends, whether paid in cash or shares of Common Stock, that are not paid
within three 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). If at any time the Corporation delivers a notice to the Holders of
its
election to pay the dividends in shares of Common Stock, the Corporation shall
timely file a prospectus supplement pursuant to Rule 424 disclosing such
election.
b) So
long
as any 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)(viii). So long as any 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 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), nor shall
any distribution be made in respect of, any Junior Securities as long as any
dividends due on the Preferred Stock remain unpaid, 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
Preferred Stock.
c) The
Corporation acknowledges and agrees that the capital of the Corporation in
respect of the Preferred Stock and any future issuances of the Corporation’s
capital stock shall be equal to the aggregate par value of such 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 without the prior written consent of each
Holder.
Section
4.
Voting
Rights.
Except
as otherwise provided herein or as otherwise required by law, the Preferred
Stock shall have no voting rights. However, as long as any shares of Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote
of the Holders of a majority of the then outstanding shares of the Preferred
Stock, (a) alter or change adversely the powers, preferences or rights given
to
the Preferred Stock or alter or amend this Amended and Restated Certificate
of
Determination, (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, (d)
increase the authorized number of shares of Preferred Stock, or (e) enter into
any agreement with respect to any of the foregoing.
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 and any other fees or liquidated damages
owing thereon, for each share of 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 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.
Section
6.
Conversion.
a) Conversions
at Option of Holder.
Each
share of 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)) determined by dividing the Stated Value of such share of 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
and
which is incorporated by reference as if fully set forth herein (a “Notice
of Conversion”).
Each
Notice of Conversion shall specify the number of shares of Preferred Stock
to be
converted, the number of shares of Preferred Stock owned prior to the conversion
at issue, the number of shares of 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 Preferred Stock, a Holder
shall not be required to surrender the certificate(s) representing such shares
of Preferred Stock to the Corporation unless all of the shares of Preferred
Stock represented thereby are so converted, in which case the Holder shall
deliver the certificate representing such shares of Preferred Stock promptly
following the Conversion Date at issue. Shares of 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 Preferred Stock shall equal $0.21,
subject
to adjustment herein (the “Conversion
Price”).
c) Beneficial
Ownership Limitation. The
Corporation shall not effect any conversion of the Preferred Stock, and a
Holder
shall not have the right to convert any portion of the 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 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
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 Preferred Stock is convertible (in relation to other securities owned
by
such Holder together with any Affiliates) and of how many shares of 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 Preferred Stock may be converted (in
relation to other securities owned by such Holder together with any Affiliates)
and how many shares of the 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-QSB or Form 10-KSB, 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 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 4.99% 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 Preferred Stock held by
the
Holder. The Beneficial Ownership Limitation provisions of this Section 6(c)
may
be waived by such Holder, at the election of such Holder, upon not less than
61
days’ prior notice to the Corporation, to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock
upon
conversion of Preferred Stock held by the Holder and the provisions of this
Section 6(c) shall continue to apply. Upon such a change by a Holder of the
Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitation shall not be further waived
by
such 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
Preferred Stock.
d) [RESERVED].
e) 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 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). On
or
after the Effective Date, the Corporation shall, upon request of the Holder,
use
its best efforts to 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 third 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 Conversion Notice by
written notice to the Corporation, in which event the Corporation shall promptly
return to the Holder any original Preferred Stock certificate delivered to
the
Corporation and the Holder shall promptly return any Common Stock certificates
representing the shares of 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 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 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 Preferred Stock of the Holder shall have been sought and obtained,
and the Corporation posts a surety bond for the benefit of the Holder in the
amount of 150% of the Stated Value of Preferred Stock which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which
shall
be payable to such Holder to the extent it obtains judgment. 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 $5,000 of Stated Value of
Preferred Stock being converted, $50 per Trading Day (increasing to $100 per
Trading Day on the third Trading Day and increasing to $200 per Trading Day
on
the sixth 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 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 Preferred Stock equal to the number of shares of
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
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 Preferred Stock as
required pursuant to the terms hereof.
iv. Reservation
of Shares Issuable Upon Conversion.
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 Preferred Stock and payment of dividends on
the
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
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 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 and, if the Conversion Shares Registration
Statement is then effective under the Securities Act, shall be registered for
public sale in accordance with such Conversion Shares Registration
Statement.
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
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 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 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, this 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 Preferred Stock
is
outstanding, sells or grants any option to purchase or sells or grants any
right
to reprice its securities, 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 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 Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the 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 Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately refers to the
Base Conversion Price in the Notice of Conversion.
c) Subsequent
Rights Offerings.
If the
Corporation, at any time while this 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 number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus 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.
d) Pro
Rata Distributions.
If the
Corporation, at any time while this 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 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 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 Preferred Stock following such Fundamental
Transaction. The Corporation agrees that it will not enter into a Fundamental
Transaction that would result in: (a) the holders of the Preferred Stock not
receiving the same terms and conditions as set forth herein and (b) the holders
of the Preferred Stock not receiving 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 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 Preferred Stock, and shall cause to be
delivered
to the 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
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.
Forced
Conversion and Optional Redemption.
a) Forced
Conversion.
Notwithstanding anything herein to the contrary, if after the Effective Date
(i)
the VWAP for each of any 10 consecutive Trading Days (“Threshold Period”), which
10 consecutive Trading Day period shall have commenced only after the Effective
Date, exceeds 300% of the then effective Conversion Price and (ii) the daily
volume for any such Threshold Period, which Threshold Period shall have
commenced only after the Effective Date, exceeds 250,000 shares of Common Stock
per Trading Day, the Corporation shall, within 1 Trading Day after any such
Threshold Period, deliver a written notice to all Holders (a “Forced
Conversion Notice”
and
the
date such notice is received by the Holders, the “Forced Conversion Notice
Date”) to cause each Holder to convert up to a Stated Value of its Preferred
Stock equal to all or part of such Holder’s pro-rata portion of the Forced
Conversion Amount, it being understood 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 being
referred to as the “Forced
Conversion Date”).
As to
each Holder, a Forced Conversion Notice shall contain the aggregate Forced
Conversion Amount, such Holder’s pro-rata portion of such amount, confirmation
of the satisfaction of the conditions set forth above for the Threshold Period
and the Equity Conditions, and the portion of such Holder’s pro-rata portion of
the Forced Conversion Amount to be converted on each 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
all of the Equity Conditions have been met on each Trading Day occurring during
the Threshold Period through and including the later of each Forced Conversion
Date and the date that the Conversion Shares issuable pursuant to such
conversion are delivered to the Holder pursuant to the Forced Conversion Notice.
Notwithstanding anything herein to the contrary, the Corporation may only
deliver another Forced Conversion Notice provided that the most recent Forced
Conversion Notice Date is at least 15 days prior to the new Forced Conversion
Notice Date. Any Forced Conversion Notices shall be applied ratably to all
of
the Holders in proportion to each Holder’s initial purchases of Preferred Stock
hereunder, 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.
b) Optional
Redemption at Election of the Holder.
Subject
to the provisions of this Section 8, at any time after the date hereof, in
the
event of a Change of Control Transaction that results in an non-Affiliated
third
party acquiring more than 40% of the voting securities of the Corporation in
one
transaction or a series of related transactions, in addition to any other rights
hereunder, the Holder may deliver a notice to the Corporation (an “Optional
Redemption Notice”
and
the
date such notice is deemed delivered hereunder, the “Optional
Redemption Notice Date”)
of its
irrevocable election to cause the Corporation redeem some or all of the then
outstanding Preferred Stock, for an amount, in cash, or, subject to the
conditions set forth below, at the Corporation’s option, in shares of registered
Common Stock, equal to the Optional Redemption Amount on the 20th
Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date”
and
such redemption, the “Optional
Redemption”).
The
Corporation shall deliver notice of its election to pay the Optional Redemption
Amount in shares of Common Stock within 1 Trading Day of its receipt of an
Optional Redemption Notice. Failure to so deliver a notice to pay an Option
Redemption Amount in shares of Common Stock within 1 Trading Day shall be deemed
an election by the Corporation to pay such amount in cash. The Optional
Redemption Amount is due in full on the Optional Redemption Date. If the
Corporation elects to pay an Optional Redemption Amount in shares of Common
Stock, such shares shall based on a conversion price equal to the lesser of
(i)
the then Conversion Price and (ii) 90% of the average of the VWAPs for the
10
consecutive Trading Days ending on the Trading Day that is immediately prior
to
the applicable Optional Redemption Date. The Corporation may only elect to
pay
the Optional Redemption Amount in shares of Common Stock if during the period
commencing on the Optional Redemption Notice Date through to the Optional
Redemption Date and through and including the date such shares of Common Stock
are issued to the Holder, each of the Equity Conditions shall have been met.
If
any of the Equity Conditions shall cease to be satisfied at any time during
the
required period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Corporation within 3 Trading Days after the first day
on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Corporation is obligated to notify
the Holder of the non-existence of an Equity Condition, such notice period
shall
be extended to the third Trading Day after proper notice from the Corporation)
in which case the Optional Redemption Notice shall be null and void, ab initio
or require the Corporation to pay such Optional Redemption Amount in cash.
The
Corporation covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through
the
date all amounts owing thereon are due and paid in full.
c) Redemption
Procedure.
The
payment of cash pursuant to an Optional Redemption shall be made on the Optional
Redemption Date. If any portion of the cash payment for an Optional Redemption
shall not be paid by the Corporation by the respective due date, interest shall
accrue thereon at the rate of 18% per annum (or the maximum rate permitted
by
applicable law, whichever is less) until the such payment, plus all amounts
owing thereon, is paid in full.
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
failure of a Conversion Shares Registration Statement to be declared effective
by the Commission on or prior to the 180th
day
after the Original Issue Date;
ii. if,
during the Effectiveness Period, the effectiveness of the Conversion Shares
Registration Statement lapses for more than an aggregate of 60 calendar days
(which need not be consecutive calendar days) during any 12 month period, or
the
Holder shall not otherwise be permitted to resell Registrable Securities under
the Conversion Shares Registration Statement for more than an aggregate of
60
calendar days (which need not be consecutive calendar days) during any 12 month
period;
iii. the
Corporation shall fail to deliver certificates representing Conversion Shares
issuable upon a conversion hereunder that comply with the provisions hereof
prior to the fifth 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 Preferred Stock in
accordance with the terms hereof;
iv. if
(1) a
Registration Statement is not filed on or prior to its Filing Date (if the
Corporation files a Registration Statement without affording the Holders the
opportunity to review and comment on the same, the Corporation shall not be
deemed to have satisfied this clause (1)), or (2) the Corporation fails to
file
with the Commission a request for acceleration in accordance with Rule 461
promulgated under the Securities Act within five Trading Days of the date that
the Corporation is notified (orally or in writing, whichever is earlier) by
the
Commission that a Conversion Shares Registration Statement will not be
“reviewed,” or not subject to further review, or (3) prior to its Effective
Date, the Corporation fails to file a pre-effective amendment and otherwise
respond in writing to comments made by the Commission in respect of such
Conversion Shares Registration Statement within 25 calendar days after the
receipt of comments by or notice from the Commission that such amendment is
required in order for a Conversion Shares Registration Statement to be declared
effective, and any of (1), (2) or (3) shall not have been cured to the
satisfaction of the Holders prior to the expiration of 30 days from the Event
Date (as defined in the Registration Rights Agreement) relating thereto (other
than an Event resulting from a failure of a Conversion Shares Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date, which shall be covered by Section
9(a)(i));
v. the
Corporation shall fail for any reason to pay in full the amount of cash due
pursuant to a Buy-In within five calendar days after notice therefor is
delivered hereunder or shall fail to pay all amounts owed on account of any
Event (as defined in the Registration Rights Agreement) within five days of
the
date due;
vi. 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;
vii. unless
specifically addressed elsewhere in this Amended and Restated Certificate of
Determination as a Triggering Event, the Corporation shall fail to observe
or
perform any other covenant, agreement or warranty, 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;
viii. 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 and directors of the Corporation,
provided that, while any of the Preferred Stock remains outstanding, such
repurchases shall not exceed an aggregate of $100,000 from all officers and
directors;
ix. the
Corporation shall be party to a Change of Control Transaction;
x. there
shall have occurred a Bankruptcy Event;
xi. the
Common Stock shall fail to be listed or quoted for trading on a Trading Market
for more than five Trading Days, which need not be consecutive Trading Days;
or
xii. 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 $50,000, 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)(iii),
(v),
(vi), (vii), (viii), (ix) (as to Changes of Control approved by the Board of
Directors of the Corporation) and (x) (as to voluntary filings only), redeem
all
of the 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)(i), (ii),
(iv),
(ix) (as to Changes of Control not approved by the Board of Directors of the
Corporation), (x) (as to involuntary filings only), (xi) and (xii), either
(a)
redeem all of the 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 75% of the average of
the
10 VWAPs immediately prior to the date of election hereunder or (b) increase
the
dividend rate on all of the outstanding Preferred Stock held by such Holder
to
18% per annum thereafter. The Triggering Redemption Amount, in cash or in
shares, shall be due and payable or issuable, as the case may be, within five
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 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.
Section
10.
Negative
Covenants.
So long
as any shares of Preferred Stock are outstanding, the Corporation shall not,
and
shall not permit any of its Subsidiaries to, directly or indirectly, without
the
prior written consent of the Holders of all Preferred Stock then
outstanding:
a) other
than Permitted Indebtedness, 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, 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) amend
its
articles or certificate of incorporation, as the case may be, bylaws or other
charter documents so as to materially and adversely affect any rights of any
Holder without obtaining the affirmative vote of at least 51% of the outstanding
holders of the Series B Preferred Stock;
d) 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;
e) enter
into any agreement or understanding with respect to any of the
foregoing;
or
f) 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 300
Sunport Lane, Orlando, Florida 32809, facsimile number (407) 240-1431, Attn:
Mark L. Mroczkowski 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 Amended and Restated
Certificate of Determination 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
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
c) Lost
or Mutilated Preferred Stock Certificate.
If a
Holder’s 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 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 Amended and Restated Certificate of Determination shall be governed
by
and construed and enforced in accordance with the internal laws of the State
of
California, without regard to the principles of conflict of laws thereof.
e) Waiver.
Any
waiver by the Corporation or the Holder of a breach of any provision of this
Amended and Restated Certificate of Determination 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 Amended and Restated Certificate of
Determination. The failure of the Corporation or the Holder to insist upon
strict adherence to any term of this Amended and Restated Certificate of
Determination 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 Amended and Restated Certificate of
Determination. Any waiver by the Corporation or the Holder must be in
writing.
f) Severability.
If any
provision of this Amended and Restated Certificate of Determination is invalid,
illegal or unenforceable, the balance of this Amended and Restated Certificate
of Determination 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 Amended and Restated Certificate of Determination and shall not be deemed
to limit or affect any of the provisions hereof.
i) Status
of Converted or Redeemed Preferred Stock.
Shares
of Preferred Stock may only be issued pursuant to the Purchase Agreement. If
any
shares of 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 B 10%
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 an Amended and Restated Certificate
of Determination of Preferences, Rights and Limitations in accordance with
the
foregoing resolution and the provisions of California law.
5.
Each
of the undersigned declares under penalty of perjury under the laws of the
State
of California that the statements contained in the foregoing amended and
restated certificate are true and correct and of our knowledge
IN
WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate this 9th day of May, 2006.
|
___________ _
Name:
Nicholas VandenBrekel
Title:
President
|
__________________________________________
Name:
Mark L. Mroczkowski
Title:
Secretary
|
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)
The
undersigned hereby elects to convert the number of shares of Series B 10%
Convertible Preferred Stock indicated below into shares of common stock, par
value $.001 per share (the “Common
Stock”),
of
Sequiam Corporation, a California 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 Preferred Stock owned prior to Conversion:
_______________
|
| |
|
Number
of shares of Preferred Stock to be Converted:
________________________
|
| |
|
Stated
Value of shares of Preferred Stock to be Converted:
____________________
|
| |
|
Number
of shares of Common Stock to be Issued:
___________________________
|
| |
|
Applicable
Conversion
Price:____________________________________________
|
| |
|
Number
of shares of Preferred Stock subsequent to Conversion:
________________
|
| |
[HOLDER]
By:___________________________________
Name:
Title:
|