ELITE PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES C 8 % CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
Elite Pharmaceuticals, Inc. (the "CORPORATION"), a corporation organized
and existing under the laws of the General Corporation Law of the State of
Delaware (the "DGCL"), hereby certifies that on April 24, 2007, the following
resolutions were adopted by the Board of Directors of the Corporation pursuant
to the authority of the Board of Directors as required by Section 151 of the
DGCL:
WHEREAS, the Board of Directors of the Corporation (the "BOARD") 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, 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, except as
otherwise set forth in the Purchase Agreement, 20,000 shares of the preferred
stock which the Corporation has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Board 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 SERIES C 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).
"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
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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.
"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.
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"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 $.01
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 C 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
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required, if any, (ii) the Corporation shall have paid all liquidated
damages and other amounts owing to the Holder in respect of the Series C
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 to the
Holder would not violate the limitations set forth in Section 6(c) and
Section 6(d) 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 as a result of the disclosure of such
information by the Corporation or any of its Affiliates.
"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, consultants, 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 in any rolling 12 month period issued to
consultants, vendors, financial institutions or lessors in connection with
services (including the provision of Permitted Indebtedness) provided by
such Persons referred to in this clause (d), but shall not
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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.
"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 C 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 C 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
Company'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.
"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 C 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 11(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 C Preferred Stock regardless of the number of
transfers of any particular shares of Series C Preferred Stock and
regardless of the number of certificates which may be issued to evidence
such Series C Preferred Stock.
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"PERMITTED INDEBTEDNESS" means (a) the Indebtedness existing on the
Original Issue Date and (b) 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 and the Series
C Preferred Stock.
"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.
"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.
"SERIES B PREFERRED STOCK" means the Series B 8% Convertible
Preferred Stock, par value $0.01 per share, of the Corporation.
"SERIES C 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).
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"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 C 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
Select Market, the Nasdaq Global Market or the New York Stock Exchange.
"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 C
Preferred Stock, the sum of (i) 130% of the Stated Value, (ii) all accrued
but unpaid dividends thereon and (iii) all liquidated damages and other
costs, expenses or amounts due in respect of the Series C 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
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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.
SECTION 2. DESIGNATION, AMOUNT AND PAR VALUE. This series of
preferred stock shall be designated as its Series C 8% Convertible
Preferred Stock (the "SERIES C PREFERRED STOCK") and the number of shares
so designated shall be 20,000 (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 C 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. 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,
increasing to 15% per annum after the third anniversary of the Original
Issue Date (in each case, subject to increase pursuant to Section 9(b)),
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 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 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 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 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; and
(v) 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
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Dividend Payment Date. Notwithstanding the foregoing, until the date
Shareholder Approval has been received and is effective, the Corporation
shall not be permitted to pay dividends in shares of Common Stock if the
price at which such shares are valued (as calculated pursuant to this
Section) is less than $2.29. 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 Series C 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 C 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 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). 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, to the extent required by applicable law.
b) So long as any Series C 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)(ix). So long as any Series C
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 C 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 C
Preferred Stock (other than in the case of a purchase or redemption of any
shares of Series B Preferred Stock that occurs simultaneous with the
purchase or redemption of shares of Series C Preferred Stock).
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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 C Preferred Stock and any future
issuances of the Corporation's capital stock shall be equal to the
aggregate par value of such Series C 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 C Preferred Stock shall rank PARI PASSU with the
Series B Preferred Stock with respect to all dividend payments.
SECTION 4. VOTING RIGHTS. Except as otherwise provided herein or as
otherwise required by law, the Series C Preferred Stock shall have no voting
rights. However, as long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least 70%, in the aggregate, 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 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 Preferred Stock, or (e) enter into any agreement 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 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 and any other fees or
liquidated damages owing thereon, for each share of Series C 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 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 C
Preferred Stock shall rank PARI PASSU with the Series B Preferred Stock with
respect to distributions upon a Liquidation.
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SECTION 6. CONVERSION.
a) CONVERSIONS AT OPTION OF HOLDER. Each share of Series C 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 C 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 C
Preferred Stock to be converted, the number of shares of Series C
Preferred Stock owned prior to the conversion at issue, the number of
shares of Series C 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 C
Preferred Stock, a Holder shall not be required to surrender the
certificate(s) representing such shares of Series C Preferred Stock to the
Corporation unless all of the shares of Series C Preferred Stock
represented thereby are so converted, in which case the Holder shall
deliver the certificate representing such shares of Series C Preferred
Stock promptly following the Conversion Date at issue. Shares of Series C
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 C Preferred
Stock shall equal $2.32, subject to adjustment herein (the "CONVERSION
PRICE").
c) BENEFICIAL OWNERSHIP LIMITATION. The Corporation shall not effect
any conversion of the Series C Preferred Stock, and a Holder shall not
have the right to convert any portion of the Series C 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). The
Corporation shall not give effect to any voting rights of the shares of
Series C Preferred Stock, and any Holder shall not have the right to
exercise voting rights with respect to any Series C Preferred Stock
pursuant hereto, to the extent that giving effect to such voting rights
would result in such Holder (together with its affiliates) being deemed to
beneficially own in excess of the Beneficial Ownership Limitation of the
number of shares of Common Stock outstanding immediately after giving
effect to such exercise, assuming such exercise as being equivalent to
conversion. 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 C 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 C Preferred Stock beneficially owned by
11
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 C Preferred Stock is convertible (in
relation to other securities owned by such Holder together with any
Affiliates) and of how many shares of Series C 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 C 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 C 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 C 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 Series C Preferred Stock held by
the Holder. By written notice to the Corporation, any Holder may from time
to time increase or decrease the Beneficial Ownership Limitation to any
other percentage not in excess of 9.99% specified in such notice; provided
that (i) any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered to the Corporation, and (ii) any
such increase or decrease will apply only to such Holder providing such
written notice and not to any other 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
12
limitation. The limitations contained in this paragraph shall apply to a
successor holder of Series C Preferred Stock. This Section 6(c) shall not
apply to the Corporation's exercise of its rights under Section 8.
d) TRADING MARKET LIMITATIONS. Notwithstanding anything herein to
the contrary, if the Corporation has not obtained Shareholder Approval (as
defined below), then the Corporation may not issue upon conversion of the
Series C Preferred Stock, a number of shares of Common Stock, which, when
aggregated with any shares of Common Stock issued prior to such Conversion
Date (A) upon conversion of or as payment of dividends on the Series C
Preferred Stock, (B) upon exercise of the Warrants issued pursuant to that
certain Purchase Agreement and (C) pursuant to any warrants issued to any
registered broker-dealer as a fee in connection with the Securities issued
pursuant to the Purchase Agreement, would exceed 19.999% of the number of
shares of Common Stock outstanding on the Trading Day immediately
preceding the Original Issue Date (such number of shares, the "ISSUABLE
MAXIMUM"). Each Holder shall be entitled to a portion of the Issuable
Maximum equal to the quotient obtained by dividing (x) such the number of
shares of Series C Preferred Stock initially purchased by such Holder by
(y) the aggregate number of shares purchased by all Holders. Such portion
shall be adjusted upward ratably in the event all of the shares of Series
C Preferred Stock initially purchased by any Holder are no longer
outstanding. If at any time (i) the number of shares of Common Stock which
could, notwithstanding the limitation set forth herein, be issued to all
Holders during the following 12 months (assuming all dividends are paid in
shares of Common Stock during such period of determination based upon the
VWAP at the time of any such determination) equals or exceeds the Issuable
Maximum and (ii) the Corporation's voting shareholders shall not have
previously approved the transactions contemplated by the Transaction
Documents as may be required by an applicable rule or listing policy of a
Trading Market (the "SHAREHOLDER APPROVAL"), then the Corporation shall
issue to the Holder requesting conversion a number of shares of Common
Stock equal to such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum, and with respect to
the remainder of the Series C Preferred Stock (including any accrued
dividends) then held by such Holder for which a conversion in accordance
with the applicable Conversion Price would result in an issuance of shares
of Common Stock in excess of such Holder's pro-rata portion (which shall
be calculated pursuant to the terms hereof) of the Issuable Maximum (the
"EXCESS PREFERRED"), the Corporation shall be prohibited from converting
such Excess Preferred, and shall promptly notify the Holder of the reason
therefore. The Excess Preferred shall thereafter be unconvertible to such
extent until and unless Shareholder Approval is subsequently obtained, but
the rights and preferences of the Series C Preferred Stock otherwise set
forth in this Certificate of Designation shall otherwise remain in full
force and effect.
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
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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 C 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 commercially reasonable 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 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
Conversion Notice by written notice to the Corporation, in which
event the Corporation shall promptly return to the Holder any
original Series C Preferred Stock certificate delivered to the
Corporation and the Holder shall promptly return any Common Stock
certificates representing the shares of Series C 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 C 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 C 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 C 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
14
penalty, for each $1,000 of Stated Value of Series C 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 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 C
Preferred Stock equal to the number of shares of Series C 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 C
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 C
Preferred Stock as required pursuant to the terms hereof.
15
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 Series C
Preferred Stock and payment of dividends on the Series C 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 C 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 C 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 Series C 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 C 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 C 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
16
conversion of, or payment of a dividend on, this Series C 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 C 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 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 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 a price determined by multiplying the then applicable
Conversion Price by a fraction, the numerator of which is the number of
shares of Common Stock issued and outstanding immediately prior to the
Dilutive Issuance plus 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 the number of shares of Common Stock issued and outstanding immediately
prior to the Dilutive Issuance plus 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 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
17
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 C 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. 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 C Preferred Stock
d) PRO RATA DISTRIBUTIONS. If the Corporation, at any time while
this Series C 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.
18
e) FUNDAMENTAL TRANSACTION. If, at any time while this Series C
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 C 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 C 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 C 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 C 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.
19
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 C 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 C 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.
a) FORCED CONVERSION. Notwithstanding anything herein to the
contrary, if after the date the Corporation receives Shareholder Approval
and the Effective Date (i) the VWAP for each of any 20 consecutive Trading
Day period, which 20 consecutive Trading Day period shall have commenced
only after the date of Shareholder Approval
20
and the Effective Date ("THRESHOLD PERIOD"), exceeds $5.38 (subject to
adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like) and (ii) the average volume for the Trading Days
during such Threshold Period exceeds 50,000 shares of Common Stock
(subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like), the Corporation may,
within three 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 the Holders, the "FORCED CONVERSION
NOTICE DATE") to cause each Holder to convert all or part of such Holder's
Series C Preferred Stock (as specified in such Forced Conversion Notice)
plus all accrued but unpaid dividends thereon and all liquidated damages
and other amounts due in respect of the Series C 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 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, but shall NOT be subject to the
limitations on conversions provided by Section 6(c).
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 275th
day after the Original Issue Date;
ii. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Conversion
Shares Registration Statement lapses for more than an aggregate of
120 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
21
Shares Registration Statement for more than an aggregate of 120
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 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 C
Preferred Stock in accordance with the terms hereof;
iv. [intentionally omitted];
v. 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 or shall fail to
pay all amounts owed on account of any Event (as defined in the
Registration Rights Agreement) within fifteen calendar 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 and such failure shall
continue for a period in excess of 75 calendar days;
vii. 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;
viii. [intentionally omitted];
ix. 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 C Preferred Stock remains outstanding, such
repurchases shall not exceed an aggregate of $150,000 from all
officers, directors and employees;
x. the Corporation shall be party to a Change of Control
Transaction;
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xi. there shall have occurred a Bankruptcy Event;
xii. 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
xiii. 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)(iii), (vi), (ix) and (xi) (as to voluntary filings
only) (collectively, "Cash Redemption Triggering Events"), redeem all of
the Series C 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), (v), (vii), (x), (xi) (as to involuntary
filings only), (xii) and (xiii), (collectively, "Non-Cash Redemption
Triggering Events") redeem all of the Series C 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 Section 6(d) hereof, each Holder that
exercises its option to have its Series C Preferred Stock redeemed
pursuant to clause B shall be issued its pro-rata portion of the Issuable
Maximum (calculated as of the Original Issue Date), and the remaining
shares of Common Stock shall be issued upon Shareholder Approval. 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 C 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.
c) It is understood that the Series C 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.
23
Accordingly, notwithstanding Section 9(b), in the event that (i) the
Corporation's auditors, (ii) the Commission, (iii) any Trading Market or
(iv) any other governmental or regulatory body 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 C 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.
d) At any time on or after 24 months from the Original Issue Date,
the Corporation may redeem all of the Series C Preferred Stock outstanding
at such time for a redemption price, payable in cash, equal to the
following for each share of Series C Preferred Stock outstanding: (i) 150%
of the Stated Value, (ii) accrued and unpaid dividends thereon and (iii)
all liquidated damages and other amounts due in respect of the Series C
Preferred Stock (the " OPTIONAL REDEMPTION PRICE"). The Corporation shall
issue a notice (the "OPTIONAL REDEMPTION NOTICE") to the holders of the
Series C Preferred Stock setting forth (x) the date the redemption is to
take place (the " OPTIONAL REDEMPTION DATE"), which Optional Redemption
Date shall be at least 20 Trading Days after the date of the Optional
Redemption Notice, (y) the Redemption Price; and (z) the place and time at
which such holder may obtain payment of the Optional Redemption Price upon
surrender of the certificate or certificates evidencing the redeemed
Series C Preferred Stock. Prior to the Redemption Date, any holder of
Series C Preferred Stock may convert all or any portion of such holder's
Series C Preferred Stock into Common Stock pursuant to Section 6 hereof.
In the event that a holder of Series C Preferred Stock does not convert
all its shares of Series C Preferred Stock into Common Stock, then on the
Redemption Date, each such holder of shares of Series C Preferred Stock
shall surrender such holder's certificates representing such shares to the
Corporation in the manner and at the place designated in the Redemption
Notice, and thereupon the aggregate Optional Redemption Price of such
shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the Optional Redemption
Date, all rights of the holder of such shares as holder of Series C
Preferred Stock shall cease and terminate with respect to such shares and
the holder's only right shall be to receive the Optional Redemption Price
applicable to all outstanding shares of Series C Preferred Stock held by
such holder.
SECTION 10. NEGATIVE COVENANTS. So long as any shares of Series C
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 the holders of at least 70%, in the aggregate, of the then
outstanding shares of the Preferred Stock:
24
a) other than Permitted Indebtedness, for a period of three years
from the Original Issue Date, 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, for a period of three years from the
Original Issue Date, 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 certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect any rights of any
Holder;
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 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
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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 C Preferred Stock at the time, place, and rate,
and in the coin or currency, herein prescribed.
c) LOST OR MUTILATED SERIES C PREFERRED STOCK CERTIFICATE. If a
Holder's Series C 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 C
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
26
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 C PREFERRED STOCK. Shares
of Series C Preferred Stock may only be issued pursuant to the Purchase
Agreement. If any shares of Series C 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 C 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 Designations of
the Series C 8% Convertible Preferred Stock in accordance with the foregoing
resolution and the provisions of Delaware law."
[REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations of the Series C 8% Convertible Preferred Stock to be signed by
Bernard J. Berk, its Chief Executive Officer, made to be effective as of April
24, 2007.
ELITE PHARMACEUTICALS, INC.
By: /s/ Bernard J. Berk
--------------------------
Name: Bernard J. Berk
Title: Chief Executive Officer
Attest:
By: /s/ Mark I Gittelman
----------------------------------------
Name: Mark I. Gittelman
Title: Secretary and Chief Financial Officer
28
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES
OF SERIES C PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series C 8%
Convertible Preferred Stock indicated below into shares of common stock, par
value $.01 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 C Preferred Stock owned prior to Conversion: ____
Number of shares of Series C Preferred Stock to be Converted: ______________
Stated Value of shares of Series C Preferred Stock to be Converted: ________
Number of shares of Common Stock to be Issued: _____________________________
Applicable Conversion Price:________________________________________________
Number of shares of Series C Preferred Stock subsequent to Conversion: _____
[HOLDER]
By:___________________________________
Name:
Title:
29