January 2, 2008
Jeffrey Riedler
Assistant Director
Securities and Exchange Commission
Division of Corporate Finance
100 F Street, N.E.
Mail Stop 0610
Washington, DC 20549
RE: ELITE PHARMACEUTICALS, INC.
PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-3
FILED AUGUST 16, 2007
FILE NO. 333-145502
Dear Mr. Riedler:
On behalf of our client, Elite Pharmaceuticals, Inc., a Delaware
corporation (the "COMPANY"), we transmit simultaneously herewith for filing
under the Securities Act of 1933, as amended (the "EXCHANGE ACT"), by means of
the Electronic Data Gathering, Analysis, and Retrieval system, Pre-Effective
Amendment No. 1 ("AMENDMENT NO. 1") to Registration Statement on Form S-3 (File
No. 333-145502) (the "REGISTRATION STATEMENT"), together with certain exhibits
thereto. All capitalized terms used, but not otherwise defined, herein shall
have the respective definitions assigned thereto in Amendment No. 1.
The Company wishes to bring to the attention of the staff that, as a
preliminary matter, the Registration Statement has been amended to eliminate
therefrom the resale of all securities held by selling stockholders (the
"EXCLUDED SELLING STOCKHOLDERS") the securities of which (or the securities of
the affiliates of which) were included in the Registration Statement on Form S-3
(Registration No. 333-143246) (the "PRIOR REGISTRATION"). Accordingly, Amendment
No. 1 includes solely the resale of securities of investors (the "INCLUDED
SELLING STOCKHOLDERS") in the Series C Preferred Stock of the Company (the
"SERIES C STOCK") and related warrants (the "WARRANTS") that were not included,
and the affiliates of which were not included, in the Prior Registration.
We are in receipt of the letter, dated August 23, 2007 (the "COMMENT
LETTER"), from Jeffrey Riedler, Assistant Director, Division of Corporate
Finance of the Securities and Exchange Commission, with respect to the
Registration Statement. Set forth below are the comments of the staff set forth
in the Comment Letter (in italics), together with the responses of the Company
to such comments, numbered to correspond to the numbering in the Comment Letter.
Information requested by the staff has generally been provided by the Company on
both an aggregate basis as well as on an investor-by-investor basis, and, except
as set forth herein, includes information only with respect to the Included
Selling Stockholders. It is currently the intent of the Company to file with the
Commission promptly following the effectiveness of the
Page 2 of 20
Registration Statement a post-effective amendment pursuant to Rule 429 of
Regulation C under the Securities Act to combine the prospectuses included in
both such registration statements. To address the general concern of the staff
regarding the disclosure requested in comments 2 through 10 of the Comment
Letter, the Company has added to the Registration Statement a section entitled
"Supplemental Information Regarding the July Private Placement and the Selling
Stockholders," which would be renamed "Supplemental Information Regarding the
Private Placement and the Selling Stockholders" following the aforementioned
filing pursuant to Rule 429 and would be expanded to include the Excluded
Selling Stockholders. In addition, cross-references to such section have been
added to the sections of the Registration Statement entitled "Prospectus
Summary" and "Selling Stockholders".
1. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH THE TOTAL DOLLAR VALUE OF THE SECURITIES UNDERLYING THE PREFERRED SHARES
AND WARRANTS THAT YOU HAVE REGISTERED FOR RESALE (USING THE NUMBER OF UNDERLYING
SECURITIES THAT YOU HAVE REGISTERED FOR RESALE AND THE MARKET PRICE PER SHARE
FOR THOSE SECURITIES ON THE DATE OF THE SALE OF THE PREFERRED SHARES AND
WARRANTS).
ENTIRE JULY PRIVATE PLACEMENT. The private placement of the Series C
Stock and the Warrants the resale of the common stock underlying which is
registered in the Registration Statement closed on July 17, 2007 (the "JULY
PRIVATE PLACEMENT"). Based upon a closing market price of $2.69 per share of
common stock on the American Stock Exchange on such date, and without giving
effect to the exclusion from the Registration Statement of the Excluded Selling
Stockholders, the aggregate dollar value of the securities which the Company
originally covered by the Registration Statement for resale was $11,352,128.18.
PORTION OF JULY PRIVATE PLACEMENT INCLUDED IN AMENDMENT NO. 1. Based
upon a closing market price of $2.69 per share of common stock on the American
Stock Exchange on July 17, 2007, and giving effect to the exclusion from the
Registration Statement of the Excluded Selling Stockholders, the aggregate
dollar value of the securities that the Company has registered for resale in the
Registration Statement is $4,185,142.35.
AGGREGATE OF THE PRIOR PRIVATE PLACEMENT AND THE PORTION OF THE JULY
PRIVATE PLACEMENT INCLUDED IN THE REGISTRATION STATEMENT. The private placement
of the Series C Stock and the Warrants the resale of the common stock underlying
which was registered in the Prior Registration closed on April 24, 2007 (the
"PRIOR PRIVATE PLACEMENT"). Based upon a closing market price of $2.30 per share
of common stock on the American Stock Exchange on such date, the aggregate
dollar value of the securities that the Company has registered for resale in the
Prior Registration and the Registration Statement (giving effect to the
exclusion from the Registration Statement of the Excluded Selling Stockholders)
is $33,594,674.25.
AGGREGATE OF THE PRIOR PRIVATE PLACEMENT AND THE ENTIRE JULY PRIVATE
PLACEMENT. Based upon the foregoing market price data, the aggregate dollar
value of the securities that the Company has registered for resale in the Prior
Registration and the Registration Statement (without giving effect to the
exclusion of the Excluded Selling Stockholders) is $40,761,660.08.
Page 3 of 20
2. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH TABULAR DISCLOSURE OF THE DOLLAR AMOUNT OF EACH PAYMENT (INCLUDING THE
VALUE OF ANY PAYMENTS TO BE MADE IN COMMON STOCK) IN CONNECTION WITH THE
TRANSACTION THAT YOU HAVE MADE OR MAY BE REQUIRED TO MAKE TO ANY SELLING
SHAREHOLDER, ANY AFFILIATE OF A SELLING SHAREHOLDER, OR ANY PERSON WITH WHOM ANY
SELLING SHAREHOLDER HAS A CONTRACTUAL RELATIONSHIP REGARDING THE TRANSACTION
(INCLUDING ANY INTEREST PAYMENTS, LIQUIDATED DAMAGES, PAYMENTS MADE TO "FINDERS"
OR "PLACEMENT AGENTS," AND ANY OTHER PAYMENTS OR POTENTIAL PAYMENTS). PLEASE
PROVIDE FOOTNOTE DISCLOSURE OF THE TERMS OF EACH SUCH PAYMENT. PLEASE DO NOT
INCLUDE ANY SHARES TO BE ISSUED UPON THE CONVERSION OF THE PREFERRED STOCK IN
THIS DISCLOSURE.
FURTHER, PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE
PROSPECTUS, WITH DISCLOSURE OF THE NET PROCEEDS TO THE ISSUER FROM THE SALE OF
THE PREFERRED STOCK AND WARRANTS AND THE TOTAL POSSIBLE PAYMENTS TO ALL SELLING
SHAREHOLDERS AND ANY OF THEIR AFFILIATES IN THE FIRST YEAR FOLLOWING THE SALE OF
PREFERRED STOCK AND WARRANTS.
With respect to the first paragraph of Comment 2, please see Table 2,
below. Table 2 presents data solely with respect to the Included Selling
Securityholders.
The net proceeds to the Company from the July Private Placement were
$4,632,000, after the payment of $368,000 in placement agent fees and related
expenses. Assuming the exercise in full of the Warrants, the aggregate net
proceeds of the July Private Placement would be $6,765,597.
The total possible payments to the Included Selling Stockholders, and
their affiliates, in the first year following the closing of the July Private
Placement is $430,560, equaling the total value, assuming all cash payments, of
dividends payable on the Series C Preferred Stock purchased in the July Private
Placement, plus maximum partial liquidated damages for which the Company may
potentially be liable, as described more fully, below, in Table 2 and its
corresponding footnotes.
TABLE 2(1)
SERIES C PREFERRED POTENTIAL PARTIAL
STOCK DIVIDENDS LIQUIDATED
INCLUDED SELLING STOCKHOLDER PAYABLE IN FIRST YEAR(2) DAMAGES(3) TOTAL
---------------------------- ------------------------ ---------- -----
Consonance Capital Master Account L.P. $69,760 $130,800(4) $200,560
Midsummer Investment, Ltd. $80,000 $150,000(5) $230,000
TOTAL $149,760 $280,800 $430,560
-----
- -----------
(1) Listed below are payments that the Company may potentially be required
to make to a selling stockholder (the "SELLING STOCKHOLDERS"), pursuant to the
Certificate of Designation of Preferences, Rights and Limitations of Series C 8%
Convertible
Page 4 of 20
Preferred Stock, dated as of April 24, 2007 (the "CERTIFICATE OF DESIGNATIONS"),
the Securities Purchase Agreement, dated as of July 17, 2007 (the "PURCHASE
AGREEMENT"), and the Registration Rights Agreement, dated as of July 17, 2007
(the "REGISTRATION RIGHTS AGREEMENT") (collectively, the "TRANSACTION
DOCUMENTS"), but that cannot properly be valued currently as a result of the
contingent nature of the payments and/or the need for future information which
cannot be ascertained currently:
- LIQUIDATION PAYMENTS: Selling Stockholders may be entitled to
liquidation payments, pursuant to the Certificate of Designations,
however these payments cannot be valued unless and until the
occurrence of an applicable dissolution or winding-up of the
Company;
- PARTIAL LIQUIDATED DAMAGES: Selling Stockholders may be entitled to
partial liquidated damages, pursuant to the Certificate of
Designations, however, these payments cannot be valued because
valuation is contingent on the Company's failure, in the future, to
properly issue and deliver shares of common stock upon conversion
of Series C Preferred Stock;
- COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER CERTIFICATES
UPON CONVERSION: Selling Stockholders may be entitled to partial
liquidated damages, pursuant to the Certificate of Designations,
however, these payments cannot be valued because valuation is
contingent on the Company's failure, upon a conversion by a Selling
Stockholder, to deliver on a timely basis the certificate(s)
evidencing the shares the Selling Stockholder is entitled to
receive upon conversion;
- INDEMNIFICATION BY THE COMPANY: Selling Stockholders may benefit
from indemnification by the Company in certain situations, as
provided in the Registration Rights Agreement.
Excluded from Table 2 are redemptions of shares of Series C Preferred
Stock. Upon the occurrence of "Cash Redemption Triggering Events," as defined in
the Certificate of Designations, in addition to any other rights, a Selling
Stockholder has the right, subject to exception, to force a cash redemption of
its Series C Preferred Stock for a price per share equaling, the sum of (i) 130%
of the stated value per share; (ii) all accrued but unpaid dividends thereon;
and (iii) all liquidated damages and other costs, expenses or amounts due
thereon (the "TRIGGERING REDEMPTION AMOUNT"). Despite the occurrence of a Cash
Redemption Triggering Event, a Selling Stockholder has no right to a cash
redemption if the Company's auditors, the Commission, any trading market, or any
governmental or regulatory body having actual jurisdiction over the Company's
financial reporting determines that such triggering event was not solely within
the Company's control (as set forth in Item 28 of Rule 5-02 of Regulation S-X of
the Exchange Act, as amended or supplemented from time to time, or the successor
thereto). In the event of a "Non-Cash Redemption Triggering Event," as defined
in the Certificate of Designations, a Selling Stockholder may force the Company
to redeem its shares of Series C Preferred Stock for a price, in shares of
common stock, equal to the Triggering Redemption Amount divided by 85% of the
average of the 10 Volume-Weighted Average Prices ("VWAPS") immediately prior to
the date of such non-cash redemption. However, the right to a non-cash
redemption is waived until the 275th day after the closing date.
The Company has the option, beginning 24 months from the Original Issue
Date, to complete a cash redemption of all shares of Series C Preferred Stock
then outstanding for a price per share equaling the sum of the following: (i)
150 % of the stated value per share, (ii) any accrued but unpaid dividends
thereon, and (iii) all liquidated damages and/or other amounts owing thereon.
(2) For purposes of this response, the Company disclosed the value of
dividends payable to the Included Selling Stockholders on the Series C Preferred
Stock purchased in the July Private Placement (the "SERIES C DIVIDENDS") for the
first full year following the date of sale, assuming cash payment. This amount
was calculated by multiplying the aggregate stated value of the shares of Series
C Preferred Stock held by the Included Selling Stockholders by 8%, the rate at
which the dividends accrue during the one-year period, in accordance with the
Certificate of Designations. Series C Dividends that the Company fails to pay,
whether in cash or shares of common stock, within the time period prescribed in
the Certificate of Designation, continue to accrue and entail a late fee, which
must be paid in cash, at the rate of 18% per annum or lesser rate permitted by
law, accruing daily until and including the date of payment.
(3) The data provided in this table represents the maximum possible
liquidated damages payable to the Included Selling Stockholder under the
Registration Rights Agreement, as described below. Pursuant to the Registration
Rights Agreement, upon the occurrence of certain events, the Company may be
liable for partial liquidated damages, with certain limitations, payable in cash
to the Selling Stockholders. On each date on which an applicable event occurs
and on each anniversary of such date (if such event has not been cured) until
cured, the Company must pay to each Selling Stockholder 1.5% of the aggregate
purchase price paid by each selling stockholder pursuant to the Purchase
Agreement for any unregistered "Registrable Security," as defined thereunder,
then held (calculated as if all convertible securities had been fully
converted). The Company's liability for liquidated damages is limited, however,
to 1.5% of the aggregate subscription amount of a Selling Stockholder in any
30-day period, and the maximum aggregate liquidated damages payable to a Selling
Stockholder is 15% of the aggregate subscription amount paid by
Page 5 of 20
such Selling Stockholder under the Purchase Agreement. The Company is not liable
for the payment of partial liquidated damages on Warrants or Warrant Shares.
(4) Represents maximum partial liquidated damages payable based on 872
shares of Series C Stock.
(5) Represents maximum partial liquidated damages payable based on 1,000
shares of Series C Stock.
3. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH TABULAR DISCLOSURE OF:
o THE TOTAL POSSIBLE PROFIT THE SELLING SHAREHOLDERS COULD
REALIZE AS A RESULT OF THE CONVERSION DISCOUNT FOR THE
SECURITIES UNDERLYING THE PREFERRED STOCK AND WARRANTS,
PRESENTED IN A TABLE WITH THE FOLLOWING INFORMATION DISCLOSED
SEPARATELY:
[] THE MARKET PRICE PER SHARE OF THE SECURITIES
UNDERLYING THE PREFERRED STOCK AND WARRANTS ON THE
DATE OF THE SALE OF THE PREFERRED STOCK AND WARRANTS;
[] THE CONVERSION/EXERCISE PRICE PER SHARE OF THE
UNDERLYING SECURITIES ON THE DATE OF THE SALE OF THE
PREFERRED STOCK AND WARRANTS CALCULATED AS FOLLOWS:
- IF THE CONVERSION/EXERCISE PRICE PER SHARE
IS SET AT A FIXED PRICE, USE THE PRICE PER
SHARE ESTABLISHED IN THE PURCHASE AND SALE
AGREEMENT; AND
- IF THE CONVERSION/EXERCISE PRICE PER SHARE
IS NOT A FIXED PRICE AND, INSTEAD, IS A SET
AT A FLOATING RATE IN RELATIONSHIP TO THE
MARKET PRICE OF THE UNDERLYING SECURITY, USE
THE CONVERSION DISCOUNT RATE AND THE MARKET
RATE PER SHARE ON THE DATE OF THE SALE OF
THE PREFERRED STOCK AND WARRANTS AND
DETERMINE THE CONVERSION PRICE PER SHARE AS
OF THAT DATE;
o THE TOTAL POSSIBLE SHARES UNDERLYING THE PREFERRED STOCK AND
WARRANTS (ASSUMING NO CASH DIVIDEND PAYMENTS, COMPLETE
CONVERSION OF THE SHARES OF PREFERRED STOCK AND COMPLETE
EXERCISE OF THE WARRANTS);
o THE COMBINED MARKET PRICE OF THE TOTAL NUMBER OF SHARES
UNDERLYING THE PREFERRED STOCK AND WARRANTS, CALCULATED BY
USING THE MARKET PRICE PER SHARE ON THE DATE OF THE SALE OF
THE PREFERRED STOCK AND WARRANTS AND THE TOTAL POSSIBLE SHARES
UNDERLYING THE PREFERRED STOCK AND WARRANTS;
o THE TOTAL POSSIBLE SHARES THE SELLING SHAREHOLDERS MAY RECEIVE
AND THE COMBINED CONVERSION PRICE OF THE TOTAL NUMBER OF
SHARES UNDERLYING THE PREFERRED STOCK AND WARRANTS CALCULATED
BY USING THE CONVERSION/EXERCISE PRICE ON THE DATE OF THE SALE
OF THE PREFERRED STOCK AND WARRANTS AND THE TOTAL POSSIBLE
NUMBER OF SHARES THE SELLING SHAREHOLDERS MAY RECEIVE; AND
o THE TOTAL POSSIBLE DISCOUNT TO THE MARKET PRICE AS OF THE DATE
Page 6 of 20
OF THE SALE OF THE PREFERRED STOCK AND WARRANTS, CALCULATED BY
SUBTRACTING THE TOTAL CONVERSION/EXERCISE PRICE ON THE DATE OF
THE SALE OF THE PREFERRED STOCK AND WARRANTS FROM THE COMBINED
MARKET PRICE OF THE TOTAL NUMBER OF SHARES UNDERLYING THE
PREFERRED STOCK AND WARRANTS ON THAT DATE.
IF THERE ARE PROVISIONS IN THE CERTIFICATE OF DESIGNATION OF
PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES C OR IN THE WARRANT THAT COULD
RESULT IN A CHANGE IN THE PRICE PER SHARE UPON THE OCCURRENCE OF CERTAIN EVENTS,
PLEASE PROVIDE ADDITIONAL TABULAR DISCLOSURE AS APPROPRIATE. FOR EXAMPLE, IF THE
CONVERSION/EXERCISE PRICE PER SHARE IS FIXED UNLESS AND UNTIL THE MARKET PRICE
FALLS BELOW A STATED PRICE, AT WHICH POINT THE CONVERSION PRICE PER SHARE DROPS
TO A LOWER PRICE, PLEASE PROVIDE ADDITIONAL DISCLOSURE.
Table 3.1, below, presents the calculations requested in Comment #3.
For purposes of this response, the Company excluded shares of common stock
issuable in satisfaction of dividend obligations on the Series C Preferred
Stock.
Page 7 of 20
TABLE 3.1
COMBINED
COMBINED CONVERSION &
SHARES OF SHARES OF MARKET PRICE CONVERSION EXERCISE PRICE TOTAL
COMMON STOCK SHARES OF COMMON STOCK OF SHARES PRICE OF SHARES EXERCISE OF SHARES POSSIBLE
UNDERLYING COMMON UNDERLYING THE UNDERLYING UNDERLYING PRICE UNDERLYING DISCOUNT
THE SERIES C STOCK SERIES C SERIES C SERIES C OF SHARES SERIES C TO THE
INCLUDED SELLING PREFERRED UNDERLYING PREFERRED STOCK PREFERRED STOCK PREFERRED UNDERLYING PREFERRED STOCK MARKET
STOCKHOLDER STOCK WARRANTS & WARRANTS & WARRANTS(1) STOCK(2) WARRANTS(3) & WARRANTS PRICE
- ----------- ----- -------- ---------- ------------- -------- ----------- ---------- -----
Consonance
Capital Master
Account L.P. 375,862 112,758 488,620 $1,314,387.80 $871,999.84 $338,274.00 $1,210,273.84 $104,113.96
Midsummer
Investment, Ltd. 431,034 129,310 560,344 $1,507,325.36 $999,998.88 $387,930.00 $1,387,928.88 $119.396.48
TOTAL 806,896 242,068 1,048,964 $2,821,713.16 $1,871,998.72 $726,204 $2,598,202.72 $223,510.44
- -----
Page 8 of 20
Pursuant to the Certificate of Designations the conversion price may be
adjusted in certain situations, as presented in Table 3.2 below.
TABLE 3.2
TRIGGERING EVENT (AS EACH IS
DEFINED UNDER THE CERTIFICATE
OF DESIGNATIONS) RESULTING ADJUSTMENT IN THE CONVERSION PRICE
"Stock Dividends and Stock The Conversion Price is multiplied by a fraction, the numerator being the number of shares of
Splits" Common Stock (excluding Treasury Shares) outstanding immediately before, and the denominator
the number outstanding immediately after, such event.
The Conversion Price is multiplied by a fraction, the numerator being the number of shares of
"Subsequent Equity Sales,"at Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the
an effective price lower than number of shares of Common Stock which the offering price for such Dilutive Issuance would
the then applicable purchase at the then applicable Conversion Rate, and the denominator being the sum of the
conversion price(4) number of shares of Common Stock issued and outstanding immediately prior to the Dilutive
Issuance and the number of shares so issued or issuable in connection with the Dilutive
Issuance.(5)
The Conversion Price is multiplied by a fraction, the numerator being the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants plus the number
"Subsequent Rights of shares which the aggregate offering price of the total number of shares so offered would
Offerings"(6) purchase at such VWAP, and the denominator being the number of shares of 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.(7)
The Conversion Price, in each such case, in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution is multiplied by a
fraction, the numerator being such VWAP less the then fair market value, on such record date,
"Pro Rata Distributions" 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 in good faith, and the denominator being the VWAP determined as of the record date
described above.
The Conversion Price is adjusted, for purposes of any such conversion, to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in respect of
"Fundamental Transaction" one share of Common Stock in such Fundamental Transaction, and the Company apportions the
Conversion Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.(8)
Page 9 of 20
In addition, pursuant to the terms of the Warrant, the exercise price
may be adjusted in the situations set forth in Table 3.3 below.
TABLE 3.3
TRIGGERING EVENT (AS
EACH IS DEFINED UNDER
THE TERMS OF THE
WARRANT) RESULTING ADJUSTMENT IN THE WARRANT EXERCISE PRICE
"Stock Dividends and The Exercise Price is multiplied by a fraction, the numerator being the number of shares of Common
Splits" Stock (excluding Treasury Shares) outstanding immediately before, and the denominator the number
outstanding immediately after, such event.
The Exercise Price is multiplied by a fraction, the numerator being the number of shares of Common
Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares
"Subsequent Equity of Common Stock which the offering price for such Dilutive Issuance would purchase at the then
Sales," at an effective applicable Conversion Price, and the denominator being the sum of the number of shares of Common
price lower than the Stock issued and outstanding immediately prior to the Dilutive Issuance and the number of shares so
then applicable issued or issuable in connection with the Dilutive Issuance and the number of Warrant Shares
Conversion Price issuable under the Form of Warrant, are to be increased such that the aggregate Exercise Price
payable under the Form of Warrant, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such adjustment.(9)
The Exercise Price is multiplied by a fraction, the numerator being the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants plus the number of shares
"Subsequent Rights which the aggregate offering price of the total number of shares so offered would purchase at such
Offerings"(10) VWAP, and the denominator being the number of shares of 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.(11)
The Exercise Price, in each such case, in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution is multiplied by a fraction,
"Pro Rata Distributions" the numerator being such VWAP less the then fair market value at such record date of the portion of
such assets or evidence of indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith, and the denominator being the
VWAP determined as of the record date described above.
The Exercise Price is adjusted, for purposes of any such exercise by the Warrant holder, to apply
"Fundamental to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
Transactions" of one share of Common Stock in such Fundamental Transaction, and the Company apportions the
Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration.(12)
- --------------
(1) Using a market price of $2.69 per share, the closing price per share of
common stock listed on the American Stock Exchange, as of July 17, 2007.
(2) Using a conversion price of $2.32 per share, pursuant to the
Certificate of Designations.
(3) Using a Warrant exercise price of $3.00 per share, pursuant to the
Purchase Agreement.
(4) Excluding a reduction in the Exercise Price of the Warrants issued to
the Selling Stockholders on the "Original Issue
Page 10 of 20
Date," as defined in the Certificate of Designations.
(5) In the event of an "Exempt Issuance," as defined in the Certificate of
Designations, there is no adjustment of the Conversion Price despite
circumstances that would otherwise merit an adjustment.
(6) The Company, while Series C Stock is outstanding, issues rights,
options, or warrants to ALL holders of Common Stock 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 for the determination of stockholders entitled to
receive such rights, options, or warrants.
(7) Such adjustment becomes effective immediately after the described
record date. If any such rights, options, or warrants expire without being
exercised, the Conversion Price as adjusted upon the issuance of the same shall
be readjusted to the Conversion Price that 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 Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such rights,
options, or warrants, whether or not exercised, except that such readjustment
does not apply to prior conversions of the Series C Preferred Stock.
(8) If the holders of shares of common stock are given any choice as to the
securities, cash, or property to be received in a Fundamental Transaction, then
the holders of Series C Preferred Stock are to be given the same choice as to
the Alternate Consideration it receives upon any conversion of the Series C
Preferred Stock following such Fundamental Transaction.
(9) Such adjustments are made whenever such shares of common stock or
Common Stock Equivalents are issued. However, under no circumstance will such
adjustments be made, paid or issued with respect to an Exempt Issuance.
(10) The Company, while Warrants are outstanding, issues rights, options, or
warrants to ALL holders of Common Stock 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 for the determination of stockholders entitled to receive
such rights, options, or warrants.
(11) Such adjustment becomes effective immediately after the described
record date. If any such rights, options, or warrants expire without being
exercised, the Conversion Price as adjusted upon the issuance of the same shall
be readjusted to the Conversion Price that would have been in effect had an
adjustment been made on the basis that only 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 Company upon such exercise, plus
the consideration, if any, actually received by the Company for the granting of
all such rights, options, or warrants, whether or not exercised, except that
such readjustment does not apply to prior exercises of the Warrant.
(12) If the Common Stockholders are given any choice as to the securities,
cash, or property to be received in a Fundamental Transaction, then the holders
of Warrants are to be given the same choice as to the Alternate Consideration it
receives upon any exercise of a Warrant following such Fundamental Transaction.
4. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH TABULAR DISCLOSURE OF:
o THE TOTAL POSSIBLE PROFIT TO BE REALIZED AS A RESULT OF ANY
CONVERSION DISCOUNTS FOR SECURITIES UNDERLYING ANY OTHER
WARRANTS, OPTIONS, NOTES, OR OTHER SECURITIES OF THE ISSUER
THAT ARE HELD BY THE SELLING SHAREHOLDERS OR ANY AFFILIATES OF
THE SELLING SHAREHOLDERS, PRESENTED IN A TABLE WITH THE
FOLLOWING INFORMATION DISCLOSED SEPARATELY:
o MARKET PRICE PER SHARE OF THE UNDERLYING SECURITIES
ON THE DATE OF THE SALE OF THAT OTHER SECURITY;
o THE CONVERSION/EXERCISE PRICE PER SHARE AS OF THE
DATE OF THE SALE OF THAT OTHER SECURITY, CALCULATED
AS FOLLOWS:
Page 11 of 20
- IF THE CONVERSION/EXERCISE PRICE PER SHARE
IS SET AT A FIXED PRICE, USE THE PRICE PER
SHARE ON THE DATE OF THE SALE OF THAT OTHER
SECURITY; AND
- IF THE CONVERSION/EXERCISE PRICE PER SHARE
IS NOT SET AT A FIXED PRICE AND, INSTEAD, IS
SET AT A FLOATING RATE IN RELATIONSHIP TO
THE MARKET PRICE OF THE UNDERLYING SECURITY,
USE THE CONVERSION/EXERCISE DISCOUNT RATE
AND THE MARKET RATE PER SHARE ON THE DATE OF
THE SALE OF THAT OTHER SECURITY AND
DETERMINE THE CONVERSION PRICE PER SHARE AS
OF THAT DATE;
o THE TOTAL POSSIBLE SHARES TO BE RECEIVED UNDER THE PARTICULAR
SECURITIES (ASSUMING COMPLETE CONVERSION/EXERCISE);
o THE COMBINED MARKET PRICE OF THE TOTAL NUMBER OF UNDERLYING
SHARES, CALCULATED BY USING THE MARKET PRICE PER SHARE ON THE
DATE OF THE SALE OF THAT OTHER SECURITY AND THE TOTAL POSSIBLE
SHARES TO BE RECEIVED;
o THE TOTAL POSSIBLE SHARES TO BE RECEIVED AND THE COMBINED
CONVERSION PRICE OF THE TOTAL NUMBER OF SHARES UNDERLYING THAT
OTHER SECURITY CALCULATED BY USING THE CONVERSION PRICE ON THE
DATE OF THE SALE OF THAT OTHER SECURITY AND THE TOTAL POSSIBLE
NUMBER OF UNDERLYING SHARES; AND
o THE TOTAL POSSIBLE DISCOUNT TO THE MARKET PRICE AS OF THE DATE
OF THE SALE OF THAT OTHER SECURITY, CALCULATED BY SUBTRACTING
THE TOTAL CONVERSION/EXERCISE PRICE ON THE DATE OF THE SALE OF
THAT OTHER SECURITY FROM THE COMBINED MARKET PRICE OF THE
TOTAL NUMBER OF UNDERLYING SHARES ON THAT DATE.
Table 4 provides information provided to the Company by the Included
Selling Stockholders on the shares of common stock underlying the Series C
Preferred Stock and Series B Preferred Stock, par value $0.01 per share, of the
Company purchased by the Included Selling Stockholders, and any warrants issued
in connection with the Series C Preferred Stock or Series B Preferred Stock or
otherwise acquired by the Included Selling Stockholders. Table 4 does not
include data on shares of common stock issued or issuable in satisfaction of
dividend obligations on the Series C Preferred Stock or Series B Preferred
Stock.
With respect to the Series C Preferred Stock, the total possible
discount to the market price as of the date of sale of the Series C Preferred
Stock and Series C Warrants was $223,510.44. There was no discount to the market
price in connection with the Series B Preferred Stock as of the date of sale of
the Series B Preferred Stock and Series B Warrants.
Page 12 of 20
TABLE 4(1)
COMBINED COMBINED
CONVERSION & CONVERSION TOTAL TOTAL
SHARES OF MARKET EXERCISE & EXERCISE POSSIBLE POSSIBLE
COMMON MARKET PRICE SHARES OF PRICE OF PRICE OF PRICE OF DISCOUNT TO DISCOUNT TO
STOCK OF SHARES COMMON STOCK SHARES SHARES SHARES THE MARKET THE MARKET
UNDERLYING UNDERLYING UNDERLYING UNDERLYING UNDERLYING UNDERLYING PRICE OF THE PRICE OF THE
SERIES B SERIES B SERIES C SERIES C SERIES B SERIES C SERIES B SERIES C
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INCLUDED STOCK & STOCK & STOCK & STOCK & STOCK & STOCK & STOCK AND STOCK AND
SELLING SERIES B SERIES B SERIES C SERIES C SERIES B SERIES C SERIES B SERIES C
STOCKHOLDER WARRANTS WARRANTS WARRANTS WARRANTS WARRANTS(2) WARRANTS(3) WARRANTS WARRANTS
- ----------- -------- -------- -------- -------- ----------- ----------- -------- --------
Consonance
Capital Master
Account L.P. - - 488,620 $1,314,387.80 - $1,210,273.84 - $104,113.96
Midsummer
Investment,
Ltd. 1,884,000(4) $4,239,000 560,344 $1,507,325.36 $4,710,000 $1,387,928.88 ($471,000) $119.396.48
TOTAL 1,884,000 $4,239,000 1,048,964 $2,821,713.16 $4,710,000 $2,598,202.72 ($471,000) $223,510.44
- -----
- --------
(1) March 15, 2006 is the date of sale for the Series B Preferred Stock.
For purposes of the calculations in this table, the Company used the following
prices, as of the date of sale of the Series B Preferred Stock: (a) $2.25, the
closing price per share of the Company's common stock, as listed on Yahoo!
Finance; (b) $2.25, the conversion price per share of the Series B Preferred
Stock, as provided in the Certificate of Designations, Preferences and Rights of
Series B Preferred Stock, dated as of March 15, 2006; (c) $2.75, the exercise
price per share of the first class of warrants (the "FIRST CLASS SERIES B
WARRANTS") issued in connection with the Series B Preferred Stock, as provided
in the Securities Purchase Agreement, dated as of March 15, 2006 (the "SERIES B
PURCHASE AGREEMENT"); and (d) $3.25, the price per share of the second class of
warrants (the "SECOND CLASS SERIES B WARRANTS") issued in connection with the
Series B Preferred Stock, as provided in the Series B Purchase Agreement. July
17, 2007 is the date of sale of the Series C Preferred Stock listed in this
table, and the prices used by the Company for purposes of this response can be
found in the Company's response to Comment 3, above, and the accompanying
footnotes.
(2) Calculated by taking the sum of (a) the number of shares of Common
Stock underlying the Series B Preferred Stock multiplied by the conversion price
per share, (b) the number of shares of Common Stock underlying the First Class
Series B Warrants multiplied by the exercise price per share, and (c) the number
of shares of Common Stock underlying the Second Class Series B Warrants
multiplied by the exercise price per share.
(3) Calculated by taking the sum of (a) the number of shares of Common
Stock underlying the Series C Preferred Stock multiplied by the conversion price
per share, and (b) the number of shares of Common Stock underlying the Warrants
issued in connection with the Series C Preferred Stock multiplied by the
exercise price per share.
(4) Representing 1,256,000 shares of Common Stock underlying Series B
Preferred Stock, 314,000 shares of Common Stock underlying First Class Series B
Warrants, and 314,000 shares of Common Stock underlying Second Class Series B
Warrants.
5. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE
PROSPECTUS, WITH TABULAR DISCLOSURE OF:
o THE GROSS PROCEEDS PAID OR PAYABLE TO THE ISSUER IN THE
PRIVATE PLACEMENT TRANSACTION;
Page 13 of 20
o ALL PAYMENTS THAT HAVE BEEN MADE OR THAT MAY BE REQUIRED TO BE
MADE BY THE ISSUER THAT ARE DISCLOSED IN RESPONSE TO COMMENT
2;
o THE RESULTING NET PROCEEDS TO THE ISSUER; AND
o THE COMBINED TOTAL POSSIBLE PROFIT TO BE REALIZED AS A RESULT
OF ANY CONVERSION DISCOUNTS REGARDING THE SECURITIES
UNDERLYING THE PREFERRED STOCK AND WARRANTS ISSUED IN THE
PRIVATE PLACEMENT AND ANY OTHER WARRANTS, OPTIONS, NOTES, OR
OTHER SECURITIES OF THE ISSUER THAT ARE HELD BY THE SELLING
SHAREHOLDERS OR ANY AFFILIATES OF THE SELLING SHAREHOLDERS
THAT IS DISCLOSED IN RESPONSE TO COMMENTS 3 AND 4.
FURTHER, PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE
PROSPECTUS, WITH DISCLOSURE-AS A PERCENTAGE-OF THE TOTAL AMOUNT OF ALL POSSIBLE
PAYMENTS AS DISCLOSED IN RESPONSE TO COMMENT 2 AND THE TOTAL POSSIBLE DISCOUNT
TO THE MARKET PRICE OF THE SHARES UNDERLYING THE PREFERRED STOCK AND WARRANTS AS
DISCLOSED IN RESPONSE TO COMMENT 3 DIVIDED BY THE NET PROCEEDS TO THE ISSUER
FROM THE SALE OF THE PREFERRED STOCK AND WARRANTS, AS WELL AS THE AMOUNTS OF
THAT RESULTING PERCENTAGE AVERAGED OVER THE TERM OF THE WARRANTS.
TABLE 5
COMBINED TOTAL
POSSIBLE PROFIT
REALIZABLE FROM
CONVERSION POTENTIAL PAYMENTS
DISCOUNTS IN TO BE MADE BY
CONNECTION WITH PAYMENTS OR COMPANY PLUS
THE JULY POTENTIAL COMBINED TOTAL
PRIVATE PAYMENTS TO BE POSSIBLE PROFIT
PLACEMENT AND MADE BY COMPANY REALIZABLE FROM
ANY OTHER PLUS COMBINED CONVERSION
SECURITIES OF TOTAL POSSIBLE DISCOUNTS DIVIDED
THE COMPANY PROFIT REALIZABLE BY NET PROCEEDS TO
PAYMENTS OR HELD BY THE FROM CONVERSION COMPANY (%)
POTENTIAL SELLING DISCOUNTS DIVIDED AVERAGED OVER
GROSS PAYMENTS TO BE NET PROCEEDS STOCKHOLDERS OR BY NET PROCEEDS 5-YEAR TERM OF
PROCEEDS MADE BY COMPANY TO COMPANY THEIR AFFILIATES TO COMPANY (%) WARRANTS
-------- --------------- ---------- ---------------- -------------- --------
INCLUDED
SELLING
STOCKHOLDERS $2,598,204(1) $(430,560)(2) $2,167,644 $(247,489.56) (31.28)% (6.26)%
EXCLUDED
SELLING
STOCKHOLDERS $4,535,393(3) $(719,440)(4) $3,815,953 $(540,493.18)(5) (33.02)% (6.6)%
PLACEMENT AGENT $0 $(368,000) $(368,000) n/a n/a n/a
TOTAL $7,133,597 $(1,518,000) $5,615,597 $(787,982.74) (41.06)% (8.21)%
- -----
- --------------
(1) Representing the proceeds payable to the Company by the Included
Selling Stockholders in connection with the July Private Placement assuming the
exercise in full of the Warrants held by the Included Selling Stockholders.
(2) Representing dividends payable to the Included Selling Stockholders on
the Series C Preferred Stock purchased in the July Private Placement during the
first year following sale, plus potential partial liquidated damages payable to
the Included Selling Stockholders.
Page 14 of 20
(3) Representing proceeds payable to the Company by the Excluded Selling
Securityholders in connection with the July Private Placement assuming the
exercise in full of the Warrants acquired by the Excluded Selling Stockholders.
(4) Representing dividends payable to the Excluded Selling Stockholders on
the Series C Preferred Stock purchased in the July Private Placement during the
first year following sale, plus potential partial liquidated damages payable to
the Excluded Selling Stockholders based on the Series C Preferred Stock
purchased in the July Private Placement.
(5) Representing the total discount to the market price realized by the
Excluded Selling Stockholders in the July Private Placement plus the total
discount to the market price realized by the Excluded Selling Stockholders in
the April Private Placement; this calculation does not include warrants issued
to any Excluded Selling Stockholders or their affiliates for placement agent
services in connection with the Series B Preferred Stock private placement
transaction that closed on March 15, 2006 (the "SERIES B PRIVATE PLACEMENT").
Based on information provided to the Company by or on behalf of the Excluded
Selling Stockholders, none of the Excluded Selling Stockholders or their
affiliates purchased shares of Series B Preferred Stock of the Company (the
"SERIES B PREFERRED STOCK") in the Series B Private Placement.
6. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH TABULAR DISCLOSURE OF ALL PRIOR SECURITIES TRANSACTIONS BETWEEN THE ISSUER
(OR ANY OF ITS PREDECESSORS) AND THE SELLING SHAREHOLDERS, ANY AFFILIATES OF THE
SELLING SHAREHOLDERS, OR ANY PERSON WITH WHOM ANY SELLING SHAREHOLDER HAS A
CONTRACTUAL RELATIONSHIP REGARDING THE TRANSACTION (OR ANY PREDECESSORS OF THOSE
PERSONS), WITH THE TABLE INCLUDING THE FOLLOWING INFORMATION DISCLOSED
SEPARATELY FOR EACH TRANSACTION:
o THE DATE OF THE TRANSACTION;
o THE NUMBER OF SHARES OF THE CLASS OF SECURITIES SUBJECT TO THE
TRANSACTION THAT WERE OUTSTANDING PRIOR TO THE TRANSACTION;
o THE NUMBER OF SHARES OF THE CLASS OF SECURITIES TO THE
TRANSACTION THAT WERE OUTSTANDING PRIOR TO THE TRANSACTION AND
HELD BY PERSONS OTHER THAN THE SELLING SHAREHOLDERS,
AFFILIATES OF THE COMPANY, OR AFFILIATES OF THE SELLING
SHAREHOLDERS;
o THE NUMBER OF SHARES OF THE CLASS OF SECURITIES SUBJECT TO THE
TRANSACTION THAT WERE ISSUED OR ISSUABLE IN CONNECTION WITH
THE TRANSACTION;
o THE PERCENTAGE OF TOTAL ISSUED AND OUTSTANDING SECURITIES THAT
WERE ISSUED OR ISSUABLE IN THE TRANSACTION (ASSUMING FULL
ISSUANCE), WITH THE PERCENTAGE CALCULATED BY TAKING THE NUMBER
OF SHARES ISSUED AND OUTSTANDING PRIOR TO THE APPLICABLE
TRANSACTION AND HELD BY PERSONS OTHER THAN THE SELLING
SHAREHOLDERS, AFFILIATES OF THE COMPANY, OR AFFILIATES OF THE
SELLING SHAREHOLDERS, AND DIVIDING THAT NUMBER BY THE NUMBER
OF SHARES ISSUED OR ISSUABLE IN CONNECTION WITH THE APPLICABLE
TRANSACTION;
o THE MARKET PRICE PER SHARE OF THE CLASS OF SECURITIES SUBJECT
TO THE TRANSACTION IMMEDIATELY PRIOR TO THE TRANSACTION
(REVERSE SPLIT ADJUSTED, IF NECESSARY); AND
o THE CURRENT MARKET PRICE PER SHARE OF THE CLASS OF
SECURITIES SUBJECT TO THE TRANSACTION (REVERSE SPLIT
ADJUSTED, IF NECESSARY)
Page 15 of 20
Since there is just one prior securities transaction responsive to this
Comment #7, the Company has set forth below a textual, rather than a tabular,
response listing the details of the applicable prior securities transaction.
In connection with the Series B Private Placement, Midsummer
Investment, Ltd. purchased from the Company 2,826 shares of Series B Preferred
Stock, convertible into 1,256,000 shares of Common Stock, at a conversion rate
of 1 share of Series B Preferred Stock for 444.4444 shares of Common Stock. The
Company issued a total of 10,000 shares of Series B Preferred Stock in
connection with the Series B Private Placement. Immediately prior to the Series
B Private Placement, no shares of Series B Preferred Stock were outstanding and
19,090,159 shares of Common Stock were outstanding. The closing market price per
share of the Company's Common Stock on the date of closing of the Series B
Private Placement, as listed on Yahoo! Finance, was $2.15. The closing market
price per share of the Common Stock as of December 17, 2007, as listed on Yahoo!
Finance, was $1.75.
There were no other prior securities transactions between the Included
Selling Stockholders (or any affiliates of the Included Selling Stockholders, or
any person with whom any Included Selling Stockholder has a contractual
relationship regarding the transaction (or any predecessors of those persons))
and the Company (or any predecessors of the Company).
7. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH TABULAR DISCLOSURE COMPARING:
o THE NUMBER OF SHARES OUTSTANDING PRIOR TO THE PRIVATE
PLACEMENT TRANSACTION THAT ARE HELD BY PERSONS OTHER THAN THE
SELLING SHAREHOLDERS, AFFILIATES OF THE COMPANY, AND
AFFILIATES OF THE SELLING SHAREHOLDERS
o THE NUMBER OF SHARES REGISTERED FOR RESALE BY THE SELLING
SHAREHOLDERS OR AFFILIATES OF THE SELLING SHAREHOLDERS IN
PRIOR REGISTRATION STATEMENTS;
o THE NUMBER OF SHARES REGISTERED FOR RESALE BY THE SELLING
SHAREHOLDERS OR AFFILIATES OF THE SELLING SHAREHOLDERS THAT
CONTINUE TO BE HELD BY THE SELLING SHAREHOLDERS OR AFFILIATES
OF THE SELLING SHAREHOLDERS;
o THE NUMBER OF SHARES THAT HAVE BEEN SOLD IN REGISTERED RESALE
TRANSACTIONS BY THE SELLING SHAREHOLDERS OR AFFILIATES OF THE
SELLING SHAREHOLDERS; AND
o THE NUMBER OF SHARES REGISTERED FOR RESALE ON BEHALF OF THE
SELLING SHAREHOLDERS OR AFFILIATES OF THE SELLING SHAREHOLDERS
IN THE CURRENT TRANSACTION.
IN THIS ANALYSIS, THE CALCULATION OF THE NUMBER OF OUTSTANDING SHARES SHOULD NOT
INCLUDE ANY SECURITIES UNDERLYING ANY OUTSTANDING CONVERTIBLE SECURITIES,
OPTIONS, OR WARRANTS.
The data provided in Table 7, below, is based on information provided
to the Company by or on behalf of the Included Selling Stockholders.
Page 16 of 20
TABLE 7
SHARES OF
COMMON STOCK
SHARES OF REGISTERED FOR SHARES OF COMMON
COMMON STOCK RESALE BY STOCK OUTSTANDING
REGISTERED FOR INCLUDED PRIOR TO THE JULY
RESALE BY SELLING PRIVATE
INCLUDED STOCKHOLDERS PLACEMENT(2) HELD
SELLING THAT CONTINUE PREVIOUSLY BY PERSONS OTHER
STOCKHOLDERS TO BE HELD BY REGISTERED THAN THE INCLUDED
OR AFFILIATES THE INCLUDED SHARES SOLD IN SELLING
OF INCLUDED SELLING REGISTERED SHARES OF COMMON STOCKHOLDERS (OR
SELLING STOCKHOLDERS OR RESALE STOCK REGISTERED AFFILIATES OF
STOCKHOLDERS AFFILIATES OF TRANSACTIONS FOR RESALE BY INCLUDED SELLING
IN PRIOR INCLUDED BY INCLUDED INCLUDED SELLING STOCKHOLDERS) OR
INCLUDED SELLING REGISTRATION SELLING SELLING STOCKHOLDERS IN AFFILIATES OF THE
STOCKHOLDER(1) STATEMENTS STOCKHOLDERS STOCKHOLDERS CURRENT TRANSACTION COMPANY
- -------------- ---------- ------------ ------------ ------------------- -------
Consonance Capital
Master Account L.P. 0 0 0 724,717 --
Midsummer
Investment, Ltd. 2,690,484 2,690,484 0 831,098 --
TOTAL 2,690,484 2,690,484 0 1,555,815 17,903,959
- -----
- ----------
(1) For purposes of this response, the term "Included Selling Stockholder"
includes affiliates of the Included Selling Stockholders.
(2) There were a total of 21,299,667 shares of Common Stock outstanding on
July 17, 2007, immediately prior to the closing of the July Private Placement,
not including treasury shares.
8. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH THE FOLLOWING INFORMATION:
o WHETHER THE ISSUER HAS THE INTENTION, AND A REASONABLE BASIS
TO BELIEVE THAT IT WILL HAVE THE FINANCIAL ABILITY, TO MAKE
ALL PAYMENTS AND DIVIDENDS ON THE OVERLYING SECURITIES; AND
o WHETHER - BASED ON INFORMATION OBTAINED FROM THE SELLING
SHAREHOLDERS - ANY OF THE SELLING SHAREHOLDERS HAVE AN
EXISTING SHORT POSITION IN THE COMPANY'S COMMON STOCK AND, IF
ANY OF THE SELLING SHAREHOLDERS HAVE AN EXISTING SHORT
POSITION IN THE COMPANY'S STOCK, THE FOLLOWING ADDITIONAL
INFORMATION:
- THE DATE ON WHICH EACH SUCH SELLING SHAREHOLDER
ENTERED INTO THAT SHORT POSITION; AND
- THE RELATIONSHIP OF THE DATE ON WHICH SUCH SELLING
SHAREHOLDER ENTERED INTO THAT SHORT POSITION TO THE
DATE OF THE ANNOUNCEMENT OF THE PRIVATE PLACEMENT
TRANSACTION AND THE FILING OF THE REGISTRATION
STATEMENT (E.G., BEFORE OR AFTER THE ANNOUNCEMENT OF
THE PRIVATE PLACEMENT TRANSACTION, BEFORE THE FILING
OR AFTER THE FILING OF THE REGISTRATION STATEMENT,
ETC.).
Page 17 of 20
The Company intends to make, and has reasonable basis to believe that
it has the financial ability to make, all payments and dividends on the
overlying securities.
The following statements are based on information provided to the
Company by, or on behalf of, the Included Selling Stockholders.
Midsummer Investment, Ltd. in the ordinary course of its business may
inter into short sales. However, no such short sales are entered into by
Midsummer Investment, Ltd. while in possession of any material, nonpublic
information. Midsummer Investment, Ltd. acknowledges the position of the Staff
of the SEC set forth in Item A.65 of the SEC Telephone Interpretations Manual.
9. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH:
o A MATERIALLY COMPLETE DESCRIPTION OF THE RELATIONSHIPS AND
ARRANGEMENTS THAT HAVE EXISTED IN THE PAST THREE YEARS OR ARE
TO BE PERFORMED IN THE FUTURE BETWEEN THE ISSUER (OR ANY OF
ITS PREDECESSORS) AND THE SELLING SHAREHOLDERS, ANY AFFILIATES
OF THE SELLING SHAREHOLDERS, OR ANY PERSON WITH WHOM ANY
SELLING SHAREHOLDER HAS A CONTRACTUAL RELATIONSHIP REGARDING
THE TRANSACTION (OR ANY PREDECESSORS OF THOSE PERSONS) - THE
INFORMATION PROVIDED SHOULD INCLUDE, IN REASONABLE DETAIL, A
COMPLETE DESCRIPTION OF THE RIGHTS AND OBLIGATIONS OF THE
PARTIES IN CONNECTION WITH THE SALE OF THE PREFERRED STOCK AND
WARRANTS; AND
o COPIES OF ALL AGREEMENTS BETWEEN THE ISSUER (OR ANY OF ITS
PREDECESSORS) AND THE SELLING SHAREHOLDERS, ANY AFFILIATES OF
THE SELLING SHAREHOLDERS, OR ANY PERSON WITH WHOM ANY SELLING
SHAREHOLDER HAS A CONTRACTUAL RELATIONSHIP REGARDING THE
TRANSACTION (OR ANY PREDECESSORS OF THOSE PERSONS) IN
CONNECTION WITH THE SALE OF THE PREFERRED STOCK AND WARRANTS.
IF IT IS YOUR VIEW THAT SUCH A DESCRIPTION OF THE RELATIONSHIPS AND
ARRANGEMENTS BETWEEN AND AMONG THOSE PARTIES ALREADY IS PRESENTED IN THE
PROSPECTUS AND THAT ALL ARRANGEMENTS BETWEEN AND/OR AMONG THOSE PARTIES ARE
INCLUDED AS EXHIBITS TO THE REGISTRATION STATEMENT, PLEASE PROVIDE US WITH
CONFIRMATION OF YOUR VIEW IN THIS REGARD.
No Included Selling Stockholder has had, within the past three years,
any position, office, or material relationship or arrangements with the Company
or any of the Company's predecessors or affiliates, except as provided in the
prospectus, and all such arrangements between or among the Company, or any of
its predecessors or affiliates, and any of the Selling Securityholders are
included as exhibits to the Registration Statement.
10. PLEASE PROVIDE US, WITH A VIEW TOWARD DISCLOSURE IN THE PROSPECTUS,
WITH A DESCRIPTION OF THE METHOD BY WHICH THE COMPANY DETERMINED THE NUMBER OF
SHARES IT SEEKS TO REGISTER IN CONNECTION WITH THIS REGISTRATION STATEMENT. IN
THIS REGARD, PLEASE ENSURE THAT THE NUMBER OF SHARES REGISTERED IN THE FEE TABLE
IS CONSISTENT WITH THE SHARES LISTED IN THE "SELLING SHAREHOLDERS" SECTION OF
THE PROSPECTUS.
Page 18 of 20
The number of shares that the Company seeks to register for resale in
this Registration Statement was determined by taking the sum of the shares of
Common Stock underlying the Series C Preferred Stock purchased by the Included
Selling Stockholders in the July Private Placement and Warrants issued in
connection therewith, as well as the aggregate shares of common stock issuable
in satisfaction of dividend obligations on the shares of Series C Preferred
Stock purchased by the Included Selling Stockholders in the July Private
Placement (the "DIVIDEND SHARES"). In deciding the number of Dividend Shares to
register, the Company first determined that the VWAP portion of the dividend
formula at such time amounted to 2.185. Accordingly, the Company calculated the
number of Dividend Shares to register with respect to each Included Selling
Stockholder by taking the sum of: (a) for the initial partial year, commencing
on July 17, 2007, and ending April 24, 2008, 0.77 times the product of the
aggregated stated value of the shares of Series C Preferred Stock purchased and
a fraction, of which the numerator is .08, the rate at which dividends accrue
during that period, and the denominator is 2.185, rounding down to the nearest
number; (b) for the subsequent full year, the product of the aggregated state
value of the shares of Series C Preferred Stock purchased and a fraction, of
which the numerator is .08, the rate at which dividends accrue during that
period, and the denominator is 2.185, rounding down to the nearest number; and
(c) for the subsequent three full years, three times the product of the
aggregated stated value of the shares of Series C Preferred Stock purchased and
a fraction, of which the numerator is .15, the rate at which dividends accrue
during that period, and the denominator is 2.185, rounding down to the nearest
number.
The number of shares registered in the fee table is consistent with the
number of shares listed in the "Selling Shareholders" section of the prospectus.
11. WITH RESPECT TO THE SHARES TO BE OFFERED FOR RESALE BY EACH SELLING
SECURITY HOLDER THAT IS A LEGAL ENTITY, PLEASE DISCLOSE THE NATURAL PERSON OR
PERSONS WHO EXERCISE THE SOLE OR SHARED VOTING AND/OR DISPOSITIVE POWERS WITH
RESPECT TO THE SHARES TO BE OFFERED BY THAT SHAREHOLDER.
The table below presents information regarding the relevant natural
person or persons, based on information received by the Company from the Selling
Securityholders.
Page 19 of 20
TABLE 11
- --------------------------- ----------------------------------------------------
SELLING SECURITYHOLDER NATURAL PERSON(S) EXERCISING SOLE OR SHARED VOTING
AND/OR DISPOSITIVE POWERS REGARDING THE SHARES TO BE
OFFERED
- --------------------------- ----------------------------------------------------
Consonance Capital Master
Account L.P. Michael J. Blutt
- --------------------------- ----------------------------------------------------
Michel Amsalem/Scott Kaufman. Midsummer Capital, LLC
Midsummer is the investment advisor to Midsummer Investment,
Investment, Ltd. Ltd. By virtue of such relationship, Midsummer
Capital, LLC may be deemed to have dispositive power
over the shares owned by Midsummer Investment, Ltd.
Midsummer Capital, LLC disclaims beneficial
ownership of such shares. Mr. Michel Amsalem and Mr.
Scott Kaufman have delegated authority from the
members of Midsummer Capital, LLC with respect to
the shares of common stock owned by Midsummer
Investment, Ltd. Messrs. Amsalem and Kaufman may be
deemed to share dispositive power over the shares of
our common stock owned by Midsummer Investment, Ltd.
Messrs. Amsalem and Kaufman disclaim beneficial
ownership of such shares of our common stock and
neither person has any legal right to maintain such
delegated authority.
- --------------------------------------------------------------------------------
12. WE NOTE THAT YOU ARE REGISTERING THE SALE OF UP TO 4,220,122 SHARES OF
COMMON STOCK. WE ALSO NOTE THAT YOU REGISTERED FOR RESALE UP TO 12,786,753
SHARES OF COMMON STOCK FOR MANY OF THE SAME SELLING SHAREHOLDERS IN THE
REGISTRATION STATEMENT FILED ON 5/24/07. GIVEN THE SIZE RELATIVE TO THE NUMBER
OF SHARES OUTSTANDING HELD BY NON-AFFILIATES, THE NATURE OF THE OFFERING AND THE
TOTAL AMOUNT OF SHARES BEING SOLD BY THE SELLING SECURITY HOLDERS, THE
TRANSACTION APPEARS TO BE A PRIMARY OFFERING. BECAUSE YOU ARE NOT ELIGIBLE TO
CONDUCT A PRIMARY OFFERING ON FORM S-3 YOU ARE NOT ELIGIBLE TO CONDUCT A PRIMARY
AT-THE-MARKET OFFERING UNDER RULE 415(A)(4).
IF YOU DISAGREE WITH OUR ANALYSIS, PLEASE ADVISE THE STAFF OF THE
COMPANY'S BASIS FOR DETERMINING THAT THE TRANSACTION IS APPROPRIATELY
CHARACTERIZED AS A TRANSACTION THAT IS ELIGIBLE TO BE MADE UNDER RULE
415(A)(1)(I). IN YOUR ANALYSIS, PLEASE ADDRESS THE FOLLOWING AMONG ANY OTHER
RELEVANT FACTORS:
o THE NUMBER OF SELLING SHAREHOLDERS AND THE PERCENTAGE OF THE
OVERALL OFFERING MADE BY EACH SHAREHOLDER;
o THE DATE ON WHICH AND THE MANNER IN WHICH EACH SELLING
SHAREHOLDER RECEIVED THE SHARES AND/OR THE OVERLYING
SECURITIES;
o THE RELATIONSHIP OF EACH SELLING SHAREHOLDER WITH THE COMPANY,
INCLUDING ANY ANALYSIS OF WHETHER THE SELLING SHAREHOLDER IS
AN AFFILIATE OF THE COMPANY;
o ANY RELATIONSHIPS AMONG THE SELLING SHAREHOLDERS;
o THE DOLLAR VALUE OF THE SHARES REGISTERED IN RELATION TO THE
PROCEEDS THAT THE COMPANY RECEIVED FROM THE SELLING
SHAREHOLDERS FOR THE SECURITIES, EXCLUDING AMOUNTS OF PROCEEDS
THAT WERE RETURNED (OR WILL BE RETURNED) TO THE SELLING
Page 20 of 20
SHAREHOLDERS AND/OR THEIR AFFILIATES IN FEES OR OTHER
PAYMENTS;
o THE DISCOUNT AT WHICH THE SHAREHOLDERS WILL PURCHASE THE
COMMON STOCK UNDERLYING THE PREFERRED STOCK AND WARRANTS (OR
ANY RELATED SECURITY, SUCH AS A WARRANT OR OPTION) UPON
CONVERSION OR EXERCISE; AND
o WHETHER OR NOT ANY OF THE SELLING SHAREHOLDERS IS IN THE
BUSINESS OF BUYING AND SELLING SECURITIES.
The Registration Statement has been amended to eliminate therefrom the
resale of all securities held by Excluded Selling Stockholders the securities of
which (or the securities of the affiliates of which) were included in the Prior
Registration. Accordingly, Amendment No. 1 includes solely the resale of
securities of the Included Selling Stockholders that were not included, and the
affiliates of which were not included, in the Prior Registration. Accordingly,
the Company believes that the number of securities registered in, and the
identity of the Selling Stockholders named in, Amendment No. 1 is in accord with
the staff's current interpretations of Rule 415(a).