CERTIFICATE OF DESIGNATION
SERIES G CONVERTIBLE PREFERRED STOCK
(Par Value $0.01 Per Share)
OF
HOMELAND SECURITY CAPITAL CORPORATION
The undersigned, a duly authorized officer of Homeland Security Capital
Corporation, a Delaware corporation (the "Company"), in accordance with the
provisions of Section 151 of the General Corporation Laws of the State of
Delaware, DOES HEREBY CERTIFY that the following resolution was duly adopted by
the Board of Directors of the Company (the "Board") by unanimous written consent
pursuant to Section 151 of the General Corporation Laws of the State of Delaware
on February 6, 2006:
WHEREAS, the Certificate of Incorporation authorizes Three Million
(3,000,000) shares of preferred stock, par value $0.01 per share ("Preferred
Stock") issuable from time to time in one or more series;
WHEREAS, the Board deems it advisable to establish a series of Preferred
Stock designated as Series G Preferred Stock, par value $0.01 per share; and
WHEREAS, the shares of such series are to be issued to Cornell Capital
Partners, LP ("Cornell") at the closing of the transactions contemplated by the
Investment Agreement, dated as of February 6, 2006 (the "Investment Agreement")
between the Company and Cornell.
RESOLVED, that the Board has determined that it is in the best interests
of the Company to provide for the designation of one million (1,000,000) shares
of certain Series G Convertible Preferred Shares, par value $0.01 per share (the
"Series G Preferred Shares") and the issuance, to consist of one million
(1,000,000) shares in accordance with the Investment Agreement, and hereby fixes
the powers, designations, preferences, and relative, participating, optional and
other special rights of the shares of such Series G Preferred Shares, as
follows:
Article I. DESIGNATION AND RANK
Section 1.01 Designation. This resolution shall provide for a single
series of Preferred Shares, the designation of which shall be "Series G
Preferred Shares," par value $0.01 per share. The number of authorized shares
constituting the Series G Preferred Shares is One Million (1,000,000) and an
issuance of One Million (1,000,000) shares shall occur in accordance with the
Investment Agreement. The Series G Preferred Shares shall have a stated value of
$0.10 and have a liquidation preference as determined in Section 3.01 below.
Section 1.02 Rank. With respect to the payment of dividends and other
distributions on the capital stock of the Company, including distribution of the
assets of the Company upon liquidation, the Series G Preferred Shares shall be
senior to the common stock of the Company, par value $0.001 per share (the
"Common Stock"), and senior to all other series of Preferred Shares (the "Junior
Stock").
Article II. DIVIDEND RIGHTS
Section 2.01 Dividends or Distributions. The holders of Series G Preferred
Shares shall not be entitled to receive dividends on a pro rata basis according
to their holdings of shares of Series G Preferred Shares.
Article III. LIQUIDATION RIGHTS
Section 3.01 Liquidation Preference. Upon any liquidation, dissolution, or
winding up of the Company, whether voluntary or involuntary (collectively, a
"Liquidation"), before any distribution or payment shall be made to any of the
holders of Common Stock or any series of Preferred Shares, the holders of Series
G Preferred Shares shall be entitled to receive out of the assets of the
Company, whether such assets are capital, surplus or earnings, an amount equal
to Ten Cents ($0.10) per share of Series G Preferred Shares (the "Liquidation
Amount") plus all accumulated and unpaid dividends thereon, for each share of
Series G Preferred Shares held by them.
Section 3.02 Pro Rata Distribution. If, upon any Liquidation, the assets
of the Company shall be insufficient to pay the Liquidation Amount, together
with accumulated and unpaid dividends thereon, in full to all holders of Series
G Preferred Shares, then the entire net assets of the Corporation shall be
distributed among the holders of the Series G Preferred Shares, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled and such distributions may be made in cash or in property taken at its
fair value (as determined in good faith by the Company's Board of Directors), or
both, at the election of the Company's Board of Directors.
Section 3.03 Merger, Consolidation or Reorganization. For purposes of this
Article III, a Liquidation shall not be deemed to be occasioned by or to include
the merger, consolidation or reorganization of the Company into or with another
entity through one or a series of related transactions, or the sale, transfer or
lease of all or substantially all of the assets of the Company.
Article IV. REGISTRATION RIGHTS AND CONVERSION RIGHTS
Section 4.01 Registration Rights. The Series G Preferred Shares shall have
registration rights pursuant to the Investor Registration Rights Agreement
("Registration Rights Agreement") dated February 6, 2006 between the Company and
Cornell.
Section 4.02 Conversion. The holders of Series G Preferred Shares shall
have sole right and in their discretion to elect conversion pursuant to the
conversion rights as follow (the "Conversion Rights"):
(a) Each share of Series G Preferred Shares shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of such
share (subject to Section 4.03 hereof), at the office of the Company's transfer
agent, pursuant to the Irrevocable Transfer Agent Instructions dated February 6,
2006 ("Transfer Agent Instructions") into Four Hundred Fifty (450) shares of
Common Stock (the "Conversion Ratio"). In addition, the holders of the Series G
Preferred Shares shall receive such number of Series G Preferred Shares equal to
the (i) the sum of all accrued but unpaid dividends on their outstanding Series
G Preferred Shares divided by (ii) $0.10. Any fractional amounts shall be
rounded up or down to the nearest whole number.
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(b) Each share of Series G Preferred Shares shall automatically
convert into shares of Common Stock in accordance with the Conversion Ratio then
in effect immediately upon the consummation of the occurrence of a stock
acquisition, merger, consolidation or reorganization of the Company into or with
another entity through one or a series of related transactions, or the sale,
transfer or lease (but not including a transfer by pledge or mortgage to a bona
fide lender) of all or substantially all of the assets of the Company.
Section 4.03 Adjustments. The Conversion Ratio of the Series G Preferred
Shares as described in Section 4.02 above shall be adjusted from time to time as
follows:
(a) In the event of any reclassification of the Common Stock or
recapitalization involving Common Stock (excluding a subdivision, or combination
of shares or any other event described in this Section 4.02) the holders of the
Series G Preferred Shares shall thereafter be entitled to receive, and provision
shall be made therefor in any agreement relating to the reclassification or
recapitalization, upon conversion of the Series G Preferred Shares, the kind and
number of shares of Common Stock or other securities or property (including
cash) to which such holders of Series G Preferred Shares would have been
entitled if they had held the number of shares of Common Stock into which the
Series G Preferred Shares were convertible immediately prior to such
reclassification or recapitalization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the Series
G Preferred Shares, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares, other securities, or property thereafter receivable upon conversion of
the Series G Preferred Shares. An adjustment made pursuant to this subparagraph
(a) shall become effective at the time at which such reclassification or
recapitalization becomes effective.
(b) In the event the Company shall declare a distribution payable in
securities of other entities or persons, evidences of indebtedness issued by the
Company or other entities or persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4.02 above, the holders of the
Series G Preferred Shares shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Company into which their shares of Series G Preferred Shares are
convertible as of the record date fixed for the determination of the holders of
shares of Common Stock of the Company entitled to receive such distribution or
if no such record date is fixed, as of the date such distribution is made.
Section 4.04 Procedures for Conversion.
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(a) In order to exercise conversion rights pursuant to Section 4.02
above, the holder of the Series G Preferred Shares to be converted shall deliver
an irrevocable written notice of such exercise to the transfer agent of the
Company (the "Transfer Agent") pursuant to the Transfer Agent Instructions, with
a copy to the Company. The holder of any shares of Series G Preferred Shares
shall, upon any conversion of such Series G Preferred Shares in accordance with
this Section 4, surrender certificates representing the Series G Preferred
Shares to the Company's Transfer Agent, and specify the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. In case such holder shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer taxes
(if transfer is to a person or entity other than the holder thereof) payable
upon the issuance of shares of Common Stock in such name or names. As promptly
as practicable, and, if applicable, after payment of all transfer taxes (if
transfer is to a person or entity other than the holder thereof), the Company
shall cause its Transfer Agent to deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable shares
of Common Stock to which the holder of the Series G Preferred Shares so
converted shall be entitled. Such conversion, to the extent permitted by law,
shall be deemed to have been effected as of the date of receipt by the Transfer
Agent or the Company of any notice of conversion pursuant to this Section 4.
Upon conversion of any shares of Series G Preferred Shares, such shares shall
cease to constitute shares of Series G Preferred Shares and shall represent
shares of Common Stock into which they have been converted.
(b) The Company shall at all times reserve and keep available out of
its authorized Common Stock the full number of shares of Common Stock of the
Company issuable upon the conversion of all outstanding shares of Series G
Preferred Shares. In the event that the Company does not have a sufficient
number of shares of authorized and unissued Common Stock necessary to satisfy
the full conversion of the shares of Series G Preferred Shares, then the Company
shall call and hold a meeting of the shareholders within thirty (30) calendar
days of such occurrence for the sole purpose of increasing the number of
authorized shares of Common Stock. The Company's Board of Directors shall
recommend to shareholders a vote in favor of such proposal and shall vote all
shares held by them, in proxy or otherwise, in favor of such proposal. This
remedy is not intended to limit the remedies available to the holders of the
Series G Preferred Shares, but is intended to be in addition to any other
remedies, whether in contract, at law or in equity.
Section 4.05 Notices of Record Date. In the event that the Company shall
propose at any time: (i) to declare any dividend or distribution upon any class
or series of capital stock, whether in cash, property, stock or other
securities; (ii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iii) to
merge or consolidate with or into any other corporation, or to sell, lease or
convey all or substantially all of its property or business, or to liquidate,
dissolve or wind up; then, in connection with each such event, the Company shall
mail to each holder of Series G Preferred Shares:
(a) at least twenty (20) days' prior written notice of the date on
which a record shall be taken for such dividend or distribution (and specifying
the date on which the holders of the affected class or series of capital stock
shall be entitled thereto) or for determining the rights to vote, if any, in
respect of the matters referred to in Sections 4.03 (b); and
(b) in the case of the matters referred to in Section 4.03 (b)
above, written notice of such impending transaction not later than twenty (20)
days prior to the shareholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction, whichever is earlier,
and shall also notify such holder in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction (and specify the date on which the
holders of shares of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the occurrence of such
event) and the Company shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Company has given the first notice provided for
herein or sooner than ten (10) days after the Company has given notice of any
material changes provided for herein.
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Section 4.06 Limitations of Conversion. Subject to the Termination Rights
specified in Section 4.06(b) hereof, the Conversion Rights specified herein
shall be subject to the following limitations:
(a) No holder of the shares of Series G Preferred Shares shall be
entitled to convert the Series G Preferred Shares to the extent, but only to the
extent, that such conversion would, upon giving effect to such conversion, cause
the aggregate number of shares of Common Stock beneficially owned by such holder
to exceed 4.99% of the outstanding shares of Common Stock following such
conversion (which provision may be waived by such holder by written notice from
such holder to the Company, which notice shall be effective sixty one (61) days
after the date of such notice).
(b) The limitations on the Conversion Rights specified in Section
4.06(a) hereof shall terminate (the "Termination Rights") if there is a Change
in Control of the Company (as defined below). For the purpose of hereof, a
"Change in Control" of the Company has occurred when: (i) any person (defined
herein to mean any person within the meaning of Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")), other than the Company, or an
employee benefit plan established by the Board of Directors of the Company,
acquires, directly or indirectly, the beneficial ownership (determined under
Rule 13d-3 of the regulations promulgated by the Securities and Exchange
Commission under Section 13(d) of the Exchange Act) of securities issued by the
Company having forty percent (40%) or more of the voting power of all of the
voting securities issued by the Company in the election of directors at the
meeting of the holders of voting securities to be held for such purpose; or (ii)
a majority of the directors elected at any meeting of the holders of voting
securities of the Company are persons who were not nominated for such election
by the Board of Directors of the Company or a duly constituted committee of the
Board of Directors of the Company having authority in such matters; or (iii) the
Company merges (and is not the surviving corporation) or consolidates with or
transfers substantially all of its assets to another person.
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Article V. EVENTS OF DEFAULT
Section 5.01 Events of Default. An "Event of Default", wherever used
herein, means any one 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):
(a) The Company shall fail to observe or perform any covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision contained herein or in the Registration Rights Agreement or the
Transfer Agent Instructions which is not cured within five (5) business days of
receipt by the Company of written notice of such breach, default or failure to
perform or observe;
(b) The Company or any subsidiary of the Company shall commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of the Company
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other similar proceeding which remains undismissed for a period of sixty one
(61) days; or the Company or any subsidiary of the Company is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or the Company or any subsidiary of the Company
suffers any appointment of any custodian, private or court appointed receiver or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of sixty one (61) days; or the Company or
any subsidiary of the Company makes a general assignment for the benefit of
creditors; or the Company or any subsidiary of the Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary of the Company
shall call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Company or any subsidiary of
the Company shall by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary of the Company for the
purpose of effecting any of the foregoing;
(c) The Common Stock shall cease to be quoted for trading or listed
for trading on the American Stock Exchange, Nasdaq OTC Bulletin Board, Nasdaq
Capital Market, the Nasdaq National Market, or New York Stock Exchange (each, a
"Subsequent Market") and shall not again be quoted or listed for trading thereon
within five (5) Trading Days of such delisting; or
(d) The Company shall fail for any reason to deliver Common Stock
certificates to a holder prior to the fifth (5th) Trading Day after a conversion
or the Company shall provide notice to the holder, including by way of public
announcement, at any time, of its intention not to comply with requests for
conversions of the Series G Preferred Shares in accordance with the terms
hereof.
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Section 5.02 During the time that any portion of the Series G Preferred
Shares is outstanding, if any Event of Default has occurred and is continuing,
the holders shall have the right (but not the obligation) to convert the entire
amount of the Series G Preferred Shares outstanding as provided for herein. Upon
an Event of Default, notwithstanding any other provision contained herein or the
Registration Rights Agreement or the Transfer Agent Instructions, the holder
shall have no obligation to comply with or adhere to any limitations, if any, on
the conversion of the Series G Preferred Shares.
Article VI. NO VOTING RIGHTS
Section 6.01 General. The Series G Preferred Shares shall have no voting
rights.
Article VII. MISCELLANEOUS
Section 7.01 Headings of Subdivisions. The headings of the various
Sections hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
Section 7.02 Severability of Provisions. If any right, preference or
limitation of the Series G Preferred Shares set forth herein (as this resolution
may be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in this resolution (as so amended) which
can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, this Certificate of Designations has been signed by a
duly authorized officer on the date written below.
Dated: February 6, 2006 HOMELAND SECURITY CAPITAL
CORPORATION
By:
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Name: C. Thomas McMillen
Title: Chief Executive Officer
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