FYI: As far as I can tell, YA's conversion rights under the Secries C Convertible Peferred expired at midnight on February 17, 2009. I base this conclusion solely on the wording of the Certifcate of Designation for the Series C Convertible Preferred, which - as far as I can tell has not been modiied (I did a quick check of the Delaware Corporate Records and Neom's SEC filings and can find nothing so far).
Now, if YA had exercised all of its remaining conversion rights under the Series C on February 17, 2009, that would have meant several things:
(1) YA's ownership of common stock would have exceeded the 4.99% limitation in the investment agreement, however, that limitation may be inapplicable because technically Neom probaly has been in defualt and that would mean that the limitation would not apply.
(2) YA would have had to have made the appropriate filing as an insider, and I can't find any such filing;
(3) Neom would have had to have 8K'd that event as it would almost certainly have been a "change in corporate control" within the meaning of item 501 of Reg SK.
In light of the above, I believe, based solely on what I have looked at so far, that - at the very least - YA has no further ability to dilute us under the Series C Convertible Preferred. There are, however, other instruments, particularly warrants, that can result in dilution.
SECTION 4
REGISTRATION RIGHTS/CONVERSION RIGHTS
4.1. Registration Rights. The Series C Preferred Shares shall have
registration rights pursuant to the Investor's Registration Rights Agreement
dated the February 17, 2006.
4.2. Conversion. The Holders of Series C Preferred Shares shall have sole
right and in their discretion to elect conversion pursuant to the conversion
rights as follow (the "Conversion Rights"):
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(a) Each share of Series C 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 4.3 hereof), at the office of the Company's transfer
agent, pursuant to the Irrevocable Transfer Agent Instructions dated the date
hereof, for the Series C Preferred Stock into such number of fully paid and
non-assessable shares of Common Stock equal to the quotient of the Liquidation
Amount divided by the Conversion Price. The Conversion Price shall be equal to,
at the option of the Holders the lesser of (i) Fifty Cents ($0.50) (the "Fixed
Conversion Price") or (ii) ninety seven percent (97%) of the lowest closing bid
price of the Common Stock for the thirty (30) trading days immediately preceding
the date of conversion, as quoted Bloomberg LP (the "Floating Conversion
Price"). The Fixed Conversion Price and the Floating Conversion Price are
collectively referred to as the "Conversion Price."
(b) At the Option of the Holders, if there are outstanding Series C
Preferred Shares on February 17, 2009, each share of Series C Preferred Stock
shall convert into shares of Common Stock at the Conversion Price then in effect
on February 17, 2009.
4.3. Adjustments. The Conversion Price of the Series C Preferred Shares as
described in Section 4.2 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 Sections 4.3(a) or (b)) the
holders of the Series C 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 C Preferred
Shares, the kind and number of shares of Common Stock or other securities or
property (including cash) to which such holders of Series C Preferred Shares
would have been entitled if they had held the number of shares of Common Stock
into which the Series C Preferred Shares was 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
C 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 C 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 Sections 4.3(d) above, the holders of the
Series C 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 C 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.
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<PAGE>
(c) In the event the Company shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of Common
Stock, (b) subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine (including by way of reverse stock split) outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Fixed Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 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.
(d) If the Company shall issue 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 less than the Closing Bid Price at the record
date mentioned below, then the Fixed Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) 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 (excluding treasury shares, if any)
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 would purchase at such Closing Bid Price. 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. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Fixed Conversion Price
pursuant to this Section, if any such right, option or warrant shall expire and
shall not have been exercised, the Fixed Conversion Price shall immediately upon
such expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Conversion Price made pursuant to the provisions of
this Section after the issuance of such rights or warrants) had the adjustment
of the Fixed Conversion Price made upon the issuance of such rights, options or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such rights, options or warrants actually exercised.
(e) If the Company or any subsidiary thereof, as applicable, at any
time, other than in connection with the following: (a) any issuance by the
Company of securities in connection with a strategic partnership or a joint
venture (the primary purpose of which is not to raise equity capital), (b) any
issuance by the Company of securities as consideration for a merger or
consolidation or an acquisition of a business, product, license, or other assets
of another person or entity (c) options to purchase shares of Common Stock,
provided the exercise price of such options is not less than the Closing Bid
Price of the Common Stock on the date of issuance of such option, shall issue
shares of Common Stock or rights, warrants, options or other securities or debt
that are convertible into or exchangeable for shares of Common Stock other than
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<PAGE>
in connection with an acquisition approved by the Board, ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock, at a price
per share less than the Fixed Conversion Price (if the holder of the Common
Stock or Common Stock Equivalent 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 is issued in connection with such issuance, be entitled to
receive shares of Common Stock at a price per share which is less than the Fixed
Conversion Price, such issuance shall be deemed to have occurred for less than
the Conversion Price), then, at the sole option of the Holder, the Fixed
Conversion Price shall be adjusted to mirror the conversion, exchange or
purchase price for such Common Stock or Common Stock Equivalents (including any
reset provisions thereof) at issue. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. The Company shall notify
the Holder in writing, no later than one (1) business day following the issuance
of any Common Stock or Common Stock Equivalent subject to this Section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. No adjustment under
this Section shall be made as a result of issuances and exercises of options to
purchase shares of Common Stock issued for compensatory purposes pursuant to any
of the Obligor's stock option or stock purchase plans.
(f) If the Company shall distribute to all holders of Common Stock
(and not to the Holder) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Fixed Conversion Price at which this Series C Preferred Shares shall thereafter
be convertible shall be determined by multiplying the Fixed 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 Closing Bid Price determined as of the record date
mentioned above, and of which the numerator shall be such Closing Bid Price on
such record date 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. In either case the adjustments shall be described in a
statement provided to the Holder of 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.
(g) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to, at its option, (A) convert the Series C Preferred Shares, together with all
accrued but unpaid dividends and any other amounts then owing hereunder into the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of the Common Stock following such reclassification
or share exchange, the Holder shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding Series C Preferred Shares, together with
all accrued but unpaid dividends and any other amounts then owing thereunder
could have been converted immediately prior to such reclassification or share
exchange would have been entitled, or (B) require the Company to prepay the
Series C Preferred Shares, plus all dividends and other amounts due and payable
thereon. The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
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<PAGE>
(h) All calculations under this Section 4 shall be rounded up to the
nearest $0.001 of a share.
(i) Whenever the Fixed Conversion Price is adjusted pursuant to this
section, the Company shall promptly mail to the Holder a notice setting forth
the Fixed Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(j) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock 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 Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Series C Preferred
Shares, and shall cause to be mailed to the Holder at its last address as it
shall appear upon the stock books of the Company, at least twenty (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 mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. The Holders of the Series C Preferred Shares are
entitled to convert their Series C Preferred Shares during the twenty (20) day
calendar period commencing the date of such notice to the effective date of the
event triggering such notice.
(k) In case of any (1) merger or consolidation of the Company or any
subsidiary of the Company with or into another Person, or (2) sale by the
Company or any subsidiary of the Company of more than one-half of the assets of
the Company in one or a series of related transactions, the Holder shall have
the right to (A) exercise any rights hereunder, (B) convert the aggregate amount
of the Series C Preferred Shares then outstanding into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and the
Holders shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of the Series C Preferred Shares could
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<PAGE>
have been converted immediately prior to such merger, consolidation or sales
would have been entitled, or (C) in the case of a merger or consolidation,
require the surviving entity to issue to the Holders Preferred Shares
convertible into the principal amount owed under the Series C Preferred Shares
then held by the Holders, plus all accrued and unpaid dividends and other
amounts owing thereon, which such newly issued Series C Preferred Shares shall
have terms identical (including with respect to conversion) to the terms of this
Series C Preferred Shares, and shall be entitled to all of the rights and
privileges of the Holders set forth herein and the agreements pursuant to which
this Series C Preferred Shares were issued. In the case of clause (C), the
conversion price applicable for the newly issued shares of convertible Preferred
Shares shall be based upon the amount of securities, cash and property that each
share of Common Stock would receive in such transaction and the Conversion Price
in effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale or consolidation shall include
such terms so as to continue to give the Holders the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events.
4.4. Procedures for Conversion.
(a) In order to exercise conversion rights pursuant to Section 4.2
above, the holder of the Series C Preferred Shares to be converted shall deliver
an irrevocable written notice of such exercise to the Company's transfer agent
pursuant to the Irrevocable Transfer Agent Instructions dated the date hereof,
along with a copy to the Company. The Holder of any shares of Series C Preferred
Shares shall, upon any conversion of such Series C Preferred Shares in
accordance with Section 4.2, surrender certificates representing the Series C
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 C
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 Company of any notice of conversion pursuant to Section 4.2(a),
or, in the case of a conversion pursuant to Section 4.2(c) above, upon the
occurrence of any event specified therein. Upon conversion of any shares of
Series C Preferred Shares, such shares shall cease to constitute shares of
Series C Preferred Shares and shall represent shares of common stock into which
they have been converted.
(b) In connection with the conversion of any shares of Series C
Preferred Shares, no fractions of shares of Common Stock shall be issued, but
the Company shall pay cash in lieu of such fractional interest in an amount
equal to the product of the Conversion Price and such fractional interest.
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<PAGE>
(c) 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 C
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 C 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 C Preferred Shares, but is intended to be in addition to any other
remedies, whether in contract, at law or in equity.
4.5. Notices of Record Date. In the event that the Company shall propose
at any time: (a) to declare any dividend or distribution upon any class or
series of capital stock, whether in cash, property, stock or other securities;
(b) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (c) 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 C 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 4.3 (b) and (c) ; and
(b) in the case of the matters referred to in Section 4.3 (b) and
(c) 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.
4.6. Limitations of Conversion.
(a) Subject to the Termination Rights specified in Section 4.6(b)
hereof, the Conversion Rights specified herein shall be subject to the following
limitations:
(i) No holder of the shares of Series C Preferred Shares shall
be entitled to convert the Series C 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
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<PAGE>
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). Notwithstanding the foregoing in the event the
Holder of the Series C Preferred Shares has converted or is in the process of
converting Series C Preferred Shares that has or shall, cause the aggregate
number of shares of Common Stock beneficially owned by such Holder to equal
4.99% of the outstanding shares of Common Stock following such conversion, the
Holder shall upon written notification to the Company that such Common Stock
acquired or to be acquired pursuant to such conversion has been sold, be
entitled to immediately effectuate a conversion that would, upon giving effect
to such conversion, cause the aggregate number of shares of Common Stock
beneficially owned by such Holder to equal 4.99% of the outstanding shares of
Common Stock following such conversion even if such notice is given on the same
day of a conversion.
(b) The limitations on the Conversion Rights specified in Section
4.6 hereof shall terminate (the "Termination Rights") if there is an Event of
Default or if there a Change in Control of the Company (as defined below) after
written notice from the Holder to the Company, which notice shall be effective
sixty one (61) days after the date of such notice. 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 or consolidates with or transfers substantially all of its assets
to another person; (iv) a change in the Chief Executive Officer of the Company
from that person that serves in such position on the date hereof.
AI
