Document:

Exhibit 10.1_2015 1Q

	
		
	 
	Fred Festa
Chairman and Chief Executive Officer

W. R. Grace & Co.-Conn.
7500 Grace Drive
Columbia, MD 21044

December 3, 2014
(Commuting language under Relocation section updated December 15, 2014. — LMM)
Elizabeth C. Brown 

Dear Liz,
This letter agreement specifies the terms of your employment with W.R. Grace & Co. (the "Company"), which were presented and approved by the Board of Directors (the "Board") of the Company and/or the Compensation Committee of the Board, as applicable, on December 1, 2014. I am very pleased that you have agreed to join the Company and believe that you will make a valuable contribution to the Company's future.
If you agree with the terms of this letter agreement, please sign where indicated below and return one fully executed copy to me. An additional copy is also enclosed for your records.
Position and Responsibilities
Effective upon joining the Company (estimated to be in the January or February, 2015 timeframe, as agreed by you and me), you will commence employment with the Company in the position of "Corporate Vice President and Chief Human Resources Officer" of the Company (and of its subsidiary, W.R. Grace & Co. — Conn.).
Upon commencement of your employment, your election by the Board, as a corporate officer of the Company, will be effective, and you will be regarded as an "executive officer" of the Company. (As all other Company employees, you will actually be employed by W.R. Grace & Co. — Conn., a 100% owned subsidiary of the Company, but will be elected an officer of both W.R. Grace & Co. and W.R. Grace & Co.
Conn.).
As Corporate Vice President & Chief Human Resources Officer, you will be an employee of the Company "at will" with no definite term of employment, and you will be subject to the same requirements as other salaried employees of the Company, except as provided under this letter agreement.
You will be head of, and responsible for, the Company's world-wide human resources function, as assigned by me. You will report directly to me, in my capacity as Chairman and Chief Executive Officer, of the Company. Your office will be located at the Company headquarters in Columbia, Maryland.

Upon your commencement of employment with the Company, the following will apply to you:
Compensation
		
	1.
	Your initial annual base salary as Corporate Vice President & Chief Human Resources Officer will be $375,000. Thereafter, your base salary will be subject to periodic reviews on the same basis and at the same intervals as are applicable to other officers of the Company.

		
	2.
	Your salary will cease to accrue immediately upon your termination of employment with the Company, regardless of the reason for such termination. (Note, however, the provisions below under "Severance Pay Arrangement").

You will participate in the Company's Annual Incentive Compensation Program (the "AICP") for 2015. For that calendar year, your targeted award under the Program will be 70% of your base salary earnings during 2015, based on the applicable financial performance of the Company and your personal achievement during that year, subject to the terms of the following paragraphs. The cash payment you actually receive under the Program for 2015 (your "2015 AICP Payment") will be paid to you in the March 2016 at the same time other Program participants receive their payments for 2015, subject to the paragraphs below.
It is anticipated that, under the Program, there will be two financial performance targets that affect the calculation of the 2015 AICP payments for all Program participants, including you. First, in order for any such payment to be made to any participant, the Company must achieve a specific "earnings before income tax" target for 2015 (the "EBIT Target"). Second, if the EBIT Target is achieved, then the amount available to be distributed to participants as 2015 AICP payments will be determined by the degree that certain cash flow targets for 2015 are achieved. (You will receive further information concerning these targets in a separate letter.)
The amount of your 2015 AICP Payment will not be pro-rated to reflect the portion of the 2015 calendar year during which you are employed by the Company.
The other terms governing your 2015 AICP Payment will be the same as the terms governing the
2015 AICP payments to other Program participants. In accordance with those terms (and notwithstanding any other provision of this letter agreement), you will only receive a 2015 AICP Payment if you are employed by the Company on the date in March 2016 when the 2015 AICP payments are made to Program participants. You will not be entitled to that Payment if you terminate your employment with the Company, or are terminated by the Company, prior to that March 2016 payment date.
Please note that with respect to future AICP awards, the Program design and incentive targets are reviewed and adjusted from time to time, as appropriate, based on Company goals and competitive practice. These and the other provisions of the Program will apply to you in the same manner as applicable to other Program participants. I anticipate, however, that your
targeted award under future AICP Programs will be no less than 70% of your annual base earnings during the applicable calendar year, pending of course any redesign of the Program in the future by the Board or its Compensation Committee.
		
	3.
	You will be eligible for a targeted award under the Company's Long-Term Incentive Plan (the "LTIP") for the 2014-2016 performance period. Under that LTIP, 50 percent of the total targeted award will be in the form of "performance based units" ("PBUs"), which will be settled in cash (or stock, if appropriate), in early 2017, based on the performance of the Company's common stock and "EBIT" during the 3-year 2014-2016 performance period ending December 31, 2016; and 50 percent will be in the form of a stock option grant.

Your targeted award value under the 2014-2016 LTIP will be at $450,000; awarded as PBUs valued at $225,000; and a stock option grant valued at $225,000. (This LTIP award will be 

prorated to reflect the portion of the performance period during which you are employed by the Company.)
In order to determine the number of stock options awarded to you, the Company's standard "Black-Scholes" formula will be applied. The "strike price" of the options awarded to you will be the market price of a share of Company common stock on the date you commence employment, as specified in the applicable Stock Incentive Plan.
Also, please note that the stock options awarded to you will vest in 2 equal installments, each on the anniversary of the date you commence employment with the Company.
The terms governing your award under this LTIP will be the same as the terms governing the awards to the other participants under the LTIP, including the vesting schedule for the stock options (as described above) and the requirement of active employment with the Company on the date that the PBUs are settled in order to receive cash (or Company stock, if appropriate) related thereto.
You will receive further information regarding the terms of the 2014-2016 LTIP in a separate memo.
You will, of course, also be considered for an appropriate LTIP award for the 2015-2017 performance period (an award no less than $450,000), at the same time that other potential participants are considered for LTIP awards for that performance period.
		
	4.
	Consistent with your election as an officer of the Company, the Board has authorized the Company to enter into a written Executive Severance Agreement, or a so-called "golden parachute", with you. In general, the terms of that agreement will provide for a severance payment of 3.0 times the sum of your annual base salary plus your targeted annual incentive compensation award (adjusted in accordance with the terms of that agreement), and certain other benefits, in the event your employment terminates under certain conditions following a change-in-control of the Company. The form and provisions of your Executive Severance Agreement will be the same as applicable to other elected officers of the Company. Please refer to the Executive Severance Agreement itself for definition of "change in control", "employment termination" and other particulars of this arrangement.

A copy of your Executive Severance Agreement is enclosed.
Severance Pay Arrangement
If you are involuntarily terminated by the Company under circumstances in which you would qualify for severance pay under the terms of the Grace Severance Pay Plan for Salaried Employees (the "Grace Severance Plan"), then you will be entitled to a severance payment of 1.5 times a dollar amount equal to your annual base salary at the time your employment is terminated. This severance pay arrangement shall be governed by the terms of the Grace Severance Plan, except of course for the calculation of the amount of severance pay. Under that Plan, the total severance payment would be made to you in installments, at the same time and in the same manner as salary continuation payments, over a period of 18 months beginning as of the date you are terminated. However, at your option, under the current terms of the Grace Severance Plan, the entire severance payment may be paid to you in a single lump sum as soon as practical after your termination, subject to the "409A Provisions" described below.
You will not, in any event, however, be entitled to the severance payment described above if, at the time your employment terminates, your employment terminates as a result of your death, or you are entitled to payments under your Executive Severance Agreement described above, or to disability income payments under the Grace "LTD Plan" and/or "ESP Plan" mentioned below. Also, if you received the severance payment described above in this letter, you will not be entitled to any other severance pay from the Company.
409A Provisions. Notwithstanding any other provision of this letter agreement to the contrary, if you become entitled to severance pay under this agreement, at a time that the Company determines that you are a 

"specified employee", within the meaning of section 409A(a)(2)(B) of the Internal Revenue Code (the "Code"), you will not be paid any of that pay prior to a date that is 6 months after your "separation from service" (within the meaning of section 409A(a)(2)(A)(i)) from the Company or your date of death if sooner; provided, however, if your employment is terminated involuntarily and you become entitled to such severance pay, then you may receive, prior to that date, an amount of severance pay under this agreement (when added to the severance benefits you receive under any other plan or program of the Company, which is deemed to be a "nonqualified deferred compensation plan" (as defined by section 409A(d)(1) of the Code), that does not exceed an amount that is 2-times the compensation limited under section 401(a)(17) at the time of your termination, or 2-times your annual compensation at that time, if lesser. It is quite likely that you would be a "specified employee" if and when you become entitled to severance pay hereunder. Liz, please note that the provisions under this paragraph do not grant you any additional benefits, but instead these provisions are solely intended to help assure that your severance benefits described above will be paid in a manner that does not violate the provisions of Code section 409A.
Finally, please note that all payments and benefits under this letter agreement (as well as under the other agreements, programs, policies and plans of the Company) are intended to be exempt from Code section 409A or, with respect to any such payments and benefits that are not so exempt, to be in compliance with that Code section; and the provisions of this letter agreement (and those other agreements, programs, policies and plans) shall be interpreted and administered in that manner.
Executive Physical
You will also be eligible for an annual "executive physical" performed at Johns Hopkins Hospital in Baltimore, at Company expense. The terms of the physical will be the same as applicable to other elected officers of the Company based in Maryland.
Other Benefit Programs
As an officer of the Company, you will also be eligible to participate in the following benefits plans and programs (subject to the continuation and the actual provisions of the plans and programs, as amended from time to time):
		
	•
	The W. R. Grace & Co. Retirement Plan for Salaried Employees ("Grace Salaried Retirement Plan")

		
	•
	The W. R. Grace & Co. Supplemental Executive Retirement Plan

		
	•
	The W. R. Grace & Co. Salaried Employee Savings & Investment Plan

		
	•
	The W. R. Grace & Co. Savings & Investment Plan Replacement Payment Program

		
	•
	The W. R. Grace & Co. Long-Term Disability income Plan ("LTD Plan")

		
	•
	Executive Salary Protection Plan ("ESP Plan")

		
	•
	The W. R. Grace & Co. Voluntary Group Accident Insurance Plan

		
	•
	The W. R. Grace & Co. Business Travel Accident Insurance Plan

		
	•
	The W. R. Grace & Co. Group Term Life Insurance Program

		
	•
	Personal Excess Liability Insurance (with a current limit of $6 million)

		
	•
	The W. R. Grace & Co. Group Medical Plan

		
	•
	The W. R. Grace & Co. Dental Plan

In addition, during your employment with the Company, you shall also be entitled to participate in all other employee/executive perquisites, pension and welfare benefits plans and programs made available to the Company's executives or it its employees generally, as such plans or programs may be in effect, and amended, from time to time.
Vacation
As an officer of the Company, you will be entitled to four weeks paid vacation per full calendar year.
Indemnification

The Company shall, to the extent permitted by applicable law, indemnify you and hold you harmless from and against any and all losses and liabilities you may incur as a result of your performance of your duties as an officer or employee of the Company. In addition, the Company shall indemnify and hold you harmless against any and all losses and liabilities that you may incur, directly or indirectly, as a result of any third party claims brought against you (other than by any taxing authority) with respect to the Company's performance of (or failure to perform) any commitment made to you under this agreement. The Company shall obtain such policy or policies of insurance as it reasonably may deem appropriate to effect this indemnification.
Confidentiality and Non-Compete Agreements
As a condition of employment, you will be required to sign the Company's standard employment agreement (the "Standard Agreement", a copy of which is enclosed), which includes agreements regarding the confidentiality of Company information and non-competition, and similar provisions. To the extent that the terms of the Standard Agreement differ from the terms of this letter agreement, the terms of this letter agreement (and not the Standard Agreement) shall control your employment relationship with the Company. In addition, the provisions of item 5 of the Standard Agreement are not applicable to the terms of this letter agreement, in that the Standard Agreement does not supersede any terms of this agreement.
Relocation
This position will be based in Columbia, Maryland, therefore, you will be eligible for the domestic relocation benefits under the North American Relocation Policy. It is agreed that you will be commuting from Pennsylvania through June 30, 2015. In lieu of the six months of temporary relocation housing, W.R. Grace will reimburse (or, alternatively, you may expense) all reasonable commuting expenses, including train, hotel, and parking. Grace will gross up any applicable taxes related to commuting expenses or reimbursements. I have enclosed a copy of the relocation handbook for your reference. Should you have questions about your relocation, I can arrange a Company representative to contact you to address your questions.
Pre-employment
Prior to joining Grace, you will be required to undergo a drug screening test and physical examination. Please contact Charlotte Clive, R.N. in our Medical Department at (410) 531-4506 to schedule an appointment locally in your area. This offer of employment is contingent upon successfully completing the drug screening test, physical examination, background check, and your providing documentation establishing your eligibility to work in the United States.
Miscellaneous
You and the Company acknowledge this letter agreement, and the other written agreements referred to herein, contain the entire understanding of the parties concerning the subject matter hereof. You and the Company acknowledge that this agreement supersedes any prior agreement between you and the Company concerning the subject matter hereof. Except as expressly otherwise provided herein, this agreement shall not adversely affect your rights to participate in, or receive any benefit under, any incentive, severance or other benefits plan or program in which you may from time to time participate.
If any provision of this agreement is held invalid or unenforceable in whole or in part, such provision, to the extent it is invalid or unenforceable, shall be revised to the extent necessary to make the provision, or part hereof, valid and enforceable, consistent with the intentions of the parties hereto. Any provision of this agreement that is held invalid or unenforceable, in whole or in part, shall not affect the validity and enforceability of the other provisions of this agreement which shall remain in full force and effect.
This letter agreement may be amended, superseded or canceled only by a written instrument specifically stating that it amends, supersedes or cancels this letter, executed by you and the Company.
Liz, again, I am very excited about your decision to join Grace and look forward to a productive and rewarding relationship.

Sincerely,
/s/ A. E. Festa
Fred E. Festa
Chairman & Chief Executive Officer W.R. Grace & Co.
Enclosures
AGREED AND ACCEPTED:

/s/ Elizabeth C. Brown
Date: 16 December 2014Exhibit 4.1

 

CERTIFICATE OF DESIGNATIONS 
 SERIES A CONVERTIBLE PREFERRED STOCK
 OF AUDIOEYE, INC.
 (pursuant to Section 151 of the Delaware General Corporation Law)

 

AudioEye, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies that the Board of Directors of the Corporation (the “Board of Directors” or the “Board”) pursuant to authority of the Board of Directors under Section 151 of the Delaware General Corporation Law (“DGCL”), and in accordance with the provisions of its Certificate of Incorporation and Bylaws, adopted a resolution on April 24, 2015, which authorizes a series of the Corporation’s Preferred Stock, par value $0.00001 per share designated Series A Convertible Preferred Stock (the “Preferred Stock”):

 

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation’s Certificate of Incorporation.

 

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock designated Series A Convertible Preferred Stock as follows:

 

Section 1.                                          Definitions.  For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.

 

“Alternate Consideration” shall have the meaning set forth in Section 7(d).

 

“Board of Directors” means the board of directors of the Corporation.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Certificate of Designations” means this Certificate of Designations of the Series A Convertible Preferred Stock

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to of the Purchase Agreement.

 

“Commission” means the United States Securities and Exchange Commission.

 

 

“Common Stock” means the Corporation’s common stock, par value $0.00001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Conversion Date” shall have the meaning set forth in Section 6(a).

 

“Conversion Price” shall have the meaning set forth in Section 6(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.

 

“Corporation” means AudioEye, Inc., a Delaware corporation.

 

“Dividend Payment Date” shall have the meaning set forth in Section 2.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Fundamental Transaction” shall have the meaning set forth in Section 7(d).

 

“GAAP” means United States generally accepted accounting principles.

 

“Holder” shall mean a holder of the Preferred Stock, and “Holders” shall mean multiple or all, as the context requires, holders of the Preferred Stock.

 

“Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari passu to the Preferred Stock in dividend rights or liquidation preference.

 

“Liquidity Event” means (i) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, (ii) any sale of all or substantially all of the Company’s assets, or (iii) any other transaction that results in the Company’s stockholders immediately prior to such transaction holding less than 50% of the voting power of the surviving entity.

 

“Liquidity Preference” shall have the meaning set forth in Section 5.

 

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

“Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Preferred Stock” shall have the meaning set forth in Section 2.

 

 

“Purchase Agreement” means the Securities Purchase Agreement among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms for the purchase and sale of the Preferred Stock.

 

“Redemption Price” shall have the meaning set forth in Section 8(a).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Securities” means the Preferred Stock and the Underlying Shares subject to the Purchase Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 6(c).

 

“Stated Value” shall have the meaning set forth in Section 2.

 

“Subsidiary” means any subsidiary of the Corporation.

 

“Successor Entity” shall have the meaning set forth in Section 7(d).

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTC Markets, or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“Transaction Documents” means this Certificate of Designations, the Purchase Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.

 

“Transfer Agent” means Corporate Stock Transfer, Inc., the current transfer agent of the Corporation, and any successor transfer agent of the Corporation.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume

 

 

weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Preferred Stock then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation.

 

Section 2.                                          Designation, Amount and Par Value.  The series of Preferred Stock shall be designated as its Series A Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be 150,000 (which shall not be subject to increase without the written consent of Holders representing at least 67% of the Preferred Stock based on Liquidity Preference). Each share of Preferred Stock shall have a par value of $0.00001 per share and a stated value equal to $10.00 (the “Stated Value”). Preferred Stock represents equity interests in the Corporation and shall not give rise to a claim for payment of a principal amount at a particular date.

 

Section 3.                                          Dividends.

 

The Holders shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available therefore, cumulative dividends at the annual rate of 5% of the Stated Value per share of the Preferred Stock.  To the extent declared, such dividends shall be payable in cash quarterly, on the last day of each quarter, beginning June 30, 2015 (each of such dates being a “Dividend Payment Date”).  Such dividends shall accrue on each such share commencing on the date of issue, and shall accrue from day to day, whether or not earned or declared.

 

(a)                                 So long as any shares of Preferred Stock remain outstanding, neither the Corporation nor any subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any material amount of Junior Securities.

 

Section 4.                                          Voting Rights.  On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.  Except as provided by law or by the other provisions of the Certificate of Designations, holders of the Preferred Stock shall vote together with the holders of Common Stock, as a single class.  Notwithstanding the foregoing, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of at least 75% in Stated Value of Preferred Stock then outstanding, except as may be necessary to increase the authorized shares of Common Stock in order to account for any increase in the number of shares issuable upon conversion of the Preferred Stock, (a) purchase or redeem any capital stock other than stock repurchased from former employees or consultants in connection with the cessation of their employment services,

 

 

at the lower of fair market value or cost, or (b) amend, alter or repeal any provision of its certificate of incorporation or other charter documents in a manner that adversely affects any rights of the Holders.

 

Section 5.                                          Liquidation Rights.  In the event of any Liquidity Event, holders of each share of Preferred Stock shall be entitled to be paid out of the assets or surplus funds of the Corporation legally available for distribution to holders of the Corporation’s capital stock of all classes (whether such assets are capital, surplus, or earnings) and subject to the liquidating preference of the holders of any other series of Preferred Shares which may be on parity or senior in right of preference to the Preferred Stock and before any sums shall be paid or any assets or surplus funds distributed among the holders of Common Stock, an amount equal to the Stated Value plus accrued dividends as to such share (the “Liquidity Preference”).  If the assets of the Corporation shall be insufficient to permit the payment in full to holders of the Preferred of the preferential amount set forth in this Section 5, then the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of the Preferred in accordance with the aggregate liquidation preference of the shares of Preferred Stock held by each of them.

 

Section 6.                                          Conversion.

 

(a)                                 Conversion at Option of Holder.  Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value plus any accrued dividends with respect to such share by the Conversion Price.  Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”).  Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder.  The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.  To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless (i) the full or remaining number of shares of Preferred Stock represented by such certificate are being converted or (ii) such Holder has provided the Corporation with prior written notice (which notice may be included in a Notice of Conversion) requesting reissuance of a certificate representing the remaining shares of Preferred Stock upon physical surrender of any certificate representing the shares of Preferred Stock being converted.  Each Holder and the Corporation shall maintain records showing the number of shares of Preferred Stock so converted by such Holder and the dates of such conversions or shall use such other method, reasonably satisfactory to such Holder and the Corporation, so as not to require physical surrender of the certificate representing the shares of Preferred Stock upon each such conversion. In the event of any dispute or discrepancy, such records of the Corporation establishing the number of shares of Preferred Stock to which the record holder is entitled shall be controlling

 

 

and determinative in the absence of manifest error.  Shares of Preferred Stock converted into Common Stock in accordance with the terms hereof shall be canceled and shall not be reissued.

 

(b)                                 Conversion Price.  The per share conversion price for the Preferred Stock shall equal the greater of (a) $0.15 or (b) the average of 90% of the closing prices of the Company’s Common Stock for the five Trading Days immediately preceding the initial Closing plus any accrued dividends with respect to such share, subject to adjustment herein (the “Conversion Price”).

 

(c)                                  Mechanics of Conversion.

 

(i)                                     Delivery of Certificate Upon Conversion.  Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder a certificate or certificates representing the number of Conversion Shares being acquired upon the conversion of the Preferred Stock.  If requested by the Holder, the Corporation shall use its best efforts to deliver any certificate or certificates required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

(ii)                                  Reservation of Shares Issuable Upon Conversion.  The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock as herein provided, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the respective Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock.  The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

(iii)                               Fractional Shares.  No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

(iv)                              Transfer Taxes.  The issuance of certificates for shares of the Common Stock on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

 

 

Section 7.                                          Certain Adjustments.

 

(a)                                 Stock Dividends and Stock Splits.  If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

(b)                                 Subsequent Rights Offerings.  If the Corporation, at any time while the Preferred Stock is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not proportionately to the Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date for such issuance, and do not offer the same rights to the Holders, then the Holder will be entitled to acquire, upon conversion of the Preferred Stock, such rights, options or warrants which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (without regard to any limitations on the conversion of such Preferred Stock) immediately before the date on which a record is taken for the issuance of such rights, options or warrants, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such rights, options or warrants.

 

(c)                                  Pro Rata Distributions.  If the Corporation, at any time while the Preferred Stock is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Corporation in good faith.  In either case the adjustments shall be described in a statement delivered to the Holders describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

 

(d)                                 Fundamental Transaction.  If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination and excluding shares acquired upon conversion of any currently outstanding convertible securities in accordance with the terms thereof as in effect on the date hereof) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction.  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designations with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration.  The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designations and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 7(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and

 

 

approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein.

 

(e)                                  Calculations.  All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

 

(f)                                   Notice to the Holders.

 

(i)                                     Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

(ii)                                  Notice to Allow Conversion by Holder.  If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose

 

 

of conversion of this Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least ten (10) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert the Preferred Stock (or any part hereof) during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 8.                                          Redemption.

 

(a)                                 Optimal Company Redemption.  Subject to the terms hereof, at any time the Corporation shall be entitled to redeem any or all of the outstanding shares of Preferred Stock (the “Optional Company Redemption”) at a per share price equal to 125% of the Stated Value plus accumulated dividends (such amount, the “Redemption Price”), payable in cash; provided that the Corporation shall have funds legally available for such payment.

 

(b)                                 Notice of Optional Company Redemption.  Notice of any Optional Company Redemption of shares of Preferred Stock, specifying the time and place of redemption and the Redemption Price (a “Redemption Notice”), shall be sent by courier or first class overnight mail, pre-paid, to each holder of Preferred Stock to be redeemed, at the address for such holder shown on the Company’s records, not more than sixty (60) nor less than ten (10) days prior to the Redemption Date. If, in any case, less than all of the shares of Preferred Stock then owned by such holder are to be redeemed, the Redemption Notice shall also specify the number of shares which are to be redeemed; provided, however, that no failure to give such Redemption Notice nor any defect therein shall affect the validity of the procedure for the redemption of any shares of Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to give said Redemption Notice or except as to the holder whose Redemption Notice was defective. Each such Redemption Notice shall state:

 

(i)                                     the Redemption Date;

 

(ii)                                  the Redemption Price;

 

 

(iii)                               the number of shares of Preferred Stock to be redeemed and, if fewer than all the shares of Preferred Stock held by a holder are to be redeemed, the number of shares thereof to be redeemed from such holder;

 

(iv)                              the manner and place or places at which payment for the shares of Preferred Stock to be redeemed will be made, upon presentation and surrender to the Corporation of the certificates evidencing the shares being redeemed; and

 

(v)                                 that the rights of holders to convert shares of Preferred Stock being redeemed shall terminate at the close of business on the Redemption Date unless the Corporation defaults in the payment of the Redemption Price.

 

Upon mailing any such Redemption Notice, the Corporation shall become obligated to redeem at the Redemption Price on the Redemption Date all shares of Preferred Stock therein specified; provided, however, any redemption contemplated by any Redemption Notice may be conditioned upon the occurrence of one or more transactions or other events and the Redemption Date in such Redemption Notice may be the date on which such transaction is consummated or such other event occurs.

 

Section 9.                                          Miscellaneous.

 

(a)                                 Notices.  Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation at 5210 E. Williams Circle, Suite 500, Tucson, Arizona 85711, facsimile number (520) 844-2989, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10.  Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (Arizona time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (Arizona time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

(b)                                 Absolute Obligation.  Except as expressly provided herein, no provision of this Certificate of Designations shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay dividends, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

 

(c)                                  Lost or Mutilated Preferred Stock Certificate.  If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

 

(d)                                 Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designations shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof.  If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

(e)                                  Waiver.  Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designations or a waiver by any other Holders.  The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designations on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion.  Any waiver by the Corporation or a Holder must be in writing.

 

(f)                                   Severability.  If any provision of this Certificate of Designations is invalid, illegal or unenforceable, the balance of this Certificate of Designations shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

(g)                                  Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

(h)                                 Headings.  The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof.

 

(i)                                     Status of Converted Preferred Stock.  If any shares of Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A Convertible Preferred Stock.

 

 

The undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge.  Executed at Tucson, Arizona, as of this 29th day of April 2015.

 

 

	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
Sean   Bradley
    
	
 
    	
 
    	
Title:
    	
President

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