Lighting Science Group Corp 8-k (events Or Changes Between Quarterly Reports) 2009-02-20

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 13, 2009

LIGHTING SCIENCE GROUP CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation)

000-20354 (Commission File Number)

23-2596710 (IRS Employer Identification No.)

2100 McKinney Avenue, Suite 1515, Dallas, Texas 75201 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (214) 382-3630 Not Applicable (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Section 1 — Registrant’s Business and Operations Item 1.01. Entry into a Material Definitive Agreement. On February 13, 2009, Lighting Science Group Corporation (the “Company”) borrowed an aggregate principal amount of $3 million from Pegasus Partners IV, L.P. (“Pegasus IV”) pursuant to an unsecured Promissory Note executed by the Company to Pegasus IV (the “Note”). Pursuant to the Note, the Company may borrow an additional $4 million from Pegasus IV on or after February 27, 2009, upon notice by the Company to Pegasus IV. Interest on any outstanding principal balance pursuant to the Note accrues at the rate of 8% per annum. Except as described below, all principal and accrued interest on the Note is due on June 30, 2009, and the Note may be prepaid in whole or in part at any time without premium or penalty. The Note is immediately due and payable upon the Company’s failure to pay any of its material debts when due. The Company expects that the loan proceeds will be used to finance the Company’s working capital requirements. As a condition to entering into the Note, Pegasus IV and the Company entered into a letter agreement dated February 13, 2009 between the Company and Pegasus IV (the “Letter Agreement”). Pursuant to the terms of the Letter Agreement and the Note, the Company agreed to use its best efforts to conduct a rights offering during the second fiscal quarter of 2009 (the “Offering”) for preferred or common stock of the Company, the net proceeds of which would raise approximately $30 million. The Note and the Letter Agreement require that any net cash proceeds of an Offering generally be applied to the payment of: (i) the unpaid principal amount of the Note, together with accrued interest thereon; (ii) the unpaid principal amount of the Company’s outstanding unsecured bridge loans, together with accrued interest thereon; (iii) the anticipated cash needs of the Company during 2009, net of other available financings; and (iv) the Company’s outstanding borrowings that are guaranteed by Pegasus Capital Advisors, L.P. (“Pegasus Capital”) or an affiliate of Pegasus Capital. The Letter Agreement more specifically defines the basic terms of the Offering. Specifically, the holders of the Company’s common stock, 6% Convertible Preferred Stock, Series B Preferred Stock, and warrants to purchase common stock (the “Holders”) would receive one subscription right to purchase one share of Series D Non-Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”), and one warrant (the “Warrants”) to purchase common stock of the Company for every one share of common stock issued (or issuable upon conversion or exercise) to such Holder on the record date of the Offering. Additionally, each employee of the Company would be entitled to participate in the Offering for an aggregate amount of up to 10% of the rights offered to the Holders. The source of the rights allocated to employees would be determined at the time of the Offering. The Offering would remain open for a period of 30 days. The Series D Preferred Stock issued pursuant to the Offering would be entitled to a cumulative annual dividend of 25%, but 17% of such annual dividend would be credited to the account of the holder and could only be used for purposes of satisfying the exercise price payable upon exercise of the Warrants. The Series D Preferred Stock would rank junior to the liquidation preferences of the holders of the Company’s 6% Convertible Preferred Stock, Series B Preferred Stock and Series C Preferred Stock but senior to the holders of common stock and would have to be redeemed by the Company on the eighth anniversary of the date of issuance or upon a change of control of the Company. Except as required by law, the Series D Preferred Stock would not have voting rights. The Warrants issued pursuant to the Offering would have an exercise price of $6.00 per share and a term of 12 years. Although the Company is contractually obligated to use its best efforts to conduct the Offering, the Company may seek to negotiate different terms for the Offering depending upon market conditions at that time.

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THIS NOTICE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. As of January 12, 2009, Pegasus IV beneficially owned approximately 69.9% of the common stock of the Company. Pegasus IV is a private equity fund managed by Pegasus Capital. A copy of the Note and the Letter Agreement are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K and are incorporated herein by reference. You are encouraged to read the Note and the Letter Agreement for a more complete understanding of their terms. The foregoing descriptions of the Note and the Letter Agreement are qualified in their entirety by reference to the full text of the Note and the Letter Agreement. Section 2 – Financial Information Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. See Item 1.01 for a description of the Company’s financial obligation pursuant to the Note. Section 9 — Financial Statements and Exhibits Item 9.01. Financial Statements and Exhibits. (d) Exhibits Nu m be r

Exh ibit

10.1

Promissory Note, dated February 13, 2009, made by Lighting Science Group Corporation in favor of Pegasus Partners IV, L.P.

10.2

Letter Agreement, dated February 13, 2009, between Lighting Science Group Corporation and Pegasus Partners IV, L.P.

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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LIGHTING SCIENCE GROUP CORPORATION Date: February 20, 2009

By: /s/ Stephen Hamilton Name: Stephen Hamilton Title: Vice President – Finance

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EXHIBIT INDEX Nu m be r

Exh ibit

10.1

Promissory Note, dated February 13, 2009, made by Lighting Science Group Corporation in favor of Pegasus Partners IV, L.P.

10.2

Letter Agreement, dated February 13, 2009, between Lighting Science Group Corporation and Pegasus Partners IV, L.P.

Exhibit 10.1 PROMISSORY NOTE $7,000,000 New York, New York

February 13, 2009

FOR VALUE RECEIVED, the undersigned, LIGHTING SCIENCE GROUP CORPORATION, a Delaware corporation (“Borrower”), promises to pay to the order of PEGASUS PARTNERS IV, L.P., a Delaware limited partnership (“Lender”), the sum of SEVEN MILLION DOLLARS ($7,000,000) or so much thereof as may be outstanding hereunder, together with interest. 1. Interest Rate. Interest shall accrue on the unpaid principal balance of this Note from the date hereof at 8% per annum. 2. Default Rate. All past due principal of and accrued interest on this Note shall bear interest from maturity (stated, by acceleration, or otherwise) until paid at the rate of 18% per annum. 3. Advances. On the date hereof Lender will loan Borrower $3,000,000. On and after February 27, 2009, upon the receipt of notice of an additional borrowing from Borrower, Lender will loan Borrower up to an additional $4,000,000. The notice of additional borrowing must be provided prior to the Maturity Date and must set forth Borrower’s confirmation of the covenant set forth in Paragraph 17 below. 4. Repayments. The principal and interest of this Note shall be due and payable on June 30, 2009 (the “Maturity Date”). 5. Prepayments. The unpaid principal balance of this Note may be prepaid in whole or in part at any time without premium or penalty. Subject to Paragraph 16, the net cash proceeds of any Offering shall be applied to payment of: (i) the unpaid principal amount of this Note, together with accrued interest thereon; (ii) the unpaid principal amount of Borrower’s outstanding unsecured bridge loans, together with accrued interest thereon; (iii) the anticipated cash needs of Borrower during 2009, net of other available financings; and (iv) Borrower’s outstanding borrowings that are guaranteed by Lender or an affiliate of Lender. 6. Events of Default and Remedies. The entire unpaid principal balance of and all accrued interest on this Note shall immediately become due and payable, without notice or demand which are hereby waived, upon the occurrence of any one or more of the following events of default (individually or collectively, herein called a “Default”): (a) The failure or refusal of Borrower to pay all or any part of the principal of or accrued interest on this Note as and when same becomes due and payable in accordance with the terms hereof; or (b) Borrower shall: (i) become insolvent within the meaning of the Bankruptcy Code of the United States, as amended, (ii) admit in writing its inability to pay or otherwise fail to pay its or his or her debts generally as they become due, (iii) voluntarily seek consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) be made the subject of any proceeding provided for by any Debtor Relief Law that could suspend or otherwise affect any of the rights of the holder hereof. As used herein, “Debtor Relief Laws” means the Bankruptcy Code of the United States, as amended and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally; or

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(c) The nonpayment when due of any material indebtedness owed by Borrower, or the occurrence of any event under any document or instrument evidencing, securing, or executed in connection with any such indebtedness which could give the holder thereof the right to declare such indebtedness or any part thereof due prior to its scheduled maturity; or (d) The discovery by the holder hereof that any statement, representation, or warranty made by Borrower in any writing, document, or instrument ever delivered to the holder hereof in connection herewith was at the time made false, misleading, or erroneous in any material respect. Upon the occurrence of a Default, the holder of this Note may: (a) offset against this Note any sum or sums owed by the holder hereof to Borrower and (b) proceed to protect and enforce its rights either by suit in equity and/or by action at law, or by other appropriate proceedings, whether for the specific performance of any covenant or agreement contained in this Note or any document or instrument executed and delivered by Borrower in connection with this Note or in aid of the exercise of any power or right granted by this Note or any document or instrument executed and delivered by Borrower in connection with this Note or to enforce any other legal or equitable right of the holder of this Note. 7. Cumulative Rights. No delay on the part of the holder of this Note in the exercise of any power or right under this Note, or under any document or instrument executed in connection herewith, shall operate as a waiver thereof, nor shall a single or partial exercise of any other power or right. Enforcement by the holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it. 8. Waiver. Borrower, and each surety, endorser, guarantor, and other party ever liable for the payment of any sum of money payable on this Note jointly and severally waive demand, presentment, protest, notice of nonpayment, notice of intention to accelerate, notice of acceleration, notice of protest, and any and all lack of diligence or delay in collection or the filing of suit hereon which may occur, and agree that their liability on this Note shall not be affected by any renewal or extension in the time of payment hereof, by any indulgences, or by any release or change in any security for the payment of this Note, and hereby consent to any and all renewals, extensions, indulgences, releases, or changes, regardless of the number of such renewals, extensions, indulgences, releases, or changes. 9. Attorneys’ Fees and Costs. In the event a Default shall occur, and in the event that thereafter this Note is placed in the hands of an attorney for collection, or in the event this Note is collected in whole or in part through legal proceedings of any nature, then and in any such case Borrower promises to pay all costs of collection, including, but not limited to, reasonable attorneys’ fees incurred by the holder hereof on account of such collection, whether or not suit is filed. 10. Notices. Any notice or demand given hereunder by the holder shall be deemed to have been given and received (a) when actually received by Borrower, if delivered in person or by courier or messenger, or (b) two Business Days (hereinafter defined) after a letter containing such notice, certified or registered, with postage prepaid, addressed to Borrower, is deposited in the United States Mail. The address of Borrower is 120 Hancock Lane, Westampton, New Jersey 08060 or such other address as Borrower shall advise the holder hereof by certified or registered letter. 11. Governing Law. The laws of New York shall govern the construction, validity, enforcement and interpretation of this Note, except to the extent federal laws otherwise govern the validity, construction, enforcement and interpretation hereof. 2

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12. Headings. The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. 13. Successors and Assigns. All of the covenants, stipulations, promises and agreements in this Note contained by or on behalf of Borrower shall bind its successors and assigns, whether so expressed or not; provided, that Borrower may not, without the prior written consent of the holder hereof, assign any rights, duties, or obligations under this Note. 14. Maximum Interest Rate. Regardless of any provision contained herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect or apply, as interest hereon, any amount in excess of the maximum rate of interest permitted to be charged from time to time by applicable law, and in the event the holder hereof ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of the principal hereof and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable, under any specified contingency, exceeds the highest lawful rate, Borrower and the holder hereof shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) spread the total amount of interest throughout the entire contemplated term hereof; provided that if the indebtedness evidenced hereby is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the maximum lawful rate, the holder hereof shall refund to Borrower the amount of such excess or credit the amount of such excess against the principal hereof, and in such event, the holder hereof shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the maximum lawful rate. 15. Business Day; Payments. As used herein, (a) “Business Day” means any day other than Saturday, Sunday or other day on which the Federal Reserve Bank of New York is closed and (b) “Nonbusiness Day” means every day that is not a Business Day. The principal of, or accrued interest on, this Note shall be due and payable in lawful money of the United States of America, in New York, New York at the office of Lender, 505 Park Avenue, 21st Floor, New York, New York 10022, in funds which are or will be available for immediate use by Lender at such office at or before 12:00 p.m., Eastern time (daylight or standard, as applicable) on the day payment hereof is due. In any case where a payment of principal or interest hereon is due on a Nonbusiness Day, Borrower shall be entitled to delay such payment until the next succeeding Business Day, but interest shall continue to accrue until the payment is, in fact, made. 16. Rollover Right. In addition to the right of set-off following default set forth in Paragraph 6 above, Lender shall have the right to: (i) subscribe (to the full extent of the principal and accrued interest under this Note) on the same terms and conditions as are offered to independent, third party investors in any debt or equity offering of Borrower consummated prior to the Maturity Date and (ii) offset any sums payable by Lender to Borrower thereunder against any sums payable by Borrower pursuant to this Note. 17. Offering. Borrower will use its best efforts to conduct a rights offering during the second fiscal quarter of 2009 for preferred or common stock the net proceeds of which would raise approximately $30 million (“Offering”). 18. Consent to Jurisdiction. BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR 3

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PROCEEDINGS IN ANY WAY ARISING OUT OF, FROM OR RELATED TO THIS NOTE WILL BE LITIGATED IN COURTS HAVING SITUS WITHIN NEW YORK, NEW YORK. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN NEW YORK, NEW YORK, WAIVES PERSONAL SERVICE OF PROCESS UPON BORROWER AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED IN PARAGRAPH 10 HEREOF AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT. 19. Waiver of Jury Trial. BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. BORROWER AGREES THAT IT WILL NOT ASSERT ANY CLAIM AGAINST LENDER ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES. 20. ENTIRETIES. THIS NOTE, TOGETHER WITH THE OTHER DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. IN WITNESS WHEREOF, the undersigned has executed this Note as of the day and year first above written. LIGHTING SCIENCE GROUP CORPORATION By: /s/ Stephen Hamilton Name: Stephen Hamilton Title: Vice President – Finance 4

Exhibit 10.2 LIGHTING SCIENCE GROUP CORPORATION 2100 McKinney Ave., Suite 1515 Dallas, Texas 75201 February 13, 2009 Pegasus Partners IV, L.P. 505 Park Avenue, 22nd Floor New York, New York 10022 RE: Promissory Note in Favor of Pegasus Partners IV, L.P. Ladies and Gentlemen: This letter agreement (this “Letter Agreement”) is delivered to Pegasus Partners IV, L.P., a Delaware limited partnership (“Pegasus”), in connection with the making of that certain Promissory Note, executed as of the date hereof by Lighting Science Group Corporation, a Delaware corporation (the “Company”), and payable to the order of Pegasus (the “Promissory Note”). In connection with, and in consideration of, the agreements contained herein and in the Promissory Note, the Company and Pegasus hereby agree as follows: 1.

The Company agrees to use its best efforts to conduct a rights offering during the second fiscal quarter of 2009 (the “Offering”) for preferred or common stock of the Company, the net proceeds of which would raise approximately Thirty Million Dollars ($30 million), upon the terms in that certain Summary of Terms attached hereto as Exhibit A. The parties acknowledge and agree that the bracketed items and blanks contained in the attached Summary of Terms will be completed in good faith based upon market conditions at the time of the Offering.

2.

Subject to Paragraph 16 of the Promissory Note, the net cash proceeds of any Offering shall be applied to payment of: (i) the unpaid principal amount of the Promissory Note, together with accrued interest thereon; (ii) the unpaid principal amount of the Company’s outstanding unsecured bridge loans, together with accrued interest thereon; (iii) the anticipated cash needs of the Company during 2009, net of other available financings; and (iv) the Company’s outstanding borrowings that are guaranteed by Pegasus or an affiliate of Pegasus.

This Letter Agreement may be executed by facsimile signature and in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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If the above correctly sets forth the parties’ agreement, please execute this Letter Agreement in the space provided below. Very truly yours, LIGHTING SCIENCE GROUP CORPORATION

By: /s/ Stephen Hamilton Name: Stephen Hamilton Title: Vice President — Finance ACCEPTED AND AGREED THIS 13th DAY OF FEBRUARY, 2009 PEGASUS PARTNERS IV, L.P. By: PEGASUS INVESTORS IV, LP, its general partner By: PEGASUS INVESTORS IV GP, L.L.C., its general partner

By: /s/ Richard Weinberg Name: Richard Weinberg Title: Vice President Signature Page to Letter Agreement

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Exhibit A Summary of Terms

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SUMMARY OF TERMS RIGHTS OFFERING OF SERIES D PREFERRED STOCK OF LIGHTING SCIENCE GROUP CORPORATION (the “Company”) FEBRUARY 13, 2009 I. SUMMARY OF TERMS OF RIGHTS TO BE OFFERED Term of Offering:

The offering will remain open for a period of 30 days. The offering will commence upon the effectiveness of a registration statement filed pursuant to the Securities Act of 1933, as amended.

Type of Security Underlying Subscription Right:

Series D Non-Convertible Preferred Stock (the “Series D Preferred”) and attached Warrants (the “Warrants”).

Purchase Price:

Each whole subscription right will entitle the holder to purchase one share of Series D Preferred and one Warrant to purchase Common Stock for $[___] (the “Original Purchase Price”).

Eligible Participants:

Holders of record of the Company’s (i) Common Stock, (ii) 6% Convertible Preferred Stock, (iii) Series B Preferred Stock, and (iv) Warrants will receive one subscription right for every one share of Common Stock issued or issuable to such holder on the record date. In addition, each employee of the Company will be entitled to participate in the offering for an amount of up to 10% (in the aggregate) of the rights offered to the above security holders; provided, that the source of the allocation of these rights would be determined at the time of the offering. Each Eligible Participant will also have the right to subscribe for an over-allocation of up 200% of the original number of rights issued to such Eligible Participant. Eligible Participants that subscribe for any shares pursuant to such over-allocation right will receive compensation customary to that payable pursuant to a back stop arrangement.

Transfer of Subscription Right:

Except with respect to transfers by Eligible Participants to their respective affiliates, the subscription rights will not be transferable.

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II. SUMMARY OF TERMS OF SERIES D PREFERRED STOCK Dividends:

The Series D Preferred will be entitled to a cumulative annual dividend of 25%. 17% of such dividend (the “Exercise Price Accrual”) will be credited for the account of the holder and would be available at any time to the holder solely for purposes of satisfying the exercise price payable upon exercise of the Warrants issued in conjunction therewith. Notwithstanding the foregoing, in no event will the holders of Series D Preferred be entitled to an aggregate Exercise Price Accrual that is greater than 100% of the aggregate exercise price of the Warrants. In the event that all or any portion of the Warrants are exercised by a holder thereof prior to the eighth anniversary of the date of issuance (the “Redemption Date”), the cumulative annual dividend on an equal number of shares of Series D Preferred held by such holder would immediately be reduced to 8% (the “Liquidation Preference Accrual”).

Liquidation Preference:

In the event of any liquidation, dissolution, winding up or Change of Control (as defined below) of the Company (a “Liquidation Event”), holders of the Series D Preferred will be subordinated to the liquidation preferences of the holders of the Company’s 6% Convertible Preferred Stock, Series B Preferred Stock and Series C Preferred Stock but will be entitled to receive, in preference to the holders of Common Stock, an amount for each share of Series D Preferred (the “Liquidation Amount”) equal to the Original Purchase Price plus the accrued and unpaid Liquidation Preference Accrual as if such holder had held the Series D Preferred until the Redemption Date. If, after payment of the full amount of the liquidation preferences of the holders of the 6% Convertible Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the assets of the Company are insufficient to permit payment of the full Liquidation Amount to all holders of Series D Preferred, then the available assets will be distributed ratably to the holders of the Series D Preferred in proportion to the Liquidation Amount each such holder would otherwise be entitled to receive. In addition, upon the occurrence of a Liquidation Event,

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the accrued and unaccrued Exercise Price Accrual (reduced by any amounts applied by the holder to the payment of the exercise price in conjunction with any Warrants exercised by such holder prior to the date of the Liquidation Event) will be credited for the account of each holder of Series D Preferred as if such holder had held the Series D Preferred until the Redemption Date. “Change of Control” means (a) the sale, conveyance or disposition of all or substantially all of the assets of the Company (other than pursuant to a joint venture arrangement or other transaction in which the Company receives at least fifty percent (50%) of the voting equity in another entity or a general partnership); (b) the effectuation of a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of (other than as a direct result of normal, uncoordinated trading activities in the Common Stock generally); (c) the consolidation, merger or other business combination of the Company with or into any other entity, immediately following which the prior stockholders of the Company fail to own, directly or indirectly, at least fifty percent (50%) of the voting equity of the surviving entity; (d) a transaction or series of transactions in which any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) acquires more than fifty percent (50%) of the voting equity of the Company; (e) the replacement of a majority of the Board of Directors with individuals who were not nominated or elected by at least a majority of the directors at the time of such replacement; or (f) a transaction or series of transactions that constitutes or results in a “going private transaction” (as defined in Section 13(e) of the Exchange Act and the regulations of the Commission issued thereunder). Redemption:

The Series D Preferred will not be callable by the Company prior to the Redemption Date. Upon the Redemption Date, the Series D Preferred will be redeemed by the Company, and the Company will pay each holder of Series D Preferred an amount equal to the Original Purchase Price plus the Liquidation Preference Accrual (reduced by any amounts applied by the holder to the payment of the exercise price in

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conjunction with any Warrants exercised by such holder prior to the Redemption Date). Upon any Change of Control occurring prior to the Redemption Date, the Series D Preferred will be redeemed by the Company, and the Company will pay each holder of Series D Preferred the Liquidation Amount. Upon any such redemption, the aggregate amount of the Exercise Price Accrual (reduced by any amounts applied by the holder to the payment of the exercise price in conjunction with any Warrants exercised by such holder prior to the Redemption Date) will remain credited for the account of the holder and all unexercised Warrants held by such holder will remain outstanding. Conversion:

The Series D Preferred will not be convertible into any other securities of the Company.

Voting Rights

Except as required by law, the holders of the Series D Preferred will not have voting rights.

III. SUMMARY OF TERMS OF WARRANTS Exercise Price:

$6.00 per share of Common Stock.

Term:

Warrants will be exercisable at any time after the date of issuance and will have a term of 12 years.

Exercise:

Warrants will be exercisable by paying an amount equal to the Exercise Price multiplied by the number of Warrant Shares. The Exercise Price will be payable by means of a cash payment; provided, that the aggregate amount payable upon exercise of the Warrants will be reduced by: (i) the Exercise Price Accrual that is credited to the account of the holder as of the date of exercise, if any; (ii) at the holder’s option, any portion of the Liquidation Preference Accrual otherwise payable to the holder as of the date of exercise; and (iii) at the holder’s option and upon surrender of a certificate or certificates representing shares of Series D Preferred Stock, the Original Purchase Price multiplied by the number of shares of Series D Preferred Stock surrendered.

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Transfer:

The Warrants will only be transferable if the corresponding shares of Series D Preferred are also transferred.