CERTIFICATE
OF DESIGNATION
OF
SERIES
A CONVERTIBLE PREFERRED STOCK
OF
PRESSURE
BIOSCIENCES, INC.
(Pursuant
to Section 6.02 of the Massachusetts Business Corporation Act, Chapter
156D
of
the Massachusetts General Laws)
A. Designation and
Amount.
The
shares of the series of Preferred Stock shall be designated as “Series A
Convertible Preferred Stock” (the “Series A Preferred Stock”) and
the number of shares constituting the Series A Preferred Stock shall be
608,696. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
1. Dividends.
From and
after the date of the issuance of any shares of Series A Preferred Stock,
dividends at the rate per annum of five percent (5%) of the Series A Original
Issue Price (as defined below) for each share of Series A Preferred Stock shall
accrue on such shares of Series A Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the Series A Preferred Stock) (the
“Accruing
Dividends”). Accruing Dividends shall accrue from day to day
and shall be paid semi-annually on the 30th day of
June and the 31st day of
December each year (with the first payment of Accruing Dividends on a
semi-annual payment date to be prorated based on the number of days occurring
between the date on which each share of Series A Preferred Stock was issued (the
“Series A Original Issue
Date”) and such semi-annual payment date). The Accruing
Dividends may be paid either in cash or in shares of Common Stock as determined
in the sole discretion of the Board of Directors. For purposes of the
payment of the Accruing Dividends in shares of Common Stock, each share of
Common Stock shall be deemed to have a value equal to one tenth (1/10th) of the
Series A Original Issue Price of such shares of Series A Preferred Stock with
respect to which such Accruing Dividends is being paid (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the Common Stock). The
Corporation shall not declare, pay or set aside any dividends on shares of any
other class or series of capital stock of the Corporation (other than dividends
on shares of Common Stock payable in shares of Common Stock) unless (in addition
to the obtaining of any consents required elsewhere in the Articles of
Organization) the holders of the Series A Preferred Stock then outstanding shall
first receive, or simultaneously receive, a dividend on each outstanding share
of Series A Preferred Stock in an amount at least equal to the greater of (i)
the amount of the aggregate Accruing Dividends then accrued on such share of
Series A Preferred Stock and not previously paid and (ii) (A) in the case of a
dividend on Common Stock or any class or series that is convertible into Common
Stock, that dividend per share of Series A Preferred Stock as would equal the
product of (1) the dividend payable on each share of such class or series
determined, if applicable, as if all shares of such class or series had been
converted into Common Stock and (2) the number of shares of Common Stock
issuable upon conversion of a share of Series A Preferred Stock, in each case
calculated on the record date for determination of holders entitled to receive
such dividend or (B) in the case of a dividend on any class or series that is
not convertible into Common Stock, at a rate per share of Series A Preferred
Stock determined by (1) dividing the amount of the dividend payable on each
share of such class or series of capital stock by the original issuance price of
such class or series of capital stock (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization with respect to such class or series) and (2) multiplying such
fraction by an amount equal to the Series A Original Issue Price (as defined
below); provided that, if the Corporation declares, pays or sets aside, on the
same date, a dividend on shares of more than one class or series of capital
stock of the Corporation, the dividend payable to the holders of Series A
Preferred Stock pursuant to this Section 1 shall be
calculated based upon the dividend on the class or series of capital stock that
would result in the highest Series A Preferred Stock dividend.
2. Liquidation, Dissolution or
Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1. Payments to Holders of
Series A Preferred Stock. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series A Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders before any payment shall be made to the holders of Common Stock
by reason of their ownership thereof, an amount per share equal to the greater
of (i) the Series A Original Issue Price, plus any Accruing Dividends accrued
but unpaid thereon, together with any other dividends accrued but unpaid thereon
or (ii) such amount per share as would have been payable had all shares of
Series A Preferred Stock been converted into Common Stock pursuant to Section 4 immediately
prior to such liquidation, dissolution or winding up (the amount payable
pursuant to this sentence is hereinafter referred to as the “Series A Liquidation
Amount”). If upon any such liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock the full amount to which they shall be entitled under this
Subsection 2.1,
the holders of shares of Series A Preferred Stock shall share ratably in any
distribution of the assets available for distribution in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full. The “Series A Original Issue Price”
for each share of Series A Preferred Stock shall mean an amount equal to
the greater of: (i) $11.50; (ii) an amount equal to the volume weighted average
price for the Corporation’s Common Stock on the Trading Market for the ten (10)
Trading Days preceding the Series A Original Issue Date on which such shares of
Series A Preferred Stock are issued multiplied by ten (10); and (iii) an amount
equal to the closing bid price of the Common Stock as reported by the Trading
Market on the Trading Day immediately preceding the Series A Original Issue Date
on which such shares of Series A Preferred Stock are issued multiplied by ten
(10), plus $2.50; in each case subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
with respect to the Series A Preferred Stock. “Trading Day” means a day on
which the Common Stock is traded on a Trading Market, and “Trading Market” means the
NASDAQ Capital Market or if the NASDAQ Capital Market is not the primary market
on which the Common Stock is then traded, such other markets or exchanges on
which the Common Stock is listed or quoted for trading on the Issuance
Date.
2.2. Payments to Holders of
Common Stock. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after the payment of
all preferential amounts required to be paid to the holders of shares of Series
A Preferred Stock, the remaining assets of the Corporation available for
distribution to its stockholders shall be distributed among the holders of
shares of Common Stock, pro rata based on the number of shares held by each such
holder.
2.3. Deemed Liquidation
Events.
2.3.1. Definition. Each
of the following events shall be considered a “Deemed Liquidation Event”
unless the holders of at least a majority of the outstanding shares of Series A
Preferred Stock elect otherwise by written notice sent to the Corporation at
least five (5) days prior to the effective date of any such event:
(a)
a merger or consolidation in which
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(i)
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the
Corporation is a constituent party
or
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(ii)
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a
subsidiary of the Corporation is a constituent party and the Corporation
issues shares of its capital stock pursuant to such merger or
consolidation,
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except
any such merger or consolidation involving the Corporation or a subsidiary in
which the shares of capital stock of the Corporation outstanding immediately
prior to such merger or consolidation continue to represent, or are converted
into or exchanged for shares of capital stock that represent, immediately
following such merger or consolidation, at least a majority, by voting power, of
the capital stock of (1) the surviving or resulting corporation or (2) if the
surviving or resulting corporation is a wholly owned subsidiary of another
corporation immediately following such merger or consolidation, the parent
corporation of such surviving or resulting corporation (provided that, for
the purpose of this Subsection 2.3.1, all
shares of Common Stock issuable upon (x) exercise of rights, options or warrants
to subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities (as defined below) (“Options”) outstanding
immediately prior to such merger or consolidation, or (y) conversion of any
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock, but excluding Options (“Convertible Securities”)
outstanding immediately prior to such merger or consolidation, shall be deemed
to be outstanding immediately prior to such merger or consolidation and, if
applicable, converted or exchanged in such merger or consolidation on the same
terms as the actual outstanding shares of Common Stock are converted or
exchanged); or
(b) the
sale, lease, transfer, exclusive license or other disposition, in a single
transaction or series of related transactions, by the Corporation or any
subsidiary of the Corporation of all or substantially all the assets of the
Corporation and its subsidiaries taken as a whole, or the sale or disposition
(whether by merger or otherwise) of one or more subsidiaries of the Corporation
if substantially all of the assets of the Corporation and its subsidiaries taken
as a whole are held by such subsidiary or subsidiaries, except where such sale,
lease, transfer, exclusive license or other disposition is to a wholly owned
subsidiary of the Corporation.
2.3.2. Effecting a Deemed
Liquidation Event.
(a) The
Corporation shall not have the power to effect a Deemed Liquidation Event
referred to in Subsection
2.3.1(a)(i) unless the agreement or plan of merger or consolidation for
such transaction (the “Merger
Agreement”) provides that the consideration payable to the stockholders
of the Corporation shall be allocated among the holders of capital stock of the
Corporation in accordance with Subsections 2.1 and
2.2.
(b) In
the event of a Deemed Liquidation Event referred to in Subsection
2.3.1(a)(ii) or 2.3.1(b), if the
Corporation does not effect a dissolution of the Corporation under the
Massachusetts Business Corporation Act within 90 days after such Deemed
Liquidation Event, then (i) the Corporation shall send a written notice to each
holder of Series A Preferred Stock no later than the 90th day after the Deemed
Liquidation Event advising such holders of their right (and the requirements to
be met to secure such right) pursuant to the terms of the following clause (ii) to
require the redemption of such shares of Series A Preferred Stock, and (ii) if
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock so request in a written instrument delivered to the Corporation
not later than 120 days after such Deemed Liquidation Event, the Corporation
shall use the consideration received by the Corporation for such Deemed
Liquidation Event (net of any retained liabilities associated with the assets
sold or technology licensed, as determined in good faith by the Board of
Directors of the Corporation), together with any other assets of the Corporation
available for distribution to its stockholders (the “Available Proceeds”), to the
extent legally available therefor, on the 150th day after such Deemed
Liquidation Event, to redeem all outstanding shares of Series A Preferred Stock
at a price per share equal to the Series A Liquidation
Amount. Notwithstanding the foregoing, in the event of a redemption
pursuant to the preceding sentence, if the Available Proceeds are not sufficient
to redeem all outstanding shares of Series A Preferred Stock, the Corporation
shall redeem a pro rata portion of each holder’s shares of Series A Preferred
Stock to the fullest extent of such Available Proceeds, based on the respective
amounts which would otherwise be payable in respect of the shares to be redeemed
if the Available Proceeds were sufficient to redeem all such shares, and shall
redeem the remaining shares to have been redeemed as soon as practicable after
the Corporation has funds legally available therefor. The provisions
of Subsections
6.2 through 6.4 shall apply, with
such necessary changes in the details thereof as are necessitated by the
context, to the redemption of the Series A Preferred Stock pursuant to this
Subsection
2.3.2(b). Prior to the distribution or redemption provided for
in this Subsection
2.3.2(b), the Corporation shall not expend or dissipate the consideration
received for such Deemed Liquidation Event, except to discharge expenses
incurred in connection with such Deemed Liquidation Event or in the ordinary
course of business.
2.3.3. Amount Deemed Paid or
Distributed. The amount deemed paid or distributed to the
holders of capital stock of the Corporation upon any such merger, consolidation,
sale, transfer, exclusive license, other disposition or redemption shall be the
cash or the value of the property, rights or securities paid or distributed to
such holders by the Corporation or the acquiring person, firm or other
entity. If the amount deemed paid or distributed under this
Subsection 2.3.3 is made in property other than in cash, the value of such
distribution shall be the fair market value of such property, determined as
follows:
(a) For
securities not subject to investment letters or other similar restrictions on
free marketability,
(i) if
traded on the NASDAQ Capital Market or other securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange or market over the 30-period ending three days prior to the
closing of such transaction;
(ii) if
actively traded over-the-counter, the value shall be deemed to be the average of
the closing bid prices over the 30-day period ending three days prior to the
closing of such transaction; or
(iii) if
there is no active public market, the value shall be the fair market value
thereof, as determined in good faith by the Board of Directors of the
Corporation.
(b) The
method of valuation of securities subject to investment letters or other similar
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder’s status as an affiliate or former affiliate) shall take
into account an appropriate discount (as determined in good faith by the Board
of Directors of the Corporation) from the market value as determined pursuant to
clause (a) above so as to reflect the approximate fair market value
thereof. The value of such property, rights or securities shall be
determined in good faith by the Board of Directors of the
Corporation.
2.3.4. Allocation of
Escrow. In the event of a Deemed Liquidation Event pursuant to
Subsection 2.3.1(a)(i), if any portion of the consideration payable to the
stockholders of the Corporation is placed into escrow and/or is payable to the
stockholders of the Corporation subject to contingencies, the Merger Agreement
shall provide that (a) the portion of such consideration that is not placed in
escrow and not subject to any contingencies (the “Initial Consideration”) shall
be allocated among the holders of capital stock of the Corporation in accordance
with Subsections 2.1 and 2.2 as if the Initial Consideration were the only
consideration payable in connection with such Deemed Liquidation Event and (b)
any additional consideration which becomes payable to the stockholders of the
Corporation upon release from escrow or satisfaction of contingencies shall be
allocated among the holders of capital stock of the Corporation in accordance
with Subsections 2.1 and 2.2 after taking into account the previous payment of
the Initial Consideration as part of the same transaction.
3. Voting.
3.1. General. The
holders of Series A Preferred Stock shall not be entitled to vote 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), except as otherwise expressly
provided for in Section 3.2 below or
required by law.
3.2. Series A Preferred Stock
Protective Provisions. At any time when the number of shares
of Series A Preferred Stock outstanding is equal to or greater than 20% of the
total number of shares of Series A Preferred Stock issued on the first date any
shares of Series A Preferred Stock were issued (with such numbers subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization with respect to the Series A
Preferred Stock), the Corporation shall not, either directly or indirectly by
amendment, merger, consolidation or otherwise, do any of the following without
(in addition to any other vote required by law or the Articles of Organization)
the written consent or affirmative vote of the holders of at least as majority
of the then outstanding shares of Series A Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
class amend, alter or repeal any provision of the Articles of Organization in a
manner that adversely affects the powers, preferences or rights of the Series A
Preferred Stock; provided, however, the authorization of another series of
Preferred Stock with rights senior to or pari passu with those of the Series A
Preferred Stock as to dividends, liquidation, redemption or voting, or the
authorization of additional shares of Series A Preferred Stock or Common Stock
shall not constitute an amendment that adversely affects the Series A Preferred
Stock.
4. Optional
Conversion.
The
holders of the Series A Preferred Stock shall have conversion rights as follows
(the “Conversion
Rights”):
4.1. Right to
Convert.
4.1.1. Conversion
Ratio. Subject to the limitations set forth in Section 4.1.2, each
share of Series A Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the Series
A Original Issue Price for such share of Series A Preferred Stock by the Series
A Conversion Price (as defined below) in effect at the time of
conversion. The “Series A Conversion Price”
for each share of Series A Preferred Stock shall initially be equal to one tenth
(1/10th) of the
Series A Original Issue Price for such share of Series A Preferred
Stock. Such initial Series A Conversion Price, and the rate at which
shares of Series A Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below.
4.1.2. Shares
of Series A Preferred Stock held by each holder of record thereof may not be
converted pursuant to Section 4.1.1 to the
extent that, after giving effect to such conversion, such holder (together with
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 144 under the Securities Act of 1933,
as amended and the rules and regulations promulgated thereunder (each an “Affiliate”), and any other
person or entity acting as a group together with such holder or any of such
holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
such holder of record and its Affiliates shall include the number of shares of
Common Stock issuable upon conversion of such holder’s Series A Preferred Stock
with respect to which shares of Series A Preferred Stock the holder is
converting pursuant to Section 4.1.1, but
shall exclude the number of shares of Common Stock which would be issuable upon
exercise or conversion of the unexercised or non-converted portion of any other
securities of the Corporation (including, without limitation, options and
warrants) that are subject to a limitation on conversion or exercise analogous
to the limitation contained herein and are beneficially owned by such holder or
any of its Affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 4.1.2,
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and each
holder of record shall be solely responsible for any schedules required to be
filed in accordance therewith. To the extent that the limitation
contained in this Section 4.1.2
applies, the determination of whether each holder of record’s shares of Series A
Preferred Stock are convertible into shares of Common Stock (in relation to
other securities owned by such holder together with any Affiliates) shall be
made by such holder and shall be provided in writing to the Corporation at the
time of such conversion or at such other times as may be reasonably requested by
the Corporation. Upon written request of the record holder of shares
of Series A Preferred Stock, the Corporation shall provide such holder with the
number of then outstanding shares of Common Stock. The Corporation
shall have no obligation to verify or confirm the accuracy of the holder’s
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of the shares of Series A Preferred Stock. The
Beneficial Ownership Limitation provisions of this Section 4.1.2 may be
waived by the holder of record, at the election of such holder, upon not less
than sixty-one (61) days prior written notice to the Corporation (which notice
period, if requested by the holder of record, the Corporation may waive in its
sole discretion) to increase the Beneficial Ownership Limitation to 9.99%,
14.99% or 19.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon
conversion of the shares of Series A Preferred Stock, and the provisions of this
Section 4.1.2
shall continue to apply. Upon a waiver of the Beneficial Ownership
Limitation from 4.99% to 9.99%, or from 9.99% to 14.99%, as the case may be, the
holder of record may further waive the Beneficial Ownership Limitation from
9.99% to 14.99%, or from 14.99% to 19.99%, as applicable, by written notice to
the Corporation not less than sixty-one (61) days in advance of such waiver
(which notice period, if requested by the holder of record, the Corporation may
waive in its sole discretion). Upon the change by the holder of
record of the Beneficial Ownership Limitation from 14.99% to 19.99%, the
Beneficial Ownership Limitation may not be further waived by such
Holder.
4.1.3. Termination of Conversion
Rights. In the event of a notice of redemption of any shares
of Series A Preferred Stock pursuant to Section 6, the
Conversion Rights of the shares designated for redemption shall terminate at the
close of business on the last full day preceding the date fixed for redemption,
unless the redemption price is not fully paid on such redemption date, in which
case the Conversion Rights for such shares shall continue until such price is
paid in full. In the event of a liquidation, dissolution or winding
up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall
terminate at the close of business on the last full day preceding the date fixed
for the payment of any such amounts distributable on such event to the holders
of Series A Preferred Stock.
4.2. Fractional
Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of a share of Common Stock as determined in good faith by the Board of
Directors of the Corporation. Whether or not fractional shares would
be issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the aggregate number of shares of Common Stock
issuable upon such conversion.
4.3. Mechanics of
Conversion.
4.3.1. Notice of
Conversion. In order for a holder of Series A Preferred Stock
to voluntarily convert shares of Series A Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series A Preferred Stock (or, if such registered holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of such certificate), at the
office of the transfer agent for the Series A Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series A Preferred Stock represented by
such certificate or certificates and, if applicable, any event on which such
conversion is contingent. Such notice shall state such holder’s name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by
the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his,
her or its attorney duly authorized in writing. The close of business
on the date of receipt by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) of such certificates (or lost
certificate affidavit and agreement) and notice shall be the time of conversion
(the “Conversion Time”),
and the shares of Common Stock issuable upon conversion of the shares
represented by such certificate shall be deemed to be outstanding of record as
of such date. The Corporation shall, as soon as practicable after the
Conversion Time, (i) issue and deliver to such holder of Series A Preferred
Stock, or to his, her or its nominees, a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion in
accordance with the provisions hereof and a certificate for the number (if any)
of the shares of Series A Preferred Stock represented by the surrendered
certificate that were not converted into Common Stock, (ii) pay in cash such
amount as provided in Subsection 4.2 in
lieu of any fraction of a share of Common Stock otherwise issuable upon such
conversion and (iii) pay all accrued but unpaid dividends on the shares of
Series A Preferred Stock converted.
4.3.2. Reservation of
Shares. The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued capital stock, for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to the Articles of
Organization. Before taking any action which would cause an
adjustment reducing the Series A Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price.
4.3.3. Effect of
Conversion. All shares of Series A Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares shall
immediately cease and terminate at the Conversion Time, except only the right of
the holders thereof to receive shares of Common Stock in exchange therefor, to
receive payment in lieu of any fraction of a share otherwise issuable upon such
conversion as provided in Subsection 4.2 and to
receive payment of any dividends accrued but unpaid on the shares of Series A
Preferred Stock so converted. Any shares of Series A Preferred Stock
so converted shall be retired and cancelled and may not be reissued as shares of
such series, and the Corporation may thereafter take such appropriate action
(without the need for stockholder action) as may be necessary to reduce the
authorized number of shares of Series A Preferred Stock
accordingly.
4.3.4. No Further
Adjustment. Upon any such conversion, no adjustment to the
Series A Conversion Price shall be made for any accrued but unpaid dividends on
the Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
4.3.5. Taxes. The
Corporation shall pay any and all issue and other similar taxes that may be
payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred Stock pursuant to this Section
4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
4.4. Adjustment for Stock Splits
and Combinations. If the Corporation shall at any time or from
time to time after the Series A Original Issue Date effect a subdivision of the
outstanding Common Stock, the Series A Conversion Price in effect immediately
before that subdivision shall be proportionately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding. If the Corporation shall at any time or
from time to time after the Series A Original Issue Date combine the outstanding
shares of Common Stock, the Series A Conversion Price in effect immediately
before the combination shall be proportionately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding. Any adjustment under this subsection shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
4.5. Adjustment for Certain
Dividends and Distributions. In the event the Corporation at
any time or from time to time after the Series A Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable on the Common
Stock in additional shares of Common Stock, then and in each such event the
Series A Conversion Price in effect immediately before such event shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price then in effect by a
fraction:
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(1)
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the
numerator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date,
and
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(2)
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the
denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution.
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Notwithstanding
the foregoing, (a) if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Series A Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions; and (b) that no such adjustment
shall be made if the holders of Series A Preferred Stock simultaneously receive
a dividend or other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
4.6. Adjustments for Other
Dividends and Distributions. In the event the Corporation at
any time or from time to time after the Series A Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation (other than a distribution of shares of Common Stock in respect
of outstanding shares of Common Stock) or in other property and the provisions
of Section 1 do
not apply to such dividend or distribution, then and in each such event the
holders of Series A Preferred Stock shall receive, simultaneously with the
distribution to the holders of Common Stock, a dividend or other distribution of
such securities or other property in an amount equal to the amount of such
securities or other property as they would have received if all outstanding
shares of Series A Preferred Stock had been converted into Common Stock on the
date of such event.
4.7. Adjustment for Merger or
Reorganization, etc. Subject to the provisions of Subsection 2.3, if
there shall occur any reorganization, recapitalization, reclassification,
consolidation or merger involving the Corporation in which the Common Stock (but
not the Series A Preferred Stock) is converted into or exchanged for securities,
cash or other property (other than a transaction covered by Subsections 4.5 or
4.6), then,
following any such reorganization, recapitalization, reclassification,
consolidation or merger, each share of Series A Preferred Stock shall thereafter
be convertible in lieu of the Common Stock into which it was convertible prior
to such event into the kind and amount of securities, cash or other property
which a holder of the number of shares of Common Stock of the Corporation
issuable upon conversion of one share of Series A Preferred Stock immediately
prior to such reorganization, recapitalization, reclassification, consolidation
or merger would have been entitled to receive pursuant to such transaction; and,
in such case, appropriate adjustment (as determined in good faith by the Board
of Directors of the Corporation) shall be made in the application of the
provisions in this Section 4 with
respect to the rights and interests thereafter of the holders of the Series A
Preferred Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any securities or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
4.8. Certificate as to
Adjustments. Upon the occurrence of each adjustment or
readjustment of the Series A Conversion Price pursuant to this Section 4, the
Corporation at its expense shall, as promptly as reasonably practicable but in
any event not later than ten (10) days thereafter, compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment (including the kind and amount of securities, cash or other
property into which the Series A Preferred Stock is convertible) and showing in
detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, as promptly as reasonably practicable
after the written request at any time of any holder of Series A Preferred Stock
(but in any event not later than ten (10) days thereafter), furnish or cause to
be furnished to such holder a certificate setting forth (i) the Series A
Conversion Price then in effect, and (ii) the number of shares of Common Stock
and the amount, if any, of other securities, cash or property which then would
be received upon the conversion of Series A Preferred Stock.
4.9. Notice of Record
Date. In the event:
(a) the
Corporation shall take a record of the holders of its Common Stock (or other
capital stock or securities at the time issuable upon conversion of the Series A
Preferred Stock) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of capital stock of any class or any other securities, or to
receive any other security; or
(b) of
any capital reorganization of the Corporation, any reclassification of the
Common Stock of the Corporation, or any Deemed Liquidation Event;
or
(c) of
the voluntary or involuntary dissolution, liquidation or winding-up of the
Corporation,
then, and
in each such case, the Corporation will send or cause to be sent to the holders
of the Series A Preferred Stock a notice specifying, as the case may be, (i) the
record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is proposed to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other capital stock or securities at the time issuable upon the conversion
of the Series A Preferred Stock) shall be entitled to exchange their shares of
Common Stock (or such other capital stock or securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up, and the amount per
share and character of such exchange applicable to the Series A Preferred Stock
and the Common Stock. Such notice shall be sent at least ten (10)
days prior to the record date or effective date for the event specified in such
notice.
5. Mandatory
Conversion.
5.1. Trigger
Events.
5.1.1. Upon
(a) the closing of the sale of shares of Common Stock to the public at a price
of at least $2.30 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization with respect to the Common Stock),
in a firm-commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the “Securities Act”), resulting in
at least $10,000,000 of gross proceeds to the Corporation, (b) such time, on or
after February 12, 2010, the shares of Common Stock trade on the Nasdaq Capital
Market, or any other trading market on which the shares of Common Stock are then
traded, with a sale price at any time during the trading day of at least $4.00
for at least twenty (20) trading days out of thirty (30) consecutive trading
days with average daily trading volume for such twenty (20) trading days of at
least 10,000 shares, or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock (the time of such
closing or the date and time specified or the time of the event specified in
such vote or written consent is referred to herein as the “Mandatory Conversion Time”),
(i) all outstanding shares of Series A Preferred Stock held by each holder
thereof, subject to the Beneficial Ownership Limitation (as defined in Section 5.1.2 below),
shall automatically be converted into shares of Common Stock at the then
effective Series A Conversion Price, and (ii) such shares may not be reissued by
the Corporation.
5.1.2. Shares
of Series A Preferred Stock held by each holder of record thereof shall not be
converted pursuant to Section 5.1.1 to the
extent that, after giving effect to such conversion, such holder (together with
any of such holder’s Affiliates and any other person or entity acting as a group
together with such holder or any of such holder’s Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by such holder of record and its Affiliates
shall include the number of shares of Common Stock issuable upon conversion of
such holder’s Series A Preferred Stock, but shall exclude the number of shares
of Common Stock which would be issuable upon exercise or conversion of the
unexercised or non-converted portion of any other securities of the Corporation
(including, without limitation, options and warrants) that are subject to a
limitation on conversion or exercise analogous to the limitation contained
herein and are beneficially owned by such holder or any of its
Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 5.1.2,
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act, and each holder of record shall be solely responsible for any
schedules required to be filed in accordance therewith. To the extent
that the limitation contained in this Section 5.1.2
applies, the determination of whether each holder of record’s shares of Series A
Preferred Stock are convertible into shares of Common Stock (in relation to
other securities owned by such holder together with any Affiliates) shall be
made by such holder and shall be provided in writing to the Corporation within
ten (10) days of receipt of a written request from the Company for such
determination, which shall indicate the number of shares of Common Stock then
outstanding, or at such other times as may be reasonably requested by the
Corporation. The Corporation shall have no obligation to verify or
confirm the accuracy of the holder’s determination. In addition, a
determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of the shares of Series A Preferred Stock. The
Beneficial Ownership Limitation provisions of this Section 5.1.2 may be
waived by the holder of record, at the election of such holder, upon not less
than sixty-one (61) days prior written notice to the Corporation (which notice
period, if requested by the holder of record, the Corporation may waive in its
sole discretion) to increase the Beneficial Ownership Limitation to 9.99%,
14.99% or 19.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon
conversion of the shares of Series A Preferred Stock, and the provisions of this
Section 5.1.2
shall continue to apply. Upon a waiver of the Beneficial Ownership
Limitation from 4.99% to 9.99%, or from 9.99% to 14.99%, as the case may be, the
holder of record may further waive the Beneficial Ownership Limitation from
9.99% to 14.99%, or from 14.99% to 19.99%, as applicable, by written notice to
the Corporation not less than sixty-one (61) days in advance of such waiver
(which notice period, if requested by the holder of record, the Corporation may
waive in its sole discretion). Upon the change by the holder of
record of the Beneficial Ownership Limitation from 14.99% to 19.99%, the
Beneficial Ownership Limitation may not be further waived by such
Holder.
5.2. Procedural
Requirements. All holders of record of shares of Series A
Preferred Stock shall be sent written notice of the Mandatory Conversion Time
and the place designated for mandatory conversion of all such shares of Series A
Preferred Stock pursuant to this Section
5. Such notice need not be sent in advance of the occurrence
of the Mandatory Conversion Time. Upon receipt of such notice, each
holder of shares of Series A Preferred Stock shall surrender his, her or its
certificate or certificates for all such shares (or, if such holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of such certificate) to the
Corporation at the place designated in such notice. If so required by
the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his, her or its attorney duly authorized in writing. All rights with
respect to the Series A Preferred Stock converted pursuant to Section 5.1,
including the rights, if any, to receive notices and vote (other than as a
holder of Common Stock), will terminate at the Mandatory Conversion Time
(notwithstanding the failure of the holder or holders thereof to surrender the
certificates at or prior to such time), except only the rights of the holders
thereof, upon surrender of their certificate or certificates (or lost
certificate affidavit and agreement) therefor, to receive the items provided for
in the next sentence of this Subsection
5.2. As soon as practicable after the Mandatory Conversion
Time and the surrender of the certificate or certificates (or lost certificate
affidavit and agreement) for Series A Preferred Stock, the Corporation shall
issue and deliver to such holder, or to his, her or its nominees, a certificate
or certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof, together with cash as
provided in Subsection
4.2 in lieu of any fraction of a share of Common Stock otherwise issuable
upon such conversion and the payment of any accrued but unpaid dividends on the
shares of Series A Preferred Stock converted. Such converted Series A
Preferred Stock shall be retired and cancelled and may not be reissued as shares
of such series, and the Corporation may thereafter take such appropriate action
(without the need for stockholder action) as may be necessary to reduce the
authorized number of shares of Series A Preferred Stock
accordingly.
6. Redemption.
6.1. Redemption. Shares
of Series A Preferred Stock may be redeemed by the Corporation out of funds
lawfully available therefor at a price equal to the Series A Original Issue
Price per share, plus all accrued but unpaid dividends thereon (the “Redemption Price”), in two
annual installments commencing at least 30 days after written notice by the
Corporation to the holders of the then outstanding shares of Series A Preferred
Stock at any time on or after February 12, 2014. The date of each
such installment shall be referred to as a “Redemption
Date”. On each Redemption Date, the Corporation shall redeem,
on a pro rata basis in accordance with the number of shares of Series A
Preferred Stock owned by each holder, that number of outstanding shares of
Series A Preferred Stock determined by dividing (i) the total number of shares
of Series A Preferred Stock outstanding immediately prior to such Redemption
Date by (ii) the number of remaining Redemption Dates (including the Redemption
Date to which such calculation applies). If the Corporation does not
have sufficient funds legally available to redeem on any Redemption Date all
shares of Series A Preferred Stock to be redeemed on such Redemption Date, the
Corporation shall redeem a pro rata portion of each holder’s redeemable shares
of such capital stock out of funds legally available therefor, based on the
respective amounts which would otherwise be payable in respect of the shares to
be redeemed if the legally available funds were sufficient to redeem all such
shares, and shall redeem the remaining shares to have been redeemed as soon as
practicable after the Corporation has funds legally available
therefore.
6.2. Redemption
Notice. The Corporation shall send written notice of the
mandatory redemption (the “Redemption Notice”) to each
holder of record of Series A Preferred Stock not less than 30 days prior to each
Redemption Date. Each Redemption Notice shall state:
(a) the
number of shares of Series A Preferred Stock held by the holder that the
Corporation shall redeem on the Redemption Date specified in the Redemption
Notice;
(b) the
Redemption Date and the Redemption Price;
(c) the
date upon which the holder’s right to convert such shares terminates (as
determined in accordance with Subsection 4.1);
and
(d) that
the holder is to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
of Series A Preferred Stock to be redeemed.
6.3. Surrender of Certificates;
Payment. On or before the applicable Redemption Date, each
holder of shares of Series A Preferred Stock to be redeemed on such Redemption
Date, unless such holder has exercised his, her or its right to convert such
shares as provided in Section 4, shall
surrender the certificate or certificates representing such shares (or, if such
registered holder alleges that such certificate has been lost, stolen or
destroyed, a lost certificate affidavit and agreement reasonably acceptable to
the Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
such certificate) to the Corporation, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price for such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof. In the event less
than all of the shares of Series A Preferred Stock represented by a certificate
are redeemed, a new certificate representing the unredeemed shares of Series A
Preferred Stock shall promptly be issued to such holder.
6.4. Rights Subsequent to
Redemption. If the Redemption Notice shall have been duly
given, and if on the applicable Redemption Date the Redemption Price payable
upon redemption of the shares of Series A Preferred Stock to be redeemed on such
Redemption Date is paid or tendered for payment or deposited with an independent
payment agent so as to be available therefor in a timely manner, then
notwithstanding that the certificates evidencing any of the shares of Series A
Preferred Stock so called for redemption shall not have been surrendered,
dividends with respect to such shares of Series A Preferred Stock shall cease to
accrue after such Redemption Date and all rights with respect to such shares
shall forthwith after the Redemption Date terminate, except only the right of
the holders to receive the Redemption Price without interest upon surrender of
their certificate or certificates therefor.
7. Redeemed or Otherwise
Acquired Shares. Any shares of Series A Preferred Stock that
are redeemed or otherwise acquired by the Corporation or any of its subsidiaries
shall be automatically and immediately cancelled and retired and shall not be
reissued, sold or transferred. Neither the Corporation nor any of its
subsidiaries may exercise any voting or other rights granted to the holders of
Series A Preferred Stock following redemption.
8. Waiver. Any
of the rights, powers, preferences and other terms of the Series A Preferred
Stock set forth herein may be waived on behalf of all holders of Series A
Preferred Stock by the affirmative written consent or vote of the holders of at
least a majority of the shares of Series A Preferred Stock then
outstanding.
9. Notices. Any
notice required or permitted by the provisions of this Article Fourth to be
given to a holder of shares of Series A Preferred Stock shall be mailed, postage
prepaid, to the post office address last shown on the records of the
Corporation, or given by electronic communication in compliance with the
provisions of the Massachusetts Business Corporation Act, and shall be deemed
sent upon such mailing or electronic transmission.