Exhibit 4.01
CERTIFICATE OF DESIGNATION
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
BIOPULSE INTERNATIONAL, INC.
(Adopted pursuant to Section 78-1955 of the
General Corporation Law of Nevada)
The undersigned hereby certifies that the Board of Directors of
BIOPULSE INTERNATIONAL, INC., a Nevada corporation (the "Company"), duly
adopted the following resolutions effective as of January 18, 2001:
RESOLVED, a series of preferred stock of the Company is created
and the relative rights, preferences, and limitations of the shares of such
Series B are as follows:
I. Designation and Amount. The shares of such series of Preferred Stock
shall be designated as "Series B Convertible Preferred Stock" (the "Series
B Preferred Stock") and the number of the outstanding shares constituting
the Series B Preferred Stock shall be Three Thousand (3,000). The Series B
Preferred Stock shall have a liquidation value (the "Liquidation Value") of
$1,000 per share.
II. Dividends.
A. The holders of shares of Series B Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor
prior to, and in preference to, any declaration or payment of any dividend
on the Common Stock of this Company, at a per share rate equal to seven
percent (7%) per annum of the amount of the Liquidation Value of the Series
B Preferred Stock, which is payable upon conversion (based upon a 360
calendar day year) as set forth below. Dividends shall begin to accrue as
of the Issuance Date (as defined below). Any dividends payable pursuant to
the provisions of this paragraph shall, at the Company's option, be payable
in cash, or unrestricted shares of Common Stock of the Company within five
Business Days (as defined below) of when due. The number of shares of
Common Stock to be issued by the Company in lieu of a cash payment for
dividends due as set forth herein shall be equal to the number of shares of
Common Stock resulting from dividing the dollar amount of dividends owed by
the Conversion Price (as defined below) on such date as the dividends are
payable (if such date is not a Trading Day, then the next Trading Day (as
defined below) immediately thereafter).
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B. Such dividends shall accrue on each share of Series B Preferred
Stock from the Issuance Date, and shall accrue from day to day whether or
not earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, shall not have been paid or declared and a
sum sufficient for the payment thereof set apart, for all Series B
Preferred Stock at the time outstanding, the deficiency shall first be
fully paid before any dividend or other distribution shall be paid on or
declared or set apart for the Series B Preferred Stock, Common Stock or
other security of the Company subordinate in liquidation to the Series B
Preferred Stock. Dividends on the Series B Preferred Stock shall be non-
participating and the holders of the Series B Preferred Stock shall not be
entitled to participate in any other dividends beyond the cumulative
dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, and in preference to any
distribution of any assets of the Company to the holders of Common Stock,
holders of each share of Series B Preferred Stock shall be entitled to
receive out of the assets available for distribution to shareholders the
Liquidation Value per share of Series B Preferred Stock plus seven percent
(7%) per annum thereon from the Issuance Date (as defined below) to the
Trading Day (as defined below) immediately prior to such liquidation,
dissolution or winding up of the Company (the "Liquidation Amount").
B. Upon the completion of any required distribution to the holders
of the Series A Preferred Stock, if the assets of the Company available for
distribution to shareholders shall be insufficient to pay the holders of
shares of Series B Preferred Stock the full Liquidation Amount to which
they shall be entitled, then any such distribution of assets of the Company
shall be distributed ratably to the holders of shares of Series B Preferred
Stock.
C. After the payment of the Liquidation Amount shall have been made
in full to the holders of the Series B Preferred Stock or funds necessary
for such payment shall have been set aside by the Company in trust for the
account of holders of the Series B Preferred Stock so as to be available
for such payments, the holders of the Series B Preferred Stock shall be
entitled to no further participation in the distribution of the assets of
the Company, and the remaining assets of the Company legally available for
distribution to shareholders shall be distributed among the holders of
Common Stock and any other classes or series of Preferred Stock of the
Company in accordance with their respective terms.
IV. Voting. Holders of Series B Preferred Stock shall have no voting
rights except as expressly required by law or as expressly provided herein.
V. Conversion of Series B Preferred Stock. The holders of Series B
Preferred Stock shall have the right, at such holder's option, to convert
the Series B Preferred Stock into shares of Common Stock, on the following
terms and conditions:
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A. Subject to the provisions of Section XI hereof, at any time or
times after the Issuance Date any holder of the Series B Preferred Stock
shall be entitled to convert any whole number of such holder's shares of
Series B Preferred Stock into that number of fully paid and nonassessable
shares of Common Stock, which is determined (per share of Series B
Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as
defined below) (the "Conversion Rate").
B. For purposes of this Certificate of Designation, the following
terms shall have the following meanings:
A "Business Day" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is closed.
The "Closing Bid Price" shall mean, for any security as of any
date, the last closing bid price for such security on the Nasdaq Stock
Market as reported by Bloomberg L.P. ("Bloomberg"), or, if the Nasdaq Stock
Market is not the principal trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of
such security in the over-the-counter market on the NASD OTC Electronic
Bulletin Board for such security as reported by Bloomberg, or, the last
closing trade price of such security as reported by Bloomberg, or, if no
last closing bid or trade price is reported for such security by Bloomberg,
the closing bid price shall be determined by reference to the closing bid
price as reported on the Principal Market. If the Closing Bid Price cannot
be calculated for such security on such date on any of the foregoing bases,
the Closing Bid Price of such security on such date shall be the fair
market value as mutually agreed by the Company and the holders of two
thirds of the outstanding shares of Series B Preferred Stock.
The "Conversion Price" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) $9.75 (the "Maximum Conversion Price") or
(ii) Eighty Percent (80%) of the average of the three lowest Closing Bid
Prices of the Common Stock during the Twenty (20) Trading Days (the
"Lookback Period") immediately prior to the Conversion Date.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of 200% of the greater of (i) the number
of shares of Common Stock issuable upon conversion of all of the Series B
Preferred Stock outstanding on the Trading Day immediately preceding the
day such Registration Statement is filed (ii) the number of shares of
Common Stock issuable upon conversion of all of the Series B Preferred
Stock outstanding on the Trading Day immediately preceding the day any
amendment to such Registration Statement is filed.
The "Issuance Date" shall mean, with respect to each share of
Series B Preferred Stock, the date of issuance of the applicable shares of
Series B Preferred Stock.
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A "Trading Day" shall mean a day on which the Principal Market is
open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC
Electronic Bulletin Board operated by the National Association of
Securities Dealers, Inc., or the New York Stock Exchange, whichever is at
the time the principal trading exchange or market for the Common Stock.
Holders of Series B Preferred Stock may exercise their right to
convert the Series B Preferred Stock by telecopying an executed and
completed notice of conversion in the agreed upon form (the "Notice of
Conversion") to the Company and delivering to Company the original Notice
of Conversion and the certificate representing the Series B Preferred Stock
being converted by reputable overnight courier within three (3) business
thereafter. Each Business Day (between the hours of 6:30 a.m. and 5:00
p.m. Pacific Time) on which a Notice of Conversion is telecopied to and
received by the Company shall be deemed a "Conversion Date." The Company
will deliver the certificates representing shares of Common Stock issuable
upon conversion of any share of Series B Preferred Stock (together with the
certificates representing the share or shares of Series B Preferred Stock
not so converted) to the holder thereof via reputable overnight courier, by
electronic transfer or otherwise within three Business Days after the
Conversion Date, provided the Company has received the original Notice of
Conversion and Series B Preferred Stock certificate being so converted on
or before the close of business of the third Business Day after the
Conversion Date. In addition to any other remedies which may be available
to the holders of shares of Series B Preferred Stock, in the event that the
Company fails to deliver such shares of Common Stock within such three
Business Day period, the holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice (by similar method) to such
effect to the Company whereupon the Company and such holder shall each be
restored to their respective positions immediately prior to delivery of
such Notice of Conversion. The Notice of Conversion and Series B Preferred
Stock certificates representing the portion of the Series B Preferred Stock
converted shall be delivered as follows:
To the Company:
BioPulse International, Inc.
10421 South Jordan Gateway
Salt Lake City, Suite 500, UT 84095
ATTN: CEO
Telephone No.: (801) 523-0101
Telecopier No.: (801) 523-8848
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with a copy to:
Ronald Poulton, Esq.
Poulton & Yordan
136 E. Temple, Suite 1700-A,
Salt Lake City, Utah 84111
Telephone: (801) 355-1341
Facsimile: (801) 355-2990
The Company understands that a delay in the issuance of the
shares of Common Stock beyond the Delivery Date could result in economic
loss to the holder. As compensation to the holder for such loss, the
Company agrees to pay late payments to the holder in the event that
Company's failure to issue and deliver the shares on the Delivery Date in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond three (3) business days after
the Delivery Date):
Late Payment For Each $10,000
of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
---------------------- -------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$200 for each Business Day
Late beyond 5 days from The
Delivery Date
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
holder's right to pursue actual damages or to cause the Company to redeem
the Preferred Shares as provided below for the Company's actions or
inactions resulting in the transfer agent's failure to issue and deliver
the Common Stock to the holder. Furthermore, in addition to any other
remedies which may be available to the holder, in the event that the
Company fails to deliver such shares of Common Stock within five (5)
business days after the Delivery Date, the Holder will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and the holder shall each be
restored to their respective positions immediately prior to delivery of
such Notice of Conversion. In the event the Company's actions or inactions
result in the transfer agent's failure to issue and deliver the Common
Stock to the holder within ten (10) days after the Delivery Date, holder
may, at its option and by providing written notice to the Company, require
the Company to redeem all or part of the outstanding Series B Preferred
Stock held by holder (without limiting its other remedies hereunder). The
redemption price for each share of the Series B Preferred Stock shall equal
One Hundred Twenty Five Percent (125%) of the Liquidation Value (the
"Default Redemption Amount"). The Company shall pay to holder, in
immediately available funds, the aggregate redemption price for all
outstanding Series B Preferred Stock being redeemed within five (5)
business days of such redemption notice.
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If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of the Preferred Stock and
after such Delivery Date, the holder of the Preferred Stock being converted
(a "Converting Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder
made after a Conversion Date (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the Shares to be issued upon
such conversion (a "Buy-In"), the Company shall pay to the Converting
Holder, in addition to all other amounts contemplated in other provisions
of this Certificate of Designation and other agreements related hereto, and
not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the excess, if any, of
(x) the Converting Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds
(after brokerage commissions, if any) received by the Converting Holder
from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Holder in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to shares of Common
Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which Company will be required to pay to the Converting Holder will be
$1,000. The remedies set forth in this Paragraph 5.C. shall be cumulative.
D. If the Common Stock issuable upon the conversion of the Series B
Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series B Preferred Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of stock and other securities and
property receivable upon such capital reorganization, reclassification or
other change which such holders would have received had their shares of
Series B Preferred Stock been converted immediately prior to such capital
reorganization, reclassification or other change.
E. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Section) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person (any of which events is herein
referred to as a "Reorganization"), then as a part of such Reorganization,
provision shall be made so that the holders of the Series B Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series B
Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from
such Reorganization, to which such holder would have been entitled if such
holder had converted its shares of Series B Preferred Stock immediately
prior to such Reorganization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section with
respect to the rights of the holders of the Series B Preferred Stock after
the Reorganization, to the end that the provisions of this Section
(including adjustment of the number of shares issuable upon conversion of
the Series B Preferred Stock) shall be applicable after that event in as
nearly equivalent a manner as may be practicable.
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F. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series B Preferred Stock as provided herein, the
Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of such Series B Preferred Stock a certificate executed by the
president and chief financial officer (or in the absence of a person
designated as the chief financial officer, by the treasurer) setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment are based. The Company shall, upon written
request at any time of any holder of Series B Preferred Stock, furnish or
cause to be furnished to such holder a certificate setting forth (A) the
Conversion Price at the time in effect, and (B) the number or shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series B Preferred
Stock.
G. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series B Preferred Stock certificate(s),
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation of the
Series B Preferred Stock certificate(s), if mutilated, the Company shall
execute and deliver new certificates for Series B Preferred Stock of like
tenure and date. However, the Company shall not be obligated to reissue
such lost or stolen certificates for shares of Series B Preferred Stock if
the holder contemporaneously requests the Company to convert such shares of
Series B Preferred Stock into Common Stock.
H. The Company shall not issue any fraction of a share of Common
Stock upon any conversion. The Company shall round such fraction of a
share of Common Stock up to the nearest whole share.
I. In the event some but not all of the shares of Series B Preferred
Stock represented by a certificate or certificates surrendered by a holder
are converted, the Company shall execute and deliver to or on the order of
the holder, at the expense of the Company, a new certificate representing
the number of shares of Series B Preferred Stock which were not converted.
J. Each share of Series B Preferred Stock outstanding on January __,
2003 shall automatically be converted into Common Stock on such date at the
Conversion Price and such date shall be deemed the Conversion Date with
respect to such shares.
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K. The Company shall pay any and all original issue and/or transfer
taxes which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon conversion of the Series B Preferred Stock.
L. Subject to the provisions of this Section, if the Company at any
time shall issue any shares of Common Stock prior to the conversion of the
entire Liquidation Value of the Series B Preferred Stock and dividends on
such Series B Preferred Stock, otherwise than: (i) pursuant to options,
warrants, or other obligations to issue shares outstanding on the date
hereof as described in writing to the holders prior to the Issuance Date
or in SEC filings made by the Company prior to the Issuance Date, or (ii)
all shares reserved for issuance pursuant to the Company's existing stock
option, incentive, or other similar plan, which plan and which grant is
approved by the Board of Directors of the Company ((i) and (ii)
collectively referred to as the "Existing Obligations"), for a
consideration less than the fixed Conversion Price set forth in (i) of the
definition of Conversion Price in Section V.B. above (as adjusted from the
date hereof (the "Fixed Conversion Price"), then, and thereafter
successively upon each such issue, the fixed Conversion Price shall, from
such date forward, equal the resulting quotient of the following formula:
(y) the number of shares of Common Stock outstanding immediately prior to
such issue shall be multiplied by the Fixed Conversion Price in effect at
the time of such issue and the product shall be added to the aggregate
consideration, if any received by the Company upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue.
Except for the Existing Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Company, for purposes of this adjustment, the issuance of
any security of the Company carrying the right to convert such security
into shares of Common Stock or of any warrant, right, or option to purchase
Common Stock shall result in an adjustment to the Fixed Conversion Price
upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
M. In the event a holder shall elect to convert any share or shares
of Series B Preferred Stock as provided herein, the Company cannot refuse
conversion based on any claim that such holder or anyone associated or
affiliated with such holder has been engaged in any violation of law,
unless an injunction from a court, restraining and/or enjoining conversion
of all or part of said shares of Series B Preferred Stock shall have been
issued and the Company posts a surety bond for the benefit of such holder
in the amount of 143% of the Liquidation Value of the Series B Preferred
Stock and dividends sought to be converted, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such holder in the event it obtains a favorable judgment.
VI. No Reissuance of Series B Preferred Stock. No share or shares of
Series B Preferred Stock acquired by the Company by reason of purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Series B Preferred Stock accordingly.
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VII. Reservation of Shares. The Company shall, so long as any share or
shares of the Series B Preferred Stock are outstanding reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series B Preferred Stock, such
number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Series B Preferred Stock then
outstanding; provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock
for which the Series B Preferred Stock are at any time convertible and if
at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to maintain such number of shares of Common Stock,
the Company shall immediately 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 purpose.
VIII. Restrictions and Limitations.
A. Except as expressly provided herein or as required by law, so
long as any shares of Series B Preferred Stock remain outstanding, the
Company shall not, without the approval by vote or written consent by the
holders of at least two thirds of the then outstanding shares of Series B
Preferred Stock, voting as a separate class take any action that would
adversely affect the rights, preferences or privileges of the holders of
Series B Preferred Stock.
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series B Preferred Stock remain
outstanding amend its Articles of Incorporation without the approval by the
holders of all of the then outstanding shares of Series B Preferred Stock
if such amendment would:
1. create any other class or series of capital stock entitled
to seniority as to the payment of dividends in relation to the holders of
Series B Preferred Stock;
2. reduce the amount payable to the holders of Series B
Preferred Stock upon the voluntary or involuntary liquidation, dissolution
or winding up of the Company, or change the relative seniority of the
liquidation preferences of the holders of Series B Preferred Stock to the
rights upon liquidation of the holders of other capital stock of the
Company,
3. cancel or modify the conversion rights of the holders of
Series B Preferred Stock provided for in Section V herein; or
4. cancel or modify the rights of the holders of the Series B
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment.
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A. The Company shall not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Certificate of Designation set
forth herein, but shall at all times in good faith assist in the carrying
out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the holders of
the Series B Preferred Stock against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) shall not
establish a par value of any shares of stock receivable on the conversion
of the Series B Preferred Stock above the amount payable therefor on such
conversion, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series B
Preferred Stock from time to time outstanding, and (c) shall not
consolidate with or merge into any other person or entity, or permit any
such person or entity to consolidate with or merge into the Company (if the
Company is not the surviving person), unless such other person or entity
shall expressly assume in writing and will be bound by all of the terms of
the Series B Preferred Stock set forth herein.
B. If the Company at any time after January 19, 2001 shall issue any
shares of Common Stock prior to the conversion of all shares of the Series
B Preferred and the dividends thereon, including without limitation, shares
of Common Stock issued (i) pursuant to options (including those options
delivered pursuant to any employee, officer or director stock option plan),
warrants, or other contractual obligations, (ii) upon any private placement
or secondary offering (iii) as a result of a stock dividend or split, then
upon each such issuance of Common Stock the Maximum Conversion Price shall
be reduced by: (y)(I) the number of shares of Common Stock outstanding
immediately prior to such issuance, multiplied by the Maximum Conversion
Price in effect at the time of such issuance, plus (II) the aggregate sum,
if any, received by the Company in consideration for such issuance; divided
by (z) the number of shares of Common Stock outstanding immediately after
such issuance.
X. Notices of Record Date. In the event of:
A. any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
B. any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any merger of the
Company, or any transfer of all or substantially all of the assets of the
Company to any other corporation, or any other entity or person, or
C. any voluntary or involuntary dissolution, liquidation or winding
up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series B Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
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dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up is expected to become effective and
(iii) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up.
Such notice shall be mailed at least ten Business Days prior to the date
specified in such notice on which such action is to be taken.
XI. Redemption.
A. For so long as the Company has not received a Notice of
Conversion for such shares or is in default of its obligations hereunder,
the Company may, at its option, repay, in whole or in part, the Series B
Preferred Stock shares at the Redemption Price (as defined below). The
Series B Preferred Stock is redeemable as a series, in whole or in part, by
the Company by providing written notice (the "Redemption Notice") to the
holder of the Series B Preferred Stock via facsimile at its address as the
same shall appear on the books of the Company (the Business Day between the
hours of 6:30 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is
received by the holders of the Series B Preferred Stock via facsimile is
defined to be the "Redemption Notice Date"). Within five (5) Trading Days
after the Redemption Notice Date the Company shall make payment of the
Redemption Price (as defined below) in immediately available funds to the
holder for the shares of Series B Preferred Stock which are the subject of
the Redemption Notice (such date of payment referred to as the "Redemption
Date"). Partial redemptions shall be in an aggregate principal amount of
at least $100,000. If fewer than all of the outstanding shares of Series B
Preferred Stock are to be redeemed, the Company will select those to be
redeemed pro-rata amongst the then holders of the Series B Preferred Stock
based on the number of shares of Series B Preferred Stock then outstanding.
B. If the Company serves a Redemption Notice prior to the 120th day
after the date of this Certificate of Designation, the Redemption Price
shall be equal to 120% of the Liquidation Value of the shares of Series B
Preferred Stock which are subject to such Redemption Notice, plus all
accrued but unpaid dividends on such shares. If the Company serves a
Redemption Notice commencing on the 120th day but prior to the 180th day
after the date hereof, the Redemption Price shall be equal to 125% of the
Liquidation Value of the shares of Series B Preferred Stock which are
subject to such Redemption Notice, plus all accrued but unpaid dividends on
such shares. If the Company serves a Redemption Notice on or after the
180th day after the date hereof, the Redemption Price shall be equal to
130% of the Liquidation Value of the shares of Series B Preferred Stock
which are subject to such Redemption Notice, plus all accrued but unpaid
dividends on such shares. If the Company delivers a Redemption Notice to
redeem the Series B Preferred Stock, pursuant to the foregoing sentence,
the holders of the Series B Preferred Stock will retain their conversion
rights with respect to up to a maximum of one hundred percent (100%) of the
number of shares subject to the redemption. If the holders of the Series B
Preferred Stock elect to so convert the Series B Preferred Stock after the
receipt of the Redemption Notice, the Company must receive notice of such
election pursuant to the procedures set forth in Paragraph XI.C. below.
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C. The Notice of Redemption shall set forth (i) the Redemption Date
and the place fixed for redemption, (ii) the Redemption Price, (iii) a
statement that dividends on the shares of Series B Preferred Stock to be
redeemed will cease to accrue on such Redemption Date, (iv) a statement of
or reference to the conversion right set forth herein, and (v) confirmation
that the Company has the full Redemption Price reserved as set forth in F.
below. If fewer than all the shares of the Series B Preferred Stock owned
by such holders are then to be redeemed, the notice shall specify the
number of shares thereof that are to be redeemed and, if practicable, the
numbers of the certificates representing such shares. Within five (5)
Trading Days of the Redemption Notice Date, the Company shall wire transfer
the appropriate amount of funds to the holders of the Series B Preferred
Stock. If the Company fails to comply with the redemption provisions set
forth herein by the fifth (5th) Trading Day after the Redemption Notice
Date (or in the case of a public offering as contemplated in F below, by
the sixth Trading Day after the Redemption Notice Date) relating to the
Redemption Notice, the redemption will be declared null and void and the
Company shall not be permitted to serve another Redemption Notice. For the
first three (3) Trading Days after the Redemption Notice Date, the holders
of the Series B Preferred Stock shall retain their conversion rights with
respect to all or a portion of the Series B Preferred shares subject to the
redemption. To exercise said conversion right, the holders shall deliver
to Company a conversion notice within said three (3) Trading Day period, in
which event the Redemption Notice shall be deemed null and void as to the
shares of Series B Preferred Stock which are being converted pursuant to
said conversion notice. The holders shall send the shares of Series B
Preferred Stock being redeemed or converted to the Company within three (3)
Business Days after they have received good funds for the Redemption Price
of the redeemed shares.
D. Subject to the receipt by the holders of the Series B Preferred
Stock being redeemed of the wire transfer of the Redemption Price as
described above, each share of Series B Preferred Stock to be redeemed
shall be automatically canceled and converted into a right to receive the
Redemption Price, and all rights of the Series B Preferred Stock, including
the right to conversion shall cease without further action.
E. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of
any stock dividend, stock split, combination of shares or similar event.
F. The Company shall not be entitled to send any Redemption Notice
and begin the redemption procedure hereunder unless it has:
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(a) the full amount of the Redemption Price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution, specifically allotted for such redemption;
(b) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar financial institution
specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to
be made contemporaneously with the closing of a public offering of the
Company's securities for an amount in excess of the Redemption Price, the
Company shall not be required to have the full amount of the Redemption
Price available to it as set forth above.
XII. 4.99% Limitation. Notwithstanding the provisions hereof, in
no event shall each holder be entitled to convert any shares of the Series
B Preferred Stock to the extent that, after such conversion, the sum of (1)
the number of shares of Common Stock beneficially owned by such holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted shares of the
Series B Preferred Stock), and (2) the number of shares of Common Stock
issuable upon the conversion of the shares of Series B Preferred Stock with
respect to which the determination of this proviso is being made, would
result in beneficial ownership by such holder and its affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"). Any issuance by the Company to a
holder in excess of the limit contained in this Paragraph shall be null and
void, ab initio, and upon notice of such invalid issuance, the Company
shall correct its books and cause its transfer agent's books to be
corrected forthwith to reflect that the holder's ownership of Common Stock
is within the limit set forth herein. Holder shall immediately deliver any
certificates for invalidly issued Common Stock to the Company's transfer
agent. The Company further agrees to (i) immediately reissue certificates
for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii)
immediately reissue all or a portion of those shares which were deemed
invalidly issued (at a price set forth in the original conversion notices
applicable to such shares) upon notice from the holder that the reissuance
of such shares would not cause such holder to have a beneficial ownership
interest in excess of 4.99%. The 4.99% limitation shall not apply to the
automatic conversion upon the Maturity Date as contained herein. The
Company hereby indemnifies and holds each holder free and harmless from and
against any and all liabilities, losses, costs and expenses, including,
without limitation, attorneys' fees and costs (collectively "Liabilities")
arising from or relating to claims made by any third parties with respect
to any and all purported violations by each holder under Sections 13(d)
and/or 16 resulting from a conversion(s) of the Series B Preferred Stock,
unless such claim arises from such holder's default of its obligations
hereunder, or representations or warranties contained herein. The
foregoing indemnity shall exclude Liabilities incurred by any holder in
connection with any violation of Sections 13(d) and/or 16 to the extent
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arising from or are related to such holder's beneficial ownership of shares
of Common Stock (i) which are not acquired by conversion of Series B
Preferred Stock or exercise of Warrants (as defined in the Securities
Purchase Agreement pursuant to which the holder has purchased the Series B
Preferred Stock), or (ii) deemed beneficially owned through the ownership
of the unconverted shares of the Series B Preferred Stock or unexercised
Warrants.
XIII "Cap Regulations". The Company shall take all steps
reasonably necessary to be in a position to issue shares of Common Stock on
conversion of the Series B Preferred Stock without violating the "Cap
Regulations" promulgated by NASD to the extent applicable to the Company.
If despite taking such steps, the Company is limited in the number of
shares of Common Stock it may issue by the "Cap Regulations," to the extent
that the Company cannot issue such shares of Common Stock, due upon a
Notice of Conversion, without violating the Cap Regulations, the Company
shall immediately notify Buyer the number of shares of the Series B
Preferred Stock which are not convertible as a result of said Cap
Regulations (the "Unconverted Preferred Stock") and within five (5)
business days of the applicable Notice of Conversion redeem the Unconverted
Preferred Stock for an amount in cash (the "Redemption Amount") equal to
the "Economic Benefit" of such Unconverted Preferred Stock. "Economic
Benefit" for purposes of this Article XIII shall mean the dollar value
derived if such Unconverted Preferred Stock were converted into Common
Stock as set forth in the Notice of Conversion and the Common Stock was
sold on the date of the Notice of Conversion at the Closing Bid Price of
the Common Stock on the date of the Notice of Conversion.
IN WITNESS WHEREOF, I have subscribed my name this 17th day of
January, 2001.
BIOPULSE INTERNATIONAL, INC.
By: /s/ Loran Swensen
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Name: Loran Swensen
Title: President
By: /s/ Jan Morse
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Name: Jan Morse
Title: Secretary
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