Exhibit 10.19
CORRECTED
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A 8.0% CONVERTIBLE PREFERRED STOCK
OF
MEDICOR LTD.
     The undersigned officer of MediCor Ltd. (the “Corporation”), a corporationduly organized and existing under the General Corporation Law of the State ofDelaware, does hereby certify (1) in accordance with Section 103(f) thereof,that the prior filing of the Certificate of Designation relating to theCorporation’s Series A 8.0% Convertible Preferred Stock was inaccurate asstated in the Corrected Certificate of Designation executed on July 28, 2004and that the Corrected Certificate of Designation was also inaccurate in itsstatement of the definition of the term “Qualifying Liquidity Event” and (2) inaccordance with Section 103 of the General Corporation Law of the State ofDelaware that, pursuant to authority conferred on the Board of Directors of theCorporation by the amended Certificate of Incorporation of the Corporation andpursuant to Section 151 of the General Corporation Law of the State ofDelaware, the Board of Directors, by unanimous written consent of all of theDirectors dated as of July 5, 2004, adopted the following resolution creating aseries of 45,000 shares of preferred stock designated as Series A 8.0%Convertible Preferred Stock:
     “RESOLVED that pursuant to Article Fourth of the amendedCertificate of Incorporation of the Corporation, the Board ofDirectors hereby creates and provides for the issuance of a series ofpreferred stock, par value $.001 per share and with a liquidationpreference of $1,000 per share, of the Corporation and hereby fixesthe number, voting powers, designations, preferences, and relative,participating, optional or other special rights and suchqualifications, limitations or restrictions thereof, and othermatters relating to, said series as follows (capitalized terms usedherein but not defined in Sections 1 through 9 below have themeanings ascribed to them in Section 10):
     1. *Designation and Amount*. There is hereby constituted outof the shares of preferred stock of the Corporation a seriesdesignated as “Series A 8.0% Convertible Preferred Stock.” TheSeries A 8.0% Convertible Preferred Stock (the “Series A PreferredStock”) shall have a par value of $0.001 per share, and the numberof shares constituting such series shall be 45,000.
     2. *Rank*. The Series A Preferred Stock shall, with respectto dividend rights, rank senior to all classes of theCorporation’s common stock, par value $0.001 per share (“CommonStock”) and any other series or class of the Corporation’s stockcreated after the date hereof that by its terms ranks junior as todividends to the Series A Preferred Stock, when and if issued (“Junior DividendStock”), and priority as to distributions of
 

 

assets uponliquidation, dissolution or winding up of the Corporation, whethervoluntary or involuntary, over the Common Stock and any otherseries or class of the Corporation’s stock issued after the datehereof that by its terms ranks junior as to liquidation,dissolution and winding up to the Series A Preferred Stock, whenand if issued (“Junior Liquidation Stock”). The Common Stock andany other Capital Stock that is both Junior Dividend Stock andJunior Liquidation Stock, is referred to herein as “JuniorStock”). The Series A Preferred Stock will be junior as todividends to any series or class of the Corporation’s stock issuedafter the date hereof that by its terms ranks senior as todividends to the Series A Preferred Stock, when and if issued(“Senior Dividend Stock”) and junior as to distributions of assetsupon liquidation, dissolution or winding up of the Corporation,whether voluntary or involuntary, to any series or class of theCorporation’s stock issued after the date hereof that by its termsranks senior as to liquidation, dissolution and winding up to theSeries A Preferred Stock, when and if issued (“Senior LiquidationStock” and, collectively with the Senior Dividend Stock, “SeniorStock”). The Series A Preferred Stock will have parity as todividends with any series or class of the Corporation’s stockissued after the date hereof that by its terms ranks on a parityas to dividends with the Series A Preferred Stock, when and ifissued (“Parity Dividend Stock”) and parity as to any series orclass of the Corporation’s stock issued after the date hereof thatby its terms ranks on a parity as to liquidation, dissolution andwinding up with the Series A Preferred Stock, when and if issued(“Parity Liquidation Stock” and, collectively with the ParityDividend Stock, “Parity Stock”). The Series A Preferred Stockshall be subject to the creation of Junior Stock. The Series APreferred Stock shall be subject to the creation of Parity Stockand Senior Stock only if the provisions of Section 7(c)(ii) or(iii) have been complied with. The respective definitions ofSenior Dividend Stock, Senior Liquidation Stock, Junior DividendStock, Junior Liquidation Stock, Parity Dividend Stock and ParityLiquidation Stock shall also include any warrants, rights, calls,options or any other convertible securities, exercisable for orconvertible into any of the Senior Dividend Stock, SeniorLiquidation Stock, Junior Dividend Stock, Junior LiquidationStock, Parity Dividend Stock and Parity Liquidation Stock, as thecase may be.
     3. *Dividends*.
     (a) When and as declared by the Corporation’s Board ofDirectors (the “Board”) and to the extent permitted underapplicable law, the Corporation shall pay preferential dividendsin cash to the holders of Series A Preferred Stock, as provided inthis Section 3; *provided*that, subject to Section 3(f) below, theCorporation shall be permitted to pay any accrued and unpaiddividends on the Series A Preferred Stock by issuing to eachrecord holder of Series A Preferred Stock a number of additionalshares of Series A Preferred Stock that have an aggregateLiquidation Value(as defined in Section 10) equal to the amount of suchaccrued and unpaid dividends (such shares of Series A PreferredStock issued as dividends, “Dividend Shares”). Dividends on eachshare of Series A Preferred Stock (each share of Series APreferred Stock, a “Share”) shall accrue on daily
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basis at therate of 8.0% per annum compounded annually of the LiquidationValue plus accumulated and unpaid dividends thereon. Suchdividends on the Shares shall accrue in each case from andincluding the date of issuance of such Share to and including thefirst to occur of the date on which (i) the liquidation payment ofsuch Share is paid to the holder thereof in connection with aLiquidation Event, (ii) such Share is redeemed by the Corporationpursuant to the provisions hereof, (iii) such Share is convertedinto shares of Conversion Stock hereunder or (iv) such Share isotherwise acquired by the Corporation. The dividend paymentperiod for any dividend payable with respect to a DividendReference Date (as defined in clause (b) below) shall be theperiod beginning on the immediately preceding Dividend ReferenceDate (or on the issue date in the case of the first dividendpayment period) and ending on the day preceding such laterDividend Reference Date. If any date on which a payment of adividend or any other amount is due in respect of Series APreferred Stock is not a Business Day, such payment shall be madeon the next day that is a Business Day. Such dividends shallaccrue whether or not they have been declared and whether or notthere are profits, surplus or other funds of the Corporationlegally available for the payment of dividends. The date on whichthe Corporation initially issues any Share shall be deemed to beits “date of issuance” regardless of the number of times transferof such Share is made on the stock records maintained by or forthe Corporation and regardless of the number of certificates whichmay be issued to evidence such Share. No fractional shares ofSeries A Preferred Stock shall be issued upon payment of adividend in shares of Series A Preferred Stock, and in lieu of anyfractional Shares to which the holder would otherwise be entitled,such amount shall be paid in cash. All dividends paid inadditional shares of Series A Preferred Stock shall be deemedissued on the applicable Dividend Reference Date and willthereupon be fully paid and nonassessable and free of all taxes,liens and charges for the issue thereof.
     (b) June 30 and December 31 of each year shall each be a“Dividend Reference Date” and collectively, the “DividendReference Dates.” Dividends payable with respect to the dividendpayment period ending on each Dividend Reference Date shall bepaid on or before the 10th day following such Dividend ReferenceDate (each such date “Dividend Payment Date” and collectively, the“Dividend Payment Dates”). To the extent not paid on a DividendPayment Date, beginning on the first Dividend Payment Datefollowing the initial issuance of the Series A Preferred Stock,all dividends which have accrued on each Share outstanding duringthe six-month period (or shorter period in the case of the initialDividend Reference Date) ending upon each such Dividend ReferenceDate shall be accumulated and shall remain accumulated dividendswith respect to such Share until paid to the holder thereof.Notwithstanding anything to the contrary contained herein,with respect to the Dividend Reference Date occurring on June 30of each year, the Liquidation Value on which dividends calculableon such date shall be based shall be the Liquidation Value of theShares as of the preceding December 31 without regard to anyadditional Dividend Shares issued in respect of the DividendReference Date occurring on such preceding December 31.
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     (c) Except as otherwise provided herein, if at any time theCorporation pays less than the total amount of dividends thenaccrued with respect to the Series A Preferred Stock, such paymentshall be distributed pro rata among the holders thereof based uponthe aggregate accrued but unpaid dividends on the Shares held byeach such holder.
     (d) So long as any Shares are outstanding (i) no JuniorSecurities shall be redeemed, purchased or otherwise acquired forany consideration (or any moneys be paid to or made available fora sinking fund for the redemption of any shares of any such stock)by the Corporation, directly or indirectly (except by conversioninto or exchange for Junior Securities on in connection withterminations of employment or consulting services), and (ii) nodividends or distributions shall be declared or paid on any JuniorSecurity other than Common Stock, in each case without the priorwritten consent of the holders of a majority of the Shares thenoutstanding.
     (e) Notwithstanding anything to the contrary herein,following the 180th day after the authorization of the CommonStock after the Series A Closing Date for quotation or listing onThe New York Stock Exchange, Inc., the American Stock Exchange,Inc., The Nasdaq National Market or The Nasdaq SmallCap Market,the Corporation may only pay accrued and unpaid dividends on theSeries A Preferred Stock by issuing to each record holder ofSeries A Preferred Stock a number of additional shares of Series APreferred Stock if (i) (x) a shelf registration statement coveringresales of the Conversion Stock is effective and available for useon the applicable Dividend Reference Date and is expected toremain effective and available for use for not less than ninety(90) days following the Dividend Reference Date or (y) theConversion Stock may be sold by the holders thereof pursuant toRule 144(k) under the Securities Act, (ii) the Conversion Stock isauthorized for quotation or listing on The New York StockExchange, Inc., the American Stock Exchange, Inc., The NasdaqNational Market or The Nasdaq SmallCap Market, (iii) no writtenthreat of suspension of such authorization by any such exchange ormarket shall have been made and not withdrawn and (iv) theCorporation shall not have fallen below the minimum listingmaintenance requirements of such exchange or market at any timeduring the forty-five (45) days prior to the applicable DividendReference Date.
     (f) Dividends payable on any Dividend Payment Date shall bepayable to the holders of record of the Series A Preferred Stockas they appear on the stock transfer books of the Corporation atthe close of business on the Dividend Reference Dateimmediately preceding the Dividend Payment Date, or suchother date that the Board of Directors designates that is not morethan 30 nor less than 10 days prior to the Dividend Payment Date.
     (g) If at any time the Corporation shall have failed to payall dividends which have accrued on any outstanding shares ofSenior Dividend Stock at the times such dividends are payable,unless otherwise provided in the terms of the Senior DividendStock, no dividend shall be declared by the Board of Directors orpaid or set apart for payment by the Corporation on shares of theSeries A Preferred Stock unless prior to or concurrently
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with suchdeclaration, payment or setting apart for payment, all accrued andunpaid dividends on all outstanding shares of such Senior DividendStock shall have been or be declared, paid or set apart forpayment. Dividends on the Series A Preferred Stock shall accruewhether or not the Corporation has earnings, whether or not thereare assets legally available for the payment of such dividends andwhether or not such dividends are declared.
     (h) No dividends (other than dividends payable solely inJunior Stock) shall be paid or declared and set apart for paymenton any Junior Dividend Stock, and no payment shall be made onaccount of the purchase, redemption, retirement, or otheracquisition of Junior Dividend Stock or Junior Liquidation Stock(other than acquisitions thereof pursuant to employee or directorincentive or benefit plans or arrangements, or in exchange solelyfor Junior Stock), unless all accrued and unpaid dividends on theSeries A Preferred Stock for all dividend payment periods endingon or before the date of payment of such dividends on JuniorDividend Stock, or such payment for such Junior Dividend Stock orJunior Liquidation Stock, shall have been paid or declared and setapart for payment.
     (i) Except as set forth in the second following sentence, nodividends shall be paid or declared and set apart for payment onthe Series A Preferred Stock unless all accrued and unpaiddividends for all dividend payment periods through such DividendPayment Date on any Parity Dividend Stock have been paid ordeclared and set apart for payment or are contemporaneously paidor declared and set apart for payment. Except as set forth in thefollowing sentence, no dividends shall be paid or declared and setapart for payment on any Parity Dividend Stock unless all accruedand unpaid dividends for all dividend payment periods through suchDividend Payment Date on the Series A Preferred Stock have beenpaid or declared and set apart for payment or arecontemporaneously paid or declared and set apart for payment.Whenever all accrued and unpaid dividends have not been paid uponthe Series A Preferred Stock or any other Parity Dividend Stockfor all dividend payment periods through such Dividend PaymentDate, all dividends paid or declared and set apart for payment onthe Series A Preferred Stock or any other Parity Dividend Stockshall be paid or declared pro rata so that the amount of dividendsdeclared and paid per share on the Series A Preferred Stock andsuch Parity Dividend Stock will bear to each other the same ratiothat theaccrued and unpaid dividends to the date of payment, on theSeries A Preferred Stock and such Parity Dividend Stock, bear eachother.
     (j) No payment shall be made on account of the purchase,redemption, retirement or other acquisition of Parity Stock (otherthan acquisitions thereof pursuant to employee or director orincentive or benefit plans or arrangements, or in exchange solelyfor Junior Stock) unless all accrued and unpaid dividends on theSeries A Preferred Stock for all dividend payment periods endingon or before such payment for such Parity Stock shall have beenpaid or declared and set apart for payment.
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     (k) Originally Issued Shares shall only be transferabletogether with the Dividend Shares issued with respect to suchOriginally Issued Shares.
     (l) The Corporation shall take all action necessary to ensurethat enough shares of Series A Preferred Stock are available forissuance as required pursuant to this Section 3.
     (m) Certificates representing Dividend Shares shall contain anotation indicating the denomination of such Shares as DividendShares. Notwithstanding anything to the contrary containedherein, Dividend Shares will be subject to the limitations ofclause (k) above and to the special provisions of Section 4(g) inthe event of a redemption of the Series A Preferred Stock at theoption of the Corporation pursuant to Section 5(b).
     4. *Liquidation Preference*.
     (a) In the case of the voluntary or involuntary liquidation,dissolution or winding up of the Corporation (a “LiquidationEvent”), holders of outstanding shares of Series A Preferred Stockshall be entitled to receive a liquidation preference from the netassets of the Corporation available for distribution tostockholders in an amount in cash which for each such Share shallequal $1,000 per whole Share, subject to any stock splits, subjectto any adjustment pursuant to clause (f) below and subject to thespecial provisions of clause (g) below (the “LiquidationPreference”), plus a similar amount for any accrued and unpaiddividends to date of such Liquidation Event (it being understoodthat such amount shall be calculated by including dividendsaccruing to the actual date of such Liquidation Event, rather thanthe most recent Dividend Reference Date), as set forth herein,before any payment or distribution is made to the holders ofCommon Stock or any other Junior Liquidation Stock, and suchholders shall not be entitled to any further payment, but theholders of the shares of the Series A Preferred Stock will not beentitled to receive the liquidation preference of such sharesuntil the liquidation preference of any Senior Liquidation Stockhas been paid in full.
     (b) The holders of Series A Preferred Stock and any ParityLiquidation Stock shall share ratably in any liquidation,distribution or winding up of the Corporation (afterpayment of the liquidation preference of the SeniorLiquidation Stock) in which the net assets or the proceeds thereofare not sufficient to pay in full the aggregate of the amountspayable thereon, in the same ratio that the respective amountswhich would be payable on such distribution, if the amounts towhich the holders of all the outstanding shares of Series APreferred Stock and Parity Liquidation Stock are entitled werepaid in full, bear to each other.
     (c) Not less than 30 days prior to the payment date statedtherein, the Corporation shall mail written notice of anyLiquidation Event to each record holder of Series A PreferredStock, setting forth in reasonable detail the amount of proceedspayable under clauses (a) and (b) above with respect to eachShare.
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     (d) Any (i) consolidation, merger, combination,reorganization or other transaction in which the holders of theCorporation’s Common Stock immediately prior to such transactionhold shares of voting common or ordinary capital stockrepresenting less than 50% of the shares of the voting common orordinary capital stock of the surviving entity immediatelyfollowing consummation of such transaction or (ii) sale or otherdisposition of all or substantially all of the assets of theCorporation will be considered a Liquidation Event for purposes ofthis Section 4.
     (e) After payment shall have been made in full to the holdersof the Series A Preferred Stock, as provided in this Section 4,any other series or class or classes of Junior Securities shall,subject to the respective terms and provisions (if any) applyingthereto, be entitled to receive any and all assets remaining to bepaid or distributed to holders of capital stock of theCorporation, and the holders of the Series A Preferred Stock shallnot be entitled to share therein.
     (f) If (i) the Corporation has not, during any period of fourconsecutive quarters ending prior to the respective Target Datesset forth below, generated EBITDA at least equal to the respectiveEBITDA Target Amounts set forth below and (b) there has notoccurred on or before June 30, 2008 a Qualifying Liquidity Event(as defined below), then, on July 1, 2008, the cumulativeLiquidation Preference of all Originally Issued Shares (but notDividend Shares) shall be adjusted by adding thereto the amountcalculated below (such amount, the “Additional LiquidationPreference”).           **Target Date** **EBITDA Target Amount**  June 30, 2006 $11,000,000   June 30, 2007 $14,000,000   June 30, 2008 $18,000,000 
     If actual EBITDA for the fiscal year ended June 30,2008 (the “Actual EBITDA”) is less than $18,000,000,then the amount of the Additional LiquidationPreference shall be calculated from the followingequation:
($18,000,000 - *E*) • 18 • (0.15 • *L*/$20,000,000) = *x*
where: *x*equals the Additional Liquidation Preference amount; *E*equals the Actual EBITDA; 18 represents an EBITDA multiple of 18;and *L*equals the aggregate initial Liquidation Preference of allShares initially issued by the Corporation (but not including theLiquidation Preference of Dividend Shares issued in payment ofdividends on the Series A Preferred Stock); *provided*that theAdditional Liquidation Preference amount will be subject to theCap (as defined below).
     For example: If Actual EBITDA (*E*) equals $17,000,000 and$20,000,000 in Liquidation Preference of Series A Preferred Stockis initially issued by the Corporation
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and is outstanding, thenthe Additional Liquidation Preference of all outstandingOriginally Issued Shares (*x*) will equal $2,700,000 or ($18,000,000 - $17,000,000) • 18 • 0.15, and the resulting LiquidationPreference will equal $22,700,000 ($20,000,000 plus $2,700,000).Such Additional Liquidation Preference shall be allocated ratablyacross all outstanding Originally Issued Shares.
     Notwithstanding actual EBITDA, and assuming that $20,000,000in Liquidation Preference of Series A Preferred Stock is initiallyissued by the Corporation, the maximum Additional LiquidationPreference amount will be $16,667,000 (the “Cap”). Suchpercentage shall be reduced ratably based upon the aggregateLiquidation Preference of the Series A Preferred Stock that isactually initially issued by the Corporation
     A “Qualifying Liquidity Event” shall be a firm commitmentunderwritten public offering of Common Stock by the Corporationwith gross sale proceeds of at least $25 million and in which theimplied equity value of the Corporation is at least equal to thesum of (a) $83,000,000 plus the aggregate initial LiquidationValue of the Originally Issued Shares (without regard to anyAdditional Liquidation Preference) plus (b) 25% per annum fromJune 30, 2004, based on the pricing mid-point contained in thepreliminary prospectus for such offering.
     (g) Notwithstanding anything to the contrary containedherein, the Liquidation Preference of the Dividend Shares shall beequal to the par value of such Dividend Shares in the event of aredemption of the Series A Preferred Stock at the option of theCorporation pursuant to Section 5(b).
     5. *Redemption*.
     (a) *Mandatory Redemption*. All outstanding Shares of theSeries A Preferred Stock shall be mandatorily redeemed by theCorporation on June 30, 2011 at a redemption price of $1,000 perShare plus $1,000 per whole Share for all accrued and unpaidpaid-in-kind dividends and any other accrued and unpaid dividendswhether or not declared (the “Mandatory Redemption Price”), whichamount will be payable by the Corporation in cash.
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     (b) *Optional Redemption*. At any time after June 30, 2006 anduntil June 30, 2010, the Corporation may redeem the Series APreferred Stock in whole or in part on at least 15 days priorwritten notice on the terms set forth in this clause (b). If theCorporation so elects to redeem Shares it may redeem OriginallyIssued Shares at a price per Share (the “Optional Original ShareRedemption Price”) equal to the following premiums of theLiquidation Preference of the Shares:           July 1, 2006 to June 30, 2007  169%  July 1, 2007 to June 30, 2008  220%  July 1, 2008 to June 30, 2009  286%  July 1, 2009 to June 30, 2010  371%
     Concurrent with the redemption of any Originally IssuedShares, the Corporation shall concurrently redeem the DividendShares issued in respect of such Originally Issued Shares at aprice per Share (the “Optional Dividend Share Redemption Price,”and together with the Mandatory Redemption Price and the OptionalOriginal Share Redemption Price, the “Redemption Price”) equal tothe par value of such Dividend Shares.
     (c) The Corporation shall be obligated on the Redemption Date(as defined in clause (d) below) to pay to each holder of Series APreferred Stock with respect to each Share held by such holder anamount in cash in immediately available funds equal to theapplicable Redemption Price of such Share plus all accrued andunpaid dividends thereon.
     (d) The Corporation will mail written notice of eachredemption of Series A Preferred Stock pursuant to clause (a) or(b) of this Section 5 to each record holder no less than thirty(30) days and not more than sixty (60) days prior to the date onwhichsuch redemption is to be made (the “Redemption Date”). Thedate on which such notice is mailed is the “Redemption NoticeDate.” Each such notice of redemption shall specify the datefixed for redemption, the place or places of payment, that paymentwill be made upon presentation and surrender of such Shares andthe current Conversion Price. Each Share shall be convertibleinto Conversion Stock at the option of the holder thereof inaccordance with the provisions of Section 6 at any time prior tothe Redemption Date.
     (e) No Share shall be entitled to any rights, preferences orprivileges hereunder after the date on which the applicableRedemption Price of such Share is paid in full to the holder ofsuch Share. On such date, all rights of the holder of such Shareshall cease, and such Share shall no longer be deemed to be issuedand outstanding.
     (f) Any Shares which are redeemed or otherwise acquired bythe Corporation shall be canceled and retired and shall not bereissued, sold or transferred.
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     (g) Notwithstanding anything herein to the contrary,following the authorization of the Common Stock after the Series AClosing Date for quotation or listing on The New York StockExchange, Inc., the American Stock Exchange, Inc. or The NasdaqNational Market or The Nasdaq SmallCap Market, no redemptions maybe made under this Section 5(b) unless (i) (x) a shelfregistration statement covering resales of the Conversion Stock iseffective and available for use and is at all times during theperiod beginning on the Redemption Notice Date and ending on theRedemption Date and is expected to remain effective and availablefor use for not less than ninety (90) days following theRedemption Date or (y) the Conversion Stock may be sold by theholders thereof pursuant to Rule 144(k) under the Securities Act,(ii) the Conversion Stock is authorized for quotation or listingon The New York Stock Exchange, Inc., the American Stock Exchange,Inc. or The Nasdaq National Market or The Nasdaq SmallCap Market,(iii) no written threat of suspension of such authorization by anysuch exchange or market shall have been made and not withdrawn and(iv) the Corporation shall not have fallen below the minimumlisting maintenance requirements of such exchange or market at anytime during the ninety (90) days prior to the Redemption Date.
     6. *Conversion*.
     (a) (i) Each holder of Shares shall have the right, at anytime at any time (except that, with respect to any Shares ofPreferred Stock which shall be called for redemption, such rightshall terminate, except as provided in the second sentence ofSection 6(a)(v) hereof, at the close of business on the date fixedfor redemption of such shares of Preferred Stock unless theCorporation shall default in payment due upon redemption thereof),at such holder’s option, to convert its outstanding Shares, inwhole or in part, into fully paid and non-assessable shares ofConversion Stock. Thenumber of shares of Conversion Stock deliverable uponconversion of one Share shall be equal to the Liquidation Value ofsuch Share on the date of conversion, divided by the ConversionPrice on the date of conversion. In order to exercise theconversion privilege set forth in this Section 6(a), the holder ofthe Shares to be converted shall surrender the certificaterepresenting such Shares at the principal office of theCorporation, with a written notice of election to convertcompleted and signed, specifying the number of Shares to beconverted. Each conversion pursuant to this Section 6(a) shall bedeemed to have been effected immediately prior to the close ofbusiness on the date on which the certificates for Shares shallhave been surrendered and such notice received by the Corporationas aforesaid, and the person in whose name or names anycertificate or certificates for shares of Conversion Stock shallbe issuable upon such conversion shall be deemed to have becomethe holder of record of the shares of Conversion Stock representedthereby at such time on such date. Effective upon suchconversion, the Shares so converted shall no longer be deemed tobe outstanding, and all rights of a holder with respect to suchShares surrendered for conversion shall immediately terminateexcept the right to receive the Conversion Stock and other amountspayable pursuant to this Section 6.
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     (ii) Notwithstanding any other provision hereof, if aconversion of Shares is to be made in connection with anytransaction, the conversion of any Shares may, at the election ofthe holder thereof, be conditioned upon the consummation of suchtransaction in which case such conversion shall not be deemed tobe effective until immediately prior to the time such transactionhas been consummated.
     (iii) As soon as practicable after a conversion has beeneffected, the Corporation shall deliver to the converting holder(A) the number of shares of Conversion Stock issuable by reason ofsuch conversion in such name or names and such denomination ordenominations as the converting holder has specified, (B) paymentin an amount equal to the amount, if any, payable under Section6(a)(vii) below with respect to such conversion; (C) payment incash of an amount equal to all accrued dividends with respect toeach Share converted which have not been paid thereto and (D) acertificate representing any Shares which were represented by thecertificate or certificates delivered to the Corporation inconnection with such conversion but which were not converted. TheCorporation shall effect delivery of Conversion Stock, as long asthe Corporation’s designated transfer agent or co-transfer agentin the United States for the Common Stock (the “Transfer Agent”)participates in the Depository Trust Corporation (“DTC”) FastAutomated Securities Transfer program (“FAST”), by crediting theaccount of the holder or its nominee at DTC (as specified in theapplicable notice of election to convert) with the number ofConversion Shares required to be delivered, no later than theclose of business on the delivery date. In the event that theTransfer Agent is not a participant in FAST or if the holder sospecifies in its notice of election to convert or otherwise inwriting, the Corporation shall effectdelivery of Conversion Shares by delivering to the holder orits nominee physical certificates representing such ConversionShares, no later than the close of business on the delivery date.
     (iv) The issuance of certificates for shares of ConversionStock upon conversion of Series A Preferred Stock shall be madewithout charge to the holders of such Series A Preferred Stock forany issuance tax in respect thereof or other cost incurred by theCorporation in connection with such conversion and the relatedissuance of shares of Conversion Stock. Upon conversion of eachShare, the Corporation shall take all such actions as arenecessary in order to ensure that the Conversion Stock issuablewith respect to such conversion shall be validly issued, fullypaid and nonassessable, and free and clear of all taxes, liens,charges and encumbrances with respect to the issuance thereof.
     (v) The Corporation shall not close its books against thetransfer of Series A Preferred Stock or of Conversion Stock issuedor issuable upon conversion of Series A Preferred Stock in anymanner which interferes with the timely conversion of Series APreferred Stock unless such transfer is prohibited by applicablelaw or governmental regulation. Notwithstanding the foregoing, ifon any date Share certificates are surrendered for conversionunder this Section 6(a) the stock transfer books of theCorporation shall be closed, then the person in whose name thecertificates are to be
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issued shall be constituted as the recordholder thereof for all purposes on the next succeeding day onwhich such stock transfer books are open, but such conversionshall be at the conversion price in effect on the date upon whichsuch Series A Preferred Stock certificate shall have beensurrendered. The Corporation shall use its commerciallyreasonable efforts to assist and cooperate with any holder ofShares required to make any governmental filings or obtain anygovernmental approval prior to or in connection with anyconversion of Shares hereunder (including making any filingsrequired to be made by the Corporation).
     (vi) The Corporation shall at all times following theissuance of the Series A Preferred Stock reserve and keepavailable out of its authorized but unissued shares of CommonStock, solely for the purpose of issuance upon the conversion ofthe Series A Preferred Stock, such number of shares of CommonStock issuable upon the conversion of all outstanding Series APreferred Stock. The Corporation shall take all such actions asmay be necessary to ensure that all such shares of Common Stockmay be so issued without violation of any applicable law orgovernmental regulation or any requirements of any domesticsecurities exchange upon which shares of Common Stock may belisted (except for official notice of issuance which shall bedelivered by the Corporation upon each such issuance). TheCorporation shall not take any action which would cause the numberof authorized but unissued shares of Common Stock to be less thanthe number of such shares required to be reserved hereunder forissuance upon conversion of the Series A Preferred Stock.
     (vii) In connection with the conversion of any Shares, nofractional shares of Conversion Stock shall be issued, but in lieuthereof the Corporation shall pay to the holder thereof the valueof such share of Conversion Stock in cash as determined byreference to the Average Market Price on the date of conversion.
     (b) Conversion Price.
     (i) The initial “Conversion Price” is $3.85. In order toprevent dilution of the conversion rights granted under thisSection 6, the Conversion Price shall be subject to adjustmentfrom time to time pursuant to this Section 6(b).
     (ii) Subdivision or Combination of Common Stock. If theCorporation at any time subdivides (by any stock split, stockdividend, recapitalization or otherwise) one or more classes ofits outstanding shares of Common Stock into a greater number ofshares, the Conversion Price in effect immediately prior to suchsubdivision shall be proportionately reduced, and if theCorporation at any time combines (by reverse stock split orotherwise) one or more classes of its outstanding shares of CommonStock into a smaller number of shares, the Conversion Price ineffect immediately prior to such combination shall beproportionately increased.
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     (iii) Reorganization, Reclassification, Consolidation, Mergeror Sale. Any recapitalization, reorganization, reclassification,consolidation, merger, sale of all or substantially all of theCorporation’s assets or other transaction, in each case which iseffected in such a manner that the holders of Common Stock areentitled to receive (either directly or upon subsequentliquidation) stock, securities or assets with respect to or inexchange for Common Stock, is referred to herein as an “OrganicChange.” Prior to the consummation of any Organic Change, theCorporation shall make appropriate provisions (in form andsubstance reasonably satisfactory to the holders of a majority ofthe Series A Preferred Stock then outstanding) to insure that eachof the holders of Series A Preferred Stock shall thereafter havethe right to acquire and receive, in lieu of the shares of CommonStock immediately theretofore acquirable and receivable upon theconversion of such holder’s Series A Preferred Stock, such sharesof stock, securities or assets as such holder would have receivedin connection with such Organic Change if such holder hadconverted its Series A Preferred Stock into Common Stockimmediately prior to such Organic Change. The Corporation shallnot effect any such consolidation, merger or sale, unless prior tothe consummation thereof, the successor entity (if other than theCorporation) resulting from consolidation or merger or the entitypurchasing such assets assumes by written instrument (in form andsubstance reasonably satisfactory to the holders of a majority ofthe Series A Preferred Stock then outstanding), the obligation todeliver to each such holder such shares of stock, securities orassets as, in accordance with the foregoing provisions, suchholder may be entitled to acquire.
     (iv) Certain Events. If any event occurs of the typecontemplated by the provisions of this Section 6 but not expresslyprovided for by such provisions, then the Board shall make anappropriate adjustment in the Conversion Price so as to protectthe rights of the holders of Series A Preferred Stock; *provided*that no such adjustment shall increase the Conversion Price asotherwise determined pursuant to this Section 6 or decrease thenumber of shares of Common Stock issuable upon conversion of eachShare.
     (v) Optional Reductions of Conversion Price. To the extentpermitted by applicable law, the Corporation from time to time mayreduce the Conversion Price by any amount for any period of timeif the period is at least 20 days, the reduction is irrevocableduring the period and the Board shall have made a determinationthat such reduction would be in the best interests of theCorporation, which determination shall be conclusive and describedin a resolution of the Board. Whenever the Conversion Price isreduced pursuant to the preceding sentence, the Corporation shallmail to each record holder of Series A Preferred Stock a writtennotice of the reduction at least 15 days prior to the date thereduced Conversion Price takes effect, and such notice shall statethe reduced Conversion Price and the period during which it willbe in effect.
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     (c) Notices.
     (i) Immediately upon any adjustment of the Conversion Price,the Corporation shall give written notice thereof to all holdersof Series A Preferred Stock, setting forth in reasonable detailand certifying the calculation of such adjustment.
     (ii) The Corporation shall give written notice to all holdersof Series A Preferred Stock at least 20 days prior to the date onwhich the Corporation closes its books or sets a record date (a)with respect to any dividend or distribution upon Common Stock,(b) with respect to any pro rata subscription offer to holders ofCommon Stock or (c) for determining rights to vote with respect toany Organic Change or Liquidation Event.
     (iii) The Corporation shall also give written notice to theholders of Series A Preferred Stock at least 20 days prior to thedate on which any Organic Change shall take place.
     7. *Voting Rights*.
     (a) Except as otherwise provided in Section 7(b) or asrequired by law, each holder of Series A Preferred Stock shall beentitled to vote on all matters subject to a stockholders vote(other than the election of directors) and shall be entitled tothat number of votes equal to the number of shares of Common Stockinto which such holder’s Shares could be converted, pursuant tothe provisions of Section 6 hereof, on the record date for thedetermination of stockholders entitled to vote on such matter or,if no such record date is established, on the date such voteis taken or any written consent of stockholders is solicited.Except as otherwise expressly provided herein or as required bylaw, the holders of Shares and the holders of Common Stock shallvote together as a single class on all matters.
     (b) For so long as at least 7,500 Shares remain outstanding(as such share number is proportionately adjusted to reflect anystock dividend, stock split, reverse stock split or othercombination or subdivision of the Series A Preferred Stock afterthe Series A Closing Date), the holders of the Series A PreferredStock, voting separately as a single class to the exclusion of allother classes of the Corporation’s capital stock and with eachShare entitled to one vote, shall be entitled to elect twodirectors to serve on the Board until such directors’ successorsare duly elected by the holders of the Series A Preferred Stock orsuch directors are removed from office by the holders of theSeries A Preferred Stock. If the number of directors is increasedto a number greater than seven directors, the number of directorsthe holders of the Series A Preferred Stock are entitled to electshall be increased such that the holders of the Series A PreferredStock shall be entitled to elect one additional director for everyfour directors that are added to the Board. For example, if thenumber of directors on the Board is increased to 11, the holdersof the Series A Preferred shall be entitled to elect a total ofthree directors. If the holders of the Series A Preferred Stockfor any reason fail to elect anyone to fill any suchdirectorships,
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such positions shall remain vacant until such timeas the holders of the Series A Preferred Stock elect a director tofill such position and shall not be filled by resolution or voteof the Board or the Corporation’s other stockholders.Notwithstanding anything herein to the contrary, during the periodbeginning on the Series A Closing Date and ending on the earlierof (i) the 180th day after the Series A Closing Date and (ii) thedate the number of directors serving on the Board is equal to sixor more, the holders of the Series A Preferred Stock shall only beentitled to elect one director to serve on the Board.
     (c) In addition, so long as (1) any shares of Series APreferred Stock remain outstanding with respect to the followingclauses (i), (iv), (v), (vi) or (vii) and (2) at least 7,500shares of the Series A Preferred Stock remain outstanding withrespect to the following clauses (ii) and (iii) (as such sharenumber is proportionately adjusted to reflect any stock dividend,stock split, reverse stock split or other combination orsubdivision of the Series A Preferred Stock after the Series AClosing Date), the affirmative vote of the holders of a majorityof the outstanding Shares shall be necessary to:
     (i) alter or change the preferences, rights or powers of theSeries A Preferred Stock, whether by amendment of the Certificateof Designations of the Series A Preferred Stock or as a result ofa recapitalization, reorganization, reclassification,consolidation, merger or otherwise;
     (ii) create, authorize or issue any capital stock that ranksprior (whether with respect to dividend rights or uponliquidation, dissolution, winding up or other similar event) tothe Series A Preferred Stock;
     (iii) create, authorize or issue any capital stock that ranks*pari passu*(whether with respect to dividend rights or uponliquidation, dissolution, winding up or other similar event) tothe Series A Preferred Stock, *provided*that the affirmative voteof the holders of a majority of the outstanding Shares shall notbe necessary to create, authorize or issue up to $20,000,000 ofcapital stock that ranks *pari passu*(whether with respect todividend rights or upon liquidation, dissolution, winding up orother similar event) to the Series A Preferred Stock;
     (iv) increase the authorized number of Shares;
     (v) effect a Change of Control, *provided*that the affirmativevote of the holders of a majority of the outstanding Shares shallnot be necessary to effect a Change of Control if as a result ofsuch Change in Control each Share will be entitled to receive notless than 100% of the Liquidation Value of such Share plus allaccrued and unpaid dividends thereon in accordance with Section 4above;
     (vi) effect a voluntary liquidation, dissolution, winding upor other similar event of the Corporation, *provided*that theaffirmative vote of the holders of a majority of the outstandingShares shall not be necessary to effect a voluntary liquidation,dissolution, winding up or other similar event of the Corporationif each Share, as a result of such
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voluntary liquidation,dissolution, winding up or other similar event, will be entitledto receive not less than 100% of the Liquidation Value of suchShare plus all accrued and unpaid dividends thereon in accordancewith Section 4 above; or
     (vii) become subject to (including by way of amendment to ormodification of) any agreement or instrument which by its termswould (under any circumstances) restrict the Corporation’s rightto comply with these terms of the Series A Preferred Stock.
     8. *Notices*. All notices required to be sent by theCorporation hereunder shall be sent by certified mail, returnreceipt requested. At the same time that the Corporation deliversany written notice to the record holders of the Series A PreferredStock, the Corporation shall send a copy of such notice by emailto those holders that have provided an email address to theCorporation.
     9. *Compliance*. The Corporation will not, through anyreorganization, transfer of assets, consolidation, merger,dissolution, issue or sale of securities or any other voluntaryaction, avoid the observance or performance of any of the terms tobe observed or performed hereunder by the Corporation.
     10. *Definitions*. The following terms, as used herein, shallhave the following meanings:
     “Average Market Price” of any security for any time periodmeans the volume-weighted average of the sale prices for suchsecurity during such time period on all securities exchanges onwhich such security may at the time be listed, or, if suchsecurity is not so listed during such time period, thevolume-weighted average of the sale prices for such securityduring such time period quoted in the Nasdaq system, or, if suchsecurity is not quoted in the Nasdaq system during such timeperiod, the volume-weighted average of the sale prices for suchsecurity during such time period on the domestic over-the-countermarket as reported by the Pink Sheets LLC, or any similarsuccessor organization. If such security is not listed on anysecurities exchange or quoted in the Nasdaq system or theover-the-counter market during the relevant time period, the“Average Market Price” shall be the fair value thereof determinedjointly by the Corporation and the holders of a majority of theSeries A Preferred Stock. If such parties are unable to reachagreement within a reasonable period of time, such fair valueshall be determined by an independent appraiser experienced invaluing securities selected by the Board and reasonably acceptableto the holders of a majority of the Series A Preferred Stock. Thedetermination of such appraiser shall be final and binding uponthe parties, and the Corporation shall pay the fees and expensesof such appraiser.
     “Business Day” means any day excluding Saturday, Sunday, andany day which is a legal holiday under the laws of the State ofNew York or is a day on which banking institutions located in suchstate are authorized or required by law or other governmentalaction to close.
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     “Change of Control” means: (i) the sale, lease, transfer,conveyance or other disposition, in one or a series of relatedtransactions, of all or substantially all the assets of theCorporation and its subsidiaries taken as a whole to any “person”(as such term is used in Section 13(d)(3) of the Exchange Act), or(ii) the consummation of any transaction (including any merger orconsolidation) the result of which is that any “person” (asdefined above) other than Donald K. McGhan and his affiliates orassociates becomes the beneficial owner (as determined inaccordance with Rules 13d-3 and 13d-5 under the Exchange Actexcept that a person will be deemed to have beneficial ownershipof all shares that such person has the right to acquire, whethersuch right is exercisable immediately or only after the passage oftime), directly or indirectly, of more than 50% of the VotingSecurities of the Corporation.
     “Conversion Stock” means shares of the Common Stock; *provided*that if there is a change such that the securities issuable uponconversion of the Series A Preferred Stock are issued by an entityother than the Corporation or there is a change in the type orclass of securities so issuable, then the term “Conversion Stock”shall mean oneshare of the security issuable upon conversion of the SeriesA Preferred Stock if such security is issuable in shares, or shallmean the smallest unit in which such security is issuable if suchsecurity is not issuable in shares.
     “EBITDA” means earnings before interest, taxes, depreciation,and amortization, determined in accordance with GAAP.
     “Exchange Act” means the Securities Exchange Act of 1934, asamended.
     “GAAP” means generally accepted accounting principles,applied on a consistent basis, as set forth in (i) opinions of theAccounting Principles Board of the American Institute of CertifiedPublic Accountants, (ii) statements of the Financial AccountingStandards Board and (iii) interpretations of the Securities andExchange Commission and the Staff of the Securities and ExchangeCommission and each of their respective successors and which areapplicable in the circumstances as of the date in question.Accounting principles are applied on a “consistent basis” when theaccounting principles applied in a current period are comparablein all material respects to those accounting principles applied ina preceding period.
     “Liquidation Value” on any date means, with respect to onewhole Share, $1,000 (as such dollar amount is proportionatelyadjusted to reflect any stock dividend, stock split, reverse stocksplit or other combination or subdivision of the Series APreferred Stock after the Series A Closing Date) and, with respectto Originally Issued Shares only, following any addition ofAdditional Liquidation Preference pursuant to Section 4(f), thesum of the Liquidation Preference and the Additional LiquidationPreference of such Share (as such dollar amount is proportionatelyadjusted to reflect any stock dividend, stock split, reverse stocksplit or other combination or subdivision of the Series APreferred Stock after the Series A Closing Date).
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     “Originally Issued Shares” means Shares that are not DividendShares.
     “Person” or “person” means any corporation, individual,limited liability company, joint stock company, joint venture,partnership, unincorporated association, governmental regulatoryentity, country, state or political subdivision thereof, trust,municipality or other entity.
     “Securities Act” means the Securities Act of 1933, asamended.
     “Series A Closing Date” means the date of the initialissuance by the Corporation of any Shares of Series A PreferredStock.
     “Voting Securities” means securities of the Corporationordinarily having the power to vote for the election of directorsof the Corporation; *provided*that when the term “VotingSecurities” is used with respect to any other Person it means thecapital stock or other equity interests of any class or kindordinarily having the powerto vote for the election of directors or other members of thegoverning body of such Person.”
     IN WITNESS WHEREOF, MediCor Ltd. has caused this Corrected Certificate ofDesignation to be duly executed on August 6, 2004.       MEDICOR LTD.      By: /s/ Donald K. McGhan      Name: Donald K. McGhan   Title: Chairman
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