**Exhibit 3.1.3**

 

**REFOCUSGROUP, INC.**

 

**Certificateof Designation, Rights and Preferences of**

**SeriesA-1 Convertible Preferred Stock,**

**SeriesA-2 Convertible Preferred Stock and**

**SeriesA-3 Convertible Preferred Stock**

**of**

**REFOCUSGROUP, INC.**

 

RefocusGroup, Inc. (the “***Corporation***”), a corporationorganized and existing under the General Corporation Law of the State ofDelaware (the “***DGCL***”), hereby certifiesthat, pursuant to the authority conferred upon the board of directors of theCorporation (the “***Board of******Directors***”) by its Certificate of Incorporation,as amended (the “***Certificate of Incorporation***”),which authorizes the issuance, by the Corporation, in one or more series of upto 10,000,000 shares of preferred stock, par value $0.0001 per share (the “***Preferred Stock***”), and in accordancewith the provisions of Section 151 of the DGCL, the Board of Directors at ameeting duly called and held on February 25, 2005 duly adopted the followingresolutions:

 

RESOLVED,that, pursuant to the authority vested in the Board of Directors by theprovisions of Article Four of the Certificate of Incorporation and inaccordance with the provisions of Section 151 of the DGCL, the Board ofDirectors hereby creates and provides for the issue of (i) a series ofPreferred Stock consisting of 280,000****shares hereindesignated as the Series A-1 Convertible Preferred Stock (the “***Series A-1 Preferred Stock***”), (ii) aseries of Preferred Stock consisting of 280,000 shares herein designated as theSeries A-2 Convertible Preferred Stock (the “***SeriesA-2 Preferred Stock***”), and (iii) a series of Preferred Stockconsisting of 200,000 shares herein designated as the Series A-3 ConvertiblePreferred Stock (the “***Series A-3 Preferred Stock***”and together with the Series A-1 Preferred Stock and the Series A-2 PreferredStock, collectively, the “***Series A Preferred Stock***”),each having the powers, designations, preferences and relative, participating,optional or other special rights, and the qualifications, limitations orrestrictions thereof, of the shares of such series (in addition to the powers,designations preferences and relative, participating, optional or other specialrights, and the qualifications, limitations or restrictions thereof, set forthin the Certificate of Incorporation that are applicable to the Preferred Stockof all series) are hereby fixed as follows (certain terms used herein beingdefined in Section D.3. hereof):

 

**A.****           ****PROVISIONS RELATING TO THE SERIES A-1 PREFERREDSTOCK**

 

1.             Dividends.  The holders of the Series A-1Preferred Stock shall not be entitled to any preferential dividends. Theholders of the Series A-1 Preferred Stock shall be entitled to participate onan as-converted basis in cash any dividends declared and paid on the Common Stock.

 

2.             Liquidation.

 

(a)           Uponany Liquidation Event, the holders of shares of Series A-1 Preferred Stock thenoutstanding shall be entitled to receive, out of the funds and assets of theCorporation 

 

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legally available therefor (the“***Available Assets and Funds***”), beforeany payment shall be made to the holders of shares of Junior Stock, an amountper share equal to the greater of (i) two times the Applicable Stated Value fora share of Series A-1 Preferred Stock, or (ii) the amount such holder wouldhave received had such holder converted such share of Series A-1 PreferredStock into shares of Common Stock immediately prior to such Liquidation Event.  If, upon any such Liquidation Event, theAvailable Assets and Funds shall be insufficient to pay the holders of sharesof Series A-1 Preferred Stock the full amount to which they shall be entitled,the holders of shares of Series A-1 Preferred Stock and any Parity Stock shallshare ratably in any distribution of the remaining Available Assets and Fundsin proportion to the respective amounts which would otherwise be payable inrespect of the shares held by them upon such distribution if all amountspayable on or with respect to such shares were paid in full.

 

3.             Ranking.  The Series A-1 Preferred Stockshall, with respect to redemption rights, rights on liquidation, winding up,corporate reorganization and dissolution rank senior to the Junior Stock and onparity with the Series A-2 Preferred Stock and the Series A-3 Preferred Stock.

 

4.             Conversion.

 

(a)           Rightto Convert.  Subject to and in compliance with this SectionA.4., each share of Series A-1 Preferred Stock shall be convertible, at theoption of the holder thereof, at any time and from time to time, into thatnumber of fully paid and nonassessable shares of Common Stock as is determinedby dividing the Applicable Stated Value for such share by the A-1 ConversionPrice (defined below) for such share in effect at the time of conversion.  The price at which shares of Common Stockshall be deliverable upon conversion of Series A-1 Preferred Stock without thepayment of additional consideration by the holder thereof (the “***A-1 Conversion Price***”) shallinitially be $0.25.  Such initial A-1 ConversionPrice shall be subject to adjustment from time to time as provided in this SectionA.4.

 

(b)           Mechanicsof Conversion.  Each holder of Series A-1 Preferred Stock whodesires to convert the same into shares of Common Stock shall surrender thecertificate or certificates therefor, duly endorsed, at the office of theCorporation or of any transfer agent for the Series A-1 Preferred Stock orCommon Stock, and shall give written notice to the Corporation at such officethat such holder elects to convert the same and shall state therein the numberof shares of Series A-1 Preferred Stock being converted.  Thereupon the Corporation shall promptlyissue and deliver at such office to such holder a certificate or certificatesfor the number of shares of Common Stock to which such holder is entitled.  Such conversion shall be deemed to have beenmade immediately prior to the close of business on the date of such surrenderof the certificate representing the shares of Series A-1 Preferred Stock to beconverted, and the person entitled to receive the shares of Common Stockissuable upon such conversion shall be treated for all purposes as the recordholder of such shares of Common Stock on such date.

 

(c)           Adjustmentsfor Stock Splits and Combinations. Ifthe Corporation at any time or from time to time after the A-1 Original IssueDate (as defined below) effects a subdivision of the outstanding Common Stock,the A-1 Conversion Price then in effect immediately before the subdivisionshall be proportionately decreased, and conversely, if the 

 

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Corporation at any time or fromtime to time after the A-1 Original Issue Date combines the outstanding sharesof Common Stock into a smaller number of shares, the A-1 Conversion Price thenin effect immediately before the combination shall be proportionatelyincreased.  Any adjustment under thissubsection (c) shall become effective at the close of business on the date thesubdivision or combination becomes effective.  “***A-1 Original Issue Date***”means the date on which shares of Series A-1 Preferred Stock are originallyissued under this Certificate of Designation.

 

(d)           Adjustmentsfor Certain Dividends and Distributions.  If the Corporation at any time or from timeto time after the A-1 Original Issue Date makes or issues, or fixes a recorddate for the determination of holders of Common Stock entitled to receive, adividend or other distribution payable in additional shares of Common Stock,then and in each such event the A-1 Conversion Price then in effect shall be adjustedas of the time of such issuance or, in the event such record date is fixed, asof the close of business on such record date, so that it will equal the pricedetermined by multiplying the A-1 Conversion Price then in effect by a fraction(1) the numerator of which is the total number of shares of Common Stock issuedand outstanding immediately prior to the time of such issuance or the close ofbusiness on such record date, and (2) the denominator of which shall be thetotal number of shares of Common Stock issued and outstanding immediately priorto the time of such issuance or the close of business on such record date plusthe number of shares of Common Stock issuable in payment of such dividend ordistribution; provided, however, that if such record date is fixed and suchdividend is not fully paid or if such distribution is not fully made on thedate fixed therefor, the A-1 Conversion Price shall be recomputed accordinglyas of the close of business on such record date and thereafter the A-1Conversion Price shall be adjusted pursuant to this subsection (d) as of the timeof actual payment of such dividends or distributions.

 

(e)           Adjustmentsfor Dividends and Other Distributions.  In the event the Corporation at any time orfrom time to time after the A-1 Original Issue Date makes or issues, or fixes arecord date for the determination of holders of Common Stock entitled toreceive, a dividend or other distribution payable in securities of theCorporation other than shares of Common Stock, then and in each such eventprovision shall be made so that the holders of Series A-1 Preferred Stock shallreceive upon conversion thereof, in addition to the number of shares of CommonStock receivable thereupon, the amount of securities of the Corporation whichthey would have received had their Series A-1 Preferred Stock been convertedinto Common Stock on the date of such event and had they thereafter, during theperiod from the date of such event to and including the conversion date,retained such securities receivable by them as aforesaid during such period,subject to all other adjustments called for during such period under this SectionA.4 with respect to the rights of the holders of the Series A-1 PreferredStock.

 

(f)            Adjustmentfor Reclassification, Exchange and Substitution.  In the event that, at any time or from timeto time after the A-1 Original Issue Date, the Common Stock issuable upon theconversion of the Series A-1 Preferred Stock is changed into the same or adifferent number of shares of any class or classes of stock, whether byrecapitalization, reclassification or otherwise (other than a subdivision orcombination of shares or stock dividend or a reorganization, merger,consolidation or sale of assets, provided for elsewhere in this Section A.4),then and in any such event each holder of Series A-1 Preferred Stock shall havethe right thereafter to convert such Series A-1 Preferred Stock into the kindand amount of stock and other securities and property receivable upon suchrecapitalization, reclassification or other change, by 

 

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holders of shares of CommonStock into which such shares of Series A-1 Preferred Stock could have beenconverted immediately prior to such recapitalization, reclassification orchange, all subject to further adjustment as provided herein.

 

(g)           NoAdjustment for Certain Issuances.Notwithstanding anything to the contrary herein, no adjustment will be made tothe A-1 Conversion Price (1) for issuances of Common Stock upon conversion ofshares of the Series A Preferred Stock; (2) for issuances of Common Stock,options, warrants or other convertible securities as a dividend or distributionon the Series A Preferred Stock; (3) for issuances of Common Stock uponexercise of warrants or options, or conversion of convertible securities orinstruments, outstanding as of the date hereof; or (4) for the issuance ofstock options under existing plans and new plans in accordance with anyapproval requirements of the Series A Directors.

 

(h)           Sale ofShares Below A-1 Conversion Price.

 

(1)           If at any time or from time to time after the A-1 Original Issue Date, theCorporation issues or sells, or is deemed by the express provisions of thissubsection (h) to have issued or sold, Additional Shares of Common Stock (ashereinafter defined), other than as a dividend or other distribution on anyclass of stock as provided in subsection (d) above and other than upon asubdivision or combination of shares of Common Stock as provided in subsection(c) above, for an Effective Price (as hereinafter defined) less than the thenexisting A-1 Conversion Price, then and in each such case the then existing A-1Conversion Price shall be reduced, as of the opening of business on the date ofsuch issue or sale, to a price equal to such Effective Price.

 

(2)           For the purpose of making any adjustment required under this subsection(h), the consideration received by the Corporation for any issue or sale ofsecurities shall (A) to the extent it consists of cash be computed at the netamount of cash received by the Corporation after deduction of any expensespayable by the Corporation and any underwriting or similar commissions,compensation, or concessions paid or allowed by the Corporation in connectionwith such issue or sale, (B) to the extent it consists of property other thancash, be computed at the fair value of that property as reasonably determinedin good faith by the Board of Directors, and (C) if Additional Shares of CommonStock, A-1 Convertible Securities (as hereinafter defined) or rights or optionsto purchase either Additional Shares of Common Stock or A-1 ConvertibleSecurities are issued or sold together with other stock or securities or otherassets of the Corporation for consideration which covers both, be computed asthe portion of the consideration so received that may be reasonably determinedin good faith by the Board of Directors to be allocable to such AdditionalShares of Common Stock, A-1 Convertible Securities or rights or options.

 

(3)           For the purpose of the adjustment required under this subsection (h), ifthe Corporation issues or sells any rights or options for the purchase of, orstock or other securities convertible or exchangeable, with or withoutconsideration, into Additional Shares of Common Stock (such convertible orexchangeable stock or securities being hereinafter referred to as “***A-1 Convertible Securities***”) and ifthe Effective Price of such Additional Shares of Common Stock is less than the A-1

 

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Conversion Price then in effect, then in each case theCorporation shall be deemed to have issued at the time of the issuance of suchrights or options or A-1 Convertible Securities the maximum number ofAdditional Shares of Common Stock issuable upon exercise or conversion thereofand to have received as consideration for the issuance of such shares an amountequal to the total amount of the consideration, if any, received by theCorporation for the issuance of such rights or options or A-1 ConvertibleSecurities, plus, in the case of such rights or options, the minimum amounts ofconsideration, if any, payable to the Corporation upon the exercise of suchrights or options, plus, in the case of A-1 Convertible Securities, the minimumamounts of consideration, if any, payable to the Corporation (other than by cancellationof liabilities or obligations evidenced by such A-1 Convertible Securities)upon the conversion thereof.  No furtheradjustment of the A-1 Conversion Price, adjusted upon the issuance of suchrights, options or A-1 Convertible Securities, shall be made as a result of theactual issuance of Additional Shares of Common Stock on the exercise of anysuch rights or options or the conversion of any such A-1 ConvertibleSecurities.

 

If any such rights or options, or the conversionor exchange privilege represented by any such A-1 Convertible Securities, shallexpire without having been exercised, the A-1 Conversion Price adjusted uponthe issuance of such rights, options or A-1 Convertible Securities shall bereadjusted to the A-1 Conversion Price which would have been in effect had anadjustment been made on the basis that the only Additional Shares of CommonStock so issued were the Additional Shares of Common Stock, if any, actuallyissued or sold on the exercise of such rights or options or rights ofconversion or exchange of such A-1 Convertible Securities, and such AdditionalShares of Common Stock, if any, were issued or sold for the considerationactually received by the Corporation upon such exercise, plus theconsideration, if any, actually received by the Corporation for the granting ofall such rights or options, whether or not exercised, plus the considerationreceived for issuing or selling the A-1 Convertible Securities actuallyconverted, plus the consideration, if any, actually received by the Corporation(other than by cancellation of liabilities or obligations evidenced by such A-1Convertible Securities) on the conversion of such A-1 Convertible Securities.

 

(4)           For the purpose of the adjustment required under this subsection (h), ifthe Corporation issues or sells any rights or options for the purchase of A-1Convertible Securities and if the Effective Price of the Additional Shares ofCommon Stock underlying such A-1 Convertible Securities is less than the A-1Conversion Price then in effect, then in each such case the Corporation shallbe deemed to have issued at the time of the issuance of such rights or optionsthe maximum number of Additional Shares of Common Stock issuable uponconversion or exchange of the total amount of A-1 Convertible Securitiescovered by such rights or options and to have received as consideration for theissuance of such Additional Shares of Common Stock an amount equal to theamount of consideration, if any, received by the Corporation for the issuanceof such rights or options, plus the minimum amounts of consideration, if any,payable to the Corporation upon the exercise of such rights or options and plusthe minimum amount of consideration, if any, payable to the Corporation (otherthan by cancellation of liabilities or obligations evidenced by such A-1Convertible Securities) upon the conversion of such A-1 ConvertibleSecurities.  No further adjustment of theA-1 

 

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Conversion Price, adjusted upon the issuance of suchrights or options, shall be made as a result of the actual issuance of the A-1Convertible Securities upon the exercise of such rights or options or upon theactual issuance of Additional Shares of Common Stock upon the conversion ofsuch A-1 Convertible Securities.  Theprovisions of paragraph (3) above for the readjustment of the A-1 ConversionPrice upon the expiration of rights or options or the rights of conversion orexchange of A-1 Convertible Securities shall apply mutatismutandisto the rights, options and A-1 Convertible Securities referred to in thisparagraph (4).

 

(i)            Noticesof Record Date.  In the event of (a) any taking by theCorporation of record of the holders of any class of securities for the purposeof determining the holders thereof who are entitled to receive any dividend orother distribution, or (ii) any capital reorganization of the Corporation, anyreclassification or recapitalization of the capital stock of the Corporation,any merger or consolidation of the Corporation with or into any othercorporation, or any transfer of all or substantially all of the assets of theCorporation to any other Person or any voluntary or involuntary dissolution,liquidation or winding up of the Corporation, the Corporation shall mail toeach holder of Series A-1 Preferred Stock at least thirty (30) days prior tothe record date specified therein, a notice specifying (1) the date on whichany such record is to be taken for the purpose of such dividend or distributionand a description of such dividend or distribution, (2) the date on which anysuch reorganization, reclassification, transfer, consolidation, merger,dissolution, liquidation or winding up is expected to become effective, and (3)the date, if any, that is to be fixed, as to when the holders of record ofCommon Stock (or other securities) shall be entitled to exchange their sharesof Common Stock (or other securities) for securities or other propertydeliverable upon such reorganization, reclassification, transfer, consolidation,merger, dissolution, liquidation or winding up.

 

(j)            AutomaticConversion.  Each share of Series A-1 Preferred Stockshall automatically be converted into shares of Common Stock based on the theneffective A-1 Conversion Price immediately upon the closing of a QualifiedPublic Offering, and the outstanding shares of Series A-1 Preferred Stock shallbe converted automatically without any further action by the holders of suchshares and whether or not the certificates representing such shares aresurrendered to the Corporation or its transfer agent.  Upon the occurrence of such automaticconversion of the Series A-1 Preferred Stock, the holders of Series A-1Preferred Stock shall surrender the certificates representing such shares atthe office of the Corporation or any transfer agent for the Series A-1Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptlyat such office and in its name as shown on such surrendered certificate orcertificates, a certificate or certificates for the number of shares of CommonStock into which the shares of Series A-1 Preferred Stock surrendered wereconvertible on the date on which such automatic conversion occurred.

 

(k)           FractionalShares.  Nofractional shares of Common Stock shall be issued upon conversion of Series A-1Preferred Stock.  If more than one shareof Series A-1 Preferred Stock shall be surrendered for conversion at any onetime by the same holder, the number of full shares of Common Stock issuableupon conversion thereof shall be computed on the basis of the aggregate numberof shares of Series A-1 Preferred Stock so surrendered.  In lieu of any fractional share to which theholder would otherwise be entitled, the Corporation shall pay cash 

 

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equal to the product of suchfraction multiplied by the Fair Market Value of one share of the Corporation’sCommon Stock on the date of conversion.

 

(l)            Reservationof Stock Issuable Upon Conversion.  The Corporation shall at all times reserveand keep available out of its authorized but unissued shares of Common Stock,solely for the purpose of effecting the conversion of the shares of the Series A-1Preferred Stock, such number of its shares of Common Stock as shall from timeto time be sufficient to effect the conversion of all outstanding shares of theSeries A-1 Preferred Stock; and if at any time the number of authorized butunissued shares of Common Stock shall not be sufficient to effect theconversion of all then outstanding shares of the Series A-1 Preferred Stock,the Corporation will take such corporate action as may, in the opinion of itscounsel, be necessary to increase its authorized but unissued shares of CommonStock to such number of shares as shall be sufficient for such purpose.

 

(m)          Notices.  All notices and othercommunications required by the provisions of this Section A.4 shallbe in writing and shall be deemed to have been duly given if deliveredpersonally, mailed by certified mail (return receipt requested) or sent byovernight delivery service, cable, telegram, facsimile transmission or telex toeach holder of record at the address of such holder appearing on the books ofthe Corporation.  Notice so given shall,in the case of notice so given by mail, be deemed to be given and received onthe fourth calendar day after posting, in the case of overnight deliveryservice, on the date of actual delivery and, in the case of notice so given bycable, telegram, facsimile transmission, telex or personal delivery, on thedate of actual transmission or, as the case may be, personal delivery.

 

(n)           Paymentof Taxes.  The Corporation will pay all taxes (otherthan taxes based upon income) and other governmental charges that may beimposed with respect to the issue or delivery of shares of Common Stock uponconversion of shares of Series A-1 Preferred Stock, including, withoutlimitation, any tax or other charge imposed in connection with any transferinvolved in the issue and delivery of shares of Common Stock in a name otherthan that in which the shares of Series A-1 Preferred Stock so converted wereregistered.

 

(o)           NoDilution or Impairment.  The Corporation shall not amend itsCertificate of Incorporation or participate in any reorganization, transfer ofassets, consolidation, merger, dissolution, issue or sale of securities or anyother voluntary action, for the purpose of avoiding or seeking to avoid theobservance or performance of any of the terms to be observed or performedhereunder by the Corporation, but will at all times in good faith assist incarrying out all such action as may be reasonably necessary or appropriate inorder to protect the conversion rights of the holders of the Series A-1Preferred Stock against dilution or other impairment.

 

(p)           Roundingof Calculations; Minimum Adjustment.  All calculations under this Section A.4shall be made to the nearest one thousandth (1/1,000th) cent or to the nearestone thousandth (1/1,000th) of a share, as the case may be.  Any provision of this Section A.4to the contrary notwithstanding, no adjustment in the A-1 Conversion Priceshall be made if the amount of such adjustment would be less than $0.001, butany such amount shall be carried forward and an adjustment with respect theretoshall be made at the time of, and together with, any such subsequent adjustmentwhich, together with such amount and any other amount or amounts so carriedforward, shall aggregate $0.001 or more.

 

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6.             Voting.  The holders of shares of SeriesA-1 Preferred Stock shall be entitled to vote on all matters required orpermitted to be voted upon by the stockholders of the Corporation and, exceptto the extent specifically provided herein, each holder shall be entitled tothe number of votes equal to the largest number of full shares of Common Stockinto which all shares of Series A-1 Preferred Stock held by such holder couldbe converted, pursuant to the provisions of Section A.4, at the recorddate for the determination of the stockholders entitled to vote on such mattersor, if no record date is established, at the date such vote is taken or anywritten consent of stockholders is first executed.  Except as otherwise expressly provided hereinor as required by law, the holders of Series A-1 Preferred Stock shall votetogether as a single class with the holders of Series A-2 Preferred Stock,Series A-3 Preferred Stock and Common Stock on all matters.

 

**B.****           ****PROVISIONS RELATING TO THE SERIES A-2 PREFERREDSTOCK**

 

1.             Dividends.  The holders of the Series A-2Preferred Stock shall not be entitled to any preferential dividends. Theholders of the Series A-2 Preferred Stock shall be entitled to participate onan as-converted basis in any cash dividends declared and paid on the Common Stock.

 

2.             Liquidation.

 

(a)           Uponany Liquidation Event, the holders of shares of Series A-2 Preferred Stock thenoutstanding shall be entitled to receive, out of the Available Assets and Funds,before any payment shall be made to the holders of shares of Junior Stock, an amountper share equal to the greater of (i) two times the Applicable Stated Value fora share of Series A-2 Preferred Stock, or (ii) the amount such holder wouldhave received had such holder converted such share of Series A-2 PreferredStock into shares of Common Stock immediately prior to such LiquidationEvent.  If, upon any such LiquidationEvent, the Available Assets and Funds shall be insufficient to pay the holdersof shares of Series A-2 Preferred Stock the full amount to which they shall beentitled, the holders of shares of Series A-2 Preferred Stock and any ParityStock shall share ratably in any distribution of the remaining Available Assetsand Funds in proportion to the respective amounts which would otherwise bepayable in respect of the shares held by them upon such distribution if allamounts payable on or with respect to such shares were paid in full.

 

3.             Ranking.  The Series A-2 Preferred Stockshall, with respect to redemption rights, rights on liquidation, winding up,corporate reorganization and dissolution rank senior to the Junior Stock and onparity with the Series A-1 Preferred Stock and the Series A-3 Preferred Stock.

 

4.             Conversion.

 

(a)           Rightto Convert.  Subject to and in compliance with this SectionB.4., each share of Series A-2 Preferred Stock shall be convertible, at theoption of the holder thereof, at any time and from time to time, into thatnumber of fully paid and nonassessable shares of Common Stock as is determinedby dividing the Applicable Stated Value for such share by the A-2 ConversionPrice (defined below) for such share in effect at the time of conversion.  The price at which shares of Common Stockshall be deliverable upon conversion of Series A-2 Preferred

 

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Stock without the payment ofadditional consideration by the holder thereof (the “***A-2Conversion Price***”) shall initially be $0.25.  Such initial A-2 Conversion Price shall besubject to adjustment from time to time as provided in this Section B.4.

 

(b)           Mechanicsof Conversion.  Each holder of Series A-2 Preferred Stock whodesires to convert the same into shares of Common Stock shall surrender thecertificate or certificates therefor, duly endorsed, at the office of theCorporation or of any transfer agent for the Series A-2 Preferred Stock orCommon Stock, and shall give written notice to the Corporation at such officethat such holder elects to convert the same and shall state therein the numberof shares of Series A-2 Preferred Stock being converted.  Thereupon the Corporation shall promptlyissue and deliver at such office to such holder a certificate or certificatesfor the number of shares of Common Stock to which such holder is entitled.  Such conversion shall be deemed to have beenmade immediately prior to the close of business on the date of such surrenderof the certificate representing the shares of Series A-2 Preferred Stock to beconverted, and the person entitled to receive the shares of Common Stockissuable upon such conversion shall be treated for all purposes as the recordholder of such shares of Common Stock on such date.

 

 (c)          Adjustments for Stock Splits and Combinations. If the Corporation at any time or from time to time after the A-2Original Issue Date (as defined below) effects a subdivision of the outstandingCommon Stock, the A-2 Conversion Price then in effect immediately before thesubdivision shall be proportionately decreased, and conversely, if theCorporation at any time or from time to time after the A-2 Original Issue Datecombines the outstanding shares of Common Stock into a smaller number ofshares, the A-2 Conversion Price then in effect immediately before thecombination shall be proportionately increased. Any adjustment under this subsection (c) shall become effective at theclose of business on the date the subdivision or combination becomeseffective.  “***A-2Original Issue Date***” means the date on which shares of SeriesA-2 Preferred Stock are originally issued under this Certificate ofDesignation.

 

(d)           Adjustmentsfor Certain Dividends and Distributions.  If the Corporation at any time or from timeto time after the A-2 Original Issue Date makes or issues, or fixes a recorddate for the determination of holders of Common Stock entitled to receive, adividend or other distribution payable in additional shares of Common Stock,then and in each such event the A-2 Conversion Price then in effect shall be adjustedas of the time of such issuance or, in the event such record date is fixed, asof the close of business on such record date, so that it will equal the pricedetermined by multiplying the A-2 Conversion Price then in effect by a fraction(1) the numerator of which is the total number of shares of Common Stock issuedand outstanding immediately prior to the time of such issuance or the close ofbusiness on such record date, and (2) the denominator of which shall be thetotal number of shares of Common Stock issued and outstanding immediately priorto the time of such issuance or the close of business on such record date plusthe number of shares of Common Stock issuable in payment of such dividend ordistribution; provided, however, that if such record date is fixed and suchdividend is not fully paid or if such distribution is not fully made on thedate fixed therefor, the A-2 Conversion Price shall be recomputed accordinglyas of the close of business on such record date and thereafter the A-2Conversion Price shall be adjusted pursuant to this subsection (d) as of thetime of actual payment of such dividends or distributions.

 

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(e)           Adjustmentsfor Dividends and Other Distributions.  In the event the Corporation at any time orfrom time to time after the A-2 Original Issue Date makes or issues, or fixes arecord date for the determination of holders of Common Stock entitled toreceive, a dividend or other distribution payable in securities of theCorporation other than shares of Common Stock, then and in each such eventprovision shall be made so that the holders of Series A-2 Preferred Stock shallreceive upon conversion thereof, in addition to the number of shares of CommonStock receivable thereupon, the amount of securities of the Corporation whichthey would have received had their Series A-2 Preferred Stock been convertedinto Common Stock on the date of such event and had they thereafter, during theperiod from the date of such event to and including the conversion date,retained such securities receivable by them as aforesaid during such period,subject to all other adjustments called for during such period under this SectionB.4 with respect to the rights of the holders of the Series A-2 PreferredStock.

 

(f)            Adjustmentfor Reclassification, Exchange and Substitution.  In the event that at any time or from time totime after the A-2 Original Issue Date, the Common Stock issuable upon theconversion of the Series A-2 Preferred Stock is changed into the same or adifferent number of shares of any class or classes of stock, whether byrecapitalization, reclassification or otherwise (other than a subdivision orcombination of shares or stock dividend or a reorganization, merger,consolidation or sale of assets, provided for elsewhere in this Section B.4),then and in any such event each holder of Series A-2 Preferred Stock shall havethe right thereafter to convert such Series A-2 Preferred Stock into the kindand amount of stock and other securities and property receivable upon suchrecapitalization, reclassification or other change, by holders of shares of CommonStock into which such shares of Series A-2 Preferred Stock could have beenconverted immediately prior to such recapitalization, reclassification orchange, all subject to further adjustment as provided herein.

 

(g)           NoAdjustment for Certain Issuances.Notwithstanding anything to the contrary herein, no adjustment will be made tothe A-2 Conversion Price (1) for issuances of Common Stock upon conversion ofshares of the Series A Preferred Stock; (2) for issuances of Common Stock,options, warrants or other convertible securities as a dividend or distributionon the Series A Preferred Stock; (3) for issuances of Common Stock uponexercise of warrants or options, or conversion of convertible securities orinstruments, outstanding as of the date hereof; or (4) for the issuance ofstock options under existing plans and new plans in accordance with anyapproval requirements of the Series A Directors.

 

(h)           Sale ofShares Below A-2 Conversion Price.

 

(1)           If at any time or from time to time after the A-2 Original Issue Date, theCorporation issues or sells, or is deemed by the express provisions of thissubsection (h) to have issued or sold, Additional Shares of Common Stock (ashereinafter defined), other than as a dividend or other distribution on anyclass of stock as provided in subsection (d) above and other than upon asubdivision or combination of shares of Common Stock as provided in subsection(c) above, for an Effective Price (as hereinafter defined) less than the thenexisting A-2 Conversion Price, then and in each such case the then existing A-2Conversion Price shall be reduced, as of the opening of business on the date ofsuch issue or sale, to a price equal to such Effective Price.

 

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(2)           For the purpose of making any adjustment required under this subsection(h), the consideration received by the Corporation for any issue or sale ofsecurities shall (A) to the extent it consists of cash be computed at the netamount of cash received by the Corporation after deduction of any expensespayable by the Corporation and any underwriting or similar commissions,compensation, or concessions paid or allowed by the Corporation in connectionwith such issue or sale, (B) to the extent it consists of property other thancash, be computed at the fair value of that property as reasonably determinedin good faith by the Board of Directors, and (C) if Additional Shares of CommonStock, A-2 Convertible Securities (as hereinafter defined) or rights or optionsto purchase either Additional Shares of Common Stock or A-2 ConvertibleSecurities are issued or sold together with other stock or securities or otherassets of the Corporation for consideration which covers both, be computed asthe portion of the consideration so received that may be reasonably determinedin good faith by the Board of Directors to be allocable to such AdditionalShares of Common Stock, A-2 Convertible Securities or rights or options.

 

(3)           For the purpose of the adjustment required under this subsection (h), ifthe Corporation issues or sells any rights or options for the purchase of, orstock or other securities convertible or exchangeable, with or withoutconsideration, into Additional Shares of Common Stock (such convertible orexchangeable stock or securities being hereinafter referred to as “***A-2 Convertible Securities***”) and ifthe Effective Price of such Additional Shares of Common Stock is less than theA-2 Conversion Price then in effect, then in each case the Corporation shall bedeemed to have issued at the time of the issuance of such rights or options orA-2 Convertible Securities the maximum number of Additional Shares of CommonStock issuable upon exercise or conversion thereof and to have received asconsideration for the issuance of such shares an amount equal to the totalamount of the consideration, if any, received by the Corporation for theissuance of such rights or options or A-2 Convertible Securities, plus, in thecase of such rights or options, the minimum amounts of consideration, if any,payable to the Corporation upon the exercise of such rights or options, plus,in the case of A-2 Convertible Securities, the minimum amounts ofconsideration, if any, payable to the Corporation (other than by cancellationof liabilities or obligations evidenced by such A-2 Convertible Securities)upon the conversion thereof.  No furtheradjustment of the A-2 Conversion Price, adjusted upon the issuance of suchrights, options or A-2 Convertible Securities, shall be made as a result of theactual issuance of Additional Shares of Common Stock on the exercise of anysuch rights or options or the conversion of any such A-2 ConvertibleSecurities.

 

If any such rights or options or the conversion orexchange privilege represented by any such A-2 Convertible Securities shallexpire without having been exercised, the A-2 Conversion Price adjusted uponthe issuance of such rights, options or A-2 Convertible Securities shall bereadjusted to the A-2 Conversion Price which would have been in effect had anadjustment been made on the basis that the only Additional Shares of CommonStock so issued were the Additional Shares of Common Stock, if any, actuallyissued or sold on the exercise of such rights or options or rights ofconversion or exchange of such A-2 Convertible Securities, and such AdditionalShares of Common Stock, if any, were issued or sold for the considerationactually received by the 

 

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Corporation upon such exercise, plus the consideration,if any, actually received by the Corporation for the granting of all suchrights or options, whether or not exercised, plus the consideration receivedfor issuing or selling the A-2 Convertible Securities actually converted, plusthe consideration, if any, actually received by the Corporation (other than bycancellation of liabilities or obligations evidenced by such A-2 ConvertibleSecurities) on the conversion of such A-2 Convertible Securities.

 

(4)           For the purpose of the adjustment required under this subsection (h), ifthe Corporation issues or sells any rights or options for the purchase of A-2Convertible Securities and if the Effective Price of the Additional Shares ofCommon Stock underlying such A-2 Convertible Securities is less than the A-2Conversion Price then in effect, then in each such case the Corporation shallbe deemed to have issued at the time of the issuance of such rights or optionsthe maximum number of Additional Shares of Common Stock issuable uponconversion or exchange of the total amount of A-2 Convertible Securitiescovered by such rights or options and to have received as consideration for theissuance of such Additional Shares of Common Stock an amount equal to theamount of consideration, if any, received by the Corporation for the issuanceof such rights or options, plus the minimum amounts of consideration, if any,payable to the Corporation upon the exercise of such rights or options and plusthe minimum amount of consideration, if any, payable to the Corporation (otherthan by cancellation of liabilities or obligations evidenced by such A-2Convertible Securities) upon the conversion of such A-2 ConvertibleSecurities.  No further adjustment of theA-2 Conversion Price, adjusted upon the issuance of such rights or options,shall be made as a result of the actual issuance of the A-2 ConvertibleSecurities upon the exercise of such rights or options or upon the actualissuance of Additional Shares of Common Stock upon the conversion of such A-2Convertible Securities.  The provisionsof paragraph (3) above for the readjustment of the A-2 Conversion Price uponthe expiration of rights or options or the rights of conversion or exchange ofA-2 Convertible Securities shall apply mutatismutandis to therights, options and A-2 Convertible Securities referred to in this paragraph(4).

 

(i)            Noticesof Record Date.  In the event of (a) any taking by theCorporation of record of the holders of any class of securities for the purposeof determining the holders thereof who are entitled to receive any dividend orother distribution, or (ii) any capital reorganization of the Corporation, anyreclassification or recapitalization of the capital stock of the Corporation,any merger or consolidation of the Corporation with or into any othercorporation, or any transfer of all or substantially all of the assets of theCorporation to any other Person or any voluntary or involuntary dissolution,liquidation or winding up of the Corporation, the Corporation shall mail toeach holder of Series A-2 Preferred Stock at least thirty (30) days prior tothe record date specified therein, a notice specifying (1) the date on whichany such record is to be taken for the purpose of such dividend or distributionand a description of such dividend or distribution, (2) the date on which anysuch reorganization, reclassification, transfer, consolidation, merger,dissolution, liquidation or winding up is expected to become effective, and (3)the date, if any, that is to be fixed, as to when the holders of record ofCommon Stock (or other securities) shall be entitled to exchange their sharesof Common Stock (or other securities) for securities or other propertydeliverable upon such reorganization, reclassification, transfer,consolidation, merger, dissolution, liquidation or winding up.

 

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(j)            AutomaticConversion.  Each share of Series A-2 Preferred Stockshall automatically be converted into shares of Common Stock based on the theneffective A-2 Conversion Price immediately upon the closing of a QualifiedPublic Offering, and the outstanding shares of Series A-2 Preferred Stock shallbe converted automatically without any further action by the holders of suchshares and whether or not the certificates representing such shares aresurrendered to the Corporation or its transfer agent.  Upon the occurrence of such automaticconversion of the Series A-2 Preferred Stock, the holders of Series A-2Preferred Stock shall surrender the certificates representing such shares atthe office of the Corporation or any transfer agent for the Series A-2Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptlyat such office and in its name as shown on such surrendered certificate orcertificates, a certificate or certificates for the number of shares of CommonStock into which the shares of Series A-2 Preferred Stock surrendered wereconvertible on the date on which such automatic conversion occurred.

 

(k)           FractionalShares.  Nofractional shares of Common Stock shall be issued upon conversion of Series A-2Preferred Stock.  If more than one shareof Series A-2 Preferred Stock shall be surrendered for conversion at any onetime by the same holder, the number of full shares of Common Stock issuableupon conversion thereof shall be computed on the basis of the aggregate numberof shares of Series A-2 Preferred Stock so surrendered.  In lieu of any fractional share to which theholder would otherwise be entitled, the Corporation shall pay cash equal to theproduct of such fraction multiplied by the Fair Market Value of one share ofthe Corporation’s Common Stock on the date of conversion.

 

(l)            Reservationof Stock Issuable Upon Conversion.  The Corporation shall at all times reserveand keep available out of its authorized but unissued shares of Common Stock,solely for the purpose of effecting the conversion of the shares of the SeriesA-2 Preferred Stock, such number of its shares of Common Stock as shall fromtime to time be sufficient to effect the conversion of all outstanding sharesof the Series A-2 Preferred Stock; and if at any time the number of authorizedbut unissued shares of Common Stock shall not be sufficient to effect theconversion of all then outstanding shares of the Series A-2 Preferred Stock,the Corporation will take such corporate action as may, in the opinion of itscounsel, be necessary to increase its authorized but unissued shares of CommonStock to such number of shares as shall be sufficient for such purpose.

 

(m)          Notices.  All notices and other communicationsrequired by the provisions of this Section B.4 shall be in writingand shall be deemed to have been duly given if delivered personally, mailed bycertified mail (return receipt requested) or sent by overnight deliveryservice, cable, telegram, facsimile transmission or telex to each holder ofrecord at the address of such holder appearing on the books of theCorporation.  Notice so given shall, inthe case of notice so given by mail, be deemed to be given and received on thefourth calendar day after posting, in the case of overnight delivery service,on the date of actual delivery and, in the case of notice so given by cable,telegram, facsimile transmission, telex or personal delivery, on the date ofactual transmission or, as the case may be, personal delivery.

 

(n)           Paymentof Taxes.  The Corporation will pay all taxes (otherthan taxes based upon income) and other governmental charges that may beimposed with respect to the issue or delivery of shares of Common Stock uponconversion of shares of Series A-2 Preferred 

 

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Stock, including, withoutlimitation, any tax or other charge imposed in connection with any transferinvolved in the issue and delivery of shares of Common Stock in a name otherthan that in which the shares of Series A-2 Preferred Stock so converted wereregistered.

 

(o)           NoDilution or Impairment.  The Corporation shall not amend itsCertificate of Incorporation or participate in any reorganization, transfer ofassets, consolidation, merger, dissolution, issue or sale of securities or anyother voluntary action, for the purpose of avoiding or seeking to avoid theobservance or performance of any of the terms to be observed or performedhereunder by the Corporation, but will at all times in good faith assist incarrying out all such action as may be reasonably necessary or appropriate inorder to protect the conversion rights of the holders of the Series A-2Preferred Stock against dilution or other impairment.

 

(p)           Roundingof Calculations; Minimum Adjustment.  All calculations under this Section A.4shall be made to the nearest one thousandth (1/1,000th) cent or to the nearestone thousandth (1/1,000th) of a share, as the case may be.  Any provision of this Section B.4to the contrary notwithstanding, no adjustment in the A-2 Conversion Priceshall be made if the amount of such adjustment would be less than $0.001, butany such amount shall be carried forward and an adjustment with respect theretoshall be made at the time of and together with any such subsequent adjustmentwhich, together with such amount and any other amount or amounts so carriedforward, shall aggregate $0.001 or more.

 

6.             Voting.  The holders of shares of SeriesA-2 Preferred Stock shall be entitled to vote on all matters required orpermitted to be voted upon by the stockholders of the Corporation and, exceptto the extent specifically provided herein, each holder shall be entitled tothe number of votes equal to the largest number of full shares of Common Stockinto which all shares of Series A-2 Preferred Stock held by such holder couldbe converted, pursuant to the provisions of Section B.4, at the recorddate for the determination of the stockholders entitled to vote on such mattersor, if no record date is established, at the date such vote is taken or anywritten consent of stockholders is first executed.  Except as otherwise expressly provided hereinor as required by law, the holders of Series A-2 Preferred Stock shall votetogether as a single class with the holders of Series A-1 Preferred Stock,Series A-3 Preferred Stock and Common Stock on all matters.

 

**C.****           ****PROVISIONS RELATING TO THE SERIES A-3 PREFERREDSTOCK**

 

1.             Dividends.  The holders of the Series A-3Preferred Stock shall not be entitled to any preferential dividends. Theholders of the Series A-3 Preferred Stock shall be entitled to participate onan as-converted basis in any cash dividends declared and paid on the Common Stock.

 

2.             Liquidation.

 

(a)           Uponany Liquidation Event, the holders of shares of Series A-3 Preferred Stock thenoutstanding shall be entitled to receive, out of the Available Assets andFunds, before any payment shall be made to the holders of shares of JuniorStock, an amount per share equal to the greater of (i) two times the ApplicableStated Value for a share of Series A-3 Preferred Stock, or (ii) the amount suchholder would have received had such holder converted such share of 

 

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Series A-3 Preferred Stock intoshares of Common Stock immediately prior to such Liquidation Event.  If, upon any such Liquidation Event, theAvailable Assets and Funds shall be insufficient to pay the holders of sharesof Series A-3 Preferred Stock the full amount to which they shall be entitled, theholders of shares of Series A-3 Preferred Stock and any Parity Stock shallshare ratably in any distribution of the remaining Available Assets and Fundsin proportion to the respective amounts which would otherwise be payable inrespect of the shares held by them upon such distribution if all amountspayable on or with respect to such shares were paid in full.

 

3.             Ranking.  The Series A-3 Preferred Stockshall, with respect to redemption rights, rights on liquidation, winding up,corporate reorganization and dissolution rank senior to the Junior Stock and onparity with the Series A-1 Preferred Stock and the Series A-3 Preferred Stock.

 

4.             Conversion.

 

(a)           Rightto Convert.  Subject to and in compliance with this SectionC.4., each share of Series A-3 Preferred Stock shall be convertible, at theoption of the holder thereof, at any time and from time to time, into thatnumber of fully paid and nonassessable shares of Common Stock as is determinedby dividing the Applicable Stated Value for such share by the A-3 ConversionPrice (defined below) for such share in effect at the time of conversion.  The price at which shares of Common Stockshall be deliverable upon conversion of Series A-3 Preferred Stock without thepayment of additional consideration by the holder thereof (the “***A-3 Conversion Price***”) shallinitially be $0.30.  Such initial A-3 ConversionPrice shall be subject to adjustment from time to time as provided in this SectionC.4.

 

(b)           Mechanicsof Conversion.  Each holder of Series A-3 Preferred Stock whodesires to convert the same into shares of Common Stock shall surrender thecertificate or certificates therefor, duly endorsed, at the office of theCorporation or of any transfer agent for the Series A-3 Preferred Stock orCommon Stock, and shall give written notice to the Corporation at such officethat such holder elects to convert the same and shall state therein the numberof shares of Series A-3 Preferred Stock being converted.  Thereupon the Corporation shall promptlyissue and deliver at such office to such holder a certificate or certificatesfor the number of shares of Common Stock to which such holder is entitled.  Such conversion shall be deemed to have beenmade immediately prior to the close of business on the date of such surrender ofthe certificate representing the shares of Series A-3 Preferred Stock to beconverted, and the person entitled to receive the shares of Common Stockissuable upon such conversion shall be treated for all purposes as the recordholder of such shares of Common Stock on such date.

 

(c)           Adjustmentsfor Stock Splits and Combinations. Ifthe Corporation at any time or from time to time after the A-3 Original IssueDate (as defined below) effects a subdivision of the outstanding Common Stock,the A-3 Conversion Price then in effect immediately before the subdivisionshall be proportionately decreased, and conversely, if the Corporation at anytime or from time to time after the A-3 Original Issue Date combines theoutstanding shares of Common Stock into a smaller number of shares, the A-3Conversion Price then in effect immediately before the combination shall beproportionately increased.  Anyadjustment under this subsection (c) shall become effective at the close ofbusiness on the date 

 

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the subdivision or combinationbecomes effective.  “***A-3Original Issue Date***” means the date on which shares of SeriesA-3 Preferred Stock are originally issued under this Certificate ofDesignation.

 

(d)           Adjustmentsfor Certain Dividends and Distributions.  If the Corporation at any time or from timeto time after the A-3 Original Issue Date makes or issues, or fixes a recorddate for the determination of holders of Common Stock entitled to receive, adividend or other distribution payable in additional shares of Common Stock,then and in each such event the A-3 Conversion Price then in effect shall be adjustedas of the time of such issuance or, in the event such record date is fixed, asof the close of business on such record date, so that it will equal the pricedetermined by multiplying the A-3 Conversion Price then in effect by a fraction(1) the numerator of which is the total number of shares of Common Stock issuedand outstanding immediately prior to the time of such issuance or the close ofbusiness on such record date, and (2) the denominator of which shall be thetotal number of shares of Common Stock issued and outstanding immediately priorto the time of such issuance or the close of business on such record date plus thenumber of shares of Common Stock issuable in payment of such dividend ordistribution; provided, however, that if such record date is fixed and suchdividend is not fully paid or if such distribution is not fully made on thedate fixed therefor, the A-3 Conversion Price shall be recomputed accordinglyas of the close of business on such record date and thereafter the A-3Conversion Price shall be adjusted pursuant to this subsection (d) as of thetime of actual payment of such dividends or distributions.

 

(e)           Adjustmentsfor Dividends and Other Distributions.  In the event the Corporation at any time orfrom time to time after the A-3 Original Issue Date makes or issues, or fixes arecord date for the determination of holders of Common Stock entitled to receive,a dividend or other distribution payable in securities of the Corporation otherthan shares of Common Stock, then and in each such event provision shall bemade so that the holders of Series A-3 Preferred Stock shall receive uponconversion thereof, in addition to the number of shares of Common Stockreceivable thereupon, the amount of securities of the Corporation which theywould have received had their Series A-3 Preferred Stock been converted intoCommon Stock on the date of such event and had they thereafter, during theperiod from the date of such event to and including the conversion date,retained such securities receivable by them as aforesaid during such period,subject to all other adjustments called for during such period under this SectionC.4 with respect to the rights of the holders of the Series A-3 PreferredStock.

 

(f)            Adjustmentfor Reclassification, Exchange and Substitution.  In the event that at any time or from time totime after the A-3 Original Issue Date, the Common Stock issuable upon theconversion of the Series A-3 Preferred Stock is changed into the same or adifferent number of shares of any class or classes of stock, whether byrecapitalization, reclassification or otherwise (other than a subdivision orcombination of shares or stock dividend or a reorganization, merger,consolidation or sale of assets, provided for elsewhere in this Section C.4),then and in any such event each holder of Series A-3 Preferred Stock shall havethe right thereafter to convert such Series A-3 Preferred Stock into the kindand amount of stock and other securities and property receivable upon suchrecapitalization, reclassification or other change, by holders of shares of CommonStock into which such shares of Series A-3 Preferred Stock could have beenconverted immediately prior to such recapitalization, reclassification orchange, all subject to further adjustment as provided herein.

 

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(g)           NoAdjustment for Certain Issuances.Notwithstanding anything to the contrary herein, no adjustment will be made tothe A-3 Conversion Price (1) for issuances of Common Stock upon conversion ofshares of the Series A Preferred Stock; (2) for issuances of Common Stock,options, warrants or other convertible securities as a dividend or distributionon the Series A Preferred Stock; (3) for issuances of Common Stock uponexercise of warrants or options, or conversion of convertible securities orinstruments, outstanding as of the date hereof; or (4) for the issuance ofstock options under existing plans and new plans in accordance with anyapproval requirements of the Series A Directors.

 

(h)           Sale ofShares Below A-3 Conversion Price.

 

(1)           If at any time or from time to time after the A-3 Original Issue Date, theCorporation issues or sells, or is deemed by the express provisions of thissubsection (h) to have issued or sold, Additional Shares of Common Stock (ashereinafter defined), other than as a dividend or other distribution on anyclass of stock as provided in subsection (d) above and other than upon asubdivision or combination of shares of Common Stock as provided in subsection(c) above, for an Effective Price (as hereinafter defined) less than the thenexisting A-3 Conversion Price, then and in each such case the then existing A-3Conversion Price shall be reduced, as of the opening of business on the date ofsuch issue or sale, to a price equal to such Effective Price.

 

(2)           For the purpose of making any adjustment required under this subsection(h), the consideration received by the Corporation for any issue or sale ofsecurities shall (A) to the extent it consists of cash be computed at the netamount of cash received by the Corporation after deduction of any expensespayable by the Corporation and any underwriting or similar commissions,compensation, or concessions paid or allowed by the Corporation in connectionwith such issue or sale, (B) to the extent it consists of property other thancash, be computed at the fair value of that property as reasonably determinedin good faith by the Board of Directors, and (C) if Additional Shares of CommonStock, A-3 Convertible Securities (as hereinafter defined) or rights or optionsto purchase either Additional Shares of Common Stock or A-3 ConvertibleSecurities are issued or sold together with other stock or securities or otherassets of the Corporation for consideration which covers both, be computed asthe portion of the consideration so received that may be reasonably determinedin good faith by the Board of Directors to be allocable to such AdditionalShares of Common Stock, A-3 Convertible Securities or rights or options.

 

(3)           For the purpose of the adjustment required under this subsection (h), ifthe Corporation issues or sells any rights or options for the purchase of, orstock or other securities convertible or exchangeable, with or withoutconsideration, into Additional Shares of Common Stock (such convertible orexchangeable stock or securities being hereinafter referred to as “***A-3 Convertible Securities***”) and ifthe Effective Price of such Additional Shares of Common Stock is less than theA-3 Conversion Price then in effect, then in each case the Corporation shall bedeemed to have issued at the time of the issuance of such rights or options orA-3 Convertible Securities the maximum number of Additional Shares of CommonStock issuable upon exercise or conversion thereof and to have received asconsideration for the issuance of 

 

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such shares an amount equal to the total amount of theconsideration, if any, received by the Corporation for the issuance of suchrights or options or A-3 Convertible Securities, plus, in the case of suchrights or options, the minimum amounts of consideration, if any, payable to theCorporation upon the exercise of such rights or options, plus, in the case ofA-3 Convertible Securities, the minimum amounts of consideration, if any,payable to the Corporation (other than by cancellation of liabilities orobligations evidenced by such A-3 Convertible Securities) upon the conversionthereof.  No further adjustment of the A-3Conversion Price, adjusted upon the issuance of such rights, options or A-3Convertible Securities, shall be made as a result of the actual issuance ofAdditional Shares of Common Stock on the exercise of any such rights or optionsor the conversion of any such A-3 Convertible Securities.

 

If any such rights or options or the conversion orexchange privilege represented by any such A-3 Convertible Securities shallexpire without having been exercised, the A-3 Conversion Price adjusted uponthe issuance of such rights, options or A-3 Convertible Securities shall bereadjusted to the A-3 Conversion Price which would have been in effect had anadjustment been made on the basis that the only Additional Shares of CommonStock so issued were the Additional Shares of Common Stock, if any, actuallyissued or sold on the exercise of such rights or options or rights ofconversion or exchange of such A-3 Convertible Securities, and such AdditionalShares of Common Stock, if any, were issued or sold for the considerationactually received by the Corporation upon such exercise, plus theconsideration, if any, actually received by the Corporation for the granting ofall such rights or options, whether or not exercised, plus the considerationreceived for issuing or selling the A-3 Convertible Securities actuallyconverted, plus the consideration, if any, actually received by the Corporation(other than by cancellation of liabilities or obligations evidenced by such A-3Convertible Securities) on the conversion of such A-3 Convertible Securities.

 

(4)           For the purpose of the adjustment required under this subsection (h), ifthe Corporation issues or sells any rights or options for the purchase of A-3Convertible Securities and if the Effective Price of the Additional Shares ofCommon Stock underlying such A-3 Convertible Securities is less than the A-3Conversion Price then in effect, then in each such case the Corporation shallbe deemed to have issued at the time of the issuance of such rights or optionsthe maximum number of Additional Shares of Common Stock issuable uponconversion or exchange of the total amount of A-3 Convertible Securitiescovered by such rights or options and to have received as consideration for theissuance of such Additional Shares of Common Stock an amount equal to theamount of consideration, if any, received by the Corporation for the issuanceof such rights or options, plus the minimum amounts of consideration, if any,payable to the Corporation upon the exercise of such rights or options and plusthe minimum amount of consideration, if any, payable to the Corporation (otherthan by cancellation of liabilities or obligations evidenced by such A-3Convertible Securities) upon the conversion of such A-3 ConvertibleSecurities.  No further adjustment of theA-3 Conversion Price, adjusted upon the issuance of such rights or options,shall be made as a result of the actual issuance of the A-3 Convertible Securitiesupon the exercise of such rights or options or upon the actual issuance ofAdditional Shares of Common Stock upon the conversion of such A-3 ConvertibleSecurities.  The provisions of paragraph(3) 

 

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above for the readjustment of the A-3 Conversion Priceupon the expiration of rights or options or the rights of conversion orexchange of A-3 Convertible Securities shall apply mutatismutandisto the rights, options and A-3 Convertible Securities referred to in thisparagraph (4).

 

(i)            Noticesof Record Date.  In the event of (a) any taking by theCorporation of record of the holders of any class of securities for the purposeof determining the holders thereof who are entitled to receive any dividend orother distribution, or (ii) any capital reorganization of the Corporation, anyreclassification or recapitalization of the capital stock of the Corporation,any merger or consolidation of the Corporation with or into any othercorporation, or any transfer of all or substantially all of the assets of theCorporation to any other Person or any voluntary or involuntary dissolution,liquidation or winding up of the Corporation, the Corporation shall mail toeach holder of Series A-3 Preferred Stock at least thirty (30) days prior tothe record date specified therein, a notice specifying (1) the date on whichany such record is to be taken for the purpose of such dividend or distributionand a description of such dividend or distribution, (2) the date on which anysuch reorganization, reclassification, transfer, consolidation, merger,dissolution, liquidation or winding up is expected to become effective, and (3)the date, if any, that is to be fixed, as to when the holders of record ofCommon Stock (or other securities) shall be entitled to exchange their sharesof Common Stock (or other securities) for securities or other propertydeliverable upon such reorganization, reclassification, transfer,consolidation, merger, dissolution, liquidation or winding up.

 

(j)            AutomaticConversion.  Each share of Series A-3 Preferred Stockshall automatically be converted into shares of Common Stock based on the theneffective A-3 Conversion Price immediately upon the closing of a QualifiedPublic Offering, and the outstanding shares of Series A-3 Preferred Stock shallbe converted automatically without any further action by the holders of suchshares and whether or not the certificates representing such shares aresurrendered to the Corporation or its transfer agent.  Upon the occurrence of such automaticconversion of the Series A-3 Preferred Stock, the holders of Series A-3Preferred Stock shall surrender the certificates representing such shares atthe office of the Corporation or any transfer agent for the Series A-3Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptlyat such office and in its name as shown on such surrendered certificate orcertificates, a certificate or certificates for the number of shares of CommonStock into which the shares of Series A-3 Preferred Stock surrendered wereconvertible on the date on which such automatic conversion occurred.

 

(k)           FractionalShares.  Nofractional shares of Common Stock shall be issued upon conversion of Series A-3Preferred Stock.  If more than one shareof Series A-3 Preferred Stock shall be surrendered for conversion at any onetime by the same holder, the number of full shares of Common Stock issuableupon conversion thereof shall be computed on the basis of the aggregate numberof shares of Series A-3 Preferred Stock so surrendered.  In lieu of any fractional share to which theholder would otherwise be entitled, the Corporation shall pay cash equal to theproduct of such fraction multiplied by the Fair Market Value of one share ofthe Corporation’s Common Stock on the date of conversion.

 

(l)            Reservationof Stock Issuable Upon Conversion.  The Corporation shall at all times reserveand keep available out of its authorized but unissued shares of Common Stock, 

 

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solely for the purpose ofeffecting the conversion of the shares of the Series A-3 Preferred Stock, suchnumber of its shares of Common Stock as shall from time to time be sufficientto effect the conversion of all outstanding shares of the Series A-3 PreferredStock; and if at any time the number of authorized but unissued shares ofCommon Stock shall not be sufficient to effect the conversion of all thenoutstanding shares of the Series A-3 Preferred Stock, the Corporation will takesuch corporate action as may, in the opinion of its counsel, be necessary toincrease its authorized but unissued shares of Common Stock to such number ofshares as shall be sufficient for such purpose.

 

(m)          Notices.  All notices and othercommunications required by the provisions of this Section C.4 shallbe in writing and shall be deemed to have been duly given if deliveredpersonally, mailed by certified mail (return receipt requested) or sent byovernight delivery service, cable, telegram, facsimile transmission or telex toeach holder of record at the address of such holder appearing on the books ofthe Corporation.  Notice so given shall,in the case of notice so given by mail, be deemed to be given and received onthe fourth calendar day after posting, in the case of overnight deliveryservice, on the date of actual delivery and, in the case of notice so given bycable, telegram, facsimile transmission, telex or personal delivery, on thedate of actual transmission or, as the case may be, personal delivery.

 

(n)           Paymentof Taxes.  The Corporation will pay all taxes (otherthan taxes based upon income) and other governmental charges that may beimposed with respect to the issue or delivery of shares of Common Stock uponconversion of shares of Series A-3 Preferred Stock, including, withoutlimitation, any tax or other charge imposed in connection with any transferinvolved in the issue and delivery of shares of Common Stock in a name otherthan that in which the shares of Series A-3 Preferred Stock so converted wereregistered.

 

(o)           NoDilution or Impairment.  The Corporation shall not amend itsCertificate of Incorporation or participate in any reorganization, transfer ofassets, consolidation, merger, dissolution, issue or sale of securities or anyother voluntary action, for the purpose of avoiding or seeking to avoid theobservance or performance of any of the terms to be observed or performedhereunder by the Corporation, but will at all times in good faith assist incarrying out all such action as may be reasonably necessary or appropriate inorder to protect the conversion rights of the holders of the Series A-3Preferred Stock against dilution or other impairment.

 

(p)           Roundingof Calculations; Minimum Adjustment.  All calculations under this Section C.4shall be made to the nearest one thousandth (1/1,000th) cent or to the nearestone thousandth (1/1,000th) of a share, as the case may be.  Any provision of this Section C.4to the contrary notwithstanding, no adjustment in the A-3 Conversion Priceshall be made if the amount of such adjustment would be less than $0.001, butany such amount shall be carried forward and an adjustment with respect theretoshall be made at the time of and together with any such subsequent adjustmentwhich, together with such amount and any other amount or amounts so carriedforward, shall aggregate $0.001 or more.

 

6.             Voting.  The holders of shares of Series A-3Preferred Stock shall be entitled to vote on all matters required or permittedto be voted upon by the stockholders of the Corporation and, except to theextent specifically provided herein, each holder shall be entitled to thenumber of votes equal to the largest number of full shares of Common Stock intowhich all shares of 

 

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Series A-3 Preferred Stock heldby such holder could be converted, pursuant to the provisions of Section C.4,at the record date for the determination of the stockholders entitled to voteon such matters or, if no record date is established, at the date such vote istaken or any written consent of stockholders is first executed.  Except as otherwise expressly provided hereinor as required by law, the holders of Series A-3 Preferred Stock shall votetogether as a single class with the holders of Series A-1 Preferred Stock,Series A-2 Preferred Stock and Common Stock on all matters.

 

**D.****           ****GENERAL PROVISIONS**

 

1.             ProtectiveProvisions.  In addition to any other vote or consentrequired herein or by law, for so long as 70,000 shares of Series A-1 PreferredStock remain outstanding (subject to equitable adjustments for stock splits,stock dividends and the like with respect to the Series A-1 Preferred Stock) , exceptwhere the vote or written consent of the holders of a greater number of sharesof the Corporation is required by law or by the Certificate of Incorporation,and in addition to any other vote required by law or by the Certificate ofIncorporation, without the prior vote or written consent of the holders of atleast 75% of then outstanding Series A-1 Preferred Stock, Series A-2 PreferredStock and Series A-3 Preferred Stock, voting as a single class, the Corporationshall not, and shall cause its subsidiaries not to, as applicable:

 

(a)           amendthe Certificate of Incorporation and Bylaws in any manner that would alter orchange any of the rights, preferences, privileges or restrictions of the SeriesA Preferred Stock;

 

(b)           reclassifyany outstanding securities into securities having rights, preferences orprivileges senior to, or on a parity with, the Series A Preferred Stock;

 

(c)           authorizeor issue any additional Series A Preferred Stock or any other stock havingrights or preferences senior to, or on a parity with, the Series A PreferredStock, except for authorizations for issuances, and issuances, solely to theholders of Series A Preferred Stock;

 

(d)           mergeor consolidate with or into any corporation if such merger or consolidationwould result in the stockholders of the Corporation immediately prior to suchmerger or consolidation holding (by virtue of securities issued asconsideration in such transaction or otherwise) less than a majority of thevoting power of the stock of the surviving corporation immediately after suchmerger or consolidation;

 

(e)           sellall or substantially all its assets in a single transaction or series ofrelated transactions;

 

(f)            licenseall or substantially all of its intellectual property in a single transactionor series of related transactions;

 

(g)           liquidateor dissolve; or

 

(h)           alterany rights of the Series A Directors (as defined herein) or the holders of the SeriesA Preferred Stock or change the size of the Board of Directors.

 

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2.             Boardof Directors.  For so long as 70,000 shares of Series A-1Preferred Stock remain outstanding (subject to equitable adjustments for stocksplits, stock dividends and the like with respect to the Series A-1Preferred Stock), the holders of Series A Preferred Stock, as a singleclass, shall be entitled to (a) elect one-half of the members of the Boardof Directors (rounded up in the event the number of members constituting theBoard of Directors is odd) (the “***Series A Directors***”),one of whom shall be elected the Vice-Chairman, and (b) to designate atleast one Series A Director to serve on each of the committees of the Boardof Directors.

 

3.             Definitions.  As used herein with respect tothe Series A Preferred Stock, the following terms have the following meanings:

 

“***AdditionalShares of Common Stock***” means (i) with respect to the Series A-1Preferred Stock, all shares of Common Stock issued after the A-1 Original IssueDate, (ii) with respect to the Series A-2 Preferred Stock, all shares of CommonStock issued after the A-2 Original Issue Date, and (iii) with respect to theSeries A-3 Preferred Stock, all shares of Common Stock issued after the A-3Original Issue Date, in each event other than shares of Common Stock issuedupon conversion of the Series A-1 Preferred Stock, Series A-2 Preferred Stockor Series A-3 Preferred Stock, as applicable.

 

“***CommonStock***” means the common stock of the Corporation, $0.0001 parvalue per share.

 

“***EffectivePrice***” of Additional Shares of Common Stock shall mean thequotient determined by dividing the total number of Additional Shares of CommonStock issued or sold, or deemed to have been issued or sold, by the Corporationunder Section A.4(h), Section B.4(h) or Section C.4(h), asapplicable, into the aggregate consideration received, or deemed to have beenreceived, by the Corporation for such issue under such applicable Section forsuch Additional Shares of Common Stock.

 

“***FairMarket Value***” means (i) if the Common Stock is listed on anational securities exchange, the closing sale price per share on the principalexchange on which the Common Stock is listed as reported by such exchange,(ii) if the Common Stock is quoted in the National Market System, theclosing sale price per share as reported by Nasdaq, (iii) if the CommonStock is traded in the over-the-counter market but not quoted in the NationalMarket System, the average of the closing bid and asked quotations per share asreported by Nasdaq, or any other nationally accepted reporting medium if Nasdaqquotations shall be unavailable, or (iv) if none of the foregoing applies,the fair market value of such stock as reasonably determined in good faith bythe Board of Directors of the Corporation.

 

“***JuniorStock***” means shares of Common Stock and any other class orseries of capital stock of the Corporation which by its express terms providesthat is ranks junior to the Series A Preferred Stock as to distribution ofassets on liquidation, dissolution or winding up.

 

“***LiquidationEvent***” means the liquidation, dissolution or winding up of theCorporation, whether voluntary or involuntary, and also includes (i) theacquisition of the Corporation by another entity by means of any transaction orseries of related transactions (including, without limitation, anyreorganization, merger or consolidation) that results in the sale, dispositionor other transfer of more than fifty percent (50%) of the outstanding votingpower of the 

 

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Corporation or (ii) a sale,exclusive license or other disposition of all or substantially all of theassets of the Corporation.

 

“***ParityStock***” means any class or series of capital stock of theCorporation ranking on a parity with the Series A Preferred Stock as todistribution of assets on liquidation, dissolution or winding up.

 

***“Person”***means any individual, corporation, partnership, trust, joint venture,organization, association, government or agency or political subdivisionthereof, or any other entity.

 

“***QualifiedPublic Offering***” means an underwritten public offering pursuantto an effective registration statement under the Securities Act of 1933, asamended, covering the offering and sale of Common Stock for the account of theCorporation in which the aggregate gross proceeds received by the Corporationequal or exceed $45 million.

 

“***SeniorStock***” any class or series of capital stock of the Corporation whichby its express terms provides that it ranks senior to the Series A PreferredStock as to distribution of assets on liquidation, dissolution or winding up.

 

“***StatedValue***” means a stated value per share equal to the following:(i) $25.00 with respect to the Series A-1 Preferred Stock, (ii) $25.00 withrespect to the Series A-2 Preferred Stock and (iii) $30.00 with respect to theSeries A-3 Preferred Stock (in each case and as the context so requires, the “***Applicable Stated Value***”).

 

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IN WITNESS WHEREOF, RefocusGroup, Inc. has caused this Certificate of Designation, Rights and Preferencesof Series A-1 Convertible Preferred Stock, Series A-2 Convertible PreferredStock and Series A-3 Convertible Preferred Stock to be signed by its President,on this       day of March, 2005, and such personhereby affirms under penalty of perjury that this Certificate of Designation,Rights and Preferences of Series A-1 Convertible Preferred Stock, Series A-2Convertible Preferred Stock and Series A-3 Convertible Preferred Stock is theact and deed of Refocus Group, Inc. and that the facts stated herein are trueand correct.

 
|   | REFOCUS GROUP, INC. |
|--------|---------------------|
|   |                |
|   |                |
|   | By:                 |   |   |
|   |                |
|   | Name:               | Terence A. Walts |
|   |                |
|   | Title:              | President |
|        |                     |  |  |  |

 

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