Item 5.03 — Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year
On August 11, 2017, the Company filed a Certificate of
Designations, Preferences and Rights of Series A Convertible
Preferred Stock (the “Certificate of Designation”) with
the Secretary of State of the State of Delaware, which authorizes
the Company to issue up to 5,083 shares of Series A Convertible
Preferred Stock, par value $0.001 per share (“Series A
Preferred Stock”). The Series A Preferred Stock ranks senior
in preference and priority to the Company’s common stock with
respect to dividend and liquidation rights and, except as provided
in the Certificate of Designation or otherwise required by law,
will vote with the common stock on an as converted basis on all
matters presented for a vote of the holders of common stock,
including directors.
The Series A Preferred Stock is convertible at any time at the
option of the holder at an initial conversion ratio of 20,000
shares of Common Stock for each share of Series A Preferred Stock.
The initial conversion ratio shall be adjusted in the event of any
stock splits, stock dividends and other recapitalizations. The
holders of the Series A Preferred Stock are entitled to a
liquidation preference of $1,000 per share of Series A Preferred
Stock plus any declared but unpaid dividends upon the liquidation
of the Company.
The Series A Preferred Stock may be redeemed by the Company at any
time and must be redeemed by the Company, upon the written request
of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock, after the occurrence of one of
the following events: (x) the Company’s trailing 12-month
EBITDA exceeds $5,000,000, (y) the sale of all, or substantially
all of the assets of the Company, or (z) the sale of all or
substantially all the intellectual property of the Company, which
in the case of “y” or “z” result in net
proceeds to the Company in excess of $6,000,000, at a redemption
price equal to $1,000 plus all declared but unpaid dividends, which
amount will be paid in three annual installments..
The approval of at least two-thirds of the holders of Series A
Preferred Stock, voting together as a separate class, is required
for: (i) the merger, sale of all, or substantially all of the
assets or intellectual property, recapitalization, or
reorganization of the Company, unless such action (x) results in
net proceeds to the stockholders of the Company in excess of
$5,000,000, and (y) has received the prior approval of the Board of
Directors; (ii) the authorization or issuance of any equity
security having any right, preference or priority superior to or on
parity with the Series A Preferred Stock; (iii) the redemption,
repurchase or acquisition, directly or indirectly, through
subsidiaries or otherwise, of any equity securities (other than the
redemption of the Series A Preferred Stock) or the payment of
dividends or other distributions on equity securities by the
Company (other than on the Series A Preferred Stock); (iv) any
amendment or repeal of any provision of the Company’s
Certificate of Incorporation or By-laws that would adversely affect
the rights, preferences, or privileges of the Series A Preferred
Stock; and (v) the liquidation, dissolution or winding-up of the
business and affairs of the Company, the effectuation of any
Liquidation Event (as defined in Certificate of Designation), or
the consent to any of the foregoing, unless such action (x) results
in net proceeds to the stockholders of the Company in excess of
$5,000,000, and (y) has received the prior approval of the Board of
Directors.
A copy of the Certificate of Designation is attached hereto as
Exhibit 3.1 and is incorporated herein by reference.