EX-3.4 4 ea021443304ex3-4_capst.htm CERTIFICATE OF DESIGNATION OF SERIES B CONVERTIBLE PREFERRED STOCK, DATED JULY 9, 1998

Exhibit 3.4

CERTIFICATE OF DESIGNATION

of

SERIES B CONVERTIBLE PREFERRED STOCK

of

ORTHOLOGIC CORP.

Pursuant to Section 151 of the Delaware General Corporation Law

OrthoLogic Corp., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies that the following resolutions were duly adopted by the Board of Directors of the Corporation pursuant to the authority of the Board of Directors granted by Section 151 of the Delaware General Corporation Law.

RESOLVED, that pursuant to the authority granted to the Board of Directors in accordance with the provisions of the Corporation’s Certificate of Incorporation, as amended, the Board of Directors hereby authorizes a series of the Corporation’s previously authorized Preferred Stock, par value $0.0005 per share (the “Preferred Stock”), to be issued pursuant to a Securities Purchase Agreement between the Corporation and the Purchasers named therein (the “Securities Purchase Agreement”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges and restrictions thereof as follows:

1. DESIGNATION AND AMOUNT.

The designation of this series, which consists of twenty thousand (20,000) shares (the “Preferred Shares”) of Preferred Stock, is the Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and the face amount shall be One Thousand Dollars ($1,000) per share (subject to ratable adjustment in the event of any stock split or combination of the Series B Preferred Stock and to equitable adjustment in the event of a reclassification of the Series B Preferred Stock or other similar event)(the “Stated Value”). The date on which a Preferred Share is issued and sold pursuant to the Securities Purchase Agreement is referred to herein as the “Issue Date” and, in the event that Preferred Shares are issued in more than one tranche pursuant to the Securities Purchase Agreement, the Issue Date relating to the Preferred Shares issued in the first such tranche is referred to herein as the “Initial Issue Date”.

2. DIVIDENDS. The Series B Preferred Stock will not bear dividends.

3. PRIORITY.

(a) Payment upon Dissolution.

(i) Upon the occurrence of (x) any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, commenced by the Corporation or by its creditors, as such, or relating to its assets or

(y) the dissolution or other winding up of the Corporation whether total or partial, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy proceedings, or (z) any assignment for the benefit of creditors or any marshalling of the material assets or material liabilities of the Corporation (each, a “Liquidation Event”), no distribution shall be made to the holders of any shares of Junior Securities (as defined below) unless, following the payment of preferential amounts on all Senior Securities (as defined below), each Holder of Preferred Shares (each, a “Holder” and collectively, the “Holders”) shall have received the Liquidation Preference (as defined below) with respect to each Preferred Share then held by such Holder. In the event that upon the occurrence of a Liquidation Event, and following the payment of preferential amounts on all Senior Securities (as defined below), the assets available for distribution to the Holders and the holders of Pari Passu Securities are insufficient to pay the Liquidation Preference with respect to all of the outstanding Preferred Shares and the preferential amounts payable to such holders, the entire assets of the Corporation shall be distributed ratably among the Preferred Shares and the shares of Pari Passu Securities in proportion to the ratio that the preferential amount payable on each such share (which shall be the Liquidation Preference in the case of a Preferred Share) bears to the aggregate preferential amount payable on all such shares.

(ii) The “Liquidation Preference” with respect to a Preferred Share shall mean an amount equal to the Stated Value of such Preferred Share. “Junior Securities” shall mean the Common Stock and all other capital stock or securities of the Corporation that are not Pari Passu Securities or do not have a preference over the Series B Preferred Stock in respect of redemption or distribution upon liquidation. “Pari Passu Securities” shall mean any securities ranking pari passu with the Series B Preferred Stock in respect of redemption or distribution upon liquidation. “Senior Securities” shall mean any securities of the Corporation which by their terms have a preference over the Series B Preferred Stock in respect of redemption or distribution upon liquidation.

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4. CONVERSION.

(a) Right to Convert. Each Holder shall have the right to convert on the three hundredth (300th) day following the Initial Issue Date (the “Initial Conversion Date”) or at any time thereafter, all or any part of the Preferred Shares held by such Holder into such number of fully paid and non-assessable shares (“Conversion Shares”) of the Company’s common stock, par value $0.0005 per share (the “Common Stock”), as is determined in accordance with the terms hereof (a “Conversion”); provided, however, that in the event that, prior to the three hundredth (300th) day following the Initial Issue Date, either (i) the Corporation enters into an agreement relating to a Change of Control Transaction (as defined below) immediately upon which event the Corporation shall make a public announcement of such transaction, (ii) a Material Adverse Event (as defined below) occurs or (iii) a Mandatory Redemption Event (as defined below) occurs (each of (i), (ii) and (iii) being referred to herein as an “Early Conversion Event”), the Initial Conversion Date for purposes hereof shall be deemed to be the first date on which an Early Conversion Event occurs. For purposes of this paragraph 4(a), the term “Material Adverse Event” shall have the meaning set forth in the Securities Purchase Agreement. In the event that a Material Adverse Event occurs, the Company must immediately notify each Holder of such occurrence and at the same time make a public announcement thereof.

(b) Conversion Notice. In order to convert Preferred Shares, a Holder shall send by facsimile transmission, at any time prior to 11:59 p.m., eastern time, on the date on which such Holder wishes to effect such Conversion (the “Conversion Date”), (i) a notice of conversion (a “Conversion Notice”), in substantially the form of Exhibit A hereto, to the Corporation and to the Corporation’s transfer agent for the Common Stock (the “Transfer Agent”) stating the number of Preferred Shares to be converted, the applicable Conversion Price (as defined below) and a calculation of the number of shares of Common Stock issuable upon such Conversion and (ii) a copy of the certificate or certificates representing the Preferred Shares being converted. The Holder shall thereafter send the original of the Conversion Notice and of such certificate or certificates to the Transfer Agent. The Corporation shall issue a new certificate for Preferred Shares in the event that less than all of the Preferred Shares represented by a certificate delivered to the Corporation in connection with a Conversion are converted. Except as otherwise provided herein, upon delivery of a Conversion Notice by a Holder in accordance with the terms hereof, such Holder shall, as of the applicable Conversion Date, be deemed for all purposes to be the record owner of the Common Stock to which such Conversion Notice relates. In the case of a dispute between the Corporation and a Holder as to the calculation of the Conversion Price or the number of Conversion Shares issuable upon a Conversion, the Corporation shall promptly issue to such Holder the number of Conversion Shares that are not disputed and shall submit the disputed calculations to its independent accountant within one (1) Business Day of receipt of such Holder’s Conversion Notice. The Corporation shall cause such accountant to calculate the Conversion Price as provided herein and to notify the Corporation and such Holder of the results in writing no later than two (2) Business Days following the day on which it received the disputed calculations. Such accountant’s calculation shall be deemed conclusive absent manifest error. The fees of any such accountant shall be borne by the party whose calculations were most at variance with those of such accountant.

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(c) Number of Conversion Shares; Conversion Price. The number of Conversion Shares to be delivered by the Corporation pursuant to a Conversion shall be determined by dividing the aggregate Stated Value of the Preferred Shares to be converted by the Conversion Price (as defined herein) in effect on the applicable Conversion Date. Subject to adjustment as provided in Section 6 below, “Conversion Price” with respect to a Preferred Share shall mean (A) for any Conversion occurring during the period of three hundred (300) days following the Issue Date relating to such Preferred Share (the “Initial Conversion Period”), the average of the ten (10) lowest Closing Bid Prices (as defined below) for the Common Stock occurring during the period of thirty (30) Trading Days (as defined below) immediately prior to (but not including) the applicable Conversion Date (the “Floating Conversion Price”) and (B) for any Conversion occurring after the Initial Conversion Period, the lesser of the Floating Conversion Price and the Fixed Conversion Price. The “Fixed Conversion Price” with respect to a Preferred Share shall mean one hundred and three percent (103%) of the average Closing Bid Price for the Common Stock during the period of ten (10) Trading Days immediately prior to (but not including) the three hundredth (300th) day following the Issue Date relating to such Preferred Share; provided, however, that if the Corporation is not eligible to register shares of Common Stock on a registration statement on Form S-3 on or before September 1, 1998 (the “Registration Event”), the Fixed Conversion Price with respect to a Preferred Share shall mean, (x) during the period beginning on the one hundred and eightieth (180th) day following the Initial Issue Date and ending on such three hundredth day, one hundred and three percent (103%) of the average Closing Bid Price for the Common Stock during the period of ten (10) Trading Days immediately prior to (but not including) such one hundred and eightieth day, and

(y) from and after such three hundredth day, the lesser of (I) the Fixed Conversion Price as determined pursuant to the immediately preceding clause (x) and (II) the Fixed Conversion Price that would otherwise be in effect had the Registration Event not occurred.

(d) Certain Definitions. “Trading Day” means any day on which the Common Stock is traded on the principal securities exchange or market on which the Common Stock is then traded. “Closing Bid Price” means, with respect to the Common Stock, the closing bid price for the Common Stock occurring on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding Preferred Shares (collectively, “Bloomberg”) or if the foregoing does not apply, the last reported bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no bid price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on any of the foregoing bases, the Closing Bid Price of such security shall be the fair market value as reasonably determined by an investment banking firm selected by the Holders (which may be a Holder) of a majority of the then outstanding Preferred Shares and reasonably acceptable to the Corporation, with the costs of such appraisal to be borne by the Corporation. “Business Day” means any day on which the New York Stock Exchange and commercial banks located in the City of New York are open for business.

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(e) Delivery of Common Stock Upon Conversion. Upon receipt of a Conversion Notice from a Holder pursuant to paragraph 4(b) above, the Corporation shall, no later than the close of business on the third (3rd) Business Day following the Conversion Date set forth in such Conversion Notice (the “Delivery Date”), issue and deliver or cause to be delivered to such Holder the number of Conversion Shares as shall be determined as provided herein. The Corporation shall effect delivery of Conversion Shares to a Holder by, as long as the Transfer Agent participates in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program (“FAST”), crediting the account of such Holder or its nominee at DTC through its Deposit Withdrawal Agent Commission system with the number of Conversion Shares required to be delivered, no later than the close of business on such Delivery Date. In the event that Transfer Agent is not a participant in FAST or if a Holder so specifies in a Conversion Notice or otherwise in writing, the Corporation shall effect delivery of Conversion Shares by delivering to the Holder or its nominee physical certificates representing such Conversion Shares, no later than the close of business on such Delivery Date. If any Conversion would create a fractional Conversion Share, such fractional Conversion Share shall be disregarded and the number of Conversion Shares issuable upon such Conversion, in the aggregate, shall be the next higher number of Conversion Shares. Conversion Shares delivered to the Holder shall not contain any restrictive legend as long as (A) the sale or transfer of such Conversion Shares is covered by an effective Registration Statement, (B) such Conversion Shares have been sold pursuant to Rule 144 (“Rule 144”) under the Securities Act, or (C) such Conversion Shares are eligible for resale under Rule 144(k) or any successor rule or provision.

(f) Failure to Deliver Conversion Shares.

(i) In the event that the Corporation fails for any reason to deliver to a Holder certificates representing the number of Conversion Shares specified in the applicable Conversion Notice on or before the Delivery Date therefor (a “Conversion Default”), and such failure continues for seven (7) Business Days following the Delivery Date, the Corporation shall pay to such Holder payments (“Conversion Default Payments”) in the amount of (i) (N/365) multiplied by (ii) the aggregate Stated Value of the Preferred Share(s) represented by the Conversion Shares which remain the subject of such Conversion Default multiplied by (iii) the lower of twenty-four percent (24%) and the maximum rate permitted by applicable law (the “Default Interest Rate”), where “N” equals the number of days elapsed between the original Delivery Date for such Conversion Shares and the date on which all of the certificates representing such Conversion Shares are issued and delivered to such Holder. Amounts payable under this subparagraph (f) shall be paid to the Holder in immediately available funds on or before the fifth (5th) Business Day of the calendar month immediately following the calendar month in which such amounts have accrued.

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(ii) In the event that a Holder has not received certificates representing the Conversion Shares by the tenth (10th) Business Day following a Conversion Default, such Holder may, upon written notice (a “Withdrawal Notice”) delivered to the Corporation on such Business Day or on any Business Day thereafter (unless, prior to the delivery of such notice, such Conversion Shares are delivered to such Holder), withdraw its Conversion Notice with respect to such Conversion Shares and regain its rights as a Holder of the Preferred Shares that are the subject of such Conversion Default. In such event, the Conversion Price that would otherwise be in effect when such Preferred Shares are thereafter converted in accordance with the terms hereof shall be reduced by one percent (1%) for each day occurring during the period immediately following such 10th Business Day until the day on which the such Holder delivers a Withdrawal Notice to the Corporation; provided, however, that the maximum percentage by which such Conversion Price may be reduced hereunder shall be fifty percent (50%). (For example, if such Conversion Default were to continue for five days following such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten days, by 10%; and for fifty days or more, 50%, so that the number of Conversion Shares deliverable upon conversion of such Preferred Shares would be increased proportionately). Upon delivery by a Holder of a Withdrawal Notice, such Holder shall retain all of such Holder’s rights and remedies with respect to the Corporation’s failure to deliver such Conversion Shares (including without limitation the right to receive the cash payments specified in subparagraph 4(f)(i) above).

(iii) In addition to any other remedies provided herein, each Holder shall have the right to pursue actual damages for the Corporation’s failure to issue and deliver Conversion Shares on the applicable Delivery Date (including, without limitation, damages relating to any purchase of shares of Common Stock by such Holder to make delivery on a sale effected in anticipation of receiving Conversion Shares upon Conversion, such damages to be in an amount equal to (A) the aggregate amount paid by such Holder for the shares of Common Stock so purchased minus (B) the aggregate Conversion Price for such Conversion Shares), and such Holder shall have the right to pursue all remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief).

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(g) Conversion at Maturity. On the date which is four (4) years following the Issue Date relating to a Preferred Share (“Maturity Date”), such Preferred Share shall be automatically converted into the number of shares of Common Stock equal to the Stated Value of such Preferred Shares divided by the Conversion Price then in effect (a “Conversion at Maturity”); provided, however, that if, on a Maturity Date, (i) the number of shares of Common Stock authorized, unissued and unreserved for all other purposes, or held in the Corporation’s treasury, is not sufficient to effect the issuance and delivery of the number of Conversion Shares into which all outstanding Preferred Shares are then convertible, (ii) the Common Stock is not actively traded on the Nasdaq National Market, or (iii) a Mandatory Redemption Event (as defined herein) has occurred and is continuing, each Holder shall have the option, upon written notice to the Corporation, to regain its rights as a holder of Preferred Shares, including without limitation, the right to convert such Preferred Shares in accordance with the terms of paragraphs 4(a) through 4(f) hereof and, upon delivery of such notice, such Preferred Shares shall not be subject to a Conversion at Maturity hereunder until the thirtieth (30th) day following the later of (a) the date on which the event specified (i), (ii) or (iii) is no longer continuing and (b) the date on which the Corporation delivers to each Holder written notice to such effect, and in such event, such thirtieth day shall be deemed to be the Maturity Date for purposes of this Certificate of Designation. If a Conversion at Maturity occurs, the Corporation and each Holder shall follow the procedures for Conversion set forth in this Section 4, with the Maturity Date deemed to be the Conversion Date, except that the Holder shall not be required to send a Conversion Notice as contemplated by paragraph 4(b).

5. CONVERSION LIMITATIONS.

In no event shall a Holder be permitted to convert any Preferred Shares in excess of the number of such shares, upon the Conversion of which:

(a) the number of Conversion Shares to be issued pursuant to such Conversion, when added to the number of shares of Common Stock issued pursuant to all prior Conversions of Preferred Shares, would exceed five million (5,000,000) shares of Common Stock (subject to equitable adjustments from time to time for the events described in paragraph 6 below) (the “Cap Amount”), except that such limitation shall not apply in the event that the Corporation obtains the approval of a majority of its stockholders for issuances of Common Stock in excess of such amount. Until such approval is obtained, no purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (each, a “Purchaser” and together the “Purchasers”) shall be issued, upon Conversion of the Preferred Shares, Conversion Shares in an amount greater than the product of (A) the Cap Amount times (B) a fraction, the numerator of which is the number of Preferred Shares issued to such Purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate amount of all of the Preferred Shares issued to the Purchasers pursuant to the Securities Purchase Agreement (the “Allocation Amount”). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser’s Preferred Shares, the transferee shall be allocated a pro rata portion of the remaining unissued shares constituting such Purchaser’s Allocation Amount. In the event that any Holder shall convert all of such Holder’s Preferred Shares into a number of Conversion Shares which, in the aggregate, is less than such Holder’s Allocation Amount, then the difference between such Holder’s Allocation Amount and the number of Conversion Shares actually issued to such Holder shall be allocated to the respective Allocation Amounts of the remaining Holders of Preferred Shares on a pro rata basis in proportion to the number of Preferred Shares then held by each such Holder. In the event that any Holder’s Allocation Amount represents one hundred and fifty percent (150%) or less of (A) the number of Conversion Shares into which the Preferred Shares then held by such Holder are convertible at the Conversion Price then in effect (without regard to any restriction on such conversion that may exist pursuant to the terms hereof or of any Transaction Document) plus (B) the number of Conversion Shares into which such Holder has previously converted Preferred Shares, such Holder shall have the right to require the Corporation, upon written notice delivered by such Holder to the Corporation, to, within five (5) days following the date on which such notice is delivered to the Corporation, either (i) redeem all of the Preferred Shares then held by such Holder by delivering to such Holder immediately available funds in an amount equal to the Conversion Cap Redemption Price (as defined below) or (ii) give written notice to each Holder that the Corporation will, within sixty (60) days of such Conversion Date, obtain the approval of the Corporation’s stockholders for the issuance of Conversion Shares in excess of the Cap Amount. In the event that the Corporation does not obtain such stockholder approval prior to such sixtieth day, each Holder shall have the right, exercisable from time to time, upon written notice to the Corporation, to require the Corporation to redeem all or any part of such Holder’s Preferred Shares within five (5) days following the receipt by the Corporation of such notice by delivering to such Holder immediately available funds in an amount equal to the Conversion Cap Redemption Price. Any amounts representing the Conversion Cap Redemption Price which are not paid when due shall bear interest at an annual rate equal to the Default Interest Rate. For purposes hereof, the “Conversion Cap Redemption Price” with respect to a Preferred Share shall be equal to (a) during the first three hundred and sixty (360) days following the Issue Date relating to such Preferred Share, 108.5% of the Stated Value of such Preferred Share and (b) following the last day of such three hundred and sixtieth day period, a price that is calculated so that the Holder of such Preferred Share will receive an annualized return on the Stated Value of such Preferred Share of 8.5%; and

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(b) (x) the number of shares of Common Stock beneficially owned by such Holder (other than shares of Common Stock issuable upon conversion of Preferred Shares or which would otherwise be deemed beneficially owned except for being subject to a limitation on conversion or exercise analogous to the limitation contained in this subparagraph (b)) plus (y) the number of shares of Common Stock issuable upon the Conversion of such Preferred Shares, would be equal to or exceed (z) 4.99% of the number of shares of Common Stock then issued and outstanding. As used herein, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder. To the extent that the limitation contained in this paragraph 5(b) applies, the determination of whether Preferred Shares are convertible (in relation to other securities owned by a Holder) and of which Preferred Shares are convertible shall be in the sole discretion of such Holder, and the submission of Preferred Shares for Conversion shall be deemed to be such Holder’s determination that such Preferred Shares are convertible pursuant to the terms hereof, and the Corporation shall have no obligation whatsoever to verify or confirm the accuracy of such determination. This paragraph may be amended (i) in order to clarify an ambiguity or otherwise to give effect to such limitation, by the Holders of two-thirds (2/3) of the Preferred Shares then outstanding and (ii) for any other reason, with the further consent of the holders of a majority of the shares of Common Stock then outstanding. Nothing contained herein shall be deemed to restrict the right of a Holder to convert Preferred Shares at such time as the Conversion thereof will not violate the provisions of this subparagraph 5(b). The restriction contained in this subparagraph 5(b) shall not apply in the event of a Conversion at Maturity or to a Holder delivering a Mandatory Redemption Notice (as defined below) on the seventy fifth (75th) day following the date on which such Holder delivers a notice to the Corporation that such restriction shall not apply, and may otherwise be irrevocably amended by any Holder with respect to itself so that such limit shall be 9.99% instead of 4.99% following at least seventy five (75) days’ prior written notice by such Holder to the Corporation.

6. ADJUSTMENTS TO CONVERSION PRICE.

(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares, (A) the number of outstanding shares of Common Stock is increased by a stock split, a stock dividend on the Common Stock, a reclassification of the Common Stock, the distribution to holders of Common Stock of rights or warrants entitling them to subscribe for or purchase Common Stock at less than the then current market price thereof (based upon the subscription or exercise price of such rights or warrants at the time of the issuance thereof) or other similar event, the Fixed Conversion Price shall be proportionately reduced, or (B) the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares or other similar event, the Fixed Conversion Price shall be proportionately increased. In such event, the Corporation shall notify the Transfer Agent of such change on or before the effective date thereof. For purposes hereof, the market price per share of Common Stock on any date shall be the average Closing Bid Price for the Common Stock on the five (5) consecutive Trading Days occurring immediately prior to but not including the earlier of such date and the Trading Day before the “ex” date, if any, with respect to the issuance or distribution requiring such computation. The term “‘ex’ date”, when used with respect to any issuance or distribution, means the first Trading Day on which the Common Stock trades regular way in the market from which such average Closing Bid Price is then to be determined without the right to receive such issuance or distribution.

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(b) Adjustment to Conversion Price During Reference Period. If, prior to the Conversion of all of the Preferred Shares, the number of outstanding shares of Common Stock is increased or decreased by a stock split, a stock dividend on the Common Stock, a combination, a reclassification of the Common Stock or other similar event, and such event takes place during the reference period for the determination of the Conversion Price for any Conversion thereof, the Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, combination, reclassification or other similar event for all Trading Days occurring during such reference period.

(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the Conversion of all of the Preferred Shares, there shall be any merger, consolidation, business combination, tender offer, exchange of shares, recapitalization, reorganization, redemption or other similar event, as a result of which shares of Common Stock shall be changed into or exchanged for the same or a different number of shares of the same or another class or classes of stock or securities of the Corporation or another entity (an “Exchange Transaction”), then such Holder shall (A) upon the closing of such Exchange Transaction, have the right to receive, with respect to any shares of Common Stock then held by such Holder, or which such Holder is then entitled to receive pursuant to a Conversion Notice previously delivered by such Holder, (and without regard to whether such shares contain a restrictive legend or are freely-tradeable) the same amount and type of consideration (including without limitation, stock, securities and/or other assets) and on the same terms as a holder of shares of Common Stock would be entitled to receive in connection with the consummation of such Exchange Transaction (the “Exchange Consideration”), and (B) upon the Conversion of Preferred Shares occurring on a Conversion Date subsequent to the closing of such Exchange Transaction, have the right to receive the Exchange Consideration which such Holder would have been entitled to receive in connection with such Exchange Transaction had such shares been converted immediately prior to such Exchange Transaction at the Conversion Price in effect on such Conversion Date, and in any such case appropriate provisions shall be made with respect to the rights and interests of such Holder to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Conversion Price and of the number of shares issuable upon a Conversion) shall thereafter be applicable as nearly as may be practicable in relation to any securities thereafter deliverable upon the Conversion of such Preferred Shares. The Corporation shall not effect any Exchange Transaction unless (i) it first gives to each Holder twenty (20) days prior written notice of the closing of such Exchange Transaction (an “Exchange Notice”), and makes a public announcement of such event at the same time that it gives such notice and (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of the Corporation hereunder, including the terms of this subparagraph 6(c), and under the Securities Purchase Agreement and related the Registration Rights Agreement by and among the Corporation and the Purchasers named therein (the “Registration Rights Agreement”).

(d) Distribution of Assets. If the Corporation or any of its subsidiaries shall declare or make any distribution of cash, evidences of indebtedness or other securities or assets (other than cash dividends or distributions payable out of earned surplus for the current or the immediately preceding year), or any rights to acquire any of the foregoing (including without limitation any rights distributed pursuant to the Rights Plan (as defined in the Securities Purchase Agreement)), to holders of Common Stock (or to a holder of the common stock of any such subsidiary), including any dividend or distribution in shares of capital stock of a subsidiary of the Corporation (collectively, a “Distribution”), each Holder shall have the right to receive, on the date such Distribution is made (the “Distribution Date”), the amount of the Distribution allocated to each share of Common Stock (or common stock of any such subsidiary) times the number of shares of Common Stock issuable upon conversion of the Preferred Shares held by such Holder on the Distribution Date, assuming for such purpose that such Preferred Shares are convertible (regardless of whether any restriction on the ability of such Holder to convert such Preferred Shares then applies) at the Conversion Price applicable on the Distribution Date.

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(e) Adjustment Due to Major Announcement. If the Corporation (i) makes a public announcement that it intends to enter into a Change of Control Transaction (as defined below) or (ii) any person, group or entity (including the Corporation) publicly announces a tender offer, exchange offer or other transaction to purchase 50% or more of the Common Stock (such announcement being referred to herein as a “Major Announcement” and the date on which a Major Announcement is made, the “Announcement Date”), then, in the event that a Holder seeks to convert Preferred Shares on or following the Announcement Date, the Conversion Price shall, effective upon the Announcement Date and continuing through the fifth (5th) Business Day following the earlier to occur of the consummation of the proposed transaction or tender offer, exchange offer or other transaction and the Abandonment Date (as defined below), be equal to the lower of (x) the average Closing Bid Price for the Common Stock on the five (5) Trading Days immediately preceding (but not including) the Announcement Date and (y) the Conversion Price that would otherwise be in effect on the Conversion Date for such Preferred Shares. “Abandonment Date” means with respect to any proposed transaction or tender offer, exchange offer or other transaction for which a public announcement as contemplated by this paragraph 6(e) has been made, the date upon which the Corporation (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) publicly announces the termination or abandonment of the proposed transaction or tender offer, exchange offer or another transaction which caused this paragraph 6(e) to become operative.

(f) Adjustment Pursuant to Other Agreements. In addition to and without limiting in any way the adjustments provided in this Section 6, the Conversion Price shall be adjusted as may be required by the provisions of the Registration Rights Agreement and/or by the provisions of the Securities Purchase Agreement.

(g) No Fractional Shares. If any adjustment under this Section would create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Conversion shall be the next higher number of shares or, at the option of the Corporation, shall be paid in cash in an amount calculated by multiplying the amount of the fractional share times the Closing Bid Price used to calculate the Conversion Price for such Conversion.

7. MANDATORY REDEMPTION BY HOLDER.

(a) Mandatory Redemption. In the event that a Mandatory Redemption Event (as defined below) occurs, each Holder shall have the right to require the Corporation to redeem all or any portion of the Preferred Shares held by such Holder (a “Mandatory Redemption”) at the Mandatory Redemption Price (as defined herein) in same day funds. In order to exercise its right to effect a Mandatory Redemption, a Holder must deliver a written notice (a “Mandatory Redemption Notice”) to the Corporation at any time on or before the Business Day following the day on which such event is no longer continuing; provided, however, that, in the case of subparagraph (b)(v) below, the following procedure shall be followed in lieu thereof: (a) no sooner than fifteen (15) days nor later than ten (10) days prior to the Corporation’s good faith estimate of the consummation of a Change of Control Transaction (as defined below), but not prior to the public announcement of such Change of Control Transaction, the Corporation shall deliver a written notice (a “Notice of Change of Control Transaction”) to each Holder, and (b) within five (5) days of delivery by the Corporation of a Notice of Change of Control Transaction, each Holder who wishes to exercise its right to effect a Mandatory Redemption hereunder shall deliver a Mandatory Redemption Notice to the Corporation. The Mandatory Redemption Notice shall specify the effective date of such Mandatory Redemption (the “Mandatory Redemption Date”) and the number of such shares to be redeemed. In the event that a Change of Control Transaction occurs and the Corporation does not deliver to a Holder a Notice of Change of Control Transaction within the time periods described above, such Holder may exercise its right to a Mandatory Redemption hereunder by delivering a Mandatory Redemption Notice to the Corporation (or to the surviving or successor entity) at any time on or before the twentieth (20th) Business Day following such Change of Control Transaction.

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(b) Mandatory Redemption Event. Each of the following events shall be deemed a “Mandatory Redemption Event”:

(i) the Corporation fails for any reason (including without limitation as a result of not having a sufficient number of shares of Common Stock authorized and reserved for issuance, or as a result of the limitation contained in Section 5(a) hereof) to issue shares of Common Stock to a Holder and deliver certificates representing such shares to such Holder as and when required by the provisions hereof upon Conversion of any Preferred Shares, and such failure continues for twenty (20) Business Days;

(ii) the Corporation breaches, in a material respect, any covenant or other material term or condition of this Certificate, the Securities Purchase Agreement, the Registration Rights Agreement, or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby, and such breach continues for a period of fifteen (15) Business Days after written notice thereof to the Corporation from a Holder;

(iii) the Registration Statement is not declared effective by the one hundred and eightieth (180th) day following the Initial Issue Date or if the Registration Statement has been declared effective by such date and, while the effectiveness of the Registration Statement is required to be maintained pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including without limitation, the issuance of a stop order) or is unavailable to the Holder for the sale of Conversion Shares in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) Business Days, provided that the cause of such lapse or unavailability is not due to factors solely within the control of the Holder;

(iv) the Corporation fails to obtain either (A) the approval of stockholders described in paragraph 5(a) above on or before the time frames set forth in paragraph 5(a) to obtain such approval or (B) the approval of stockholders described in paragraph 4.15 or paragraph 4.16 of the Securities Purchase Agreement on or before on or before the time frames set forth in such paragraph 4.15 or 4.16;

(v) the Corporation undertakes any voluntary action to terminate the quotation or listing of the Common Stock on the Nasdaq National Market or on any national securities exchange; and

(vi) there occurs the sale, conveyance or disposition of all or substantially all of the assets of the Corporation or any of its subsidiaries (including without limitation the sale or other conveyance of any common stock or other equity securities of any of the Corporation’s subsidiaries), or the effectuation of a transaction or series of related transactions, in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation or any of its subsidiaries with or into any other entity, immediately following which the prior stockholders of the Corporation fail to own, directly or indirectly, at least fifty percent (50%) of the surviving entity (a “Change of Control Transaction”), provided, however, that a tender offer or any other transaction with respect to which the Corporation’s Board of Directors is unable to exercise discretion as to the effectuation thereof shall not be deemed to constitute a Mandatory Redemption Event by operation of this subparagraph (vi).

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(c) Mandatory Redemption Price. The “Mandatory Redemption Price” shall be equal to the greater of (i) Liquidation Preference of the Preferred Shares being redeemed multiplied by one hundred and seventeen percent (117%) and (ii) an amount determined by dividing the Stated Value of the Preferred Shares being redeemed by the Conversion Price in effect on the Mandatory Redemption Date and multiplying the resulting quotient by the average Closing Bid Price for the Common Stock on the five (5) Trading Days immediately preceding (but not including) the Mandatory Redemption Date.

(d) Payment of Mandatory Redemption Price.

(i) The Corporation shall pay the Mandatory Redemption Price to the Holder exercising its right to redemption on the later to occur of (i) the fifth (5th) Business Day following the Mandatory Redemption Date and (ii) the date on which the Preferred Shares being redeemed are delivered by the Purchaser to the Corporation for cancellation.

(ii) If Corporation fails to pay the Mandatory Redemption Price to the Holder within five (5) Business Days of the Mandatory Redemption Date, the Holder shall be entitled to interest thereon, from and after the Mandatory Redemption Date until the Mandatory Redemption Price has been paid in full, at an annual rate equal to the Default Interest Rate.

(iii) If the Corporation fails to pay the Mandatory Redemption Price within ten (10) Business Days of the Mandatory Redemption Date, then the Holder shall have the right at any time, so long as the Corporation remains in default, to require the Corporation, upon written notice, to immediately issue, in lieu of the Mandatory Redemption Price, the number of shares of Common Stock of the Corporation equal to the Mandatory Redemption Price divided by the Conversion Price in effect on such Conversion Date as is specified by the Holder in writing to the Corporation, such Conversion Price to be reduced by one percent (1%) for each day beyond such 10th Business Day in which the failure to pay the Mandatory Redemption Price continues; provided, however, that the maximum percentage by which such Conversion Price may be reduced hereunder shall be fifty percent (50%).

(e) Modification of Mandatory Redemption Provisions. The terms of this Section 7 shall apply to the Series B Preferred Stock until such time, if any, as such terms have been superseded, in whole or in part, by the terms of a Determination Certificate (as defined below). A “Determination Certificate” shall be a written instrument containing redemption provisions applicable to the Series B Preferred Stock (or affirming the absence of any such provisions) proposed by the Holders of a majority of the shares of Series B Preferred Stock at the time outstanding and duly adopted by the Board of Directors, provided that the approval of the Board of Directors shall be deemed to be given if the adopting Holders furnish the Corporation with a certificate to the effect that the Determination Certificate reflects a determination made in consultation with the Corporation’s auditors or another firm of accountants of recognized national standing that the changes contemplated thereby are necessary to qualify the Series B Preferred Stock as stockholders’ equity under generally accepted accounting principles. The Corporation shall promptly give written notice of the adoption of any Determination Certificate to all holders of its Series B Preferred Stock, shall refer to the existence of any Determination Certificate in its annual financial statements and shall supply to any stockholder upon request the full text thereof. One or more Determination Certificates may be adopted pursuant to this paragraph. The contents of a Determination Certificate shall be deemed to be “facts” for purposes of Section 151 of the Delaware General Corporation Law.

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8. MISCELLANEOUS.

(a) Transfer of Preferred Shares. A Holder may sell or transfer all or any portion of the Preferred Shares to any person or entity as long as such sale or transfer is the subject of an effective registration statement under the Securities Act or is exempt from registration thereunder and otherwise is made in accordance with the terms of the Securities Purchase Agreement. From and after the date of such sale or transfer, the transferee thereof shall be deemed to be a Holder. Upon any such sale or transfer, the Corporation shall, promptly following the return of the certificate or certificates representing the Preferred Shares that are the subject of such sale or transfer, issue and deliver to such transferee a new certificate in the name of such transferee.

(b) Notices. Except as otherwise provided herein, any notice, demand or request required or permitted to be given pursuant to the terms hereof, the form or delivery of which notice, demand or request is not otherwise specified herein, shall be in writing and shall be deemed given (i) when delivered personally or by verifiable facsimile transmission on or before 5:00 p.m., eastern time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the third Business Day after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the parties as follows:

If to the Corporation:

OrthoLogic Corp.

1275 West Washington

Street Tempe, Arizona 85281

| Attn: | President
| Tel: | (602) 437-5520
| Fax: | (602) 470-7080

with a copy to:

| Quarles & Brady One East Camelback
| Phoenix, Arizona 85012
| Attn: | P. Robert Moya, Esq.
| Tel. | 602-230-5500
| Fax. | 602-230-5598

and if to any Holder, to such address for such Holder as shall be designated by such Holder in writing to the Corporation.

(c) Lost or Stolen Certificate. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of a certificate representing Preferred Shares, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to the Corporation, and upon surrender and cancellation of such certificate if mutilated, the Corporation shall execute and deliver to the Holder a new certificate identical in all respects to the original certificate.

(d) No Voting Rights. Except as provided by applicable law and paragraph 8(g) below, the Holders of the Preferred Shares shall have no voting rights with respect to the business, management or affairs of the Corporation; provided that the Corporation shall provide each Holder with prior notification of each meeting of stockholders (and copies of proxy statements and other information sent to such stockholders).

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(e) Remedies, Characterization, Other Obligations, Breaches and Injunctive Relief. The remedies provided to a Holder in this Certificate of Designation shall be cumulative and in addition to all other remedies available to such Holder under this Certificate of Designation or under any Transaction Document (as defined in the Securities Purchase Agreement), at law or in equity (including without limitation a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing contained herein shall limit such Holder’s right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation. The Corporation agrees with each Holder that there shall be no characterization concerning this instrument other than as specifically provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder hereof and shall not, except as expressly provided herein, be subject to any other obligation of the Corporation (or the performance thereof). The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Corporation agrees, in the event of any such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

(f) Failure or Delay not Waiver. No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

(g) Protective Provisions.

So long as shares of Series B Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval of the Holders of at least two-thirds (2/3) of the then outstanding shares of Series B Preferred Stock:

(i) alter or change the rights, preferences or privileges of the Series B Preferred Stock or any other capital stock of the Corporation so as to affect adversely the Series B Preferred Stock;

(ii) create any new class or series of capital stock having a preference over or ranking pari passu with the Series B Preferred Stock as to redemption or distribution of assets upon a Liquidation Event or any other liquidation, dissolution or winding up of the Corporation;

(iii) increase the authorized number of shares of Preferred Stock;

(iv) re-issue any shares of Series B Preferred Stock which have been converted or redeemed in accordance with the terms hereof;

(v) issue any Pari Passu Securities or Senior Securities (other than (x) shares of Series B Preferred Stock issued pursuant to the Securities Purchase Agreement, (y) debt securities which are not convertible into or exchangeable for Common Stock or any other equity or convertible security of the Corporation, or (z) the issuance of Series A Preferred Stock of the Company pursuant to the Rights Plan (as defined in the Securities Purchase Agreement) in effect as of the date hereof); or

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(vi) redeem, or declare, pay or make any provision for any dividend or distribution with respect to, the Common Stock or any other capital stock of the Corporation ranking junior to the Series B Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation (other than a dividend to be paid from and after the end of the two (2) year period following the later to occur of the Tranche A Closing Date and the Tranche B Closing Date (each as defined in the Securities Purchase Agreement) to holders of Common Stock out of retained earnings of the Corporation that have accrued during the prior fiscal year.

In the event that Holders of at least two-thirds (2/3) of the then outstanding shares of Series B Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock, pursuant to the terms hereof, then the Corporation will deliver notice of such approved change to the holders of the Series B Preferred Stock that did not agree to such alteration or change (the “Dissenting Holders”) and the Dissenting Holders shall have the right for a period of thirty (30) days following such delivery to convert their Preferred Shares pursuant to the terms hereof as they existed prior to such alteration or change, or to continue to hold such Preferred Shares. No such change shall be effective to the extent that, by its terms, it applies to less than all of the Holders of Preferred Shares then outstanding.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Corporation has executed this Certificate of Designation as of the 9th day of July, 1998.

ORTHOLOGIC CORP.

By: | /s/ Thomas R. Trotter |  |  |
Name: | Thomas R. Trotter |  |  |
Title: | President & CEO |  |  |

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EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert shares of Series B Convertible Preferred Stock (the “Preferred Stock”), represented by stock certificate No(s). (the “Preferred Stock Certificates”), into shares of common stock (“Common Stock”) of OrthoLogic Corp. according to the terms and conditions of the Certificate of Designation relating to the Preferred Stock (the “Certificate of Designation”), as of the date written below. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Certificate of Designation.

Date of Conversion:

Number of Shares of Preferred Stock to be Converted:

Applicable Conversion Price:

Number of Shares of Common Stock to be Issued:

Name of Holder:

Address:

| Signature: |
| Name: |
| Title: |

Holder Requests Delivery to be made: (check one)

☐ | By Delivery of Physical Certificates to the Above Address

☐ | Through Depository Trust Corporation
| (Account )